AIM ImmunoTech Inc. (then Hemispherx Biopharma, Inc.) — Q1 2013 Form 10-Q
Reporting period: Three months ended March 31, 2013; balance-sheet figures are as of March 31, 2013. Comparisons are with Q1 2012 for operating results and December 31, 2012 for balance-sheet changes. Amounts below are in U.S. dollars.
Business context
The company was a clinical-stage biopharmaceutical business focused on Ampligen, an investigational drug, and Alferon N Injection, an FDA-approved product for specified cases of genital warts. Alferon commercial sales were halted, and the company reported no finished goods available for sale. The company’s only Q1 revenue came from its Ampligen cost-recovery treatment program.
Key financial metrics
| Metric | Q1 2013 / March 31, 2013 | Comparable period / prior year-end |
|---|---|---|
| Revenue | $42,000 | $72,000 in Q1 2012 |
| Research and development | $2.336 million | $1.665 million in Q1 2012 |
| General and administrative | $2.077 million | $1.874 million in Q1 2012 |
| Operating loss | $4.562 million | $3.747 million in Q1 2012 |
| Net loss | $3.611 million | $2.308 million in Q1 2012 |
| Net loss per share | $0.02 | $0.02 in Q1 2012 |
| Operating cash used | $5.851 million | $1.665 million in Q1 2012 |
| Cash and cash equivalents | $1.588 million | $2.212 million at December 31, 2012 |
| Marketable securities | $36.247 million, including $14.837 million restricted | $41.741 million at December 31, 2012, including $14.500 million restricted |
| Margin account loan | $7.051 million | $7.051 million at December 31, 2012 |
| Total assets / stockholders’ equity | $51.659 million / $41.380 million | $57.699 million / $44.700 million at December 31, 2012 |
Cash, cash equivalents and marketable securities totaled $37.835 million, of which $14.837 million was pledged as collateral. The margin loan carried an approximately 2.5% effective interest rate. The filing does not present a clear standalone gross-margin figure; revenue was minimal relative to production and operating expenses.
Changes versus comparable periods
- Net loss increased $1.303 million, or 56%, year over year. R&D rose $671,000, primarily for Ampligen-related clinical, research, polymer-production and cGMP work; G&A increased $203,000.
- Revenue fell $30,000, or 42%, attributed to a 36% decline in patients in the cost-recovery program.
- Operating cash outflow increased $4.186 million. Management cited approximately $2.196 million in January payments of 2012 employee and strategic consultant bonuses and approximately $443,000 spent on the New Brunswick facility enhancement project.
- Total cash and securities declined $6.118 million from year-end. The company received approximately $686,000 from a sale of New Jersey tax-loss carryforwards, versus $1.328 million in Q1 2012.
- Weighted-average shares rose to 166.8 million from 135.8 million. The company issued 583,924 shares to settle accounts payable; it reported no Q1 sales under its at-the-market equity program.
Outlook, risks and unusual items
- Ampligen regulatory setback: The FDA issued a Complete Response Letter on February 1, 2013, declining to approve the CFS application. The FDA called for at least one additional clinical trial, nonclinical studies and data analyses, citing insufficient evidence of efficacy, safety-database limitations and data discrepancies. Management planned an end-of-review meeting and would consider a formal appeal. It estimated a new controlled study could take approximately 18 months to three years after study-design acceptance; cost and timing were not yet reasonably estimable and were expected to exceed available resources without additional funding.
- Liquidity and financing: Management warned that additional financing may be required if products cannot be commercialized or Alferon sales do not resume, and gave no assurance financing would be available. The company had an ATM agreement allowing up to $75 million of stock sales, but reported no Q1 sales under it. Additional equity could dilute shareholders; the filing also describes limits on shares available for financing without stockholder approval.
- Alferon and manufacturing: Existing Alferon work-in-process lots had completed fill, finish and packaging, but validation, stability/release testing and FDA acceptance remained outstanding. Management could not assure FDA approval. Newly produced Alferon for commercial sale was projected no earlier than the second half of 2014, subject to facility validation and regulatory approvals.
- Other development programs: The Phase II Alferon LDO influenza study remained delayed. The intranasal Ampligen/FluMist study had enrolled 12 of a planned 72 subjects; the breast-cancer vaccine study had enrolled 42 of 98 planned patients.
- Noncash and other items: A $89,000 noncash gain from redeemable-warrant revaluation partially offset losses; Q1 2012 included a $151,000 noncash loss. The company capitalized approximately $45,000 of margin-loan interest into facility construction costs.
- Contingencies: Securities class-action and shareholder derivative litigation, as well as other legal proceedings, were ongoing. The company said outcomes and potential losses could not be estimated and had recorded no loss contingency for the matters described.
- Management said disclosure controls were effective as of March 31, 2013 and reported no material change in internal control over financial reporting during the quarter. No formal financial guidance was provided.
Important facts for investors to verify
- The FDA’s precise requirements after the Ampligen Complete Response Letter, and the expected design, cost, funding and timing of any further trial or appeal.
- Whether available cash and securities, especially the restricted collateral, can support the company’s operating and development plans without new financing.
- Progress on Alferon inventory validation and FDA release, and on New Brunswick facility validation, inspection and commercial readiness.
- Whether the company can resume meaningful product revenue, given that Q1 revenue was only $42,000 and Alferon sales remained halted.
- Developments and potential financial effects of the disclosed litigation, and the possibility of further share issuance and dilution.