ITEM 1
:
Financial Statements
HEMISPHERX BIOPHARMA, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands, except for share and per share
amounts)
|
|
September 30,
2016
|
|
|
December 31,
2015
|
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
4,473
|
|
|
$
|
2,115
|
|
Marketable securities
|
|
|
3,536
|
|
|
|
6,795
|
|
Inventory-work in process
|
|
|
-
|
|
|
|
1,326
|
|
Assets held for sale
|
|
|
764
|
|
|
|
-
|
|
Prepaid expenses and other current assets
|
|
|
559
|
|
|
|
335
|
|
Total current assets
|
|
|
9,332
|
|
|
|
10,571
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
9,779
|
|
|
|
11,237
|
|
Patent and trademark rights, net
|
|
|
919
|
|
|
|
862
|
|
Other assets
|
|
|
1,546
|
|
|
|
134
|
|
Total assets
|
|
$
|
21,576
|
|
|
$
|
22,804
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
1,011
|
|
|
$
|
1,213
|
|
Accrued expenses
|
|
|
1,420
|
|
|
|
1,219
|
|
Current portion of capital lease
|
|
|
-
|
|
|
|
1
|
|
Total current liabilities
|
|
|
2,431
|
|
|
|
2,433
|
|
|
|
|
|
|
|
|
|
|
Redeemable warrants
|
|
|
2,514
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 24,105,569 and 20,629,957, respectively
|
|
|
24
|
|
|
|
21
|
|
Additional paid-in capital
|
|
|
315,864
|
|
|
|
313,446
|
|
Accumulated other comprehensive income (loss)
|
|
|
71
|
|
|
|
(97
|
)
|
Accumulated deficit
|
|
|
(299,328
|
)
|
|
|
(292,999
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders’ equity
|
|
|
16,631
|
|
|
|
20,371
|
|
Total liabilities and stockholders’ equity
|
|
$
|
21,576
|
|
|
$
|
22,804
|
|
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
September 30,
|
|
|
Nine months ended
September 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Clinical treatment programs
|
|
$
|
22
|
|
|
$
|
23
|
|
|
$
|
76
|
|
|
$
|
106
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
22
|
|
|
|
23
|
|
|
|
76
|
|
|
|
106
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production costs
|
|
|
272
|
|
|
|
353
|
|
|
|
830
|
|
|
|
1,232
|
|
Research and development
|
|
|
1,342
|
|
|
|
1,968
|
|
|
|
3,244
|
|
|
|
7,081
|
|
General and administrative
|
|
|
1,634
|
|
|
|
1,685
|
|
|
|
5,721
|
|
|
|
5,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
3,248
|
|
|
|
4,006
|
|
|
|
9,795
|
|
|
|
13,913
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(3,226
|
)
|
|
|
(3,983
|
)
|
|
|
(9,719
|
)
|
|
|
(13,807
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
-
|
|
|
|
(1
|
)
|
|
|
-
|
|
|
|
(3
|
)
|
Interest and other income/(expense)
|
|
|
40
|
|
|
|
181
|
|
|
|
156
|
|
|
|
343
|
|
Insurance proceeds from legal settlement, net
|
|
|
190
|
|
|
|
-
|
|
|
|
1,626
|
|
|
|
-
|
|
Gain (Loss) on sales of short term marketable securities
|
|
|
31
|
|
|
|
-
|
|
|
|
(56
|
)
|
|
|
-
|
|
Gain from sale of income tax net operating losses
|
|
|
-
|
|
|
|
-
|
|
|
|
1,561
|
|
|
|
1,374
|
|
Redeemable warrants valuation adjustment
|
|
|
103
|
|
|
|
-
|
|
|
|
103
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(2,862
|
)
|
|
|
(3,803
|
)
|
|
|
(6,329
|
)
|
|
|
(12,093
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification adjustments for (gain) loss on sales of short term marketable securities included in net loss
|
|
|
(31
|
)
|
|
|
-
|
|
|
|
56
|
|
|
|
-
|
|
Unrealized gain (loss) on marketable securities
|
|
|
15
|
|
|
|
(215
|
)
|
|
|
112
|
|
|
|
(241
|
)
|
Net comprehensive loss
|
|
$
|
(2,878
|
)
|
|
$
|
(4,018
|
)
|
|
$
|
(6,161
|
)
|
|
$
|
(12,334
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted loss per share
|
|
$
|
(0.13
|
)
|
|
$
|
(0.18
|
)
|
|
$
|
(0.30
|
)
|
|
$
|
(0.62
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding, basic and diluted
|
|
|
21,832,940
|
|
|
|
20,564,538
|
|
|
|
21,046,418
|
|
|
|
19,358,962
|
|
See accompanying notes to consolidated financial
statements.
HEMISPHERX BIOPHARMA, INC. AND SUBSIDIARIES
Consolidated Statement of Changes in Stockholders'
Equity
For the Nine Months Ended September 30, 2016
(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, 2015
|
|
|
20,629,957
|
|
|
$
|
21
|
|
|
$
|
313,446
|
|
|
$
|
(97
|
)
|
|
$
|
(292,999
|
)
|
|
$
|
20,371
|
|
Equity-based compensation
|
|
|
17,498
|
|
|
|
-
|
|
|
|
344
|
|
|
|
-
|
|
|
|
-
|
|
|
|
344
|
|
Shares sold at the market
|
|
|
114,394
|
|
|
|
-
|
|
|
|
174
|
|
|
|
-
|
|
|
|
-
|
|
|
|
174
|
|
Common stock issuance
|
|
|
3,333,334
|
|
|
|
3
|
|
|
|
4,517
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,520
|
|
Other issuances
|
|
|
10,386
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Redeemable warrants
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,617
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,617
|
)
|
Net comprehensive loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
168
|
|
|
|
(6,329
|
)
|
|
|
(6,161
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2016
|
|
|
24,105,569
|
|
|
$
|
24
|
|
|
$
|
315,864
|
|
|
$
|
71
|
|
|
$
|
(299,328
|
)
|
|
$
|
16,631
|
|
See accompanying notes to consolidated financial
statements.
HEMISPHERX BIOPHARMA, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Nine Months Ended September 30, 2016
and 2015
(in thousands)
(Unaudited)
|
|
2016
|
|
|
2015
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(6,329
|
)
|
|
$
|
(12,093
|
)
|
|
|
|
|
|
|
|
|
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Depreciation of property and equipment
|
|
|
854
|
|
|
|
663
|
|
Amortization and abandonment of patent and trademark rights
|
|
|
125
|
|
|
|
166
|
|
Equity-based compensation
|
|
|
344
|
|
|
|
148
|
|
Realized loss on sale of marketable securities
|
|
|
56
|
|
|
|
-
|
|
Redeemable warrants valuation adjustment
|
|
|
(103
|
)
|
|
|
-
|
|
Change in assets and liabilities:
|
|
|
|
|
|
|
|
|
Inventories
|
|
|
-
|
|
|
|
(1,326
|
)
|
Prepaid expenses and other current assets
|
|
|
(224
|
)
|
|
|
121
|
|
Accounts payable
|
|
|
(202
|
)
|
|
|
97
|
|
Accrued expenses
|
|
|
201
|
|
|
|
(515
|
)
|
Net cash used in operating activities
|
|
|
(5,278
|
)
|
|
|
(12,739
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Purchase of property, equipment and construction in progress
|
|
|
(160
|
)
|
|
|
(226
|
)
|
Additions to patent, trademark and licensing rights
|
|
|
(282
|
)
|
|
|
(188
|
)
|
Deposits on capital leases refunded
|
|
|
14
|
|
|
|
-
|
|
Sales and maturities of short-term and long-term marketable securities
|
|
|
3,371
|
|
|
|
2,497
|
|
Net cash provided by investing activities
|
|
|
2,943
|
|
|
|
2,083
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Payments on capital leases
|
|
|
(1
|
)
|
|
|
(19
|
)
|
Proceeds from sale of stock, net of issuance costs
|
|
|
4,694
|
|
|
|
9,680
|
|
Net cash provided by financing activities
|
|
|
4,693
|
|
|
|
9,661
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
2,358
|
|
|
|
(995
|
)
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of period
|
|
|
2,115
|
|
|
|
2,156
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
4,473
|
|
|
$
|
1,161
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of non-cash investing and financing cash flow information:
|
|
|
|
|
|
|
|
|
Issuance of common stock for accounts payable
|
|
$
|
-
|
|
|
$
|
672
|
|
Unrealized gain (loss) on marketable securities
|
|
$
|
112
|
|
|
$
|
(241
|
)
|
Fair Value of redeemable warrants
|
|
$
|
2,617
|
|
|
$
|
-
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
Cash paid for interest expense
|
|
$
|
-
|
|
|
$
|
(3
|
)
|
Insurance proceeds from legal settlement
|
|
$
|
1,626
|
|
|
|
$ __- _
|
|
See accompanying notes to consolidated financial
statements.
