Akari Therapeutics plc — Form 10-Q summary
Reporting period: Quarter and nine months ended September 30, 2015. Financial statements are unaudited and presented in U.S. dollars. On September 18, Celsus Therapeutics acquired Volution Immuno Pharmaceuticals in a transaction accounted for as a reverse acquisition; the combined company was renamed Akari. Volution is the accounting predecessor, so comparisons with 2014 are not fully like-for-like.
Financial performance and liquidity
| Metric | Three months ended September 30 | Nine months ended September 30 |
|---|---|---|
| Revenue | None reported | None reported |
| Research and development | $1.31 million; prior year $0.16 million | $3.87 million; prior year $0.54 million |
| General and administrative | $2.73 million; prior year $0.06 million | $3.14 million; prior year $0.27 million |
| Net loss | $48.74 million; prior year $0.22 million | $51.79 million; prior year $0.83 million |
| Basic and diluted loss per share | $0.06; prior year approximately $0.00 | $0.07; prior year $0.01 |
Nine-month operating expenses were $26.29 million, including a $19.28 million non-cash excess-consideration charge from the reverse acquisition. Other expense was $25.50 million, primarily reflecting $22.97 million of non-cash financing expense and approximately $3.06 million of interest expense associated with options granted to RPC in connection with shareholder loans. These unusual, non-cash items materially increased reported losses. Profit margins are not meaningful because Akari had no revenue.
Cash and cash equivalents were $78.77 million at September 30, versus $3.33 million at December 31, 2014. The company reported $1.80 million of cash provided by operating activities, $1.41 million from investing activities (cash acquired in the reverse acquisition), and $72.10 million from financing activities, including the September private placement. Financing included $75 million gross proceeds from share issuance, less $5.42 million of issuance costs, and shareholder-loan activity. At September 30, current liabilities were $37.80 million, including a $27.17 million liability for options and warrants; total liabilities were $37.84 million. Shareholder loans of approximately $3 million were repaid in October 2015. Management reported approximately $69.6 million cash as of November 20, after paying most acquisition- and financing-related expenses.
There is no conventional operating debt facility disclosed. The shareholder loans were short-term; the loans outstanding at September 30 were repaid in October. The company had an accumulated deficit of $63.27 million and 1.178 billion ordinary shares outstanding at September 30. The September financing issued 395.9 million ordinary shares for $75 million gross proceeds.
Changes, outlook and risks
- R&D spending rose sharply year over year, principally from Coversin manufacturing and clinical activities. G&A increased with acquisition and financing legal, consulting and advisory costs. The prior-year comparison reflects a different accounting predecessor and is affected by the reverse acquisition.
- Akari is a clinical-stage biotechnology company focused on rare and orphan autoimmune and inflammatory diseases. Its lead candidate, Coversin, inhibits complement C5. Management cited Phase Ia results in healthy volunteers, including full complement inhibition within 12 hours and no serious or dose-related adverse events; these findings do not establish efficacy in patients.
- Management expected a repeat-dose Phase Ib study to begin in late 2015 or early 2016, a Phase II PNH study in the first or early second quarter of 2016, Phase II GBS trials in the first half of 2016, and aHUS trials later in 2016. PNH Phase II data were expected by year-end 2016. The company also expected compassionate-use treatment for eculizumab-resistant patients before year-end 2015. These are forward-looking plans, not reported outcomes.
- Management said available cash was expected to fund operations through 2017, but also anticipated needing additional financing for longer-term plans and gave no assurance it could obtain funding on acceptable terms. The company had no committed additional capital, no product revenue, and expected continued losses and negative cash flows.
- Key risks include clinical efficacy, safety and trial-enrollment uncertainty; regulatory approval; dependence on third-party manufacturers and service providers; future financing and dilution; intellectual-property protection; and competition. The company had no material legal proceedings and reported no off-balance-sheet arrangements.
- Disclosure controls and procedures were deemed ineffective because of a material weakness involving insufficient internal expertise and resources to analyze and record complex, non-routine acquisition-related transactions under U.S. GAAP. Management described remediation steps, including enhanced CFO review and plans to hire accounting and legal personnel or use outside experts.
Important facts for investors to verify
- Whether the stated cash runway through 2017 remains reasonable in light of trial costs, subsequent spending and the October repayment of shareholder loans.
- Progress and results of the planned Coversin trials, including initiation dates, enrollment, safety, efficacy and any regulatory changes.
- The accounting, valuation assumptions and potential cash or dilution implications of the $27.17 million options-and-warrants liability and the RPC-related loan arrangement.
- Completion and effectiveness of the disclosed internal-control remediation, and any further changes to the preliminary reverse-acquisition accounting.
- Future financing needs, share issuance and dilution; the filing notes substantial insider ownership and outstanding options and warrants.