ITEM
1
:
Financial Statements
HEMISPHERX
BIOPHARMA, INC. AND SUBSIDIARIES
Consolidated
Balance Sheets
(in
thousands, except for share and per share amounts)
|
|
June 30, 2018
|
|
|
December 31, 2017
|
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
3,568
|
|
|
$
|
1,412
|
|
Marketable securities
|
|
|
674
|
|
|
|
695
|
|
Accounts receivable
|
|
|
35
|
|
|
|
24
|
|
Assets held for sale
|
|
|
-
|
|
|
|
764
|
|
Prepaid expenses and other current assets
|
|
|
1,008
|
|
|
|
610
|
|
Total current assets
|
|
|
5,285
|
|
|
|
3,505
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
8,142
|
|
|
|
8,586
|
|
Patent and trademark rights, net
|
|
|
886
|
|
|
|
858
|
|
Other assets
|
|
|
1,372
|
|
|
|
1,258
|
|
Total assets
|
|
$
|
15,685
|
|
|
$
|
14,207
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
689
|
|
|
$
|
741
|
|
Accrued expenses
|
|
|
1,193
|
|
|
|
1,966
|
|
Current portion of financing obligation
|
|
|
195
|
|
|
|
-
|
|
Total current liabilities
|
|
|
2,077
|
|
|
|
2,707
|
|
|
|
|
|
|
|
|
|
|
Long-term liabilities:
|
|
|
|
|
|
|
|
|
Note Payable
|
|
|
-
|
|
|
|
1,835
|
|
Financing obligation arising from sale leaseback transaction (Note 13)
|
|
|
2,417
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Redeemable warrants
|
|
|
2,095
|
|
|
|
962
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ equity:
|
|
|
|
|
|
|
|
|
Preferred stock, par value $0.01 per share, authorized 5,000,000; issued and outstanding; none
|
|
|
—
|
|
|
|
—
|
|
Common stock, par value $0.001 per share, authorized 350,000,000 shares; issued and outstanding 46,817,965 and 32,884,786, respectively
|
|
|
47
|
|
|
|
33
|
|
Additional paid-in capital
|
|
|
322,946
|
|
|
|
317,419
|
|
Accumulated other comprehensive (loss) income
|
|
|
(9
|
)
|
|
|
11
|
|
Accumulated deficit
|
|
|
(313,888
|
)
|
|
|
(308,760
|
)
|
Total stockholders’ equity
|
|
|
9,096
|
|
|
|
8,703
|
|
Total liabilities and stockholders’ equity
|
|
$
|
15,685
|
|
|
$
|
14,207
|
|
See
accompanying notes to consolidated financial statements.
HEMISPHERX
BIOPHARMA, INC. AND SUBSIDIARIES
Consolidated
Statements of Comprehensive Loss
(in
thousands, except share and per share data)
(Unaudited)
|
|
Three months ended
June 30,
|
|
|
Six months ended
June 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Clinical treatment programs –United States
|
|
$
|
11
|
|
|
$
|
74
|
|
|
$
|
24
|
|
|
$
|
97
|
|
Clinical treatment programs - Europe
|
|
|
22
|
|
|
|
139
|
|
|
|
65
|
|
|
|
200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
33
|
|
|
|
213
|
|
|
|
89
|
|
|
|
297
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production costs
|
|
|
186
|
|
|
|
218
|
|
|
|
394
|
|
|
|
488
|
|
Research and development
|
|
|
1,341
|
|
|
|
1,106
|
|
|
|
2,196
|
|
|
|
2,497
|
|
General and administrative
|
|
|
1,733
|
|
|
|
1,619
|
|
|
|
3,296
|
|
|
|
3,283
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
3,260
|
|
|
|
2,943
|
|
|
|
5,886
|
|
|
|
6,268
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(3,227
|
)
|
|
|
(2,730
|
)
|
|
|
(5,797
|
)
|
|
|
(5,971
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and other income
|
|
|
51
|
|
|
|
21
|
|
|
|
55
|
|
|
|
47
|
|
Interest expense and other finance costs
|
|
|
(55
|
)
|
|
|
(19
|
)
|
|
|
(194
|
)
|
|
|
(19
|
)
|
Settlement with vendor
|
|
|
474
|
|
|
|
—
|
|
|
|
474
|
|
|
|
—
|
|
Redeemable warrants valuation adjustment
|
|
|
362
|
|
|
|
529
|
|
|
|
131
|
|
|
|
923
|
|
Gain on sale of building
|
|
|
—
|
|
|
|
—
|
|
|
|
223
|
|
|
|
—
|
|
Gain on sale of short term marketable securities
|
|
|
(20
|
)
|
|
|
6
|
|
|
|
(20
|
)
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(2,415
|
)
|
|
|
(2,193
|
)
|
|
|
(5,128
|
)
|
|
|
(5,014
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification adjustments for loss on sales of short term marketable securities included in net loss
|
|
|
—
|
|
|
|
(6
|
)
|
|
|
—
|
|
|
|
(6
|
)
|
Unrealized loss on marketable securities
|
|
|
(33
|
)
|
|
|
18
|
|
|
|
(20
|
)
|
|
|
29
|
|
Net comprehensive loss
|
|
$
|
(2,448
|
)
|
|
$
|
(2,181
|
)
|
|
$
|
(5,148
|
)
|
|
$
|
(4,991
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted loss per share
|
|
$
|
(0.05
|
)
|
|
$
|
(0.08
|
)
|
|
$
|
(0.13
|
)
|
|
$
|
(0.19
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding, basic and diluted
|
|
|
44,673,538
|
|
|
|
27,306,321
|
|
|
|
40,494,679
|
|
|
|
26,329,123
|
|
See
accompanying notes to consolidated financial statements.
HEMISPHERX
BIOPHARMA, INC. AND SUBSIDIARIES
Consolidated
Statement of Changes in Stockholders’ Equity
For
the Six Months Ended June 30, 2018
(in
thousands except share data)
(Unaudited)
|
|
Common
Stock
Shares
|
|
|
Common
Stock
$0.001
Par
Value
|
|
|
Additional
Paid-In
Capital
|
|
|
Accumulated
Other
Compre-
hensive Income
(Loss)
|
|
|
Accumulated
Deficit
|
|
|
Total
Stockholders’
Equity
|
|
Balance at December 31, 2017
|
|
|
32,884,786
|
|
|
$
|
33
|
|
|
$
|
317,419
|
|
|
$
|
11
|
|
|
$
|
(308,760
|
)
|
|
$
|
8,703
|
|
Equity-based compensation
|
|
|
1,040,157
|
|
|
|
1
|
|
|
|
611
|
|
|
|
—
|
|
|
|
—
|
|
|
|
612
|
|
Warrants issued for building sale leaseback
|
|
|
—
|
|
|
|
—
|
|
|
|
1,149
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,149
|
|
Redeemable warrants
|
|
|
—
|
|
|
|
—
|
|
|
|
221
|
|
|
|
—
|
|
|
|
—
|
|
|
|
221
|
|
Common stock issuance, net of costs
|
|
|
12,247,113
|
|
|
|
12
|
|
|
|
3,267
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,279
|
|
Common stock issued to settle accounts payable
|
|
|
645,909
|
|
|
|
1
|
|
|
|
279
|
|
|
|
—
|
|
|
|
—
|
|
|
|
280
|
|
Net comprehensive loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(20
|
)
|
|
|
(5,128
|
)
|
|
|
(5,148
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2018
|
|
|
46,817,965
|
|
|
$
|
47
|
|
|
$
|
322,946
|
|
|
$
|
(9
|
)
|
|
$
|
(313,888
|
)
|
|
$
|
9,096
|
|
See
accompanying notes to consolidated financial statements.
HEMISPHERX
BIOPHARMA, INC. AND SUBSIDIARIES
Consolidated
Statements of Cash Flows
For
the Six Months Ended June 30, 2018 and 2017
(in
thousands)
(Unaudited)
|
|
2018
|
|
|
2017
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(5,128
|
)
|
|
$
|
(5,014
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Depreciation of property and equipment
|
|
|
444
|
|
|
|
504
|
|
Redeemable warrants valuation adjustment
|
|
|
(131
|
)
|
|
|
(923
|
)
|
Amortization of patent and trademark rights
|
|
|
30
|
|
|
|
17
|
|
Equity-based compensation
|
|
|
612
|
|
|
|
101
|
|
Realized gain (loss) on sale of marketable securities
|
|
|
-
|
|
|
|
(6
|
)
|
Gain on sale of building
|
|
|
(223
|
)
|
|
|
-
|
|
Amortization of finance costs and debt settlement expenses
|
|
|
168
|
|
|
|
-
|
|
Change in assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(11
|
)
|
|
|
(98
|
)
|
Prepaid expenses and other current assets
|
|
|
(398
|
)
|
|
|
(298
|
)
|
Accounts payable
|
|
|
126
|
|
|
|
85
|
|
Accrued expenses
|
|
|
(734
|
)
|
|
|
331
|
|
Net cash used in operating activities
|
|
|
(5,245
|
)
|
|
|
(5,301
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Sale of marketable securities
|
|
|
-
|
|
|
|
1,500
|
|
Purchase of property, equipment and construction in progress
|
|
|
-
|
|
|
|
(3
|
)
|
Proceeds from sale of building
|
|
|
1,050
|
|
|
|
-
|
|
Purchase of patent and trademark rights
|
|
|
(57
|
)
|
|
|
(14
|
)
|
Net cash provided by investing activities
|
|
|
993
|
|
|
|
1,483
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Proceeds from lease financing obligation
|
|
|
4,080
|
|
|
|
—
|
|
Settlement costs of lease financing obligation
|
|
|
(268
|
)
|
|
|
—
|
|
Payment of financing obligation payment
|
|
|
(97
|
)
|
|
|
—
|
|
Debt issuance costs
|
|
|
—
|
|
|
|
(89
|
)
|
Proceeds from note payable
|
|
|
—
|
|
|
|
606
|
|
Payoff of mortgage note payable
|
|
|
(1,957
|
)
|
|
|
—
|
|
Security deposits paid
|
|
|
(114
|
)
|
|
|
—
|
|
Proceeds from sale of stock, net of issuance costs
|
|
|
4,764
|
|
|
|
2,115
|
|
Net cash provided by financing activities
|
|
|
6,408
|
|
|
|
2,632
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
2,156
|
|
|
|
(1,186
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
1,412
|
|
|
|
2,408
|
|
Cash and cash equivalents at end of period
|
|
$
|
3,568
|
|
|
$
|
1,222
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of non-cash investing and financing cash flow information:
|
|
|
|
|
|
|
|
|
Unrealized gain (loss) on marketable securities
|
|
$
|
(20
|
)
|
|
$
|
29
|
|
Stock issued to settle accounts payable
|
|
$
|
280
|
|
|
$
|
106
|
|
See
accompanying notes to consolidated financial statements.
HEMISPHERX
BIOPHARMA, INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note
1: Business and Basis of Presentation
Hemispherx
Biopharma, Inc. and its subsidiaries (collectively, “Hemispherx”, “Company”, “we” or “us”)
are an immuno-pharma Research and Development (“R&D”) and emerging commercial growth company focused on unmet
medical needs in immunology, especially immuno-oncology. We have established a strong foundation of laboratory, pre-clinical and
clinical data with respect to the development of natural interferon and nucleic acids to enhance the natural antiviral defense
system of the human body and to aid the development of therapeutic products for the treatment of certain chronic diseases.
Our
flagship products include Ampligen®, an experimental therapeutic, and Alferon N Injection®. Ampligen represents an experimental
Ribonucleic Acid (“RNA”) being developed for globally important viral diseases and disorders of the immune system.
Hemispherx’ platform technology includes components for the potential treatment of various severely debilitating and life-threatening
diseases. Alferon N Injection is approved for a category of Sexually Transmitted Disease (“STD”) infection.
In
August 2016, we received approval of our NDA from Administracion Nacional de Medicamentos, Alimentos y Tecnologia Medica (“ANMAT”)
for commercial sale of Ampligen in the Argentine Republic for the treatment of severe CFS. The product will be marketed by GP
Pharm, our commercial partner in Latin America.
Hemispherx
is also committed to a focused business plan oriented toward finding senior co-development partners with the capital and expertise
needed to commercialize the many potential therapeutic aspects of our drug, Ampligen, and our approved drug, Alferon N Injection.
Lastly, the Company plans to access the public equity markets to raise further capital.
In
the opinion of Management, all adjustments necessary for a fair presentation of such consolidated financial statements have been
included. Such adjustments consist of normal recurring items. Interim results are not necessarily indicative of results for a
full year.
The
interim consolidated financial statements and notes thereto are presented as permitted by the Securities and Exchange Commission
(“SEC”), and do not contain certain information which will be included in the Company’s annual consolidated
financial statements and notes thereto.