HEMISPHERX BIOPHARMA, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
Note 1: Basis of Presentation
The consolidated financial
statements include the financial statements of Hemispherx Biopharma, Inc. and its wholly-owned subsidiaries (“Company”).
The Company has three domestic subsidiaries: BioPro Corp., BioAegean Corp. and Core Biotech Corp., all of which are incorporated
in Delaware and are dormant. The Company also has a foreign subsidiary, Hemispherx Biopharma Europe N.V./S.A., which was established
in Belgium in 1998. All significant intercompany balances and transactions have been eliminated in consolidation.
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, 2015 and 2014, contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015.
On August 17, 2016, the
Company's stockholders approved an amendment to the Company's Certificate of Incorporation to effect a reverse stock split at a
ratio in the range of 1-for-8 to 1-for-12. The Company’s Board of Directors approved the implementation of the reverse stock
split at a ratio 1-for-12. All per share numbers for prior periods have been revised to give retroactive effect to this reverse
stock split
.
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 4,129,215 and 1,423,190 shares for the nine months ended September
30, 2016 and 2015, 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 247,917 and 66,666 options
granted to employees and non-employees in the nine months ended September 30, 2016 and 2015, respectively.
Stock option for employees' activity during the nine months ended
September 30, 2016 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, 2016
|
|
|
893,771
|
|
|
$
|
18.96
|
|
|
|
4.02
|
|
|
$
|
—
|
|
Granted
|
|
|
185,417
|
|
|
|
1.58
|
|
|
|
—
|
|
|
|
—
|
|
Forfeited
|
|
|
(227,259
|
)
|
|
|
5.75
|
|
|
|
—
|
|
|
|
—
|
|
Outstanding September 30, 2016
|
|
|
851,929
|
|
|
$
|
18.70
|
|
|
|
4.05
|
|
|
$
|
—
|
|
Vested and expected to vest September 30, 2016
|
|
|
851,929
|
|
|
$
|
18.70
|
|
|
|
4.05
|
|
|
$
|
—
|
|
Exercisable September 30, 2016
|
|
|
714,950
|
|
|
$
|
18.60
|
|
|
|
2.87
|
|
|
$
|
—
|
|
Unvested stock option activity for employees:
|
|
Number of
Options
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Average
Remaining
Contractual
Term
(Years)
|
|
|
Aggregate
Intrinsic
Value
|
|
Outstanding January 1, 2016
|
|
|
27,777
|
|
|
$
|
3.48
|
|
|
|
7.82
|
|
|
$
|
—
|
|
Granted
|
|
|
185,417
|
|
|
|
1.58
|
|
|
|
—
|
|
|
|
—
|
|
Vested
|
|
|
(76,215
|
)
|
|
|
2.10
|
|
|
|
|
|
|
|
—
|
|
Forfeited
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Outstanding September 30, 2016
|
|
|
136,979
|
|
|
$
|
1.67
|
|
|
|
9.35
|
|
|
$
|
—
|
|
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, 2016
|
|
|
275,250
|
|
|
$
|
15.48
|
|
|
|
4.31
|
|
|
$
|
—
|
|
Granted
|
|
|
62,500
|
|
|
|
1.63
|
|
|
|
—
|
|
|
|
—
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Forfeited
|
|
|
(31,667
|
)
|
|
|
44.79
|
|
|
|
—
|
|
|
|
—
|
|
Outstanding September 30, 2016
|
|
|
306,083
|
|
|
$
|
9.59
|
|
|
|
5.21
|
|
|
$
|
—
|
|
Vested and expected to vest September 30, 2016
|
|
|
306,083
|
|
|
$
|
9.59
|
|
|
|
5.21
|
|
|
$
|
—
|
|
Exercisable September 30, 2016
|
|
|
257,819
|
|
|
$
|
11.11
|
|
|
|
4.34
|
|
|
$
|
—
|
|
Unvested stock option activity for non-employees during the year:
|
|
Number of
Options
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Average
Remaining
Contractual
Term
(Years)
|
|
|
Aggregate
Intrinsic
Value
|
|
Outstanding January 1, 2016
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
—
|
|
Granted
|
|
|
62,500
|
|
|
|
1.63
|
|
|
|
—
|
|
|
|
—
|
|
Vested
|
|
|
(14,236)
|
|
|
|
1.63
|
|
|
|
—
|
|
|
|
—
|
|
Forfeited
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Outstanding September 30, 2016
|
|
|
48,264
|
|
|
$
|
1.63
|
|
|
|
9.82
|
|
|
$
|
—
|
|
The impact on the Company’s
results of operations of recording equity-based compensation for the nine months ended September 30, 2016 and 2015 was to increase
costs and expenses by approximately $125,000 and $148,000, respectively, which increased loss per share by $0.01.
As of September 30, 2016
and 2015, respectively, there was $332,000 and $231,000 of unrecognized equity-based compensation cost related to options granted
under the Equity Incentive Plan.
On January 26, 2016, the
Board, based on the recommendation of its Compensation Committee, established two programs - the 2016 Senior Executive Deferred
Cash Performance Award Plan for Dr. William A. Carter and Thomas K. Equels, the Company’s two primary executive officers,
and the 2016 Voluntary Incentive Stock Award Plan for Company employees and Board members other than Dr. Carter and Mr. Equels.
Both Plans include a Base Pay Supplement provision.
The Company maintains a
record of the number of shares of stock represented by each Incentive Right issued out of the 2016 Voluntary Incentive Stock Award
Plan. During the nine months ended September 30, 2016, the Company granted rights to 140,936 split adjusted incentive shares and
recorded $219,000 in equity-based compensation under this Plan.
Note 4: Inventories
The Company uses the lower
of first-in, first-out (“FIFO”) cost or market method of accounting for inventory.
Inventories consist of the following:
|
|
(in thousands)
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Inventory work-in-process, January 1
|
|
$
|
1,326
|
|
|
$
|
—
|
|
Production
|
|
|
—
|
|
|
|
1,443
|
|
Transfer to other assets
|
|
|
(1,326
|
)
|
|
|
—
|
|
Spoilage
|
|
|
—
|
|
|
|
(117
|
)
|
Inventory work-in-process, end of period
|
|
$
|
—
|
|
|
$
|
1,326
|
|
Commercial sales of Alferon®
will not resume until new batches of commercial filled and finished product are produced and released by the FDA. The Company is
continuing the validation of Alferon® production and production of new Alferon® API inventory commenced in February 2015.
While the facility is approved by the FDA under the Biological License Application (“BLA”) for Alferon®, this status
will need to be reaffirmed by an FDA pre-approval inspection. The Company will also need the FDA’s approval to release commercial
product once it has submitted satisfactory stability and quality release data. Due to the Company extending the timeline of Alferon®
production to an excess of one year, the Company reclassified Alferon® work-process-inventory to other assets within the Company’s
balance sheet as of September 30, 2016.
Note 5: Marketable Securities
Marketable securities consist
of mutual funds. For the nine months ended September 30, 2016 and 2015, it was determined that none of the marketable securities
had other-than-temporary impairments. At September 30, 2016 and December 31, 2015, 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:
September 30, 2016
(in thousands)
|
Securities
|
|
Amortized
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Fair Value
|
|
|
Short-Term
Investments
|
|
|
Long Term
Investments
|
|
Mutual Funds
|
|
$
|
3,465
|
|
|
$
|
71
|
|
|
$
|
—
|
|
|
$
|
3,536
|
|
|
$
|
3,536
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$
|
3,465
|
|
|
$
|
71
|
|
|
$
|
—
|
|
|
$
|
3,536
|
|
|
$
|
3,536
|
|
|
$
|
—
|
|
December 31, 2015
(in thousands)
|
Securities
|
|
Amortized
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Fair Value
|
|
|
Short-Term
Investments
|
|
|
Long Term
Investments
|
|
Mutual Funds
|
|
$
|
6,892
|
|
|
$
|
—
|
|
|
$
|
(97
|
)
|
|
$
|
6,795
|
|
|
$
|
6,795
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$
|
6,892
|
|
|
$
|
—
|
|
|
$
|
(97
|
)
|
|
$
|
6,795
|
|
|
$
|
6,795
|
|
|
$
|
—
|
|
Unrealized losses on investments
Investments with continuous
unrealized losses for less than 12 months and 12 months or greater and their related fair values were as follows:
September 30, 2016
As of September 30, 2016 there were no investments in a loss position.
