AIM ImmunoTech Inc. — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020. Financial statement amounts are in U.S. dollars; dollar figures below are in millions unless stated otherwise. AIM is a clinical-stage immunopharma company developing Ampligen and Alferon N Injection.
Financial performance and liquidity
| Metric | Q1 2020 | Q1 2019 or prior-period balance |
|---|---|---|
| Revenue | $0.045 | $0 |
| Operating loss | $(3.325) | $(2.926) |
| Net loss | $(3.808) | $(3.365) |
| Basic and diluted loss per share | $(0.22) | $(2.91) |
| Cash used in operating activities | $(3.060) | $(1.457) |
| Cash, cash equivalents and marketable securities | $31.101 at March 31 | $8.778 at December 31, 2019 |
| Total assets | $42.407 at March 31 | $20.219 at December 31, 2019 |
| Total current liabilities | $0.703 at March 31 | $1.127 at December 31, 2019 |
Q1 revenue came from Ampligen cost-recovery programs: $43,000 in the United States and $2,000 in Europe. With revenue very limited and the company reporting an operating loss, gross and operating margins are not meaningful indicators of a commercial business.
Research and development expense was $0.898 million, down $30,000 year over year. General and administrative expense rose $501,000, or 22%, to $2.268 million, primarily due to salaries and benefits, including bonuses, professional and legal fees, and a warrant modification. Production costs were $0.204 million, down $27,000. Interest and other finance costs were $0.322 million versus $0.246 million.
Financing activities provided $25.687 million, principally from common-stock sales under the Maxim equity distribution agreement and warrant exercises. The company reported $25.773 million of proceeds from stock issuances in its cash-flow statement. The share count increased substantially: weighted-average common shares were 17.49 million versus 1.16 million in Q1 2019. The lower per-share loss therefore does not indicate improved net results.
At March 31, cash and cash equivalents were $27.590 million and marketable securities were reported at $3.511 million in the fair-value note. Notes payable, net, were $4.198 million; the sale-leaseback financing obligation was $2.267 million, including its current portion; and operating lease liabilities totaled approximately $0.141 million. The company used $3.060 million in operating cash during the quarter and states that further financing may be required.
Changes versus the comparable period and balance-sheet developments
- Net loss increased $443,000, or 13%, year over year. Higher G&A and financing costs and a larger warrant valuation loss contributed; the prior-year period included a $250,000 debt-extinguishment loss that did not recur.
- Cash, cash equivalents and marketable securities rose from $8.778 million at year-end to $31.101 million, mainly reflecting equity financing. Marketable securities shifted from $7.308 million at December 31 to $3.511 million at March 31; the company reported security sales and purchases during the quarter.
- Common shares outstanding rose from 10.39 million at December 31 to approximately 28.02 million at March 31, principally through equity distribution sales and warrant exercises. The cover reports 29.19 million shares outstanding as of May 10, 2020.
- A $182,000 noncash fair-value loss on redeemable warrants was recorded; the warrant liability increased from $57,000 to $239,000.
Business outlook, risks and unusual items
- Ampligen and COVID-19: Ampligen is not FDA-approved or marketed in the United States. The company described laboratory testing in Japan; its initial in-vitro test was inconclusive because the dosage range was inadequate, with modified testing and animal studies planned. The filing reports that on May 11, 2020 the FDA authorized an IND for a Roswell Park study of Ampligen with interferon in cancer patients with mild or moderate COVID-19. The planned early-stage study was expected to enroll about 40 patients; AIM said it would provide Ampligen at no charge and financially sponsor the study. These are early research and trial activities, not evidence of efficacy.
- Other development plans: Management described ongoing oncology trials and additional studies planned or under consideration, some dependent on funding. It is pursuing co-development partners, outsourcing and potential international opportunities, but reported no assurance that discussions will produce definitive agreements or successful commercialization.
- Alferon manufacturing: Commercial U.S. sales will not resume until new product is manufactured, the facility’s status is reaffirmed through FDA inspection, and product release requirements are met. Manufacturing is on hold, with no definitive restart timetable. The company estimates approximately $10 million is needed to restart and revalidate the facility. It reclassified $1.095 million of Alferon work-in-process inventory to other assets because production is expected to take more than a year. Failure to obtain required approvals could materially adversely affect operations.
- Capital and dilution: Management says additional funds may be needed if Ampligen is not commercialized or Alferon sales do not resume, and indicates it plans to access public equity markets. Further equity financing could dilute shareholders. The company also has secured 10% notes maturing in 2021 and stated that it may curtail discretionary spending, including R&D, to conserve cash.
- COVID-19 uncertainty: Management said the pandemic’s ultimate effect on results, financial position, liquidity and capital resources could not be reasonably estimated. Clinical enrollment and reporting may be delayed as medical facilities prioritize the pandemic.
- Subsequent events: AIM received a $588,000 PPP loan in April 2020 and repaid it on May 4, 2020 after government guidance changed. This was after the reporting date and is not a March 31 borrowing balance.
- Legal and regulatory matters: In a BioLife contract dispute, BioLife asserted a $96,676 counterclaim, which AIM denied; discovery was ongoing. AIM also disclosed that it was cooperating with an SEC request for information about who may have known the pricing of its September 2019 public offering before its announcement. The filing does not report a finding of wrongdoing.
- Other accounting and controls: The company reported no off-balance-sheet arrangements and said disclosure controls were effective as of March 31, 2020. Fair-value measurement of redeemable warrants uses Level 3 assumptions, including management’s estimate of the probability of a fundamental transaction.
Key facts for investors to verify
- Reconcile reported cash and marketable securities to the balance sheet and fair-value note, and monitor cash burn and financing needs.
- Review the terms, balances, interest costs, security and maturities of the secured notes and sale-leaseback financing obligation.
- Track share issuance, outstanding warrants and preferred-stock conversion terms; confirm the reported share-count discrepancy in the filing: the balance sheet states 28,050,512 common shares issued and outstanding, while the equity statement and Note 8 report 28,020,512 at March 31.
- Follow regulatory progress and trial status for Ampligen, including the COVID-19 study, and distinguish preliminary or preclinical findings from clinical evidence and approvals.
- Verify the cost, funding source, inspection requirements and timeline for resuming Alferon production, as well as the recoverability of the $1.095 million work-in-process asset.
- Monitor the BioLife litigation, the SEC information request, and any material developments concerning COVID-19’s operational and financial effects.