These
consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements for
the years ended December 31, 2017 and 2016, contained in the Company’s Annual Report on Form 10-K for the year ended December
31, 2017.
Note
2: Net Loss Per Share
Basic
and diluted net loss per share is computed using the weighted average number of shares of common stock outstanding during the
period. Equivalent common shares, consisting of stock options and warrants which amounted to 20,403,268 and 18,503,057 shares
for the six months ended June 30, 2018 and 2017, respectively, are excluded from the calculation of diluted net loss per share
since their effect is anti-dilutive.
Note
3: Equity-Based Compensation
The
fair value of each option and equity warrant award is estimated on the date of grant using a Black-Scholes-Merton option pricing
valuation model. Expected volatility is based on the historical volatility of the price of the Company’s stock. The risk-free
interest rate is based on U.S. Treasury issues with a term equal to the expected life of the option and equity warrant. The Company
uses historical data to estimate expected dividend yield, expected life and forfeiture rates. There were 2,933,627 and 669,619
options granted in the six months ended June 30, 2018 and June 30, 2017, respectively.
Stock
option for employees’ activity during the six months ended June 30, 2018 is as follows:
Stock
option activity for employees:
|
|
Number of Options
|
|
|
Weighted Average Exercise
Price
|
|
|
Weighted Average Remaining Contractual Term
(Years)
|
|
|
Aggregate Intrinsic
Value
|
|
Outstanding January 1, 2018
|
|
|
1,203,918
|
|
|
$
|
5.91
|
|
|
|
6.89
|
|
|
$
|
—
|
|
Granted
|
|
|
2,933,627
|
|
|
|
0.35
|
|
|
|
—
|
|
|
|
—
|
|
Forfeited
|
|
|
(120,000
|
)
|
|
|
5.28
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
(15,833
|
)
|
|
|
12.00
|
|
|
|
—
|
|
|
|
—
|
|
Outstanding June 30, 2018
|
|
|
4,001,712
|
|
|
$
|
1.83
|
|
|
|
9.08
|
|
|
$
|
—
|
|
Vested and expected to vest June 30, 2018
|
|
|
4,001,712
|
|
|
$
|
1.83
|
|
|
|
9.08
|
|
|
$
|
—
|
|
Exercisable June 30, 2018
|
|
|
1,043,054
|
|
|
$
|
5.18
|
|
|
|
6.58
|
|
|
$
|
—
|
|
Unvested
stock option activity for employees:
|
|
Number of Options
|
|
|
Weighted Average Exercise
Price
|
|
|
Average Remaining Contractual Term
(Years)
|
|
|
Aggregate Intrinsic
Value
|
|
Unvested January 1, 2018
|
|
|
366,149
|
|
|
$
|
0.48
|
|
|
|
9.62
|
|
|
$
|
—
|
|
Granted
|
|
|
2,933,627
|
|
|
|
0.35
|
|
|
|
—
|
|
|
|
—
|
|
Vested
|
|
|
(341,118
|
)
|
|
|
0.40
|
|
|
|
—
|
|
|
|
—
|
|
Unvested June 30, 2018
|
|
|
2,958,658
|
|
|
$
|
0.36
|
|
|
|
9.69
|
|
|
$
|
—
|
|
Stock
option activity for non-employees:
|
|
Number of Options
|
|
|
Weighted Average Exercise
Price
|
|
|
Weighted Average Remaining Contractual Term
(Years)
|
|
|
Aggregate Intrinsic
Value
|
|
Outstanding January 1, 2018
|
|
|
834,876
|
|
|
$
|
2.70
|
|
|
|
6.69
|
|
|
$
|
—
|
|
Granted
|
|
|
1,156,152
|
|
|
|
0.34
|
|
|
|
—
|
|
|
|
—
|
|
Forfeited
|
|
|
(93,854
|
)
|
|
|
6.26
|
|
|
|
—
|
|
|
|
—
|
|
Expired
|
|
|
(14,250
|
)
|
|
|
32.77
|
|
|
|
—
|
|
|
|
—
|
|
Outstanding June 30, 2018
|
|
|
1,882,924
|
|
|
$
|
0.85
|
|
|
|
8.61
|
|
|
$
|
—
|
|
Vested and expected to vest June 30, 2018
|
|
|
1,882,924
|
|
|
$
|
0.85
|
|
|
|
8.61
|
|
|
$
|
—
|
|
Exercisable June 30, 2018
|
|
|
456,529
|
|
|
$
|
2.71
|
|
|
|
6.25
|
|
|
$
|
—
|
|
Unvested
stock option activity for non-employees:
|
|
Number of Options
|
|
|
Weighted Average Exercise
Price
|
|
|
Weighted Average Remaining Contractual Term
(Years)
|
|
|
Aggregate Intrinsic
Value
|
|
Unvested January 1, 2018
|
|
|
464,659
|
|
|
$
|
0.36
|
|
|
|
7.84
|
|
|
$
|
—
|
|
Granted
|
|
|
1,156,152
|
|
|
|
0.34
|
|
|
|
—
|
|
|
|
—
|
|
Vested
|
|
|
(194,416
|
)
|
|
|
0.39
|
|
|
|
—
|
|
|
|
—
|
|
Unvested June 30, 2018
|
|
|
1,426,395
|
|
|
$
|
0.34
|
|
|
|
9.20
|
|
|
$
|
—
|
|
Stock-based
compensation expense was approximately $612,000 and $101,000 for the six months ended June 30, 2018 and 2017 resulting in an increase
in general and administrative expenses and loss per share of $0.01 and $0.00, respectively.
As
of June 30, 2018, and 2017, respectively, there was $1,278,000 and $405,000 of unrecognized equity-based compensation cost related
to options granted under the Equity Incentive Plan.
Note
4: Inventories
The
Company uses the lower of first-in, first-out (“FIFO”) cost or net realizable value method of accounting for inventory.
Commercial sales of Alferon
in the US will not resume until new batches of commercial filled and finished product are produced and released by the FDA. While
the facility is approved by the FDA under the BLA for Alferon, this status will need to be reaffirmed by an FDA pre-approval inspection.
We will also need the FDA’s approval to release commercial product once we have submitted satisfactory stability and quality
release data. Currently, the manufacturing process is on hold and there is no definitive timetable to have the facility back online.
We estimate we will need approximately $10,000,000 to commence the manufacturing process. Due to the Company extending the timeline
of Alferon production to an excess of one year, we reclassified Alferon work-in-process inventory of $1,115,000 to other assets
within our balance sheet as of June 30, 2018 and due to the high cost estimates to bring the facility back online. The above
estimated cost includes additional funds needed for the revalidation process in our facility to initiate commercial manufacturing,
thereby readying ourselves for an FDA Pre-Approval Inspection. If we are unable to gain the necessary FDA approvals related to
the manufacturing process and/or final product of new Alferon inventory, our operations most likely will be materially and/or
adversely affected. In light of these contingencies, there can be no assurances that the approved Alferon N Injection product
will be returned to production on a timely basis, if at all, or that if and when it is again made commercially available, it will
return to prior sales levels.
The
Alferon work in process is currently compliant with our internal protocols, is stored in a controlled state, and we regularly
monitor the stability of the product. All of these factors contribute to the potential sale of the Alferon work in process, after
validation lots have been produced and including a successful pre-approval inspection.
Note
5: Marketable Securities
Marketable
securities consist of mutual funds. For the six months ended June 30, 2018 and 2017, it was determined that none of the marketable
securities had other-than-temporary impairments. On June 30, 2018 and December 31, 2017, all securities were classified as available
for sale investments and were measured as Level 1 instruments of the fair value measurements standard.
Securities
classified as available for sale consisted of:
June
30, 2018
(in
thousands)
Securities
|
|
Amortized Cost
|
|
|
Gross Unrealized Gains
|
|
|
Gross Unrealized Losses
|
|
|
Fair
Value
|
|
|
Short-Term Investments
|
|
|
Long Term Investments
|
|
Mutual Funds
|
|
$
|
683
|
|
|
$
|
-
|
|
|
$
|
(9
|
)
|
|
$
|
674
|
|
|
$
|
674
|
|
|
$
|
—
|
|
Totals
|
|
$
|
683
|
|
|
$
|
-
|
|
|
$
|
(9
|
)
|
|
$
|
674
|
|
|
$
|
674
|
|
|
$
|
—
|
|
December
31, 2017
(in
thousands)
Securities
|
|
Amortized
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
Short-Term
Investments
|
|
|
Long Term
Investments
|
|
Mutual Funds
|
|
$
|
684
|
|
|
$
|
11
|
|
|
$
|
—
|
|
|
$
|
695
|
|
|
$
|
695
|
|
|
$
|
—
|
|
Totals
|
|
$
|
684
|
|
|
$
|
11
|
|
|
$
|
—
|
|
|
$
|
695
|
|
|
$
|
695
|
|
|
$
|
—
|
|
Unrealized
losses on investments
As
of June 30, 2018, there was one investment of $674,000 in a loss position of $(9,000) for less than 12 months.
Note
6: Accrued Expenses
Accrued
expenses consist of the following:
|
|
(in thousands)
|
|
|
|
June 30, 2018
|
|
|
December 31, 2017
|
|
Compensation
|
|
$
|
522
|
|
|
$
|
569
|
|
Professional fees
|
|
|
425
|
|
|
|
506
|
|
Clinical trial expenses
|
|
|
33
|
|
|
|
310
|
|
Other expenses
|
|
|
213
|
|
|
|
581
|
|
|
|
$
|
1,193
|
|
|
$
|
1,966
|
|
Note
7: Property and Equipment
|
|
(in thousands)
|
|
|
|
June 30, 2018
|
|
|
December 31, 2017
|
|
Land, buildings and improvements
|
|
$
|
10,547
|
|
|
$
|
10,547
|
|
Furniture, fixtures, and equipment
|
|
|
4,994
|
|
|
|
5,625
|
|
Total property and equipment
|
|
|
15,541
|
|
|
|
16,172
|
|
Less: accumulated depreciation and amortization
|
|
|
(7,399
|
)
|
|
|
(7,586
|
)
|
Property and equipment, net
|
|
$
|
8,142
|
|
|
$
|
8,586
|
|
Property
and equipment are recorded at cost. Depreciation and amortization are computed using the straight-line method over the estimated
useful lives of the respective assets, ranging from three to thirty-nine years.
On
March 16, 2018, the Company sold land and a building for $4,080,000 and concurrently entered into an agreement to lease the property
back for ten years. The lease payments are initially $408,000 per year for two years through March 31, 2020 and will escalate
in subsequent years. (See Note 13 – Financing Obligation Arising from Sale Leaseback Transaction for more details on the
sale leaseback of the property and equipment).
In
February 2018, the Company sold the building located adjacent to its manufacturing facility located at 5 Jules Lane, New Brunswick,
New Jersey to an unaffiliated party. The purchase price was $1,050,000 and the Company netted $963,000 in cash.
Note
8: Stockholders’ Equity
(a)
Preferred Stock
The
Company is authorized to issue 5,000,000 shares of $0.01 par value preferred stock with such designations, rights and preferences
as may be determined by the Board of Directors. There were no Preferred Shares issued and outstanding as of June 30, 2018 and
December 31, 2017. Of our authorized preferred stock, 250,000 shares have been designated as Series A Junior Participating Preferred
Stock.
(b)
Common Stock
The
Company is authorized to issue 350,000,000 shares of $0.001 par value common stock with specific limitations and restrictions
on the usage of 75,000,000. In September 2015, the Company’s stockholders removed the limitations and restrictions on 67,000,000
shares. The Company’s stockholders approved up to an additional 60,000,000 shares for use in capital raising transactions
and 7,000,000 shares for use in the Equity Plan of 2009. In August 2016, the Company effected a 12 to 1 reverse stock split of
the outstanding shares, in order to become compliant with the NYSE regulations. This did not affect the number of authorized shares.
On
September 6, 2016, we entered into a Securities Purchase Agreement (the “September Purchase Agreement”) with certain
investors for the sale by us of 3,333,334 shares of our Common Stock registered under our S-3 shelf registration statement on
at a purchase price of $1.50 per share. Concurrently with the sale of the common stock, pursuant to the September Purchase Agreement,
we also sold unregistered warrants to purchase 2,500,000 shares of common stock for aggregate gross proceeds of $5,000,000. Subject
to certain ownership limitations, the warrants are initially exercisable six-month after issuance at an exercise price equal to
$2.00 per share of common stock, subject to adjustments as provided under the terms of the warrants. The warrants are exercisable
for five years from the initial exercise date. Pursuant to an engagement agreement, we paid our placement agent an aggregate fee
equal to 7% of the gross proceeds received by us from the sale of the securities in the offering and granted to our placement
agent or its designees warrants to purchase up to 5% of the aggregate number of shares sold in the transactions amounting to 166,667
unregistered warrants. The placement agent warrants have substantially the same terms as the investor warrants, except that the
placement agent warrants will expire on September 1, 2021 and have an exercise price equal to $1.875 per share of common stock.