December 31, 2015
(in thousands)
|
|
|
|
|
|
Less Than 12 Months
|
|
|
12 Months or Greater
|
|
|
Totals
|
|
Securities
|
|
Total
number
in loss
position
|
|
|
Fair
Values
|
|
|
Unrealized
Losses
|
|
|
Fair
Values
|
|
|
Unrealized
Losses
|
|
|
Total
Fair
Value
|
|
|
Total
Unrealized
Losses
|
|
Mutual Funds
|
|
|
2
|
|
|
$
|
2,834
|
|
|
$
|
(159
|
)
|
|
$
|
2,041
|
|
|
$
|
(21
|
)
|
|
$
|
4,875
|
|
|
$
|
(180
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
|
2
|
|
|
$
|
2,834
|
|
|
$
|
(159
|
)
|
|
$
|
2,041
|
|
|
$
|
(21
|
)
|
|
$
|
4,875
|
|
|
$
|
(180
|
)
|
Note 6:
Accrued Expenses
Accrued expenses consist
of the following:
|
|
(in thousands)
|
|
|
|
September 30,
2016
|
|
|
December 31,
2015
|
|
Compensation, including severance
|
|
$
|
524
|
|
|
$
|
229
|
|
Professional fees
|
|
|
513
|
|
|
|
619
|
|
Clinical trial expenses
|
|
|
109
|
|
|
|
143
|
|
Other expenses
|
|
|
274
|
|
|
|
228
|
|
|
|
$
|
1,420
|
|
|
$
|
1,219
|
|
Note 7: Property and Equipment
|
|
(in thousands)
|
|
|
|
September 30,
2016
|
|
|
December 31,
2015
|
|
Land, buildings and improvements
|
|
$
|
10,530
|
|
|
$
|
11,603
|
|
Furniture, fixtures, and equipment
|
|
|
5,630
|
|
|
|
5,490
|
|
Leasehold improvements
|
|
|
—
|
|
|
|
85
|
|
Total property and equipment
|
|
|
16,160
|
|
|
|
17,178
|
|
Less: accumulated depreciation and amortization
|
|
|
(6,381
|
)
|
|
|
(5,941
|
)
|
Property and equipment, net
|
|
$
|
9,779
|
|
|
$
|
11,237
|
|
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.
Assets held for sale consists
of the net book value of an underutilized building located adjacent to the site of the Company’s New Jersey manufacturing
facility. As part of the Company’s objectives to achieve its commercial goals and increase stockholder value, the Company
has initiated the sale of underutilized assets. As a result, the Company is in the process of selling this building at its current
market value and has reclassified it as held for sale at its net book value of
$764,000
.
Note 8: Stockholders’ Equity
The Equity Incentive Plan
of 2009, effective June 24, 2009, authorizes the grant of non-qualified and incentive stock options, stock appreciation rights,
restricted stock and other stock awards. A maximum of 1,250,000 shares of common stock is reserved for potential issuance pursuant
to awards under the Equity Incentive Plan of 2009. In September 2015, the Company's shareholders approved the following amendments
to the 2009 Plan: (1) increased the number of shares authorized to be issued under the Equity Incentive Plan from 1,250,000 to
1,833,333; (2) required a gradual vesting period of options issued under the Equity Incentive Plan over a three year period; (3)
revised the definition of “change in control” to make it less “liberal” by amending the provision that
a change in control occurs upon stockholder approval of a merger, consolidation or sale or disposition by the Company of all or
substantially all of its assets (a “Business Combination”) to state that such a change in control occurs upon the consummation
of the Business Combination; and (4) clarified that the definition of change in control has a double trigger. For a Participant
to get the benefit resulting from a change in control, such Participant must have been terminated other than for cause within a
two year period. 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 nine months ended September 30, 2016 and 2015, there were 247,917 and 66,666 options granted by the
Company, respectively.
On
December 15, 2015, the Company entered into an Equity Distribution Agreement with Chardan Capital Markets, LLC (the “Chardan
Agreement”) to create an at-the-market equity program under which it may sell shares of its common stock (the “Shares”)
from time to time through Chardan Capital Markets, LLC, as sales agent (“Chardan”). Under the Chardan Agreement, Chardan
will be entitled to a commission at a fixed commission rate of 3.0% of the gross sales price of Shares sold under the Chardan Agreement.
Effective August 26, 2016, the Company halted all future offers and sales of its common stock under the Chardan Agreement
and reduced the amount of potential future offers and sales under the Chardan Agreement to $0.00. Between December 15, 2015, the
date of the Chardan Agreement, and August 26, 2016, we sold an aggregate of 114,394 shares of common stock pursuant to the Chardan
Agreement for aggregate net proceeds of approximately $174,000.
On September 6, 2016, the
Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with certain investors (the “Investors”)
for the sale by the Company of 3,333,334 shares (the “Common Shares”) of the Company’s common stock, par value
$0.001 per share (the “Common Stock”), at a purchase price of $1.50 per share and sold warrants to purchase 2,500,000
shares of Common Stock (the “Warrants”) for aggregate net proceeds of $4,520,000. Subject to certain ownership
limitations, the Warrants will be 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.
The Company received net
proceeds from the foregoing transaction (the “Offering”) of approximately $4,520,000 after deducting certain fees due
to the placement agent and the Company’s transaction expenses. The net proceeds received by the Company from the Offering
will be used for preparation for technology transfer opportunities, expenses related to Ampligen® manufacturing, working capital
and general corporate purposes.
The Common Shares were
offered and sold by the Company pursuant to an effective shelf registration statement on Form S-3, which was initially filed
with the Securities and Exchange Commission (the “SEC”) on June 25, 2015 and subsequently declared effective on August
4, 2015 (File No. 333-205228) (the “Registration Statement”), and the base prospectus dated as of August 4, 2015
contained therein. The Company filed a prospectus supplement with the SEC on September 1, 2016 in connection with the sale of the
Common Shares.
Pursuant to an engagement
agreement dated July 26, 2016, the Company engaged Rodman & Renshaw, a unit of H.C. Wainwright & Co., LLC (“Wainwright”),
to act as its exclusive placement agent in connection with the Offering. Pursuant to the engagement agreement, the Company paid
Wainwright an aggregate fee equal to 7% of the gross proceeds received by the Company from the sale of the securities in the Offering
and granted to Wainwright or its designees warrants to purchase up to 5% of the aggregate number of shares sold in the transactions
(the “Wainwright Warrants”) amounting to 166,667 warrants. The Wainwright Warrants have substantially the same terms
as the Warrants, except that the Wainwright Warrants will expire on September 1, 2021 and have an exercise price equal to $1.875
per share of Common Stock. The Wainwright Warrants and the shares issuable upon exercise of the Wainwright Warrants will be issued
in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act as transactions not
involving a public offering and in reliance on similar exemptions under applicable state laws. The Company also paid Wainwright
a non-accountable expense allowance of $70,000 plus a management fee equal to 1.0% of the gross proceeds raised in the Offering.
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 principle 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. Upon the
Company realizing operating revenues from the sale of commercialized product, the Company’s adoption of this guidance may
have an impact on the Company’s financial statement presentation or disclosures.
In August 2014, the FASB
issued ASU 2014-15,
Presentation of Financial Statements-Going Concern (Subtopic 205-40): Disclosure of Uncertainties about
an Entity's Ability to Continue as a Going Concern
. ASU 2014-15 explicitly requires management to evaluate, at each annual
or interim reporting period, whether there are conditions or events that exist which raise substantial doubt about an entity's
ability to continue as a going concern and to provide related disclosures. ASU 2014-15 is effective for annual periods ending after
December 15, 2016, and annual and interim periods thereafter, with early adoption permitted. The Company will continue to evaluate
and monitor at each annual or interim reporting period whether there are conditions or events that exist pertaining to this guidance.
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 may have an 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 requires 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 has not adopted ASU 2016-02 and believes such adoption
may have an impact on the Company’s financial statement
presentation or disclosures.
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. For all other entities, the
amendments are effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning
after December 15, 2019. 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
may not have a material impact on the Company’s financial statement presentation or disclosures.
In 2016, the FASB also
issued Accounting Standards Updates (“ASU”) 2016-03 through 2016-17. These updates did not have a significant impact
on the financial statements
Note 11: Funds Received from Sale of Income
Tax Net Operating Losses
As of December 31, 2015,
the Company has approximately $166,000,000 of federal net operating loss carryforwards (expiring in the years 2018 through 2035)
available to offset future federal taxable income. The Company also has approximately $36,000,000 of Pennsylvania state net operating
loss carryforwards (expiring in the years 2018 through 2033) and approximately $29,000,000 of New Jersey state net operating loss
carryforwards (expiring in the years 2034 and 2035) available to offset future state taxable income.
In January 2016, the Company
effectively sold $16,000,000 of its New Jersey state net operating loss carryforward for the year 2014 for approximately $1,320,000,
and also sold New Jersey research and development credits for $241,000. The utilization of certain state net operating loss carry-forwards
may be subject to annual limitations. With no tax due for the foreseeable future, the Company has determined that the accounting
for interest or penalties related to the payment of tax is not necessary at this time.
