Actinium Pharmaceuticals, Inc. — Q2 2014 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2014. The interim financial statements are unaudited. Actinium is a clinical-stage biotechnology company developing cancer therapies; it had no approved products or commercial revenue.
Financial results and liquidity
| Metric | Three months ended June 30, 2014 | Six months ended June 30, 2014 | Comparable 2013 period |
|---|---|---|---|
| Revenue | $0 | $0 | $0 |
| Research and development expense | $2.00 million | $4.46 million | $0.51 million / $1.59 million |
| General and administrative expense | $2.41 million | $4.09 million | $0.97 million / $1.90 million |
| Total operating expenses | $4.42 million | $8.56 million | $1.48 million / $3.50 million |
| Net income (loss) | $3.52 million | $(13.18) million | $(2.78) million / $(3.47) million |
| Cash used in operating activities | Not separately presented | $5.06 million | $3.33 million used |
The Q2 profit resulted from a $7.94 million gain on remeasurement of derivative liabilities, not operating revenue; the six-month period recorded a $4.62 million derivative remeasurement loss. These fair-value changes are sensitive to the company’s share price and materially affected reported earnings.
At June 30, cash and cash equivalents were $14.67 million, versus $5.53 million at year-end 2013. Total assets were $15.45 million and stockholders’ equity was $4.33 million, compared with a $1.56 million stockholders’ deficit at year-end. Financing provided $14.33 million during the half, principally from equity offerings. The filing reports $54,970 of notes payable; total current liabilities were $11.12 million, including $9.83 million of derivative liabilities. Derivatives are Level 3 fair-value estimates, not conventional borrowings.
Changes versus the prior comparable period
- Six-month operating expenses rose to $8.56 million from $3.50 million, with higher clinical/manufacturing R&D costs, professional fees, staffing and stock-based compensation.
- Six-month net loss widened to $13.18 million from $3.47 million, reflecting higher expenses and the derivative fair-value loss. Q2’s reported swing to income was driven by a derivative fair-value gain.
- Operating cash use increased to $5.06 million from $3.33 million. Financing cash inflow rose to $14.33 million from $3.36 million.
- Stock-based compensation was $3.14 million for the first half. The company also raised capital through private and public stock offerings.
Business outlook, risks and contingencies
- Actinium was pursuing Actimab-A for acute myeloid leukemia and Iomab-B for patients undergoing stem-cell transplantation; other BC8 programs were in physician-sponsored trials. Management said it intended to request FDA authorization in 2014 to begin a pivotal Iomab-B trial, estimated to cost $25–30 million through anticipated completion in 2016. Estimated direct costs to complete the two parts of the ongoing Actimab-A Phase 1/2 trial were approximately $7 million.
- Management expected R&D and G&A expenses to increase. The company anticipated continuing losses and had no stable recurring revenue source; success depends on clinical outcomes, regulatory approval, partnerships, intellectual property, and access to isotope, antibody and manufacturing resources.
- Notable commitments include a Goodwin Biotechnology manufacturing agreement totaling approximately $2.81 million, with about $2.1 million remaining at June 30; an Iomab-B clinical project estimated at $0.8 million; and a $0.4 million 2014 radioactive-material contract. The company also disclosed $815,100 owed to SKI for 2011–2014 license-related amounts, plus applicable pass-through costs, with patent expenses not included in that amount.
- In June 2014 the company completed a public offering of 1.67 million shares for $12.525 million gross. The note disclosure states net proceeds of $11.451 million; the MD&A gives an approximate net amount of $11.9 million, a difference investors may wish to reconcile. In July, underwriters purchased 157,123 additional shares for about $1.2 million gross.
- Other risks include dependence on third-party research and clinical sites, potential trial failure or delay, regulatory uncertainty, financing needs, and reliance on continued supply and manufacturing arrangements. Cash was held at one U.S. bank and was generally above FDIC-insured limits.
- Management stated disclosure controls were effective as of June 30, 2014 and reported hiring outside consultants to help establish and test internal-control procedures.
Important facts for investors to verify
- Clinical-trial progress, FDA interactions and the basis for the projected Iomab-B pivotal-trial timetable and $25–30 million cost estimate.
- Expected cash needs and financing plans relative to the $14.67 million June 30 cash balance, operating cash use and disclosed trial/manufacturing commitments.
- The public-offering net-proceeds discrepancy between the financial-statement note and MD&A, and the effect of July’s over-allotment proceeds.
- The Level 3 derivative valuation assumptions and how further share-price changes may affect reported earnings and liabilities.
- Amounts and timing of SKI/MSKCC obligations, including pass-through and patent costs, and the terms of other licensing, clinical and supply agreements.