On
February 1, 2017, we entered into Securities Purchase Agreements (each, a “February Purchase Agreement”) with certain
investors for the sale by us of 1,818,185 shares of our common stock at a purchase price of $0.55 per share. Concurrently with
the sale of the common stock, pursuant to the February Purchase Agreement, we also sold unregistered warrants to purchase 1,363,639
shares of common stock for aggregate gross proceeds of approximately $1,000,000. The warrants have an exercise price of $0.75
per share, are exercisable six months after issuance, and will expire five years from the initial exercise date. Pursuant to an
engagement agreement, we paid our placement agent an aggregate fee equal to 7% of the gross proceeds received by us from the sale
of the securities in the offering and granted to our placement agent or its designees warrants to purchase up to 5% of the aggregate
number of shares sold in the transactions amounting to 90,910 unregistered warrants. The placement agent warrants have substantially
the same terms as the investor warrants, except that the placement agent warrants will expire on February 1, 2022 and have an
exercise price equal to $0.6875 per share of common stock. The Company subsequently registered the shares issuable upon exercise
of the warrants on form S-1.
The
common stock issued in the above referenced September 6, 2016 and February 1, 2017 offerings were offered and sold by the Company
pursuant to an effective shelf registration statement on Form S-3, which was initially filed with the SEC in June 2015 and subsequently
declared effective on August 4, 2015 (Registration No. 333-205228) and the base prospectus dated as of August 4, 2015 contained
therein. The Company filed a prospectus supplements related to these offerings with the SEC on September 1, 2016 and February
3, 2017, respectively, in connection with the sale of the common stock. The common stock issued pursuant to the above June 1,
2017 exercise of warrants were issued pursuant to an effective registration statement on Form S-1, which was initially filed with
the SEC in May 2017 as subsequently amended and declared effective on May 23, 2017 (Registration No. 333-217671) and the prospectus
supplement filed with the SEC on May 23, 2017
The
Board of Directors approved up to $500,000 for all directors, officers and employees to buy company shares from the company at
the market price. As of June 30, 2018, the Company issued 460,020 shares of its common stock at prices between $0.32 and $0.69
per share directly to executives and employees, for $227,240 in a series of private transactions pursuant to stock purchase agreements.
On
June 1, 2017, the exercise price of Warrants issued in September 2016 was changed to $0.50. As a result, the warrant holders exercised
these options and purchased 2,370,000 shares of Company common stock. The Company realized net proceeds of $1,055,000 from this
exercise. In conjunction with the foregoing, the Company also issued 2,370,000 series A warrants with an exercise price of $0.60
per share, an initial exercise date of December 1, 2017 and expiring March 6, 2022 (the “Series A Warrants”) and 7,584,000
series B warrants with exercise price of $0.60, an initial exercise date December 1, 2017 per share and expiring March 1, 2018
(the “Series B Warrants” and, along with the Series A Warrants, the “Warrants”). The foregoing transactions
are hereinafter referred to as the “Exchange Transaction”.
In
addition, on July 10, 2017, the warrant holders exercised the remaining 130,000 warrants issued in September 2016 and purchased
130,000 shares of common stock. The Company realized net proceeds of $65,000 from this exercise. In conjunction with the foregoing
the Company issued 130,000 Series A Warrants and 416,000 Series B Warrants (with an exercise price of $0.60 and an initial exercise
date January 10, 2018 on the three-month anniversary of the of the initial exercise date).
The
2,800,000 warrants with an expiration date of March 1, 2018 and an exercise price on $0.45 were exercised in January and February
2018. The Company realized proceeds of $1,260,000 from these exercises.
Pursuant
to an engagement agreement, the Company paid its placement agent an aggregate fee equal to 7% and 10.5%, respectively, of the
gross proceeds received by the Company from the sale of the securities in the offerings and granted to its placement agent or
its designees warrants to purchase up to 5% of the aggregate number of shares sold in the transactions amounting to 166,667 and
107,759, respectively, unregistered warrants. The placement agent warrants have substantially the same terms as the investor warrants,
except that the 166,667 placement agent warrants issued in September 2017 will expire September 1, 2021 and have an exercise price
equal to $1.875 per share of common stock and the 107,759 placement agent warrants issued in June 2017 will expire June 1, 2022
and have an exercise price of $0.625.
On
August 23, 2017, the Holders of the Series A Warrants and Series B Warrants exchanged all of their Warrants for new warrants (respectively,
the “Series A Exchange Warrants” and the “Series B Exchange Warrants” and, collectively, the “Exchange
Warrants”) identical to the Warrants except as follows: The exercise price of both Exchange Warrants is $0.45 per share,
subject to adjustment therein, and the number of Series B Exchange Warrants issued was proportionately reduced so that all Exchange
Warrants in the Exchange Transaction do not exceed 19.9% of the number of the Company’s issued and outstanding shares of
Common Stock as of May 31, 2017, the date of the Exchange Transaction offer letters. The issuance of the Exchange Warrants by
the Company and the shares of Common Stock issuable upon exercise of the Exchange Warrants is exempt from registration pursuant
to Sections 3(a)(9) and 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”).
On
July 23, 2012, the Company entered into an equity distribution agreement with Maxim (the “EDA”) pursuant to which
it could sell up to $75,000,000 worth of our shares of common stock from time to time through Maxim, as sales agent. Under the
EDA, Maxim is entitled to a fixed commission rate of 4.0% of the gross sales price of shares sold under the EDA, up to aggregate
gross proceeds of $10,000,000, and thereafter, at a fixed commission rate of 3.0% of the gross sales price of shares sold under
the EDA. The Company has no obligation to sell any of the shares and may at any time suspend offers under the EDA or terminate
the EDA. Sales under the EDA were suspended on April 20, 2018 for a period of 60 days.
On
November 27, 2017, the Company reactivated the EDA. During the Six months ended June 30, 2018, the Company sold an aggregate of
1,465,113 shares under the EDA for proceeds of $663,000 net of $20,000 in commissions. Pursuant to a prospectus supplement dated
February 7, 2018, the Company was able to sell up to 6,549,157 of its common stock (inclusive of shares already sold under the
prospectus supplement) under the EDA. The actual number of shares, that the Company can sell, and the proceeds to be received
there from are dependent upon the market price of its common stock.
Effective
with the semi-monthly period ended April 30, 2017, all of the members of the Company’s Board of Directors agreed to accept
100% of their directors’ fees in the form of options to purchase Company Common Stock. This program was terminated as of
August 31, 2017. In this regard, options to purchase 206,082 shares of Company common stock were issued with exercise prices ranging
from $0.36 to $0.67, a holding period of 10 years and vesting over three years. In addition, commencing with the semi-monthly
period ended June 15, 2017, certain officers of the Company and certain other employees of the Company, agreed to accept 20% of
their salary in options to purchase Company Common Stock. This program was also terminated as of August 31, 2017. In this regard,
options to purchase 214,866 shares of Company common stock were issued with exercise prices ranging from $0.36 to $0.67, a holding
period of 10 years and vesting over three years.
As
part of the cash conservation program adopted on August 28, 2017, starting with the month of September 2017, the directors agreed
to defer 100% of their fees until cash is available. In consideration of this deferral, 226,023 options were issued to each of
the two independent directors in February 2018 with an exercise price of $0.37 for a period of 10 years with a vesting period
of 3 years, and 152,053 options were issued to each of the two independent directors in May 2018 with an exercise price of $0.30
for a period of 10 years with a vesting period of 3 years. This program was suspended as of July 15, 2018 and all remaining deferred
fees were paid in July 2018.
Also
as part of the cash conservation program adopted on August 28, 2017, starting with the month of September 2017, certain officers
agreed to defer 40% of their salaries until cash is available. In consideration of this deferral, 884,459 options were issued
to these officers in February 2018 with an exercise price of $0.37 for a period of 10 years with a vesting period of 3 years,
and 599,168 options were issued to these officers in May 2018 with an exercise price of $0.30 for a period of 10 years with a
vesting period of 3 years. This program was suspended as of July 15, 2018 and all remaining deferred salaries were paid on July
2018.
Also
as part of the cash conservation program adopted on August 28, 2017, all employees agreed to be paid 50% of their salaries in
the form of unrestricted common stock of the Company. Starting with the month of September 2017, the salaries of all the employees
of the Company were paid 50% in the form of unrestricted common stock of the Company. The total number of shares issued as of
June 15, 2018 to the employees under this program was 2,010,534 shares at stock prices ranging from $0.31 to $0.55 per share.
This program was suspended by the Board of Directors on June 30, 2018.
On
March 24, 2018, the Company sold 1,250,000 shares of common stock. The Company realized net proceeds of $475,000 from this stock
offering.
On
April 20, 2018, Hemispherx, Biopharma, Inc. (the “Company”) entered into Securities Purchase Agreements (the “Purchase
Agreements”) with certain investors (the “Investors”) for the sale by the Company of an aggregate of 6,600,000
shares (the “Common Shares”) of the Company’s common stock, par value $0.001 per share (the “Common Stock”),
at a purchase price of $0.39 per share. Concurrently with the sale of the Common Shares, pursuant to the Purchase Agreements the
Company also sold 6,600,000 warrants, 50% of which are Class A Warrants and 50% of which are Class B Warrants (collectively, the
“Warrants”). The Company will receive gross proceeds from the sale of the Warrants solely to the extent such Warrants
are exercised for cash. Both classes of Warrants will not be exercisable until six months after issuance and will have an exercise
price of $0.39 per share, subject to adjustments as provided under the terms of the Warrants. The Class A Warrants and Class B
Warrants will expire, respectively, two and five years after the date on which they are first exercisable. The closing of the
sales of these securities under the Purchase Agreements took place on April 24, 2018.
The
Company received net proceeds from the transactions of $2,343,820 after deducting certain fees due to the placement agent and
the Company’s transaction expenses. The net proceeds received by the Company from the transactions will be used for the
production of Ampligen, to improve operations, and for working capital and general corporate purposes.
As
of June 30, 2018, and December 31, 2017, there were 46,817,965 and 32,884,786 shares outstanding, respectively.
The
Equity Incentive Plan of 2009, effective June 24, 2009, as amended, authorizes the grant of non-qualified and incentive stock
options, stock appreciation rights, restricted stock and other stock awards. A maximum of 22,000,000 shares of common stock is
reserved for potential issuance pursuant to awards under the Equity Incentive Plan of 2009. Unless sooner terminated, the Equity
Incentive Plan of 2009 will continue in effect for a period of 10 years from its effective date. For the six months ended June
30, 2018, there were 2,933,627 options granted by the Company.
Note
9
:
Cash and Cash Equivalents
The
Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents.
Note
10: Recent Accounting Pronouncements
In
May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2014-09 (ASU 2014-09),
Revenue from Contracts with Customers
. ASU 2014-09 will eliminate transaction and industry-specific revenue recognition
guidance under current U.S. GAAP and replace it with a principal-based approach for determining revenue recognition. ASU 2014-09
will require that companies recognize revenue based on the value of transferred goods or services as they occur in the contract.
ASU 2014-09 also will require additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows
arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred
to obtain or fulfill a contract. ASU 2014-09 is effective for reporting periods beginning after December 15, 2017, and early adoption
is not permitted. Entities can transition to the standard either retrospectively or as a cumulative-effect adjustment as of the
date of adoption. As of June 30, 2018, we have not identified any accounting changes that would materially impact the amount of
reported revenues with respect to our product revenues. The Company applied the Full Retrospective Application to implement the
new revenue recognition standard ASC 606. The Company, based on the nature of its Ampligen sales under its cost recovery programs,
determined that there were no material differences between the new accounting standard and legacy GAAP and that difficulties will
not arise for any “open” contract issues with its customers during the transition period. The Company also determined
that the adoption of this standard had little or no impact to the Company’s opening balance of retained earnings.
In
January 2016, the FASB has issued Accounting Standards Update (ASU) No. 2016-01,
Financial Instruments – Overall (Subtopic
825-10): Recognition and Measurement of Financial Assets and Financial Liabilities
. The new guidance is intended to improve
the recognition and measurement of financial instruments. The new guidance is effective for public companies for fiscal years
beginning after December 15, 2017, including interim periods within those fiscal years. The new guidance permits early adoption
of the own credit provision. The Company believes that the adoption of the guidance will have no material impact on the Company’s
financial statement presentation or disclosures.
In
February 2016, the FASB issued ASU 2016-02 -
Leases,
which amends the existing accounting standards for lease accounting,
including requiring lessees to recognize most leases on their balance sheets and making targeted changes to lessor accounting.