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. The fair value of the redeemable warrants related to the Company’s August 2016 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:
|
September 30,
|
|
September 6,
|
|
|
2016
|
|
2016
|
|
Underlying price per share
|
$1.26
|
|
$1.39
|
|
Exercise price per share
|
$1.88 - $2.00
|
|
$1.88 - $2.00
|
|
Risk-free interest rate
|
1.21%
|
|
1.21%
|
|
Expected holding period
|
4.90
|
|
5.00
|
|
Expected volatility
|
90%
|
|
90%
|
|
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- 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 at least approximately
18 months;
|
|
b.
|
The Company may have to perform additional clinical trials for FDA approval of its flagship product;
|
|
c.
|
Industry and market conditions continue to include a global market recession, adding risk to any transaction;
|
|
d.
|
Available capital for a potential buyer in a cash transaction continues to be limited;
|
|
e.
|
The nature of a life sciences company is heavily dependent on future funding and high fixed costs, including Research &
Development;
|
|
f.
|
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
|
|
g.
|
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 elucidated above, the Company utilized a discrete uniform probability distribution over the Expected Holding Period
to model in 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., utilizing 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 $2,514,000 at September 30, 2016 and $2,617,000 at September 6, 2016, the date of issuance.
The Company applies FASB
ASC 820 (formerly Statement No. 157
Fair Value Measurements
) 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 (formerly
SFAS No. 157) 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 quote 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 September 30, 2016, 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 September 30, 2016
|
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable securities
|
|
$
|
3,536
|
|
|
$
|
3,536
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redeemable warrants
|
|
|
2,514
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,514
|
|
|
|
(in thousands)
As of December 31, 2015
|
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable Securities
|
|
$
|
6,795
|
|
|
$
|
6,795
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redeemable warrants
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
The changes in Level 3 Liabilities measured at fair value on a recurring
basis are summarized as follows:
|
|
(in thousands)
|
|
|
|
2016
|
|
Balance at December 31, 2015
|
|
$
|
-
|
|
Issuance of warrants
|
|
|
2,617
|
|
Fair value adjustments
|
|
|
(103
|
)
|
Balance at September 30
|
|
$
|
2,514
|
|
Note 13: Subsequent Events
The Company evaluated subsequent
events through the date on which these financial statements were issued and determined that no subsequent event, other than what
is noted below, constituted a matter that required adjustment to the financial statements for the nine months ended September 30,
2016.
On November 8, 2016, the
Company received a letter of intent for its underutilized building located adjacent to the site of the Company’s New Jersey
manufacturing facility. The letter of intent includes a 45 day due diligence period including, but not limited to, a building inspection
and environmental review. Closing is anticipated 60 days from the date of the contract execution.
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, 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 the improvements and construction of our New Brunswick, New Jersey facility. We have disclosed that in February
2013, we received a Complete Response from the FDA declining to approve our Ampligen® New Drug Application (“NDA”)
for Chronic Fatigue Syndrome Treatment ("CFS") stating that we should conduct at least one additional clinical trial,
complete various nonclinical studies and perform a number of data analyses. 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. With regard
to our NDA for Ampligen® to treat CFS, we note that there are additional steps which the FDA has advised Hemispherx to take
in our seeking approval. The final results of these and other ongoing activities, and of the FDA review, could vary materially
from Hemispherx' expectations and could adversely affect the chances for approval of the Ampligen® NDA. Any failure to satisfy
the FDA’s requirements could significantly delay, or preclude outright, approval of our drugs for commercial sale.
On August 18, 2016, we
received approval of our New Drug Application (“NDA”) from Administracion Nacional de Medicamentos, Alimentos y Tecnologia
Medica (“ANMAT”) for commercial sale of rintatolimod (U.S. tradename: Ampligen®) in the Argentine Republic for
the treatment of severe myalgic encephalomyelitis/chronic fatigue syndrome (“ME/CFS”). The product will be marketed
by GP Pharm, our commercial partner in Latin America. We believe that rintatolimod is the first drug to receive approval for this
indication anywhere in the world.
We believe that this approval
provides a platform for potential commercial sales in certain countries within the European Union under regulations that support
cross-border pharmaceutical sales of licensed drugs. We and GP Pharm are now working to expand the approval of rintatolimod to
additional countries with a focus on Latin America. 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 is launched in Europe. 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 (including possible requirements for approval of final manufacturing), and there are no assurances as to whether or
when such multiple subsequent steps will be successfully performed to result in an overall successful commercialization and product
launch.
In October 2016, we completed
our technology transfer of the Ampligen
®
manufacturing processes to Nitto Denko Avecia Inc. (“Avecia”),
formerly, Avrio Biopharmaceuticals (“Avrio”). The transfer consists of providing Avecia with all information that is
relevant to the manufacturing process of Ampligen
®
and associated assays. This includes performing a test engineering
run to identify any potential issues before moving forward with the first Good Manufacturing Practice (“cGMP”) lot
and confirming that the information exchange was successful. This will enable Avecia to begin manufacturing current cGMP lots of
Ampligen
®
. The first cGMP lot is expected to be compounded, filled and finished in November and released in December,
2016, for use in the Company’s Early Access Program (“EAP”) in Europe and Turkey.
Our overall objectives
include plans to continue seeking approval for commercialization of Ampligen® in the United States and abroad as well as to
widen existing commercial therapeutic indications of Alferon N Injection® presently approved in the United States and Argentina.
In addition, we have formed collaborations with multiple research laboratories around the world to examine Ampligen®, an experimental
therapeutic, and Alferon N, an FDA-approved commercial product (for refractory venereal warts (HPV)) as potential preventatives
for, and treatments of, Ebola Virus Disease (EVD) among others. 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
as potential preventatives for, and treatments of, MERS, among others, 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.
On March 15, 2016, we received
written notice from the NYSE MKT LLC that we were not in compliance with its continued listing standards because our common stock
had been selling for a low price per share for a substantial period of time. The NYSE MKT determined that the continued listing
of our common stock was predicated on our effecting a reverse stock split of our common stock. Our stockholders approved a reverse
stock split, our Board effected a 12-to-1 reverse stock split effective August 26, 2016 and our reverse split shares started trading
on August 29, 2016. On September 15, 2016, we received written notice from the NYSE MKT LLC that we were back in compliance with
the continued listing standards set forth in Section 1003(f)(v) of the NYSE MKT Company Guide referenced in the Exchange’s
letter dated March 15, 2016. The Company will be subject to NYSE Regulation’s normal continued listing monitoring. However,
in accordance with Section 1009(h) of the Company Guide, if the Company is again determined to be below any of the continued listing
standards within 12 months of the date of this letter, NYSE MKT will examine the relationship between the two incidents of noncompliance
and re-evaluate the Company’s financial recovery from the first incident. NYSE Regulation will then take appropriate action,
which depending on the circumstances, may include truncating the compliance procedures described in Section 1009 of the Company
Guide or immediately initiate delisting procedures.
On September 6, 2016, we
entered into a Securities Purchase Agreement (the “Purchase Agreement”) with certain investors for the sale by us of
3,333,334 shares of our common stock at a purchase price of $1.50 per share. Concurrently with the sale of the common stock, pursuant
to the Purchase Agreement, we also sold warrants to purchase 2,500,000 shares of common stock for aggregate gross proceeds of $5,000,000.
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.
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 a
specialty pharmaceutical company headquartered in Philadelphia, Pennsylvania and engaged in the clinical development of new drug
therapies based on natural immune system enhancing technologies for the treatment of viral and immune based disorders. We were
founded in the early 1970s doing contract research for the National Institutes of Health. Since that time, 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. We have three domestic subsidiaries BioPro Corp., BioAegean Corp., and Core BioTech
Corp., all of which are incorporated in Delaware and are dormant. Our foreign subsidiary is Hemispherx Biopharma Europe N.V./S.A.
which was established in Belgium in 1998.
We have been reexamining
our fundamental priorities in terms of direction, corporate culture and our ability to fund operations. As a result, there have
been significant changes at the Company in the past few months. As noted below, we have made several changes to the Company’s
executive management team to provide effective and competent leadership that, management believes, will properly position the Company
to achieve its commercial goals and increase stockholder value. Recent actions include aggressively pursuing international sales
of clinical grade materials and implementing a strong financial austerity plan. 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 drug, Ampligen®, and our approved drug Alferon®. Management’s primary objectives are
to create stockholder value and deliver much needed therapies to patients.
On September 16, 2015,
our Board of Directors appointed Mr. Peter Rodino as Lead Director. In addition, Mr. Rodino and William Mitchell, M.D., Ph.D.
were each appointed to the Compensation Committee and Corporate Governance and Nominating Committee. Mr. Rodino, Dr. Mitchell
and Iraj E. Kiani were each appointed to the Audit Committee.
On February 17, 2016, our
Board, by majority vote, terminated the employment of Dr. Carter, our Chairman of the Board, Chief Executive Officer and Chief
Scientific Officer. As a result, Dr. Carter also is no longer a director. Dr. Mitchell, one of our independent directors, was appointed
Chairman of the Board.
