AIM ImmunoTech Inc. (then Hemispherx Biopharma, Inc.) — Q2 2013 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2013. The filing reports Hemispherx Biopharma, the company’s name at the time. Financial statement amounts below are in millions of dollars unless stated otherwise.
Business context
The company was developing Ampligen for chronic fatigue syndrome (CFS) and other potential uses, and Alferon products for approved and investigational indications. Alferon N Injection had an FDA-approved indication, but the company had no finished goods available for commercial sale. Revenue was generated from its Ampligen open-label cost-recovery treatment program.
Financial performance and position
| Metric | Q2 2013 | Q2 2012 | Six months 2013 | Six months 2012 |
|---|---|---|---|---|
| Revenue | $0.036 | $0.049 | $0.078 | $0.121 |
| Research and development | $2.318 | $1.736 | $4.654 | $3.401 |
| General and administrative | $1.817 | $1.738 | $3.894 | $3.612 |
| Production costs | $0.635 | $0.208 | $0.826 | $0.488 |
| Operating loss | $(4.734) | $(3.633) | $(9.296) | $(7.380) |
| Net loss | $(4.283) | $(3.000) | $(7.894) | $(5.308) |
| Loss per share | $(0.03) | $(0.02) | $(0.05) | $(0.04) |
- Six-month operating cash use was $9.629 million, versus $5.478 million in the prior-year period. Investing activities provided $8.752 million, primarily from marketable-security maturities; financing activities used $0.029 million. Cash and cash equivalents declined $0.906 million to $1.306 million.
- Cash, cash equivalents and marketable securities totaled $32.523 million at June 30, down $11.430 million from year-end; $14.374 million was restricted as collateral. Current assets were $32.882 million and current liabilities $9.858 million.
- The margin-account loan was $7.051 million, at an approximately 2.5% effective rate, and was collateralized by restricted securities. Construction in progress was $7.065 million.
- Total assets were $46.143 million, total liabilities $9.999 million, and stockholders’ equity $36.144 million. Accumulated deficit was $251.988 million.
- Six-month comprehensive loss was $8.939 million, including investment-related other comprehensive losses. The filing reports no meaningful product-sales margin; revenue was limited to the treatment program while production and development costs continued.
Material changes versus comparable periods
- Revenue declined 27% in Q2 and 36% for the first six months, attributed to fewer patients in the cost-recovery program. No Alferon finished goods were available for sale.
- Net loss increased 43% in Q2 and 49% for the first six months. Higher R&D spending, production costs, and G&A contributed; six-month results also reflected lower proceeds from selling state net operating losses and a smaller noncash warrant-valuation gain.
- Q2 production costs included a roughly $0.458 million write-off of older Alferon work-in-process inventory. The company concluded it could not resolve FDA concerns sufficiently to submit those lots for commercial release.
- Weighted-average shares rose to 167.0 million for the first half from 135.9 million a year earlier. No shares were sold under the ATM program during the first half of 2013; cumulative ATM sales through June 30 were approximately 29.5 million shares for $23.0 million net proceeds.
- Unrestricted marketable securities fell from $27.241 million at December 31, 2012 to $16.843 million at June 30, 2013. Restricted securities were approximately unchanged at $14.374 million.
Outlook, risks and unusual items
- The FDA issued a Complete Response Letter on February 1, 2013, declining to approve the Ampligen CFS application. It requested at least one additional clinical trial, nonclinical studies and data analyses, citing insufficient evidence of efficacy, limitations in the safety database, data discrepancies, and manufacturing-control issues. Management planned an end-of-review meeting and would then consider a formal appeal.
- Management estimated a new, well-controlled Ampligen study could take approximately 18 months to three years after study design acceptance. The filing says the anticipated clinical, study and analysis costs exceed current financial resources without additional funding; the company could not yet estimate their cost or completion schedule.
- The New Brunswick facility enhancement construction was complete, with validation and qualification work ongoing. The company anticipated newly produced Alferon could be commercially available in the second half of 2014, subject to facility validation, FDA reaffirmation of BLA status, and approval of product quality and stability.
- Management warned that additional financing may be required and may not be available. Possible funding sources included equity, licensing, partnerships or debt; equity issuance could dilute shareholders. The company had a $75 million equity distribution agreement but no ATM sales in the first half of 2013.
- Significant risks include FDA approval and manufacturing outcomes, clinical-trial success and cost, liquidity and access to capital, commercial-scale production, suppliers and third-party manufacturers, product liability, competition, and potential dilution. Several securities and shareholder derivative actions were pending; outcomes and potential losses were uncertain, and no loss contingency was recorded.
- The company received approximately $0.686 million in January 2013 from the sale of New Jersey tax-loss carryforwards. A noncash warrant revaluation gain also reduced reported loss. These are not recurring product revenues.
- No quantitative revenue or earnings guidance was provided. Management said it could reduce discretionary spending, including some R&D, to conserve cash.
Most important facts for investors to verify
- Current unrestricted cash and marketable securities, cash burn, and financing needs; distinguish the $14.374 million of pledged securities from funds available for operations.
- FDA feedback after the planned Ampligen end-of-review meeting, required study design and costs, and whether funding is sufficient to proceed.
- Progress and FDA acceptance of the New Brunswick facility validation and manufacturing work, including the conditions and timing for Alferon sales to resume.
- Whether the patient-access program, clinical studies, or any commercial activity generate material revenue; first-half revenue was only $0.078 million.
- Potential dilution from outstanding options, warrants and any future ATM issuance, as well as developments in the pending litigation.