ASU 2016-02 will be effective for annual reporting periods beginning after December 15, 2018, and early adoption of is permitted
as of the standard’s issuance date. ASU 2016-02 allows a modified retrospective transition approach for all leases existing
at, or entered into after, the date of initial application, with an option to use certain transition relief. The Company is currently
evaluating the effects the adoption of this guidance will have on the consolidated financial statements
.
In
August 2016,
the FASB issued ASU 2016-15 -
Statement of Cash Flows (Topic 230): Classification
of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force). The new guidance is intended to address
the diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash
flows under Topic 230, Statement of Cash Flows, and other Topics. The guidance addresses eight specific cash flow issues with
the objective of reducing the existing diversity in practice. The amendments apply to all entities, including both business entities
and not-for-profit entities that are required to present a statement of cash flows under Topic 230. The amendments are effective
for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years.
Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period,
any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. An entity that elects
early adoption must adopt all of the amendments in the same period. The amendments in this Update should be applied using a retrospective
transition method to each period presented. The Company believes that the adoption of the guidance will not have a material impact
on the Company’s financial statement presentation or disclosures.
In
2018, the FASB also issued Accounting Standards Updates (“ASU”) 2018-01 through 2018-11. These updates did not have
a significant impact on the financial statements.
Note
11: Note Payable
In
May 2017, the Company entered into a mortgage and note payable agreement with a bridge funding company to obtain a two-year funding
line of up to $4,000,000 secured by the property and assets located at 783 Jersey Avenue, New Brunswick, New Jersey. The Company
borrowed $1,900,000 of the line in monthly advances including accrued interest as of December 31, 2017. The Company was able to
request future advances in excess of $2,000,000 at the lender’s discretion and be payable in full upon maturity. The Company
paid interest on this note at a fixed rate of 12% per annum for the first 18 months and change to a rate equal to 800 basis points
above the prime rate of interest during the remainder of the term; however, the interest rate was not to be less than 12% for
the entire term. The note was interest only and payable monthly through the maturity. The Company was permitted to prepay the
line without penalty commencing after six months. The balance on the note at December 31, 2017 was $1,835,000 ($1,900,000 less
unamortized deferred finance costs of $65,000). The note was paid off on March 16, 2018 in conjunction with the sale leaseback
of the Company’s above property and assets at an amount of $1,956,803, which included all accrued interest and fees (See
also Note 7 – Property and Equipment).
Note
12: Fair Value
The
Company is required under GAAP to disclose information about the fair value of all the Company’s financial instruments,
whether or not these instruments are measured at fair value on the Company’s consolidated balance sheets.
The
Company estimates that the fair values of cash and cash equivalents, other assets, accounts payable and accrued expenses approximate
their carrying values due to the short-term maturities of these items. The Company also has certain warrants with a cash settlement
feature in the unlikely occurrence of a Fundamental Transaction, namely (1) a merger or consolidation with another person; (2)
sale of substantially all of its assets; (3) holders of common stock sell 50% or more of outstanding shares; (4) the Company effects
an exchange of all its securities for other securities, cash or property, and (5) the Company effects a stock purchase agreement
or business combination for more than 50% of outstanding shares. The fair value of the redeemable warrants (“Warrants”)
related to the Company’s August 2016, February 2017, June 2017, August 2017 and April 2018 common stock and warrant issuance,
are calculated using a Monte Carlo Simulation. While the Monte Carlo Simulation is one of a number of possible pricing models,
the Company has determined it to be industry accepted and fairly presented the fair value of the Warrants. As an additional factor
to determine the fair value of the Put’s liability, the occurrence probability of a Fundamental Transaction event was factored
into the valuation.
The
Company recomputes the fair value of the Warrants at the issuance date and the end of each quarterly reporting period. Such value
computation includes subjective input assumptions that are consistently applied each period. If the Company were to alter its
assumptions or the numbers input based on such assumptions, the resulting fair value could be materially different.
The
Company utilized the following assumptions to estimate the fair value of the August 2016 Warrants:
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Underlying price per share
|
|
$
|
0.32
|
|
|
$
|
0.35
|
|
Exercise price per share
|
|
$
|
1.88
|
|
|
$
|
1.88
|
|
Risk-free interest rate
|
|
|
2.64
|
%
|
|
|
2.05
|
%
|
Expected holding period
|
|
|
3.18
|
|
|
|
3.70
|
|
Expected volatility
|
|
|
70
|
%
|
|
|
65
|
%
|
Expected dividend yield
|
|
|
-
|
|
|
|
-
|
|
The
Company utilized the following assumptions to estimate the fair value of the February 2017 Warrants:
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Underlying price per share
|
|
$
|
0.32
|
|
|
$
|
0.35
|
|
Exercise price per share
|
|
$
|
0.69-0.75
|
|
|
$
|
0.69-$0.75
|
|
Risk-free interest rate
|
|
|
2.69
|
%
|
|
|
2.10
|
%
|
Expected holding period
|
|
|
4.09-4.10
|
|
|
|
4.10
|
|
Expected volatility
|
|
|
70
|
%
|
|
|
65
|
%
|
Expected dividend yield
|
|
|
-
|
|
|
|
-
|
|
The
Company utilized the following assumptions to estimate the fair value of the June 2017 Warrants:
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Underlying price per share
|
|
$
|
0.32
|
|
|
$
|
0.35
|
|
Exercise price per share
|
|
$
|
0.63
|
|
|
$
|
0.63
|
|
Risk-free interest rate
|
|
|
2.68
|
%
|
|
|
2.14
|
%
|
Expected holding period
|
|
|
3.92
|
|
|
|
4.4
|
|
Expected volatility
|
|
|
70
|
%
|
|
|
65
|
%
|
Expected dividend yield
|
|
|
-
|
|
|
|
-
|
|
The
Company utilized the following assumptions to estimate the fair value of the August 2017 Warrants:
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Underlying price per share
|
|
$
|
0.32
|
|
|
$
|
0.35
|
|
Exercise price per share
|
|
$
|
0.45
|
|
|
$
|
0.45
|
|
Risk-free interest rate
|
|
|
2.66
|
%
|
|
|
1.33%-2.11
|
%
|
Expected holding period
|
|
|
3.68
|
|
|
|
0.2-4.2
|
|
Expected volatility
|
|
|
70
|
%
|
|
|
65
|
%
|
Expected dividend yield
|
|
|
-
|
|
|
|
-
|
|
The
Company utilized the following assumptions to estimate the fair value of the April 2018 Warrants:
|
|
June 30,
|
|
|
April 24,
|
|
|
|
2018
|
|
|
2018
|
|
Underlying price per share
|
|
$
|
0.32
|
|
|
$
|
0.34
|
|
Exercise price per share
|
|
$
|
0.39
|
|
|
$
|
0.39
|
|
Risk-free interest rate
|
|
|
2.56%-2.74
|
%
|
|
|
2.56%-2.86
|
%
|
Expected holding period
|
|
|
2.32-5.32
|
|
|
|
2.5-5.5
|
|
Expected volatility
|
|
|
70
|
%
|
|
|
70
|
%
|
Expected dividend yield
|
|
|
-
|
|
|
|
-
|
|
The
significant assumptions using the Monte Carlo Simulation approach for valuation of the Warrants are:
|
(i)
|
Risk-Free
Interest Rate
. The risk-free interest rates for the Warrants are based on U.S. Treasury constant maturities for periods
commensurate with the remaining expected holding periods of the warrants.
|
|
(ii)
|
Expected
Holding Period
. The expected holding period represents the period of time that the Warrants are expected to be outstanding
until they are exercised. The Company utilizes the remaining contractual term of the Warrants at each valuation date as the
expected holding period.
|
|
(iii)
|
Expected
Volatility
. Expected stock volatility is based on daily observations of the Company’s historical stock values for
a period commensurate with the remaining expected holding period on the last day of the period for which the computation is
made.
|
|
(iv)
|
Expected
Dividend Yield
. Expected dividend yield is based on the Company’s anticipated dividend payments over the remaining
expected holding period. As the Company has never issued dividends, the expected dividend yield is $0.00 and this assumption
will be continued in future calculations unless the Company changes its dividend policy.
|
|
(v)
|
Expected
Probability of a Fundamental Transaction.
The possibility of the occurrence of a Fundamental Transaction triggering a
Put right is extremely remote. As discussed above, a Put right would only arise if a Fundamental Transaction 1) is an all
cash transaction; (2) results in the Company going private; or (3) is a transaction involving a person or entity not traded
on a national securities exchange. The Company believes such an occurrence is highly unlikely because:
|
|
a.
|
The
Company only has one product that is FDA approved but which will not be available for commercial sales for 18 months at the
earliest;
|
|
b.
|
The
company flagship product is approved in Argentina for Severely Debilitated CFS patients
|
|
c.
|
The
Company may have to perform additional clinical trials for FDA approval of its flagship product;
|
|
d.
|
Industry
and market conditions continue to include a global market recession, adding risk to any transaction;
|
|
e.
|
Available
capital for a potential buyer in a cash transaction continues to be limited;
|
|
f.
|
The
nature of a life science company is heavily dependent on future funding and high costs, including research & development;
|
|
g.
|
The
Company has minimal revenues streams which are insufficient to meet the funding needs for the cost of operations or construction
at their manufacturing facility; and
|
|
h.
|
The
Company’s Rights Agreement and Executive Agreements make it less attractive to a potential buyer.
|
With
the above factors utilized in analysis of the likelihood of the Put’s potential Liability, the Company estimated the range
of probabilities related to a Put right being triggered as:
Range of Probability
|
|
Probability
|
|
Low
|
|
|
0.5
|
%
|
Medium
|
|
|
1.0
|
%
|
High
|
|
|
5.0
|
%
|
The
Monte Carlo Simulation has incorporated a 5.0% probability of a Fundamental Transaction to date for the life of the securities.
|
(vi)
|
Expected
Timing of Announcement of a Fundamental Transaction.
As the Company has no specific expectation of a Fundamental Transaction,
for reasons stated above, the Company used a discrete uniform probability distribution over the Expected Holding Period to
model the potential announcement of a Fundamental Transaction occurring during the Expected Holding Period.
|
|
(vii)
|
Expected
100 Day Volatility at Announcement of a Fundamental Transaction
. An estimate of future volatility is necessary as there
is no mechanism for directly measuring future stock price movements. Daily observations of the Company’s historical
stock values for the 100 days immediately prior to the Warrants’ grant dates, with a floor of 100%, were utilized as
a proxy for the future volatility.
|
|
(viii)
|
Expected
Risk-Free Interest Rate at Announcement of a Fundamental Transaction
. The Company utilized a risk-free interest rate corresponding
to the forward U.S. Treasury rate for the period equal to the time between the date forecast for the public announcement of
a Fundamental Transaction and the Warrant expiration date for each simulation.
|
|
(ix)
|
Expected
Time Between Announcement and Consummation of a Fundamental Transaction.
The expected time between the announcement and
the consummation of a Fundamental Transaction is based on the Company’s experience with the due diligence process performed
by acquirers, and is estimated to be six months. The Monte Carlo Simulation approach incorporates this additional period to
reflect the delay Warrant Holders would experience in receiving the proceeds of the Put.
|
While
the assumptions remain consistent from period to period (e.g., using historical stock prices), the numbers input change from period
to period (e.g., the actual historical prices input for the relevant period). The carrying amount and estimated fair value of
the above Warrants was approximately $2,095,000 at June 30, 2018 and $962,000 at December 31, 2017.
The
Company applies FASB ASC 820 that defines fair value, establishes a framework for measuring fair value in generally accepted accounting
principles, and expands disclosures about fair value measurements. The guidance does not impose any new requirements around which
assets and liabilities are to be measured at fair value, and instead applies to asset and liability balances required or permitted
to be measured at fair value under existing accounting pronouncements. The Company measures its warrant liability for those warrants
with a cash settlement feature at fair value.
FASB
ASC 820-10-35-37 establishes a valuation hierarchy based on the transparency of inputs used in the valuation of an asset or liability.
