AmpliPhi Biosciences Corporation — Q1 2017 Form 10-Q
Issuer identity: The filing identifies the registrant as AmpliPhi Biosciences Corporation, not Armata Pharmaceuticals, Inc. The summary below covers the filing as provided. Reporting period: three months ended March 31, 2017; financial statements are unaudited. Share and per-share figures reflect the subsequent 1-for-10 reverse split.
Business context
AmpliPhi was a development-stage biotechnology company focused on bacteriophage therapies for bacterial infections, including drug-resistant infections. It reported no product sales; the small amount of revenue came from its former gene therapy program.
Financial results and position
| Metric | Q1 2017 | Q1 2016 / comparison |
|---|---|---|
| Revenue | $29,000 | $106,000; down $77,000 |
| Research and development | $1.490 million | $1.980 million |
| General and administrative | $1.898 million | $2.644 million |
| Total operating expenses | $3.388 million | $4.624 million |
| Loss from operations | $3.359 million | $4.518 million loss |
| Net loss | $3.246 million | $3.112 million loss |
| Net loss attributable to common stockholders | $3.246 million | $4.837 million loss, including $1.725 million preferred-stock accretion |
| Basic and diluted loss per share | $1.94 | $8.22 |
| Net cash used in operating activities | $3.299 million | $3.085 million |
Operating expenses fell by $1.236 million, principally because Q1 2016 included about $0.4 million of Novolytics-related acquired-asset expense and higher stock-based compensation and professional costs. The company recorded $114,000 of non-cash derivative fair-value income in Q1 2017, versus $1.406 million of such income in Q1 2016. Thus, the operating loss improved, but net loss increased year over year; the prior-period preferred-stock accretion makes the common-stockholder loss comparison different.
Cash and cash equivalents were $2.202 million at March 31, 2017, down from $5.711 million at December 31, 2016. Total current assets were $2.560 million and current liabilities $2.876 million. Total liabilities were $7.654 million, including a $598,000 current note payable and $2.329 million of derivative liabilities. The note payable declined by $205,000 following a principal payment. The filing does not provide a clear gross-margin figure; product revenue and commercial sales were not being generated.
Material developments, outlook and risks
- Funding and going concern: The company had an accumulated deficit of $384.6 million and a history of operating losses and negative operating cash flow. It disclosed that these conditions could raise substantial doubt about its ability to continue as a going concern. After the period, a May 10, 2017 offering generated approximately $9.1 million in net proceeds. Management expected existing resources, including those proceeds, to fund planned operations through the end of Q2 2018; that estimate is subject to execution, cash needs and other uncertainties.
- Conditional rebate: Management expected approximately $1.8 million in Australian tax rebate incentive payments in Q3 2017, subject to review by Australian tax authorities. Receipt, timing and amount were not assured.
- Strategy and development: In April 2017, the company announced an increased emphasis on personalized phage therapies for severe antibiotic-resistant infections, initially targeting compassionate-use cases in Australia. It expected such cases to inform future regulatory discussions, but cautioned that this approach may not establish proof of concept or be accepted as clinical evidence. The company also reported positive FDA feedback on a proposal for a Phase 2 AB-SA01 trial for chronic rhinosinusitis; this was not an approval to market the product.
- Leicester license: The company gave notice in March 2017 to terminate its development agreement with the University of Leicester. In April, the university gave notice that it intended to terminate the related license, citing insufficient commercial progress. The parties could discuss remedies; the licensed rights concern the C. difficile program, which was not then being actively developed.
- Dilution and contractual exposure: The May 2017 financing included common shares, pre-funded warrants and warrants to purchase additional shares. Separately, former preferred-stock holders could claim up to 552,169 additional shares under the Common Stock Issuance Agreement following the November 2016 and May 2017 offerings, while the filing said only 28,684 shares could be issued without further stockholder approval under NYSE MKT rules. No such additional shares had been issued as of the report date; potential claims, approval requirements or other settlement consideration could affect cash and ownership.
- Financial reporting controls: Management concluded disclosure controls were not effective at the reasonable-assurance level at March 31, 2017 because a previously identified material weakness in controls over complex and non-routine transactions remained outstanding. Remediation was in progress.
- Other risks: Product candidates remained experimental, with clinical, manufacturing, regulatory, financing, intellectual-property and market-acceptance risks. The company expected continued significant operating losses and stated it would need additional capital. It reported no material legal proceedings and no off-balance-sheet arrangements as of March 31, 2017.
Important facts for investors to verify
- Confirm whether this AmpliPhi filing is the intended filing for Armata Pharmaceuticals, Inc.; the issuer names differ.
- Review the May 2017 offering’s final terms, dilution and warrant exercise provisions, and the company’s actual cash runway against its Q2 2018 estimate.
- Check whether and when the Australian tax rebate was received, and whether the Leicester license dispute was resolved.
- Track the Common Stock Issuance Agreement claims, any required stockholder approval and any resulting share issuance or payment.
- Assess progress toward FDA-agreed development steps for AB-SA01, clinical evidence from personalized-use cases, and remediation of the material weakness in financial controls.