On February 19, 2016, our
Board also made several changes to our executive management team in light of the termination of Dr. Carter, to provide effective
and competent leadership that will properly position us to achieve our commercial goals and increase stockholder value. In this
regard, Adam Pascale was named Chief Financial Officer in addition to his current responsibilities as Chief Accounting Officer.
Mr. Pascale has been employed us for 18 years, with more than two decades of public accounting experience and prior public company
experience. He earned a Bachelor of Arts degree in Accounting and Finance from Rutgers University. Mr. Pascale served for several
years as a CPA prior to joining the Company, and is a member of both the American and the Pennsylvania Institutes of Certified
Public Accountants. Mr. Equels, our Chief Executive Officer (“CEO”) and President, resigned as Chief Financial Officer
to make way for Mr. Pascale.
On February 25, 2016, our
Board appointed Thomas K. Equels, our current President, as our CEO. In that capacity, he is our principal executive officer. On
June 16, 2016, Iraj Kiani resigned as a member of our Board. On September 30, 2016, Mr. Rodino resigned as a member of our Board
to permit him to serve us in a new capacity. In this regard, effective October 1, 2016, we retained Mr. Rodino as our Executive
Director for Governmental Relations, and as our General Counsel. In that capacity, Mr. Rodino will handle all government affairs
and litigation matters on a going forward basis.
On April 20, 2016, we executed
a consulting agreement with Huron Consulting Group, a global consultancy with decades of experience in the life sciences market, to
advance our strategic plan to capitalize on business opportunities in the United States and in target countries around the world.
Our flagship products include
Alferon N Injection® and the experimental therapeutic Ampligen®. Alferon N Injection® is approved for a category of
STD infection, and Ampligen® represents an experimental RNA being developed for globally important viral diseases and disorders
of the immune system. Hemispherx' platform technology includes components for potential treatment of various severely debilitating
and life threatening diseases. Alferon® LDO (Low Dose Oral) is a formulation under development targeting influenza.
The below chart provides
a summary of the clinical indications for both Ampligen® and Alferon® currently under development.
We own and operate a 43,000
sq. ft. FDA approved facility in New Brunswick, NJ to produce Alferon® and Ampligen®, and completed the construction of
our $8 million facility enhancement project in 2015 which, upon FDA approval, should provide for a higher capacity, more cost effective
manufacturing process for the production of Alferon N Injection®. As part of our objectives to achieve our commercial goals
and increase stockholder value, we are in the process of selling an underutilized building adjacent to our New Jersey manufacturing
facility site. We do not believe that the sale of this building will have an impact on the production of our products. We also
are exploring the possibility of selling the primary facility if we can obtain a long term lease back of the facility on acceptable
terms. Please see “Manufacturing” section below.
On February 1, 2013, we
received a Complete Response Letter (“CRL”) from the FDA declining to approve our NDA for Ampligen® for Chronic
Fatigue Syndrome ("CFS"). Please see the discussion in "Our Products - Ampligen®" below for more detail.
Our principal executive
office is located at One Penn Center, 1617 JFK Boulevard, Philadelphia, Pennsylvania 19103, and our telephone number is 215-988-0080.
OUR PRODUCTS
Our primary pharmaceutical
product platform consists of our experimental compound, Ampligen®, our FDA approved natural interferon product, Alferon N Injection®,
and our experimental liquid natural interferon for oral administration, Alferon® LDO (Low Dose Oral).
Ampligen®
Ampligen® is
approved for commercial sale in Argentina and is an experimental drug currently undergoing clinical development for the
treatment of CFS in the United States of America. As noted above and discussed below, the FDA in its CRL declined to approve our NDA
for the treatment of CFS with Ampligen®. Over its developmental history, Ampligen® has received various designations,
including Orphan Drug Product Designation (FDA), 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, DNA and 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, that would be 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(C12U).
Clinical trials of Ampligen®
already conducted by us include studies of the potential treatment of CFS, Hepatitis B, HIV and cancer patients with renal cell
carcinoma and malignant melanoma. All of these potential uses will require additional clinical trials to generate the safety and
effectiveness data necessary to support regulatory approval.
On February 1, 2013, we
received a CRL from the FDA declining to approve our New Drug Application (“NDA”) 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. The additional clinical study should address, among other things, Ampligen®'s efficacy
in treating CFS patients, be of sufficient size and duration to assess the safety of Ampligen® and be sufficient to determine
appropriate dosing. The FDA set forth the reasons for this action and provided recommendations to address certain of the outstanding
issues. The FDA stated that the submitted data does not provide substantial evidence of efficacy of Ampligen® for the treatment
of CFS and that the data does not provide sufficient information to determine whether the product is safe for use in CFS due to
the limited size of the safety database and multiple discrepancies within the submitted data. In addition to the safety and effectiveness
issues recommended to be addressed in at least one additional clinical trial, the CRL states that Hemispherx should conduct complete
rodent carcinogenicity studies in two species prior to approval and also conduct additional animal toxicology studies providing
more comprehensive evaluation of Ampligen® fragments and degradation products. The CRL also requests evaluation of variation
between lots of Ampligen® tested in the development process and recommends tighter control of the Ampligen® manufacturing
process.
In response to the CRL,
we continue to plan to avail ourselves of the opportunity for an “end-of-review” meeting with representatives of the
Office of Drug Evaluation II which issued the CRL, in order to clarify and seek to narrow the outstanding issues regarding the
further development of Ampligen® for the treatment of CFS.
FDA regulations provide
a formal dispute resolution process to obtain review of any FDA decision, including a decision not to approve an NDA, by raising
the matter with the supervisor of the FDA office that made the decision. The formal dispute resolution process exists to encourage
open, prompt discussion of scientific (including medical) disputes and procedural (including administrative) disputes that arise
during the drug development, new drug review, and post-marketing oversight processes of the FDA. Depending on the outcome of a
number of initiatives in the CFS community, including the FDA’s Patient Focused Drug Development Initiatives, forthcoming
drug guidance and other scientific initiatives by the Institute of Medicine, Center for Disease Control and National Institute
of Health, we will continue to examine the opportunity for an “end-of-review” meeting. Depending on the results of
these initiatives, we may request an "end-of-review" conference with the FDA as a precursor to a possible submission
of a formal appeal to the Office of New Drugs within the FDA's Center for Drug Evaluation and Research regarding the FDA's decision.
Please see “Risks Associated with Our Business” in Part I; Item 1A. Risk Factors below.
Until we undertake the
end-of-review conference(s), or otherwise reach an agreement with the FDA regarding the design of a confirmatory study, we are
unable to reasonably estimate the nature, costs, necessary efforts to obtain FDA clearance or anticipated completion dates of any
additional clinical study or studies. Utilizing the industry norms for undertaking a Phase III clinical study, we estimate upon
acceptance of the study's design that it would take approximately 18 months to three years to complete a new well-controlled Ampligen®
clinical study for resubmission to the FDA. Industry norms suggest that it will require three to six months to initiate the study,
one to two years to accrue and test patients, three to six months to close-out the study and file the necessary documents with
the FDA. The actual duration to complete the clinical study may be different based on the length of time it takes to design the
study and obtain FDA's acceptance of the design, the final design of an acceptable Phase III clinical study, availability of suitable
participants and clinical sites along with other factors that could impact the implementation of the study, analysis of results
or requirements of the FDA and/or other governmental organizations. We anticipate that the time and cost to undertake clinical
trial(s), studies and data analysis are beyond our current financial resources without gaining access to additional funding. Please
see "Part I; Item 1A, Risk Factors: "We may require additional financing which may not be available."
In May 1997, the FDA authorized
an open-label 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. As of September 30, 2016, there were 27 patients participating
in this open label treatment protocol taking treatment. 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 1997, we calculated the
cost per dose (400mg) of Ampligen® to be $150 per dose consistent with the regulatory guidelines; however, we recently 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 2015. The independent analysis disclosed a cost per 400 mg dose of Ampligen® of $400,
$200 per vial. In October 2016, the FDA granted our request to implement the new cost.
On July 12, 2012, we filed
a new drug application for Ampligen® with the ANMAT (Administracion Nacional de Medicamentos, Alimentos y Tecnologia Medica),
the agency responsible for the national regulation of drugs, foods and medical technology in Argentina, under the ANMAT’s
Orphan Drug regulations. We believe that the approval of Ampligen® as an Orphan Drug may allow reimbursement by the Health
Services Authority (SSS), the central health authority in Argentina for patients seeking treatment for CFS.
On
August 18, 2016, we received approval of our New Drug Application (“NDA”) from ANMAT for commercial sale of rintatolimod
(U.S. tradename: Ampligen®) in the Argentine Republic for the treatment of severe myalgic encephalomyelitis/chronic fatigue
syndrome (“ME/CFS”). The product will be marketed by GP Pharm, our commercial partner in Latin America.