Classification is based on the lowest level of inputs that is significant to the fair value measurement. The valuation hierarchy
contains three levels:
●
|
Level
1 – Quoted prices are available in active markets for identical assets or liabilities at the reporting date. Generally,
this includes debt and equity securities that are traded in an active market.
|
●
|
Level
2 – Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices
in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially
the full term of the assets or liabilities. Generally, this includes debt and equity securities that are not traded in an
active market.
|
●
|
Level
3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value
of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using
pricing models, discounted cash flow methodologies, or other valuation techniques, as well as instruments for which the determination
of fair value requires significant management judgment or estimation. As of June 30, 2018, the Company has classified the
warrants with cash settlement features as Level 3. Management evaluates a variety of inputs and then estimates fair value
based on those inputs. As discussed above, the Company utilized the Monte Carlo Simulation Model in valuing these warrants.
|
The
table below presents the balances of assets and liabilities measured at fair value on a recurring basis by level within the hierarchy
as:
|
|
(in thousands)
As of June 30, 2018
|
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable securities
|
|
$
|
674
|
|
|
$
|
674
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redeemable warrants
|
|
$
|
2,095
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
2,095
|
|
|
|
(in thousands)
As of December 31, 2017
|
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable securities
|
|
$
|
695
|
|
|
$
|
695
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redeemable warrants
|
|
$
|
962
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
962
|
|
The
changes in Level 3 Liabilities measured at fair value on a recurring basis are summarized as follows (in thousands):
Balance at December 31, 2017
|
|
$
|
962
|
|
Warrants exercised and cancelled
|
|
|
(222
|
)
|
Warrants issued
|
|
|
1,486
|
|
Fair value adjustments
|
|
|
(131
|
)
|
Balance at June 30, 2018
|
|
$
|
2,095
|
|
Note
13: Financing Obligation Arising from Sale Leaseback Transaction
On
March 16, 2018, the Company sold land and a building for $4,080,000 and concurrently entered into an agreement to lease the property
back for ten years at $408,000 per year for two years through March 31, 2020. The lease payments will increase 2.5% per year for
the next three years through March 31, 2023 and the lease payments will increase 3% for the remaining five years through March
31, 2028. The sale of the property includes an option to repurchase the property at fair value which does not permanently transfer
all the risks and rewards of ownership to the buyer. The option to repurchase the property also would be at a higher price than
the sales price and is considered likely based upon the Company’s plans going forward. Because the sale of the property
includes the option to repurchase the property and includes the above attributes, the transaction was accounted for as a financing
transaction whereby the Company debited cash for the amount of cash received and credit financing obligation. The Company will
continue to report the property as an asset and the property will continue to be depreciated. The fair value repurchase option
is accounted for similar to a share appreciation mortgage. Accordingly, the guidance in ASC 470-30 related to participating mortgage
loans would be applied to the liability. If the option expires unused, the sale is recognized at that time. The gain on the sale
would be the excess of the liability (current fair value of the property) over its carrying amount. If the option is exercised,
the cash payment by the seller-lessee is to pay off the financing obligation. As part of the sale of this building, warrants were
provided to the buyer for the purchase of up to 3,225,806 shares of Company common stock for a period of five years at an exercise
price of $0.3875 per share, 125% of the closing price of the common stock on the NYSE American on the date of execution of the
letter of intent for the purchase. The warrants cannot be exercised to the extent that any exercise would result in the purchaser
owning in excess of 4.99% of our issued and outstanding shares of common stock.
The
Property and equipment in Note 7 above are the property and equipment involved in this transaction. Depreciation on the building
will continue until a sale has been recognized.
Future
minimum payments required under the Financing Obligation and the balance of the Finance Obligation as of June 30, 2018, are as
follows:
During
the year ending June 30:
|
|
(in thousands)
|
2018
|
|
$
|
272
|
|
2019
|
|
|
408
|
|
2020
|
|
|
419
|
|
2021
|
|
|
429
|
|
2022
|
|
|
439
|
|
Thereafter
|
|
|
2,402
|
|
Total of payments
|
|
|
4,369
|
|
Less deferred settlement costs
|
|
|
(259
|
)
|
Less discount on debt instrument
|
|
|
(1,111
|
)
|
Less imputed interest
|
|
|
(387
|
)
|
Total Balance
|
|
|
2,612
|
|
Less Current portion
|
|
|
195
|
|
Long term portion
|
|
$
|
2,417
|
|
Interest
expense relating to this financing agreement was $25,000 for the six months ended June 30, 2018.
Note
14: Subsequent Events
In
July 2018, the Company issued 376,615 shares of its common stock at prices between $0.29 and $0.31 per share directly to executives
and employees, for $ $116,060 in a further series of private transactions pursuant to stock purchase agreements.
The
Company evaluated subsequent events through the date on which these financial statements were issued and determined that no subsequent
event, other than the above, constituted a matter that required adjustment to the financial statements for the three months ended
June 30, 2018.
ITEM
2
:
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Special
Note Regarding Forward-Looking Statements
Certain
statements in this Report, including statements under “Item 1. Legal Proceedings” and “Item 1A. Risk Factors”
in Part II, contain forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the
Securities Exchange Act of 1934, as amended, which we refer to as the Exchange Act. These statements involve known and unknown
risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially
different from any future results, performances or achievements expressed or implied by the forward-looking statements. Forward-looking
statements reflect our current views with respect to future events and are based on assumptions and are subject to risks, uncertainties
and other important factors. We discuss many of these risks, uncertainties and other important factors in greater detail under
“Item 1A. Risk Factors” in Part II in this Report. Because the risk factors referred to above and in our Annual Report
on Form 10-K for our most recent fiscal year filed with the Securities and Exchange Commission could cause actual results or outcomes
to differ materially from those expressed in any forward-looking statements made by us, you should not place undue reliance on
any such forward-looking statements.
Further,
these forward-looking statements represent our estimates and assumptions only as of the date such forward-looking statements are
made. You should carefully read this Report completely and with the understanding that our actual future results may be materially
different from what we expect. We can give no assurances that any of the events anticipated by the forward-looking statements
will occur or, if any of them do, what impact they will have on our business, results of operations and financial condition. Any
forward-looking statement speaks only as of the date on which it is made and we undertake no obligation to update any forward-looking
statement or statements to reflect events or circumstances after the date on which such statement is made or reflect the occurrence
of unanticipated events. New factors emerge from time to time, and it is not possible for us to predict which will arise. We cannot
assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual
results to differ materially from those contained in any forward-looking statements. Any statements in this Report about our expectations,
beliefs, plans, objectives, assumptions or future events or performance that are not historical facts are forward-looking statements.
You can identify these forward-looking statements by the use of words or phrases such as “believe”, “may”,
“could”, “will”, “estimate”, “continue”, “anticipate”, “intend”,
“seek”, “plan”, “expect”, “should”, or “would,” and similar expressions
intended to identify forward-looking statements.
Among
the factors that could cause actual results to differ materially from those indicated in the forward-looking statements are risks
and uncertainties inherent in our business including, without limitation: our ability to adequately fund our projects as we will
need additional funding to proceed with our objectives, the potential therapeutic effect of our products, the possibility of obtaining
regulatory approval, our ability to find senior co-development partners with the capital and expertise needed to commercialize
our products and to enter into arrangements with them on commercially reasonable terms, our ability to manufacture and sell any
products, our ability to enter into arrangements with third party vendors, market acceptance of our products, our ability to earn
a profit from sales or licenses of any drugs, our ability to discover new drugs in the future, changing market conditions, changes
in laws and regulations affecting our industry, and issues related to our New Brunswick, New Jersey facility. We have disclosed
that in February 2013, we received a Complete Response Letter (“CRL”) from the Food and Drug Administration (“FDA”)
for our Ampligen New Drug Application (“NDA”) for the treatment of CFS. The FDA communicated that we should conduct
at least one additional clinical trial, complete various nonclinical studies and perform a number of data analysis. Please see
the discussion in “Our Products - Ampligen®” below for more detail. Accordingly, the remaining steps to potentially
gain FDA approval of the Ampligen NDA, the final results of these and other ongoing activities could vary materially from our
expectations and could adversely affect the chances for approval of the Ampligen NDA. These activities and the ultimate outcomes
are subject to a variety of risks and uncertainties, including but not limited to risks that (i) the FDA may ask for additional
data, information or studies to be completed or provided; and (ii) the FDA may require additional work related to the commercial
manufacturing process to be completed or may, in the course of the inspection of manufacturing facilities, identify issues to
be resolved.
We
also have disclosed that, in August 2016, we received approval of our NDA from AdministracionNacional de Medicamentos, Alimentos
y TecnologiaMedica (“ANMAT”) for commercial sale of rintatolimod (U.S. tradename: Ampligen®) in the Argentine
Republic for the treatment of severe CFS. The product will be marketed by GP Pharm, our commercial partner in Latin America. We
believe, but cannot assure, that this approval provides a platform for potential sales in certain countries within the European
Union under regulations that support cross-border pharmaceutical sales of licensed drugs. In Europe, approval in a country with
a stringent regulatory process in place, such as Argentina, should add further validation for the product as the Early Access
Program (“EAP”) as discussed below and underway in Europe in pancreatic cancer. ANMAT approval is only an initial,
but important, step in the overall successful commercialization of our product. There are a number of actions that must occur
before we could be able to commence commercial sales in Argentina. Commercialization in Argentina will require, among other things,
an appropriate reimbursement level, appropriate marketing strategies, completion of manufacturing preparations for launch. Approval
of rintatolimod for severe CFS in the Argentine Republic does not in any way suggest that the Ampligen NDA in the United States
or any comparable application filed in the European Union or elsewhere will obtain commercial approval.
We
also have disclosed that, in May 2016, we entered into a five-year agreement with myTomorrows, a Netherlands based company, for
the commencement and management of an EAP in Europe and Turkey (the “Territory”) related to CFS. Pursuant to the agreement,
myTomorrows, as our exclusive service provider and distributor in the Territory, is performing EAP activities. In January 2017,
we announced that the EAP has been extended to pancreatic cancer patients beginning in the Netherlands. In February 2018, we signed
an amendment to extend the territory to cover Canada to treat pancreatic cancer patients, pending government approval. In March
2018, we signed an amendment to which myTomorrows will be our exclusive service provider for special access activities in Canada
for the supply of Ampligen for the treatment of ME/CFS. No assurance can be given that we can sufficiently supply product should
we experience an unexpected demand for Ampligen in our clinical studies, the commercial launch in Argentina or pursuant to the
EAPs. No assurance can be given that Ampligen will prove effective in the treatment of pancreatic cancer.
Our
overall objectives include plans to continue seeking approval for commercialization of Ampligen in the United States and abroad
as well as seeking to broaden commercial therapeutic indications for Alferon N Injection presently approved in the United States
and Argentina. We continue to pursue senior co-development partners with the capital and expertise needed to commercialize our
products and to enter into arrangements with them on commercially reasonable terms. Our ability to commercialize our products,
widen commercial therapeutic indications of Alferon N Injection and/or capitalize on our collaborations with research laboratories
to examine our products are subject to a number of significant risks and uncertainties including, but not limited to our ability
to enter into more definitive agreements with some of the research laboratories and others that we are collaborating with, to
fund and conduct additional testing and studies, whether or not such testing is successful or requires additional testing and
meets the requirements of the FDA and comparable foreign regulatory agencies. We do not know when, if ever, our products will
be generally available for commercial sale for any indication.
We
outsource certain components of our manufacturing, quality control, marketing and distribution while maintaining control over
the entire process through our quality assurance and regulatory groups. We cannot provide any guarantee that the facility or our
contract manufacturer will necessarily pass an FDA pre-approval inspection for Alferon manufacture.
The
production of new Alferon Active Pharmaceutical Ingredient (“API”) inventory will begin once the validation phase
is complete. While the facility has already been approved by the FDA under the Biological License Application (“BLA”)
for Alferon, this status will need to be reaffirmed by a successful Pre-Approval Inspection by the FDA prior to commercial sale
of newly produced inventory product. If and when the Company obtains a reaffirmation of FDA BLA status and has begun production
of new Alferon API, it will need FDA approval as to the quality and stability of the final product before commercial sales can
resume. We will need additional funds to finance the revalidation process in our facility to initiate commercial manufacturing,
thereby readying ourselves for an FDA Pre-Approval Inspection. If we are unable to gain the necessary FDA approvals related to
the manufacturing process and/or final product of new Alferon inventory, our operations most likely will be materially and/or
adversely affected. In light of these contingencies, there can be no assurances that the approved Alferon N Injection product
will be returned to production on a timely basis, if at all, or that if and when it is again made commercially available, it will
return to prior sales levels. In addition, we are currently readying the New Brunswick facility to start manufacturing polymers
used for the production of Ampligen to satisfy our future needs, supplementing the polymers we have on hand. While we anticipate
that we will be able to commence manufacturing polymers at the New Brunswick facility, we may need additional funding to continue
manufacturing. There cannot be any guarantee that we will obtain adequate funds to sustain manufacturing at the New Brunswick
facility or that the facility will be able to manufacture sufficient lots for the commercial launch of Ampligen.
We
believe, and are investigating, Ampligen’s potential role in enhancing the activity of influenza vaccines. While certain
studies involving rodents, non-human primates (monkeys) and healthy human subjects indicate that Ampligen may enhance the activity
of influenza vaccines by conferring increased cross-reactivity or cross-protection, further studies will be required and no assurance
can be given that Ampligen will assist in the development of a universal vaccine for influenza or other viruses.
We
do not undertake and specifically decline any obligation to publicly release the results of any revisions which may be made to
any forward-looking statement to reflect events or circumstances after the date of such statements or to reflect the occurrence
of anticipated or unanticipated events.
