Filing summary
Important identity mismatch: The filing provided is PharmAthene, Inc.’s Form 10-Q for the quarter ended June 30, 2013; it is not an Altimmune, Inc. filing. The summary below reflects PharmAthene’s filing only.
Business context and reporting period
PharmAthene was a biodefense company developing medical countermeasures, with revenue primarily from U.S. government contracts for SparVax and rBChE. The filing reports second-quarter and six-month results through June 30, 2013, compared with the same periods in 2012. Its financial statements are unaudited.
Financial results and liquidity
| Metric | Q2 2013 | Q2 2012 | Six months 2013 | Six months 2012 |
|---|---|---|---|---|
| Revenue | $4.30 million | $6.32 million | $10.77 million | $12.47 million |
| Operating loss | $1.48 million | $1.46 million | $2.57 million | $3.05 million |
| Net loss | $1.24 million | $0.76 million | $3.35 million | $3.44 million |
| Net loss per share | $0.02 | $0.02 | $0.07 | $0.07 |
| Cash used in operating activities | Not stated for quarter | Not stated for quarter | $0.23 million | $1.91 million |
Revenue declined 31.7% in Q2 and 13.6% in the first half year over year. Operating expenses were $5.78 million in Q2 and $13.34 million for the first half. Calculated operating loss margins were approximately 34.5% and 23.9%, respectively; the filing does not separately present gross margin.
At June 30, cash and cash equivalents were $15.79 million, current assets $21.69 million, and current liabilities $7.72 million. Total debt was approximately $3.39 million, including a $1.17 million revolving-credit balance; the term loan and revolver mature in September 2015. The term loan carries 10.14% fixed interest; the revolver rate was 6.5% and variable. First-half financing cash flow was $3.40 million, principally reflecting stock-sale proceeds.
Material changes and management commentary
- SparVax revenue fell to $3.5 million in Q2 from $6.1 million and to $8.6 million for the first half from $11.3 million, mainly due to fewer milestones and reduced or postponed development activities. rBChE revenue increased to $0.8 million from $0.2 million in Q2 and to $2.2 million from $1.1 million for the first half.
- Management said the FDA lifted the SparVax clinical hold in May 2013 and that it was discussing a planned Phase II trial with BARDA. It anticipated trial-related revenue and costs later in 2013, while expecting second-half SparVax revenue to remain below the comparable 2012 period.
- R&D expense declined year over year, partly because SparVax activities were reduced or nearing completion and a vendor-litigation settlement of approximately $0.5 million was recorded as a reduction in R&D expense. G&A also declined, primarily due to lower labor, share-based compensation, professional, consulting, and legal costs.
- Net loss was higher in Q2 despite lower operating expenses, principally because the favorable change in derivative fair value was smaller than in Q2 2012. For the first half, derivative remeasurement losses and higher interest expense contributed to other expense.
Outlook, risks, and unusual items
- On July 31, 2013, after quarter-end, PharmAthene agreed to a proposed merger with Theraclone. The agreement contemplated approximately equal ownership by the companies’ security holders after closing, subject to approvals and other conditions. Completion was not assured; the agreement included potential termination payments and restrictions on PharmAthene’s activities.
- The merger agreement prohibited further use of PharmAthene’s controlled equity offering arrangement. Before the restriction, the company had sold shares under a $15 million ATM facility; subsequent to quarter-end it reported approximately $1.7 million of additional net proceeds, excluding proceeds from June sales received in July.
- The Delaware Supreme Court affirmed that SIGA breached contractual obligations but reversed the prior promissory-estoppel finding and remanded the remedy. PharmAthene had recorded no receivable from SIGA and warned that no meaningful recovery was assured.
- The company depended substantially on government contracts and grants, historically had not generated positive operating cash flow, and said it would continue to need financing. Government budget changes, delayed or terminated contracts, development and regulatory setbacks, merger failure, and the need for additional capital were key risks.
- Derivative liabilities were $1.85 million at quarter-end and were valued using Level 3 inputs. The filing also reported $9.62 million of contractual obligations, including leases, R&D agreements, and term-loan principal payments.
- Management concluded disclosure controls were effective at a reasonable-assurance level and reported no material change in internal control over financial reporting during the quarter.
Most important facts for investors to verify
- Whether the intended filing is this PharmAthene 2013 Q2 10-Q or an Altimmune filing; the supplied filing identifies PharmAthene.
- Progress and funding terms for the proposed Theraclone merger, including shareholder approvals, closing conditions, dilution, and restrictions on financing.
- BARDA funding, the timing and scope of the planned SparVax Phase II trial, and the effect of the prior clinical hold on future contract revenue.
- Developments in the SIGA remand and whether any enforceable remedy or cash recovery is ultimately obtained.
- Cash runway and financing needs given operating losses, government-contract dependence, debt maturities, and the suspension of ATM sales under the merger agreement.