In January 2015, we reported
that we have conducted new in vitro studies of natural killer (NK) cells obtained from CFS patients in conjunction with a comprehensive
review of the medical literature to determine the relative incidence of NK cell functional deficiencies in CFS disease. This review
indicates that low NK cell cytotoxicity (NKCC) has been consistently reported in CFS patients compared to normal controls. In the
new laboratory studies, Ampligen® was found to increase in vitro NK activity utilizing cells from CFS patient donors. The authors
of the new report are all affiliated with Hemispherx.
Alferon N Injection®
Alferon N Injection®
is the registered trademark for our injectable formulation of natural alpha interferon, which was approved by the FDA in 1989 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 U.S. Centers for Disease Control and Prevention (“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, 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®.
Alferon® LDO (Low
Dose Oral)
Alferon® LDO [Low Dose
Oral Interferon Alfa-n3 (Human Leukocyte Derived)] is an experimental low-dose, oral liquid formulation of Natural Alpha Interferon
and like Alferon N Injection®, should not cause antibody formation, which is a problem with recombinant interferon. It is an
experimental immunotherapeutic believed to work by stimulating an immune cascade response in the cells of the mouth and throat,
enabling it to bolster systemic immune response through the entire body by absorption through the oral mucosa. Oral interferon
could be economically feasible for patients and logistically manageable globally for development programs for prevention and, or
treatment of pandemic influenza, seasonal influenza and other emerging viruses. Oral administration of Alferon® LDO, with its
anticipated affordability, low toxicity, no production of antibodies, and broad range of potential bioactivity, could be a breakthrough
treatment or preventative for viral diseases.
Hemispherx currently has
an FDA authorized protocol to conduct a Phase II, double-blind, adaptive-design, randomized, placebo-controlled, dose-ranging study
of Alferon® LDO for the prophylaxis and treatment of seasonal influenza of more than 200 subjects. Our Phase II study has continued
to be delayed as we had redirected many of our resources to complete the upgrades in the New Brunswick facility.
Other Diseases
In July 2011, we received
FDA authorization to proceed with the initiation of a new clinical trial of intranasal Ampligen® to be used in conjunction
with commercially approved seasonal influenza vaccine. On April 16, 2012, a clinical trial was initiated in which Ampligen®
is nasally administered in conjunction with FluMist® to healthy human volunteers at the University of Alabama at Birmingham
under the auspices of Dr. Paul Goepfert, Associate Professor of Medicine in the Division of Infectious Diseases and Director of
the Alabama Vaccine Research Clinic. This study is a first use of Ampligen® with a seasonal vaccine in humans to assess the
safety of Ampligen® when nasally delivered as a vaccine adjuvant. Another objective of this study is to determine the extent
to which Ampligen® mobilizes potential protections against pandemic influenza by utilization of a seasonal flu vaccine. The
study will evaluate the potential immunologic enhancement of Ampligen® by comparing immune parameters in the group receiving
Ampligen® plus FluMist® with another group receiving FluMist® plus placebo. Twenty-five subjects have been enrolled;
twelve in Stage 1 and thirteen subjects in Stage 2. The study is currently on hold pending the safety data on these 25 subjects
being reviewed by the Data Monitoring Committee and authorization from the FDA is received to proceed with enrollment. As of September
30, 2016, there are no active subjects in the study.
In December 2013, we announced
that we are supporting the University of Pittsburgh’s National Institutes of Health funded study (grant 1PO1CA132714) currently
underway as part of the University’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. and involves the Chemokine Modulatory regimen developed
by Dr. Kalinski’s group, has successfully completed the dose escalation in patients with resectable colorectal cancer under
the clinical leadership of Dr. Amer Zureikat, an assistant professor of surgery. To date, 15 patients have been treated in this
study. In addition, the University has initiated enrollment in an additional cancer study of peritoneal surface malignancies which
includes Ampligen® as an immune enhancer. To date, 43 patients have been treated. The University has initiated enrollment into
another cancer study of recurrent ovarian cancer patients which includes Ampligen® as a component of the treatment regimen.
To date, 5 patients have been treated. The University has received Institutional Review Board approval for another cancer study
of subjects with chemo-refractory metastatic colorectal cancer which also includes Ampligen® as an immune enhancer. Enrollment
into this study has not yet been initiated.
In May 2014, we announced
that one of our advanced stage biological products, Alferon® N, significantly inhibited the replication of the MERS virus in
vitro. MERS-CoV is a recently emerged human coronavirus responsible for the lethal pulmonary syndrome known as MERS (Middle East
Respiratory Syndrome). Recent testing in laboratories of the National Institute of Allergy and Infectious Diseases (NIAID), part
of the National Institutes of Health, has revealed that Alferon® N was inhibitory to MERS-CoV both when used before test cells
were exposed to MERS-CoV, as well as after the cells were exposed to the deadly virus. NIAID researchers led the Alferon® N
MERS-CoV experiments. They treated monkey kidney cells with Alferon® N either 18 hours prior to infection with MERS-CoV ("pre-treatment")
or 1 hour following infection with MERS-CoV ("post-treatment"). At Day 1 and Day 3, supernatants were collected from
cells and virus titers were thereafter measured. In both cases, Alferon® N showed significant dose-dependent inhibitory effects,
thus suggesting the potential of Alferon® N both as a preventive and a potential treatment. Laboratory (in vitro) studies of
potential antiviral agents are not necessarily predictive of clinical benefits. The Company was not involved in the conduct of
the experimentation.
In June 2014, we announced
that we have confirmed that Alferon® N inhibits replication of the MERS virus in vitro. Chien-Te (Kent) Tseng, Ph.D., Associate
Professor, Microbiology & Immunology at the University of Texas Medical Branch at Galveston, led the Alferon® N MERS-CoV
experiments. Calu-3 cells were treated with Alferon® N 24 hours prior to infection with MERS-CoV. At 36 hours, supernatants
were collected from cells and the virus titers were thereafter measured. Alferon® N showed significant dose-dependent inhibitory
effects, thus suggesting the potential of Alferon® N as a preventative. Laboratory (in vitro) studies of potential antiviral
agents are not necessarily predictive of clinical benefits. The Company supplied the Alferon® N, but was not directly involved
in the conduct of the experimentation.
In July 2015, we submitted
an application for orphan drug designation to the European Medicines Agency (EMA) for Alferon® N to treat MERS and on January
6, 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.
On March 3, 2016, we entered
into a Sales, Marketing, Distribution and Supply Agreement (the “Scien Agreement”) with Scientific Products Pharmaceutical
Co. LTD, a Saudi Arabia based pharmaceutical company (“Scien”). Pursuant to the Scien Agreement, we granted Scien an
exclusive license to sell, market and distribute human leukocyte derived Interferon alfa-n3 (the “Product”) for refractory/recurrent
genital warts, recombinant interferon refractory patients and patients with other infectious diseases, e.g., Middle East Respiratory
Syndrome (“MERS”), influenza, West Nile Virus and cancer (the “Field”) within the Gulf Cooperation Council
states (the “Territory”) for Direct Access/EAP and Regulatory Agency-Approved purposes. A condition precedent to the
granting of the license is the successful completion of a clinical study to be performed by the Saudi Ministry of Health on at
least five persons in Saudi Arabia treating early onset patients infected with MERS. Scien will purchase the Product to be used
in this study. Pursuant to the Scien Agreement, Scien will, among other things, prepare a business plan to make aware and educate
physicians and patients about the Product both prior to and following approval of the Product, assist us to gain regulatory approval
of Product in the Field in the Territory and, if needed, assist in recruiting clinical trial sites and principal investigators
in the Field in the Territory. We have recently been informed by the Saudi Ministry of Health that they will not pursue treating
patients infected with MERS with human leukocyte derived Interferon and are now looking to explore other options to conduct a clinical
study to treat MERS before seeking regulatory approval.
Ebola
We announced, in September
2014, a 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. Our two platform drugs Alferon® N and Ampligen®,
have certain unique structural attributes and developmental histories which suggest potential incremental value with respect to
inclusion in various Ebola therapeutic cocktails under development. These collaborations have resulted in the following reports
being issued:
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November 2014 - We received a report from the United
States Army Medical Research Institute of Infectious Diseases ("USAMRIID") scientists that they have in-vitro data indicating
that Alferon®, the only multi-species, natural alpha interferon commercially approved in the U.S., successfully protected
human cells against the Ebola virus (EBOV).
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November 2014 - We announced that we had received a new
research report from Professor Tramontano in the Department of Life and Environmental Sciences, University of Cagliari, Italy.
The biochemical study demonstrates Ampligen® can successfully bind to the lethal Ebola Virus protein designated VP35. VP35
protein normally inactivates a patient's immune/antiviral system by binding to viral dsRNA thereby sequestering a critical antiviral/immune
activator of the body, which leads to high morbidity and death rates. Ampligen® competes with viral dsRNA for VP35 binding
and this finding is consistent with recent studies at USAMRIID demonstrating that Ampligen® inhibits Ebola virus infectivity
in vitro.