Overview
General
Hemispherx
Biopharma, Inc. and its subsidiaries (collectively, “Hemispherx”, “Company”, “we” or “us”)
are an immuno-pharma R&D and emerging commercial growth company focused on unmet medical needs in immunology, especially immuno-oncology.
We have established a strong foundation of laboratory, pre-clinical and clinical data with respect to the development of natural
interferon and nucleic acids to enhance the natural antiviral defense system of the human body and to aid the development of therapeutic
products for the treatment of certain chronic diseases.
Our
flagship products include Ampligen®, an experimental therapeutic, and Alferon N Injection®. Ampligen represents an experimental
Ribonucleic Acid (“RNA”) being developed for globally important viral diseases and disorders of the immune system.
Hemispherx’ platform technology includes components for the potential treatment of various severely debilitating and life-threatening
diseases. Alferon N Injection is approved for a category of Sexually Transmitted Disease (“STD”) infection.
We
operate a 30,000 sq. ft. facility in New Brunswick, N.J. with the objective of producing Ampligen and Alferon.
On
February 1, 2013, we received a Complete Response Letter (“CRL”) from the FDA for our Ampligen NDA for the treatment
of CFS. The FDA communicated that we should conduct at least one additional clinical trial, complete various nonclinical studies
and perform a number of data analysis. Please see the discussion in “Our Products - Ampligen®” below for more
detail.
We
are committed to a focused business plan oriented toward finding senior co-development partners with the capital and expertise
needed to commercialize the many potential therapeutic aspects of our Argentinean approved drug, Ampligen, and our FDA approved
drug, Alferon N Injection.
Our
principal executive office is located at 2117 SW Highway 484, Ocala FL 34473.
OUR
PRODUCTS
Our
primary pharmaceutical product platform consists of our experimental compound, Ampligen, and our FDA approved natural interferon
product, Alferon N Injection.
Ampligen®
Ampligen
is approved for sale in Argentina and is an experimental drug currently undergoing clinical development for the treatment of certain
cancers and CFS in the United States of America. Over its developmental history, Ampligen has received various designations, including
Orphan Drug Product Designation (FDA and European Medicines Agency (“EMA”), Treatment protocol (e.g., “Expanded
Access” or “Compassionate” use authorization) with Cost Recovery Authorization (FDA) and “promising”
clinical outcome recognition based on the evaluation of certain summary clinical reports (“AHRQ” or Agency for Healthcare
Research and Quality). Ampligen represents the first drug in the class of large (macromolecular) RNA (nucleic acid) molecules
to apply for NDA review. Based on the results of published, peer reviewed pre-clinical studies and clinical trials, we believe
that Ampligen may have broad-spectrum anti-viral and anti-cancer properties.
We
believe that nucleic acid compounds represent a potential new class of pharmaceutical products as they are designed to act at
the molecular level for treatment of human diseases. There are two forms of nucleic acids,
deoxyribonucleic
acid (“
DNA”) and
ribonucleic acid (“
RNA”).
DNA is a group of naturally occurring molecules found in chromosomes, the cell’s genetic machinery. RNA is a group of naturally
occurring informational molecules which orchestrate a cell’s behavior which, in turn, regulates the action of groups of
cells, including the cells which compromise the body’s immune system. RNA directs the production of proteins and regulates
certain cell activities including the activation of an otherwise dormant cellular defense against viruses and tumors. Our drug
technology utilizes specifically-configured RNA. Our double-stranded RNA drug product, trademarked Ampligen, is an experimental,
unapproved drug in the United States, that is administered intravenously. Ampligen has been assigned the generic name rintatolimod
by the United States Adopted Names Council (USANC) and has the chemical designation poly(I):poly(C
12
U).
Clinical
trials of Ampligen already conducted by us include studies of the potential treatment of cancer patients with renal cell carcinoma
and malignant melanoma, CFS, Hepatitis B and HIV. All of these potential uses will require additional clinical trials to generate
the safety and effectiveness data necessary to support regulatory approval.
In
February 2013, we received a CRL from the FDA for Ampligen for CFS. In its CRL, the FDA communicated that Hemispherx should conduct
at least one additional clinical trial, complete various nonclinical studies and perform a number of data analyses. We are actively
engaged with the FDA and have had several meetings in order to reach an agreement on the path forward. Until we reach an agreement
with the FDA regarding the design of a study, we are unable to reasonably estimate the nature or costs necessary to obtain FDA
clearance or anticipated completion dates of any additional clinical study or studies. The FDA authorized an open-label expanded
access treatment protocol, (“AMP-511”), allowing patient access to Ampligen for treatment in an open-label safety
study under which severely debilitated CFS patients have the opportunity to be on Ampligen to treat this very serious and chronic
condition. The data collected from the AMP-511 protocol through a consortium group of clinical sites provide safety information
regarding the use of Ampligen in patients with CFS. We are establishing an enlarged data base of clinical safety information which
we believe will provide further documentation regarding the absence of autoimmune disease associated with Ampligen treatment.
We believe that continued efforts to understand existing data, and to advance the development of new data and information, will
ultimately support our future filings for Ampligen and/or the design of future clinical studies. In 2015, we engaged an independent
certified public accountant to recalculate the cost per dose consistent with the current guidelines, utilizing the costs to produce
a vial. In October 2016, the FDA granted our request to implement the new cost which was initiated during the quarter ended March
31, 2017. As of June 30, 2018, there are 17 patients participating in this open-label expanded access treatment protocol.
In
August 2016, we received approval of our NDA from ANMAT for commercial sale of rintatolimod (U.S. tradename: Ampligen®) in
the Argentine Republic for the treatment of severe CFS. The product will be marketed by GP Pharm, our commercial partner in Latin
America. Commercialization in Argentina will require, among other things, GP Pharm to establish disease awareness, medical education,
creation of an appropriate reimbursement level, design of marketing strategies and completion of manufacturing preparations for
launch.
In
May 2016, we entered into a five-year agreement with myTomorrows, a Netherlands based company, for the commencement and management
of an Early Access Program (“EAP”) in Europe and Turkey (the “Territory”) related to CFS. Pursuant to
the agreement, as amended, myTomorrow’s also will manage all Early Access Programs and Special Access Programs in Europe,
Canada and Turkey to treat pancreatic cancer and ME/CFS patients. In addition, myTomorrows will provide support services to Hemispherx
with respect to the execution of the AMP-511expanded access treatment protocol to treat ME/CFS patients in the USA.
In
April 2018, we completed data analysis of an intranasal human safety study of Ampligen plus FluMist known as AMP-600. The study
was previously closed after the US Centers for Disease Control and Prevention (“CDC”) recommended against the use
of FluMist®. Intranasal Ampligen in combination with FluMist® was generally well-tolerated in the study.
On
June 1, 2018 Ampligen was cited as outperforming two other TLR3 agonists, poly IC and natural double stranded RNA, in creating
an enhanced tumor microenvironment for checkpoint blockage therapy in the journal of Cancer Research (
http://cancerres.aacrjournals.org/content/early/2018/05/31/0008-5472.CAN-17-3985
).
In a head-to-head study in explant culture models, Ampligen activated the TLR3 pathway and promoted an accumulation of killer
T cells but, unlike the other two TLR3 agonists, it did so without causing regulatory T cell (Treg) attraction. These findings
were considered important because they indicate that Ampligen selectively reprograms the tumor microenvironment by inducing the
beneficial aspects of tumor inflammation (attracting killer T cells), without amplifying immune suppressive elements such as regulatory
T cells. The study was conducted at the University of Pittsburgh and Roswell Park Comprehensive Cancer Center, as a part of the
NIH-funded P01 CA132714 and Ovarian Cancer Specialized Program of Research Excellence (SPORE). Based upon these findings Hemispherx
and Roswell Park Comprehensive Cancer Center (Roswell Park) expanded their existing scientific collaboration to advance the clinical
development of Ampligen - an investigational immune-enhancing TLR3 agonist - which has shown promise in preclinical studies when
combined with checkpoint inhibitors (CPIs). The parties executed a Memorandum of Understanding (“MOU”) designed to
further assess the clinical potential of Ampligen in treating certain cancers. This phase I/II study will evaluate the potential
of Ampligen to enhance the immune mediated effects of CPIs in patients with advanced solid tumors and validate prior research
that demonstrated synergy with this combination in preclinical models.
On
June 15, 2018 we announced the completed production of a commercial-size batch of more than 8,500 vials of Ampligen® and,
following its “Fill & Finish” at the Contract Manufacturing Organization, this lot has passed all required testing
for regulatory release for human use. Approximately 2,100 of these vials will be shipped to myTomorrows pursuant to a standing
stock order for its EAPs. We will receive payment for these vials as it is dispensed in the EAP. We anticipate that the remaining
vials, and additional planned batches, may be used for our projected initial needs for clinical trials of Ampligen in the United
States, including the FDA-approved open-label expanded access treatment protocol in ME/CFS, and clinical trials involving
various cancers with Ampligen as a stand-alone therapy as well as in combination with checkpoint blockade technology. This lot
may also be used for
certain testing and validation required for
the commercial launch
of Ampligen in Argentina.
We
most recently reported that we successfully filled and finished a second commercial-size batch production run of roughly 8,000
vials of Ampligen. This is the second such successful commercial sized production run in the last two months. This second commercial
sized lot is currently undergoing regulatory testing for human use, a roughly two-month process.
Alferon
N Injection®
Alferon
N Injection is the registered trademark for our injectable formulation of natural alpha interferon, which was approved by the
FDA for the treatment of certain categories of genital warts. Alferon is the only natural-source, multi-species alpha interferon
currently approved for sale in the U.S. for the intralesional (within lesions) treatment of refractory (resistant to other treatment)
or recurring external genital warts in patients 18 years of age or older. Certain types of human papilloma viruses (“HPV”)
cause genital warts, a sexually transmitted disease (“STD”). The CDC estimates that “
approximately twenty
million Americans are currently infected with HPV with another six million becoming newly infected each year. HPV is so common
that at least 50% of sexually active men and women get it at some point in their lives.
” Although they do not usually
result in death, genital warts commonly recur, causing significant morbidity and entail substantial health care costs.
Interferons
are a group of proteins produced and secreted by cells to combat diseases. Researchers have identified four major classes of human
interferon: alpha, beta, gamma and omega. Alferon N Injection contains a multi-species form of alpha interferon. The world-wide
market for injectable alpha interferon-based products has experienced rapid growth and various alpha interferon injectable products
are approved for many major medical uses worldwide. Alpha interferons are manufactured commercially in three ways: by genetic
engineering, by cell culture, and from human white blood cells. All three of these types of alpha interferon are or were approved
for commercial sale in the U.S. Our natural alpha interferon is produced from human white blood cells.
The
potential advantages of natural alpha interferon over recombinant (synthetic) interferon produced and marketed by other pharmaceutical
firms may be based upon their respective molecular compositions. Natural alpha interferon is composed of a family of proteins
containing many molecular species of interferon. In contrast, commercial recombinant alpha interferon products each contain only
a single species. Researchers have reported that the various species of interferons may have differing antiviral activity depending
upon the type of virus. Natural alpha interferon presents a broad complement of species, which we believe may account for its
higher activity in laboratory studies. Natural alpha interferon is also glycosylated (partially covered with sugar molecules).
Such glycosylation is not present on the currently U.S. marketed recombinant alpha interferons. We believe that the absence of
glycosylation may be, in part, responsible for the production of interferon-neutralizing antibodies seen in patients treated with
recombinant alpha interferon. Although cell culture-derived interferon is also composed of multiple glycosylated alpha interferon
species, the types and relative quantity of these species are different from our natural alpha interferon.
Alferon
N Injection [Interferon alfa-n3 (human leukocyte derived)] is a highly purified, natural-source, glycosylated, multi-species alpha
interferon product. There are essentially no neutralizing antibodies observed against Alferon N Injection to date and the product
has a relatively low side-effect profile. The recombinant DNA derived alpha interferon formulations have been reported to have
decreased effectiveness after one year of treatment, probably due to neutralizing antibody formation.
See
“Manufacturing” and “Marketing/Distribution” sections below for more details on the manufacture and marketing/distribution
of Alferon N Injection.
Other
Diseases
In
December 2013, we announced that we were supporting the University of Pittsburgh’s Chemokine Modulation Research initiative
which includes Ampligen as an adjuvant. As part of this collaboration, Hemispherx has supplied clinical grade Ampligen (rintatolimod)
to the University. The study, under the leadership of Professor of Surgery Pawel Kalinski, M.D., Ph.D., involved the Chemokine
Modulatory regimen developed by Dr. Kalinski’s group and successfully completed the Phase 1 dose escalation in patients
with resectable colorectal cancer. In the 1
st
quarter of 2017, Dr. Kalinski relocated to Roswell Park Cancer Institute
(RPCI) in Buffalo, NY. Dr. Kalinski is currently working to establish a cancer program at RPCI which will continue to require
a supply of Ampligen. The cancer protocols utilizing Ampligen at the University of Pittsburgh have been closed except for the
ovarian study for which Dr. Edwards is the investigator. This study of recurrent ovarian cancer patients which includes Ampligen
as a component of the treatment regimen has enrolled 10 patients to date.
