Hemispherx Biopharma, Inc. (now AIM Immunotech Inc.) — Q2 2018 Form 10-Q
Reporting period: Three and six months ended June 30, 2018. The company was an immunopharmaceutical research and development business developing Ampligen and Alferon N Injection. Amounts below are in U.S. dollars; financial statement figures are in thousands unless otherwise noted.
Financial results and liquidity
- Revenue: Q2 revenue was $33,000, down 85% from $213,000 a year earlier. First-half revenue was $89,000, down 70% from $297,000. Revenue came from Ampligen cost-recovery and expanded-access programs; no Alferon finished goods were available for commercial sale.
- Loss and expenses: Q2 net loss was $2.415 million versus $2.193 million; first-half net loss was $5.128 million versus $5.014 million. Operating loss was $3.227 million for Q2 and $5.797 million for the first half. Q2 R&D expense rose 21% to $1.341 million, while first-half R&D fell 12% to $2.196 million. First-half G&A was nearly unchanged at $3.296 million.
- Per-share results: Basic and diluted loss per share was $0.05 for Q2 and $0.13 for the first half, compared with $0.08 and $0.19, respectively, in 2017. Weighted-average shares increased substantially year over year.
- Cash flow: First-half operating cash use was $5.245 million, compared with $5.301 million in 2017. Investing activities provided $993,000, including building-sale proceeds. Financing activities provided $6.408 million, primarily from equity transactions and sale-leaseback financing. Cash and cash equivalents ended the period at $3.568 million.
- Liquidity and balance sheet: Cash, cash equivalents and marketable securities totaled $4.242 million at June 30, up from $2.107 million at December 31, 2017. Current assets were $5.285 million and current liabilities $2.077 million. The company reported a $2.612 million sale-leaseback financing obligation, including $195,000 current and $2.417 million long term; the prior mortgage note was paid off.
- Margins: The filing does not provide a clear, decision-useful gross-margin measure. Revenue was small relative to operating expenses.
Material changes and unusual items
- Revenue declined mainly because Ampligen was unavailable for the myTomorrows pancreatic-cancer expanded-access program. The company reported completing an 8,484-vial Ampligen batch in June; a second roughly 8,000-vial batch was undergoing regulatory testing.
- Q2 results included a $474,000 gain from settling the dispute with Nitto Avecia Pharma Services. First-half results also included a $223,000 gain on the sale of a New Brunswick building.
- Warrant fair-value changes were non-cash and material: reported gains were $362,000 in Q2 and $131,000 in the first half of 2018, versus $529,000 and $923,000 in the comparable 2017 periods.
- The company sold its main property for $4.08 million and leased it back for ten years. Because of repurchase-option terms, it accounted for the transaction as financing rather than a sale; the property remained on the balance sheet.
- Common shares outstanding rose from 32.9 million at year-end to 46.8 million at June 30. The April financing sold 6.6 million shares at $0.39 each and issued 6.6 million warrants. The filing reported 47.2 million shares outstanding as of August 7, 2018.
Outlook, risks and contingencies
- Funding: Management said additional financing may be required and is not assured. It may seek equity, licensing, partnerships or debt, and may reduce discretionary spending. The company reported a $313.9 million accumulated deficit and continued operating losses.
- Alferon: U.S. commercial sales remain halted pending new production, FDA pre-approval inspection and release approval. The company estimated approximately $10 million would be needed to restart manufacturing and stated there was no definitive timetable. It cautioned that production may not resume or return to prior sales levels.
- Ampligen: The FDA’s 2013 complete response letter called for at least one additional clinical trial, nonclinical work and data analyses. The company could not estimate study costs or timing before agreement with FDA on study design; it estimated a new study could take 18 months to three years after design acceptance. Ampligen had Argentine approval for severe CFS, but commercial launch required further manufacturing, reimbursement and marketing steps.
- Development and commercialization: Ampligen cancer and other uses remain investigational; clinical benefit and regulatory approvals are uncertain. The company was seeking senior co-development partners. Expanded-access activity and reported research findings do not establish efficacy or assure meaningful revenue.
- Other risks: The company disclosed a pending dispute with BioLife Plasma Services, including a $96,676 counterclaim, and risks related to dilution, volatile share price, manufacturing, regulatory approvals and continuing access to capital. Management stated disclosure controls were effective and reported no material change in internal control over financial reporting.
- Guidance: No quantified revenue, earnings or cash-flow guidance was provided.
Important facts for investors to verify
- Current cash burn, financing needs and the company’s expected funding runway; the filing provides no explicit runway estimate.
- FDA requirements, costs and timing for any Ampligen confirmatory study and the status of U.S. and Argentine commercialization plans.
- Alferon restart funding, facility revalidation, FDA inspection and product-release milestones, including the stated approximately $10 million requirement.
- Regulatory release and use of the Ampligen batches, and whether expanded-access activity translates into cash receipts or commercial sales.
- Potential dilution from outstanding warrants, options and further equity sales, and the assumptions behind the Level 3 warrant valuation.
- The terms and cash obligations of the sale-leaseback financing, including escalating payments and the repurchase option.