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December 2014 - We announced that we received a new research
report from researchers at Howard University, Washington DC. The report describes a study in which Ampligen® strongly inhibited
the Ebola minigenome in the human embryonic kidney cell system.
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February 2015 - We announced results of a new efficacy
study of Ampligen® in a mouse model of EBOV infection performed by scientists at the USAMRIID. Ampligen® was utilized
with a mouse adapted Ebola virus using multiple groups of mice with varying dosage schedules of Ampligen® given every other
day. The most effective dose, resulting in 100% percent survival at Day 21, corresponded to a human dose of approximately 400
mg, which has been used clinically approximately 50,000 times and has been generally well-tolerated when administered twice weekly.
When higher doses of Ampligen® were used in the Ebola-infected mice, the survival rate dropped to 90%. The Ebola-infected
mice treated with placebo had a 100% death rate by Day 7 post-infection. The EBOV data obtained from the
in vitro
and mouse
infection studies using Ampligen® suggest a potential prophylactic and/or early onset therapeutic role in EVD. Previously
published experimental results of animal studies using models of other lethal viral infections indicate possible similar applications
to other lethal viral diseases. However,
in vitro
and animal testing is no assurance of human safety or efficacy for viral
diseases. Clinical studies would be necessary to establish human efficacy and safety of Ampligen® for any treatment and/or
prevention indication.
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Positive results from a
non-human primate ("NHP") study in all probability may be required before initiation of human clinical testing of Ampligen®
in patients with Ebola Virus Disease ("EVD"). Clinical studies would also be necessary to establish human safety and
efficacy of Ampligen® for either treatment and/or prevention of EVD. Clinical safety and tolerability data obtained for one
indication, for example, CFS, may be different for another disorder like EVD. Currently, because of increased demand and the limited
number of facilities that can conduct EBOV studies in NHP, the scheduling of a NHP study may be delayed; however, the Company is
actively seeking such a study.
Our European subsidiary,
Hemispherx Biopharma Europe N.V./S.A., has been formally notified of a positive opinion from the COMP (Committee
on Medical Products) regarding its Orphan Medicinal Product Application for Ampligen®, an experimental therapeutic, to treat
Ebola Virus Disease (EVD). The European Medicines Agency (EMA) published on May 22, 2015 both its Public Opinion Summary and
its record designation approving the Orphan Medicinal Product Designation for Ampligen®, also known as rintatolimod experimental
therapeutic, to treat Ebola Virus Disease (EVD).
Our overall objectives
include plans to continue seeking approval for commercialization of Ampligen® in the United States and abroad as well as to
widen existing commercial therapeutic indications of Alferon N Injection® presently approved in the United States and Argentina.
In addition, we have formed collaborations with multiple research laboratories around the world to examine Ampligen®, an experimental
therapeutic, for the treatment of Ebola Virus Disease (EVD) among others. 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 as potential preventatives for, and treatments of, MERS, among others, 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.
Manufacturing
On October 2, 2011, the
Company finalized their Fourth Amendment to a Supply Agreement, effective through March 11, 2014, with Jubilant Hollister-Stier
Laboratories LLC of Spokane, Washington (“Hollister-Stier”), pursuant to which Hollister-Stier would formulate and
package Ampligen® from the key raw materials that Hemispherx would supply to them. This Supply Agreement expired March 11,
2014. The Company is working towards an amendment to the existing Supply Agreement, which may contain additional fees as part of
entering into the extension. In October 2014, we entered into a purchase commitment with Hollister-Stier for approximately $700,000
for the manufacture of clinical batches of Ampligen®. The Company is in discussion with Hollister-Stier about this purchase
commitment.
On July 27, 2016, the Company
reached an agreement with Avecia to serve as an additional contract manufacturer of Hemispherx's experimental drug, Ampligen®.
Avecia, an FDA inspected facility, has the capabilities for the compounding and fill/finish of sterile clinical and commercial
grade Ampligen® to satisfy the Company's ongoing domestic clinical studies as well as the recently initiated Early Access Program
(EAP) in Europe and Turkey. We believe that Avecia will be able to meet our immediate requirements until we are able to amend our
agreement with Hollister-Stier and, regardless, will be a good source of manufactured product. The Company initiated the transfer
of the key raw materials and has made payments of $270,000 to Avecia for the manufacture of Ampligen®. In October 2016, the
Company completed its technology transfer of the Ampligen
®
manufacturing processes to Avecia. The transfer consists
of providing Avecia with all information that is relevant to the manufacturing process of Ampligen
®
and associated
assays. This includes performing a test engineering run to identify any potential issues before moving forward with the first cGMP
lot and confirming that the information exchange was successful. This will enable Avecia to begin manufacturing current Good Manufacturing
Practice (“cGMP”) lots of Ampligen
®
. The first cGMP lot is expected to be compounded, filled and finished
in November and released in December, 2016, for use in the Company’s Early Access Program (“EAP”) in Europe and
Turkey.
Please see “Risks Associated with Our Business” in
Part II. Item 1A. Risk Factors below -
There are no long-term agreements with suppliers of required materials and services for
Ampligen® and there are a limited number of raw material suppliers. If we are unable to obtain the required raw materials and/or
services, we may not be able to manufacture Ampligen.
We
completed the construction of the $8 million facility enhancement project in 2015 which, upon FDA approval, should provide for
a higher capacity and more cost effective manufacturing process for the production of Alferon N Injection®. Commercial sales
of Alferon and Alferon API internationally are projected to begin as soon as the necessary regulatory approvals are obtained. However,
commercial sales of Alferon® in the USA will not resume until new batches of commercial filled and finished product are produced
and released by the FDA. We are continuing the validation of Alferon® production and production of new Alferon® API inventory
commenced in February 2015. While the facility is approved by the FDA under the Biological License Application (“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. We had anticipated that it
would take approximately until at least the 2nd half of 2015 before we would have Alferon® approved for commercial sales; however,
during the final stage of the manufacturing process we encountered issues regarding a change in both the contract supplier of leukocytes
and the long term supply availability related to a reagent used in the formulation of Alferon®. We have substantially
resolved these issues through engaging in multiple agreements with suppliers of leukocytes as well as entering into a licensing
agreement with a foreign multinational chemicals and biotechnology company that has been in business for over a century for the
sourcing of the primary reagent allowing us to manufacture Alferon®. However, due to the interruption of the required flow
of leukocytes, production ceased, causing parts to malfunction in the upstream process when the system was restarted for testing.
We were working diligently to make the necessary repairs to be able to restart the validation process; however, in the process
of obtaining time estimates for the repairs we experienced a flood within portions of our manufacturing facility. As a result,
we
will be constrained in our ability to manufacture product in the near future due to this
flood in the upstream processing cleanroom that contains the bioreactor. The flood occurred on the afternoon of January 5, 2016,
caused by a malfunctioning water supply pipe for the sprinkler system covering a large amount of the cleanroom in stagnant water
and silt from the sprinkler system.
Our facility insurer has been proactive in addressing and covering the loss. While repairs
have required preapproval by our insurer, activity moved forward quickly. The repairs noted below required special action because
of the need to keep this critical manufacturing room within International Organization for Standardization (ISO) classifications
and the need to certify that all the equipment that was exposed, or submerged, is in proper condition and operating effectively
following the corrective actions. All HEPA filters affected by the flood were tested by an outside contractor and have passed all
required tests. The flooring that was damaged has been repaired using a special epoxy that is used in cleanrooms. A large portion
of the walls in the ISO classified area were damaged. We had a damage mitigation company come in to stop any moisture from seeping
further into the ISO classified areas. Subsequently, all damaged walls and ceilings have been replaced with cleanroom grade materials
and need no further work. Six pumps that were affected by the flood were sent back to the manufacturer for inspection and repair.
Repairs that were required have been completed on the pumps and they were reinstalled in the Alferon manufacturing facility after
the floor repair work was completed. All pumps will need to be qualified for use in the manufacturing process prior to the validation
process for a Pre-Approval Inspection. All air ducts supplying the Alferon manufacturing area were cleaned and insulation replaced
along with ceiling tiles. All smaller pieces of machinery and equipment that could not be salvaged have been replaced. We also
completed the HVAC air balancing and qualification. At this time, we believe that all repairs to the manufacturing facility have
been completed.
We also are exploring the
possibility of selling the facility if we can obtain a long term lease back on the facility on acceptable terms.
Currently,
the manufacturing process is on hold and there is no definitive timetable to have the facility back online.
Due to the Company
extending the timeline of Alferon® production to an excess of one year, we reclassified Alferon® work-process-inventory
to other assets within our balance sheet as of September 30, 2016.
In addition,
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 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.