In
November 2014, we submitted an application for orphan drug designation to the European Medicines Agency (“EMA”) for
Rintatolimod (Ampligen) to treat Ebola virus disease (“Ebola”) and in March 2015, the EMA forwarded to us both its
Public Summary of Opinion and its record designation approving the Orphan Medicinal Products Designation for Rintatolimod as a
potential treatment of Ebola virus disease. In July 2015, we submitted an application for orphan drug designation to the EMA for
Alferon N to treat Middle East Respiratory Syndrome (“MERS”) and in January 2016, the EMA forwarded to us both its
Public Summary of Opinion and its record designation approving the Orphan Medicinal Products Designation for Alferon N Injection,
also known as interferon alfa-n3, as a potential treatment of MERS. In addition, we concluded our series of collaborations designed
to determine the potential effectiveness of Alferon N and Ampligen as potential preventative and/or therapeutic treatments for
Ebola related disorders. Although we believe that the threat of both MERS and Ebola globally may reemerge in the future, it appears
that the spread of these disorders has somewhat diminished. As a result, we have elected to focus our research and development
efforts on other areas at this time.
In
January 2017, we announced that the EAP through our agreement with myTomorrows designed to enable access of Ampligen to ME/CFS
patients had been extended to pancreatic cancer patients beginning in the Netherlands. myTomorrows is our exclusive service provider
in Europe and Turkey and will manage all EAP activities relating to the pancreatic cancer extension of the program. In February
2018, the agreement with myTomorrows was extended to cover Canada to treat pancreatic cancer patients, pending government approval.
In
July 2017, we entered into a Material Transfer Agreement with Roswell Park Cancer Institute (RPCI) in Buffalo, N.Y. to continue
the colorectal cancer studies (previously conducted at University of Pittsburgh) with Dr. Pawel Kalinski and his associates with
the initiation of a phase 2 study which has treated 2 patients as of July 31, 2018.
As
of July 31, 2018, 39 pancreatic patients have received treatment with Ampligen immuno-oncology therapy in an EAP managed by Amsterdam-based
myTomorrows, an international leader in providing physician access to experimental medicines.
Laboratory
experiments do not necessarily indicate clinical benefit. Some of the research both past and present has been, and may in the
future be, sponsored in part by contracts or grants from us to various independent research entities.
Manufacturing
In
January 2017, we entered into a purchase order commitment with Jubilant Hollister-Stier LLC (“Jubilant”) pursuant
to which Jubilant will manufacture batches of Ampligen for us. The first lot was manufactured in April 2018, and released in June
2018 for sale and clinical use. The second lot has been filled and finished in June 2018 with an anticipated release date of September
2018.
In
July 2016, we reached an agreement with Avrio Biopharmaceuticals, now Nitto Avecia Pharma, Inc. (“Avecia”) to serve
as an additional contract manufacturer of our experimental drug, Ampligen. In May 2017, we filed a complaint against Nitto Avecia
Pharma Services, Inc. (“NAPS”), the successor to Avrio Biopharmaceuticals, LLC (“Avrio”), primarily for
breach of contract. In March of 2018, the parties agreed to fully resolve their dispute by agreement for a satisfactory payment
of $200,000 to Hemispherx and the return of its manufacturing equipment. Final documentation of the settlement was executed on
April 23, 2018 by the parties and has fully resolved the parties’ claims and disputes. Please see “Item 1: Legal Proceedings”
in Part II.
Commercial
sales of Alferon in the US will not resume until new batches of commercial filled and finished product are produced and released
by the FDA. While the facility is approved by the FDA under the BLA for Alferon, this status will need to be reaffirmed by an
FDA pre-approval inspection. We will also need the FDA’s approval to release commercial product once we have submitted satisfactory
stability and quality release data. Currently, the manufacturing process is on hold and there is no definitive timetable to have
the facility back online. We estimate we will need approximately $10,000,000 to commence the manufacturing process. Due to the
Company extending the timeline of Alferon production to an excess of one year, we reclassified Alferon work-in-process inventory
of $1,115,000 to other assets within our balance sheet as of June 30, 2018 and due to the high cost estimates to bring the facility
back online. The above estimated cost includes additional funds needed for the revalidation process in our facility to
initiate commercial manufacturing, thereby readying ourselves for an FDA Pre-Approval Inspection. If we are unable to gain the
necessary FDA approvals related to the manufacturing process and/or final product of new Alferon inventory, our operations most
likely will be materially and/or adversely affected. In light of these contingencies, there can be no assurances that the approved
Alferon N Injection product will be returned to production on a timely basis, if at all, or that if and when it is again made
commercially available, it will return to prior sales levels.
Marketing/Distribution
If
we are unable to achieve licensing, collaboration and/or joint ventures, our marketing strategy for Ampligen will be part of the
differing health care systems around the world along with the different marketing and distribution systems that are used to supply
pharmaceutical products to those systems. We expect that, subject to receipt of FDA, and/or other regulatory approval, along with
the current ANMAT approval, Ampligen may be utilized in four medical arenas: physicians’ offices, clinics, hospitals, and
the home treatment setting. In preparation for the FDA’s consideration of our Ampligen NDA, we undertook early stage development
of pre-launch and launch driven marketing plans focusing on audience development, medical support and payer reimbursement initiatives
which could facilitate product acceptance and utilization at the time of regulatory approval, if obtained. Similarly, we continued
to consider distribution scenarios for the Specialty Pharmacy/Infusion channel which could provide market access, offer 3PL (third
party logistics) capabilities and provide the requisite risk management control mechanisms. It is our intent to utilize third
party service providers to execute elements of both the marketing/sales and distribution plans. As a possible option, we considered
a plan to utilize a small group of Managed Market account managers to introduce the product to payor, employer and government
account audiences. We believe that this approach could establish a market presence and facilitate the generation of revenue without
incurring the substantial costs associated with a traditional sales force. Furthermore, Management believes that any approach
considered should enable us to retain multiple options for future marketing strategies.
In
May 2016, we entered into a five year exclusive Renewed Sales, Marketing, Distribution and Supply Agreement (the “Agreement”)
with GP Pharm. Under this Agreement, GP Pharm was responsible for gaining regulatory approval in Argentina for Ampligen to treat
severe CFS in Argentina and for commercializing Ampligen for this indication in Argentina. We granted GP Pharm the right to expand
rights to sell this experimental therapeutic into other Latin America countries based upon GP Pharm achieving certain performance
milestones. We also granted GP Pharm an option to market Alferon N Injection in Argentina and other Latin America countries.
In
January 2017, the ANMAT granted a five-year extension to a previous approval to sale and distribute Alferon N Injection (under
the brand name “Naturaferon”) in Argentina. This extends the approval until 2022. In February 2013, we received the
ANMAT approval for the treatment of refractory patients that failed or were intolerant to treatment with recombinant interferon,
with Naturaferon® in Argentina.
In
June 2017, we signed an amendment to the EAP with myTomorrows. This amendment is for myTomorrows to provide support services to
Hemispherx with respect to the execution of the 511-Program (“511-Services”). The 511-Services shall be rendered for
a period of six months to be renewed with additional 6 month periods with written mutual consent, or until termination of the
511-Program. The 511-Services shall be rendered free of charge.
In
August 2017, we extended our agreement with Asembia, formerly Armada Healthcare, LLC, to undertake the marketing, education and
sales of Alferon N Injection throughout the United States.
In
August 2017, we extended our agreement with specialty distributor, BioRidgePharma, LLC (“BioRidge”) to warehouse,
ship, and distribute Alferon N Injection on an exclusive basis in support of U.S. sales.
In
May 2016, we entered into an amended and restated five-year agreement (the “Impatients Agreement”) with Impatients,
N.V. (“myTomorrows”), a Netherlands based company, for the commencement and management of an EAP in Europe and Turkey
(the “Territory”) related to ME/CFS. Pursuant to the agreement, myTomorrows, as our exclusive service provider and
distributor in the Territory, is performing EAP activities. These activities will be directed to (a) the education of physicians
and patients regarding the possibility of early access to innovative medical treatments not yet the subject of a Marketing Authorization
(regulatory approval) through named-patient use, compassionate use, expanded access and hospital exemption, (b) patient and physician
outreach related to a patient-physician platform, (c) the securing of Early Access Approvals (exemptions and/or waivers required
by regulatory authorities for medical treatments prior to Marketing Authorization) for the use of such treatments, (d) the distribution
and sale of such treatments pursuant to such Early Access Approvals, (e) pharmacovigilance (drug safety) activities and/or (f)
the collection of data such as patient-reported outcomes, doctor-reported experiences and registry data. We are supporting these
efforts and supplying Ampligen to myTomorrows at a predetermined transfer price. In the event that we receive Marketing Authorization
in any country in the Territory, we will pay myTomorrows a royalty on products sold. Pursuant to the Impatients Agreement, the
royalty would be a percentage of Net Sales (as defined in the Impatients Agreement) of Ampligen sold in the Territory where Marketing
Authorization was obtained, and the maximum royalty would be a percentage of Net Sales. The formula to determine the percentage
of Net Sales will be based on the number of patients that are entered into the EAP. The Company believes that disclosure of the
exact maximum royalty rate and royalty termination date could cause competitive harm. However, to assist the public in gauging
these terms, the actual maximum royalty rate is somewhere between 2% and 10% and the royalty termination date is somewhere between
five and fifteen years from the First Commercial Sale of a product within a specific country. The parties established a Joint
Steering Committee comprised of representatives of both parties to oversee the EAP. No assurance can be given that activities
under the EAP will result in Marketing Authorization or the sale of substantial amounts of Ampligen in the Territory. In 2017,
the Company commenced sales of recently manufactured Ampligen in international programs.
In
January 2017, we announced that the EAP through our agreement with myTomorrows designed to enable access of Ampligen to ME/CFS
patients has been extended to pancreatic cancer patients beginning in the Netherlands. myTomorrows is our exclusive service provider
in Europe and Turkey and will manage all EAP activities relating to the pancreatic cancer extension of the program.
In
February 2018, we signed an amendment to the EAP with myTomorrows. This amendment extended the territory to cover Canada to treat
pancreatic cancer patients, pending government approval.
In
March 2018, we signed an amendment to the EAP with myTomorrows, pursuant to which myTomorrows will be our exclusive service provider
for special access activities in Canada for the supply of Ampligen for the treatment of ME/CFS.
401(k)
Plan
Each
participant immediately vests in his or her deferred salary contributions, while Company contributions will vest over one year.
The 6% Company matching contribution was terminated effective January 1, 2016. For the six months ended June 30, 2018, the Company
did not make any contributions towards the 401(k) Plan.
New
Accounting Pronouncements
See
“
Note 10: Recent Accounting Pronouncements”.
Disclosure
About Off-Balance Sheet Arrangements
None.
Critical
Accounting Policies
There
have been no material changes in our critical accounting policies and estimates from those disclosed in Part II; Item 7: “Management’s
Discussion and Analysis of Financial Condition and Results of Operations; Critical Accounting Policies” contained in our
Annual Report on Form 10-K for the year ended December 31, 2017.
RESULTS
OF OPERATIONS
Three
months ended June 30, 2018 versus three months ended June 30, 2017
Net
Loss
Our
net loss was approximately $2,415,000 and $2,193,000 for the three months ended June 30, 2018 and 2017, respectively, representing
an increase in loss of approximately $222,000 or 10% when compared to the same period in 2017. This increase in loss for these
three months was primarily due to the following:
1)
|
an
increase in research and development expense of $235,000 or 21%;
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|
|
2)
|
an
increase in general and administrative expense of $114,000 or 7%;
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|
|
3)
|
a
reduction of sales of $180,000; offset by
|
|
|
4)
|
a
gain resulting from a settlement of litigation with a vendor of $474,000; and
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|
|
5)
|
the
quarterly revaluation of certain redeemable warrants resulted in a non-cash gain of $362,000 in the June 30, 2018 quarter
compared to a gain of $529,000 in the June 30, 2018 quarter.
|
Net
loss per share was $(0.05) and $(0.08) for the three months ended June 30, 2018 and 2017, respectively. The weighted average number
of shares of our common stock outstanding as of June 30, 2018 was 44,673,538 as compared to 27,306,321 as of June 30, 2017.
Revenues
Revenues
from our Ampligen Cost Recovery Program were $33,000 and $213,000 for the three months ended June 30, 2018 and 2017, respectively.
