Filing summary
Entity and period: The supplied filing is AmpliPhi Biosciences Corporation’s unaudited Form 10-Q for the quarter ended September 30, 2014, filed November 14, 2014. This does not match the request metadata naming Armata Pharmaceuticals; verify the intended issuer and filing before relying on this summary.
Business context
AmpliPhi was a development-stage biotechnology company working on bacteriophage therapies for bacterial infections, including candidates targeting MRSA, P. aeruginosa lung infections in cystic fibrosis patients, and C. difficile. It reported no meaningful product revenue and expected continued substantial research and development spending. Financial statements were prepared on a going-concern basis.
Financial results and position
- Revenue: $0 for Q3 2014, versus a reported $(3,000) in Q3 2013; $310,000 for the first nine months of 2014, down from $333,000 in 2013, principally due to lower grant revenue.
- Operating results: Q3 operating expenses were $4.946 million and operating loss was $4.946 million. Nine-month operating expenses were $11.574 million and operating loss was $11.264 million.
- Net income/loss: Q3 net income was $19.388 million, compared with a $43.900 million net loss in Q3 2013. Nine-month net income was $22.762 million, versus a $58.332 million net loss in 2013. The 2014 profits primarily reflect noncash derivative-liability fair-value gains, not operating profitability.
- Derivative gains: $24.334 million in Q3 and $34.026 million for the nine months, compared with losses of $41.548 million and $45.617 million, respectively, in 2013. Management attributed the 2014 gains mainly to the decline in the common-stock price.
- Per-share results: Basic/diluted EPS was $0.10/$0.06 for Q3 and $0.12/$0.07 for the nine months. Diluted weighted-average shares were substantially higher than basic shares in 2014, reflecting potentially dilutive securities.
- Cash flow: Nine-month operating cash use was $9.367 million; investing cash use was $1.089 million; financing provided no cash. Cash declined $10.569 million to $9.786 million.
- Liquidity and balance sheet: At September 30, cash was $9.786 million, current assets $10.092 million, and current liabilities $2.499 million. Total assets were $28.419 million, total liabilities $17.081 million, and stockholders’ equity $11.338 million. The balance sheet included $7.633 million of preferred-share conversion derivative liabilities and $6.949 million of warrant derivative liabilities; these are not presented as conventional borrowings.
- Share count: 187,159,093 common shares were outstanding at September 30, up from 182,535,562 at year-end 2013. The company reported 100.7 million shares reserved for options, future plan grants, and warrants.
Changes versus prior period and unusual items
- Q3 research and development expense rose to $1.804 million from $1.106 million; nine-month R&D fell to $4.687 million from $5.378 million as reported, but 2013 included a one-time, noncash $3.0 million technology-access fee. Excluding that fee, 2014 nine-month R&D was higher by $2.3 million, reflecting increased discovery, testing, collaboration, and clinical-development planning.
- General and administrative expense increased to $1.632 million for Q3 from $1.211 million, and to $5.377 million for nine months from $4.777 million. The filing cites shareholder-related accruals and higher public-company, legal, accounting, and staffing costs.
- A $1.510 million Q3 severance charge followed CEO Philip J. Young’s departure effective September 15, 2014. It comprised $679,000 of compensation and benefits and $831,000 of accelerated stock-based compensation.
- Common shares closed at $0.22 on September 30, 2014, versus $0.50 at December 31, 2013. Derivative liabilities are remeasured using valuation assumptions and can create significant noncash earnings volatility.
Outlook, risks, and controls
- Management estimated existing resources would fund operations only through the first quarter of 2015 and projected 2014 cash requirements of $15 million to $17 million. The company intended to seek additional financing but gave no assurance it could obtain it.
- The filing states that recurring losses, negative operating cash flows, and a $355.3 million accumulated deficit raise substantial doubt about the company’s ability to continue as a going concern. Failure to raise funds could prompt workforce and spending reductions, unfavorable financing, asset or technology sales, curtailed programs, or cessation of operations.
- Management expected R&D spending to increase as it prepared for clinical trials and continued discovery, and expected higher general and administrative costs as a public company. Product revenue was not expected until development and regulatory approval were achieved.
- The filing reports no material legal proceedings and no material changes to previously disclosed risk factors. Management concluded disclosure controls were effective and reported no material changes in internal control over financial reporting.
Important facts to verify
- Confirm the issuer: the filing is for AmpliPhi Biosciences Corporation, not Armata Pharmaceuticals.
- Check subsequent financing, cash runway, and any updates to the going-concern assessment after September 30, 2014.
- Assess operating cash burn separately from reported net income, which was materially affected by noncash derivative remeasurement gains.
- Review the terms, fair-value assumptions, and potential dilution from Series B preferred shares, warrants, options, and reserved shares.
- Verify the status, clinical progress, and financing requirements of the named product candidates and any subsequent CEO or management changes.