The
primary reason for the decrease in revenues of $180,000 or 85% between periods was due to the unavailability of Ampligen for our
EAP through our agreement with MyTomorrows designed to enable access of Ampligen to pancreatic cancer patients in the Netherlands.
Ampligen is currently being manufactured.
For the three months ended
June 30, 2018 and 2017, we had no Alferon N Injection Finished Good product to commercially sell and all revenue was generated
from the EAP and our FDA approved open-label expanded access treatment protocol, (“AMP-511”), that allows patient
access to Ampligen for treatment in an open-label safety study.
Production
Costs
Production
costs were approximately $186,000 and $218,000, respectively, for the three months ended June 30, 2018 and 2017, representing
a decrease of $32,000 or 15% in production costs in the current period. These costs primarily represent stability testing and
pre-production expenses related to Alferon. The reduction in costs was primarily due to an overall reduction in costs.
Research
and Development Costs
Overall
Research and Development (“R&D”) costs for the three months ended June 30, 2018 were approximately $1,341,000
as compared to $1,106,000 for the same period a year ago, reflecting an increase of approximately $235,000 or 21%. The primary
reasons for the increase in research and development costs was due to an increase $591,000 due to the manufacture and completion
of 8,484 Ampligen vials offset by a reduction of U.S. clinical costs of $298,000 as a result of a reduction in amounts due to
clinical investigators as a result of renegotiated terms with the investigators. There was also a reduction of Ampligen stability
costs of $58,000 along with a general reduction of clinical costs.
General
and Administrative Expenses
General
and Administrative (“G&A”) expenses for the three months ended June 30, 2018 and 2017, were approximately $1,733,000
and $1,619,000, respectively, reflecting an increase of approximately $114,000 or 7%. The increase in G&A expenses during
the current period was mainly due to an overall increase in expenses offset by a reduction in rent due to moving the Philadelphia
PA office.
Interest
and Other Income
Interest
and other income for the three months ended June 30, 2018 and 2017 were approximately $51,000 and $21,000, respectively, representing
an increase of approximately $30,000 or 143%. The primary cause for the increase in investment income during the current quarter
was due to higher balances available to invest in the current period as compared to the prior period.
Redeemable
Warrants
The
quarterly revaluation of certain redeemable warrants resulted in a non-cash adjustment to the redeemable warrants liability for
the three months ended June 30, 2018 amounted to a loss of approximately $362,000, compared to a gain of $529,000 for June 30,
2017, representing a decrease of $891,000 or 168% (see Note 12: Fair Value - for the various factors considered in the valuation
of redeemable warrants).
Other
Transactions
In
the three months ended June 30, 2018 there was a gain of $474,000 resulting from the settlement of litigation with Nitto Avecia
Pharma Services, Inc. (“NAPS”).
Six
months ended June 30, 2018 versus six months ended June 30, 2017
Net
Loss
Our
net loss was approximately $5,128,000 and $5,014,000 for the six months ended June 30, 2018 and 2017, respectively, representing
an increase in loss of approximately $114,000 or 2% when compared to the same period in 2017. This decrease in loss for these
six months was primarily due to the following:
1)
|
a
decrease in revenues of $208,000 or 70%;
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|
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2)
|
an
increase in interest and finance costs of $175,000; offset by
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3)
|
the
quarterly revaluation of certain redeemable warrants resulted in a non-cash gain of $131,000 in the six months ended June
30, 2018 compared to a gain of $923,000 in the six months ended June 30, 2017;
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4)
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a
decrease in research and development expense of $301,000 or 12%;
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5)
|
a
gain resulting from a settlement of litigation with a vendor of $474,000; and
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6)
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a
gain from the sale of the underutilized building in New Brunswick of $223,000.
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Net
loss per share was $(0.13) and $(0.19) for the six months ended June 30, 2018 and 2017, respectively. The weighted average number
of shares of our common stock outstanding as of June 30, 2018 was 40,494,679 as compared to 26,329,123 as of June 30, 2017.
Revenues
Revenues
from our Ampligen Cost Recovery Program were $89,000 and $297,000 for the six months ended June 30, 2018 and 2017, respectively.
The
primary reason for the decrease in revenues of $208,000 or 70% between periods was due to the unavailability of Ampligen for our
EAP through our agreement with MyTomorrows designed to enable access of Ampligen to pancreatic cancer patients in the Netherlands.
Ampligen is currently being manufactured and 8,484 Ampligen vials were completed in June 2018.
For the six months ended
June 30, 2018 and 2017, we had no Alferon N Injection Finished Good product to commercially sell and all revenue was generated
from the EAP and our FDA approved open-label expanded access treatment protocol, (“AMP-511”), that allows patient
access to Ampligen for treatment in an open-label safety study.
Production
Costs
Production
costs were approximately $394,000 and $488,000, respectively, for the six months ended June 30, 2018 and 2017, representing a
decrease of $94,000 or 19% in production costs in the current period. These costs primarily represent stability testing and pre-production
expenses related to Alferon. The reduction in costs was primarily due to a decrease in power and light of $53,000 and a decrease
in Alferon production costs of $41,000.
Research
and Development Costs
Overall
Research and Development (“R&D”) costs for the six months ended June 30, 2018 were approximately $2,196,000 as
compared to $2,497,000 for the same period a year ago, reflecting a decrease of approximately $301,000 or 12%. The primary reason
for the decrease in research and development costs was due to a reduction of U.S. clinical costs of $692,000 as a result of reduction
in amounts due to clinical investigators resulting from renegotiated terms with the investigators, offset by an increase in manufacturing
costs of 511,000 due to the completion of 8,484 vials of Ampligen. There was also a reduction of Alferon related environmental
costs $120,000.
General
and Administrative Expenses
General
and Administrative (“G&A”) expenses for the six months ended June 30 2018 and 2017, were approximately $3,296,000
and $3,283,000, respectively, reflecting an increase of approximately $13,000 or 0.4%. The increase in G&A expenses during
the current period was mainly due to a reduction in rent resulting from moving the Philadelphia, PA office and various other administrative
reductions.
Interest
and Other Income
Interest
and other income for the six months ended June 30, 2018 and 2017 were approximately $55,000 and $47,000, respectively, representing
an increase of approximately $8,000 or 17%. The primary cause for the increase in investment income during the current quarter
was primarily due to higher balances available to invest in the current period as compared to the prior period.
Redeemable
Warrants
The
quarterly revaluation of certain redeemable warrants resulted in a non-cash adjustment to the redeemable warrants liability for
the six months ended June 30, 2018 amounted to a gain of approximately $131,000, compared to a gain of $923,000 for June 30, 2017,
which represents a decrease of $792,000 or 86% (see Note 12: Fair Value - for the various factors considered in the valuation
of redeemable warrants).
Other
Transactions
In
the six months ended June 30, 2018 there was a gain of $474,000 resulting from the settlement of litigation with Nitto Avecia
Pharma Services, Inc. (“NAPS”).
In
the six months ended June 30, 2018 there was also a gain of $223,000 resulting from the sale of the second building in New Brunswick,
New Jersey.
Liquidity
and Capital Resources
As
of June 30, 2018, we had approximately $4,242,000 in cash, cash equivalents and marketable securities inclusive of approximately
$674,000 in Marketable Securities, representing an increase of approximately $2,135,000 from December 31, 2017. Cash used in operating
activities for the six months ended June 30, 2018 was approximately $5,245,000 compared to approximately $5,301,000 for the same
period in 2017, a decrease of $56,000 or 1.1%.The primary reason for this decrease was the overall reductions in operating expenses.
Cash
provided in investing activities for the six months ended June 30, 2018 was approximately $993,000 compared to cash provided by
investing activities of approximately $1,483,000 for the same period in 2017, representing a decrease of $490,000. The primary
reason for the decrease during the current period is the receipt of $963,000 from the sale of the underutilized second building
in New Brunswick, New Jersey in 2018 compared to sale of marketable securities of $1,500,000 in 2017.
Cash
provided by financing activities for the six months ended June 30, 2018 was approximately $6,408,000 compared to approximately
$2,632,000 for the same period in 2017, an increase of $3,776,000. The primary reasons for the increase in the six months ended
June 30, 2018 can be attributable to our receipt of net proceeds of approximately $2,649,000 from the sale common stock pursuant
to our Equity Distribution Agreement (“EDA”) with Maxim Group, the exercise of warrants and the sale of shares through
a stock offering(see “Note 8: Stockholders’ Equity”). Also we received $1,678,000 from the sale leaseback of
the main building located in New Brunswick, New Jersey.
If
we are unable to commercialize and sell Ampligen and/or recommence material sales of Alferon N Injection, our operations, financial
position and liquidity may be adversely impacted, and additional financing may be required. In this regard, due to the high cost
estimates to bring the facility back online, we most likely will need additional funds to finance the revalidation process in
our facility and to initiate commercial manufacturing, thereby readying ourselves for an FDA Pre-Approval Inspection and to commercialize
our products. However, there is no assurance that such financing will be available.
As
of September 1, 2017, the directors agreed to defer 100% of their fees until cash is available. In consideration of this deferral,
226,023 options were issued to each of the two independent directors in February 2018 with an exercise price of $0.37 for a period
of 10 years with a vesting period of 3 years. As of September 1, 2017, certain officers agreed to defer 40% of their salaries
until cash is available and all employees agreed to be paid 50% of their salaries in the form of unrestricted common stock of
the Company. In April 2018, the Board of Directors approved a payment of 50% of the deferred Board fees and the deferred officer
salaries. As of July 15, 2018, these programs were suspended and all deferred fees and salaries were paid in July 2018.
We
are committed to a focused business plan oriented toward finding senior co-development partners with the capital and expertise
needed to commercialize the many potential therapeutic aspects of our experimental drugs and our FDA approved drug Alferon.
We
reactivated our Equity Distribution Agreement with Maxim under our universal shelf registration statement in December 2017. Since
December 5, 2017 through June 30, 2018, we have sold an aggregate of 2,143,388 shares under the EDA for proceeds of $907,053 net
of $27,211 in commissions. The actual number of shares that we can sell Pursuant to the EDA and the proceeds to be received therefrom
are dependent upon the market price of our common stock.
In
January and February 2018, we realized net proceeds of approximately $1,260,000 from the exercise of 2,800,000 warrants with an
exercise price on $0.45.
On
March 16, 2018, we sold our property located at 783 Jersey Ave, New Brunswick, NJ for $4,080,000 and the purchasers received 3,225,806
warrants to purchase common stock. Simultaneously therewith, we leased the facility back.
On
March 24, 2018, we sold 1,250,000 shares of common stock for net proceeds of approximately $475,000 from this stock offering.
In
February 2018, we sold our unencumbered, unutilized, and wholly owned property located at 5 Jules Lane, New Brunswick, New Jersey
to Acellories, NJ LLC, a New Jersey limited liability company, pursuant to a sale agreement dated September, 11, 2017. The sale
price was $1,050,000.
On
April 20, 2018 the Company entered into Securities Purchase Agreements for the sale by the Company of an aggregate of 6,600,000
shares at a purchase price of $0.39 per share. Concurrently with the sale of the shares, the Company also sold 6,600,000 warrants,
50% of which are Class A Warrants and 50% of which are Class B Warrants. The Company realized $2,343,820 from this sale.
There
can be no assurances that, if needed, we will be able to raise adequate funds from these or other sources or enter into licensing,
partnering or other arrangements to advance our business goals. Our inability to raise such funds or enter into such arrangements,
if needed, could have a material adverse effect on our ability to develop our products. Also, we have the ability to curtail discretionary
spending, including some research and development activities, if required to conserve cash. Because of our long-term capital requirements,
we may seek to access the public equity market whenever conditions are favorable, even if we do not have an immediate need for
additional capital at that time. We are unable to estimate the amount, timing or nature of future sales of outstanding common
stock or instruments convertible into or exercisable for our common stock. Any additional funding may result in significant dilution
and could involve the issuance of securities with rights, which are senior to those of existing stockholders. We may also need
additional funding earlier than anticipated, and our cash requirements, in general, may vary materially from those now planned,
for reasons including, but not limited to, changes in our research and development programs, clinical trials, acquisitions of
intellectual property or assets, enhancements to the manufacturing process, competitive and technological advances, the regulatory
processes including the commercializing of Ampligen products or new utilization of Alferon products.
The
proceeds from our financings have been used to fund infrastructure growth including manufacturing, regulatory compliance and market
development along with our efforts regarding the Ampligen manufacturing, Ampligen NDA and preparedness for the FDA pre-approval
inspections of the New Brunswick manufacturing facility. There can be no assurances that, if needed, we will raise adequate funds
from these or other sources, which may have a material adverse effect on our ability to develop our products. Also, we have the
ability to curtail discretionary spending, including some research and development activities, if required to conserve cash