To formulate, fill, finish
and package (“fill and finish”) Alferon N Injection® Drug Product, we require a FDA approved third party Contract
Manufacturing Organization (“CMO”). In January 2012, we agreed to a Technology, Transfer, Validation and Commercial
Supply Agreement with Althea Technologies, Inc. (“Althea”) of San Diego, CA, regarding the fill and finish process
for Alferon N Injection®. In November 2014, we entered into a purchase commitment with Althea for approximately $622,000 for
the production of validation batches of Alferon® N Injection for emergency use and/or commercial sale. The Company has paid
approximately $210,000 to Althea with regard to this open purchase commitment as of September 30, 2016 and has recorded this amount
within work-in-process inventory.
Marketing/Distribution
Our marketing strategy
for Ampligen® reflects 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, ANMAT and/or
other regulatory 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 January 2010, we engaged
an Argentinean regulatory and business design entity to explore the possibility of initiating clinical trials of Alferon N Injection®,
Ampligen® and Alferon® LDO during the influenza season in Argentina. On June 14, 2010, we executed a five year exclusive
Sales, Marketing, Distribution and Supply Agreement for Argentina with GP Pharm Latinoamerica (“GP Pharm”), an affiliate
company of Spanish GP Pharm SA. Under this Agreement, GP Pharm will be responsible for gaining regulatory approval in Argentina
for Ampligen® to treat 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. Under these agreements, we will manufacture and supply Ampligen® and Alferon N Injection®
to GP Pharm. On November 15, 2010, we amended our June 15, 2010 agreement with GP Pharm to include Mexico in the Territory under
the Sales, Marketing, Distribution and Supply Agreement. Under this Agreement, GP Pharm Mexico will be responsible for seeking
regulatory approval in Mexico for Ampligen®, an experimental therapeutic, to treat CFS in Mexico and, if approval is obtained,
for commercializing Ampligen® for this indication in Mexico. On May 24, 2016, we entered into a five year exclusive Renewed
Sales, Marketing, Distribution and Supply Agreement (the “Agreement”) with GP Pharma whereby all material provisions
within the Agreement remained consistent with the original agreement.
In January 2012, the ANMAT
approved the sale and distribution of Alferon N Injection® (under the brand name “Naturaferon”) in Argentina. The
receipt of the ANMAT approval for HPV is the first step of a regulatory process towards the commercial sales of Naturaferon. On
September 20, 2012, we filed with ANMAT an amended NDA for the use of Alferon N Injection® in patients with chronic hepatitis
C who have become refractory to recombinant interferon as a result of the appearance of neutralizing antibodies against recombinant
interferon. On February 6, 2013, we received the ANMAT approval for the treatment of refractory patients that failed or were intolerant
to the treatment with Interferon recombinant with Naturaferon in Argentina.
On September 6, 2011, we
executed an amended agreement with Asembia, formerly Armada Healthcare, LLC, to undertake the marketing, education and sales of
Alferon N Injection® throughout the United States. This agreement also provides start-up along with ongoing sales and marketing
support to the Company. On July 31, 2015, it was mutually agreed upon to extend this agreement through August 14, 2017 subject
to the same terms and conditions. We previously extended this agreement for the previous three years also under the same terms
and conditions.
On September 6, 2011, we
executed a new agreement with specialty distributor, BioRidge Pharma, LLC (“BioRidge”) to warehouse, ship, and distribute
Alferon N Injection® on an exclusive basis in support of U.S. sales. On July 31, 2015, it was mutually agreed upon to extend
this agreement through August 14, 2017 subject to the same terms and conditions. We previously extended this agreement for the
previous three years also under the same terms and conditions.
On March 9, 2015, we executed
an agreement with Emerge Health Pty Ltd. ("Emerge") to seek approval of Ampligen® for CFS in Australia and New Zealand
and to commence distribution of Ampligen® in both countries on a named-patient basis, where deemed appropriate. The parties
intend to collaborate on seeking regulatory approval from Australia's Therapeutic Goods Administration ("TGA") and New
Zealand's Medicines and Medical Devices Safety Authority ("Medsafe"). Under this five-year exclusive license to sell,
market, and distribute Ampligen in Australia and New Zealand to treat CFS, Emerge will implement regulatory-compliant programs
to educate physicians about Ampligen® for CFS and seek orphan drug designation and approval of Ampligen® to treat CFS.
Hemispherx will support these efforts and will supply Ampligen® at a predetermined transfer price. We have the right to buy
out of the agreement at a price equal to three times Ampligen® sales for the preceding 12 months if exercised within the first
two years or two times such sales if exercised after year three.
On May 24, 2016, we entered
into an amended and restated multi-year agreement with Impatients, N.V. ("Impatients"), a Netherlands based company doing
business as myTomorrows, for the commencement and management of an Early Access Program (“EAP”) in Europe and Turkey
(the “Territory”) related to Chronic Fatigue Syndrome. Pursuant to the agreement, MyTomorrows, as Hemispherx’
exclusive service provider and distributor in the Territory, would perform EAP activities. These activities would 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. Hemispherx would support these efforts and supply Ampligen to myTomorrows at a predetermined transfer price. In the event
that we receive Marketing Authorization in any country in the Territory, we would pay myTomorrows a royalty on products sold. The
parties established a Joint Steering Committee comprised of representatives of both parties to oversee the EAP.
On August 6, 2015, we executed
an agreement with Emerge to seek approval of Alferon N Injection® in Australia and New Zealand and to commence distribution
of Alferon® in both countries on a named-patient basis, for treating genital warts and other infections and diseases to which
patients in Australia and New Zealand have become refractory to recombinant interferon. Hemispherx and Emerge will collaborate
on seeking regulatory approval from Australia’s TGA and New Zealand’s Medsafe. Under a five-year exclusive license
to sell, market, and distribute Alferon N Injection® in Australia and New Zealand, Emerge will implement regulatory-compliant
programs to educate physicians about Alferon®. Hemispherx will support these efforts and will supply Alferon® at a predetermined
transfer price. We have the right to buy out of the agreement at a price equal to three times Alferon® sales for the preceding
12 months if exercised within the first two years or two times such sales if exercised after year three.
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 nine months ended September 30, 2016, the Company did not make any
contributions towards the 401(k) Plan.
New Accounting Pronouncements
See
Part
I - Financial Information; Item 1; Financial Statements;
“
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, 2015.
RESULTS OF OPERATIONS
Three months ended September 30, 2016
versus three months ended September 30, 2015
Net Loss
Our net loss was approximately
$2,862,000 and $3,803,000 for the three months ended September 30, 2016 and 2015, respectively, representing a decrease in loss
of approximately $941,000 or 25% when compared to the same period in 2015. This decrease in loss for these three months was primarily
due to the following:
|
1)
|
a decrease in research and development expense of approximately $626,000 or 32%;
|
|
2)
|
a decrease in production costs of approximately $81,000 or 23%;
|
|
3)
|
a gain on the valuation adjustment on the redeemable warrants of approximately $103,000; and
|
|
4)
|
an insurance settlement on legal expenses recorded as other income of approximately $190,000, offset by
|
|
5)
|
a decrease in interest and other income of approximately $141,000 or 78%.
|
Net loss per share was
$(0.13) and $(0.18) for the three months ended September 30, 2016 and 2015, respectively. The weighted average number of shares
of our common stock outstanding as of September 30, 2016 was 21,832,940 as compared to 20,564,538 as of September 30, 2015.
Revenues
Revenues from our Ampligen®
Cost Recovery Program were $22,000 and $23,000 for the three months ended September 30, 2016 and 2015, respectively. For the three
months ended September 30, 2016 and 2015, we had no Alferon N Injection® finished good product to commercially sell and all
revenue was generated from the FDA approved open-label treatment protocol, (“AMP 511”), that allows patient access
to Ampligen
®
for treatment in an open-label safety study.
Production Costs
Production costs were approximately
$272,000 and $353,000, respectively, for the three months ended September 30, 2016 and 2015. This decrease of approximately $81,000
or 23% was primarily due to a decline in ongoing stability testing on Alferon® work-in-process inventory.
Research and Development Costs
Overall Research and Development
(“R&D”) costs for the three months ended September 30, 2016 were approximately $1,342,000 as compared to $1,968,000
for the same period a year ago, reflecting a decrease of approximately $626,000 or 32%. The primary reason for the decrease in
research and development costs was due to a decrease in general R&D expenses of approximately $708,000 including Alferon N
Injection® compliance testing and clinical work and a decrease in executive salaries and wages of approximately $372,000. This
was offset by a general net increase in R&D expenses of approximately $336,000 associated with Ampligen
.
These decreases in general R&D expenses were mainly the result of implementing a strong financial austerity plan whereby
we conducted an analysis of our research and development programs and our staffing levels within our New Jersey manufacturing facility.
General and Administrative Expenses
General and Administrative
(“G&A”) expenses for the three months ended September 30, 2016 and 2015, were approximately $1,634,000 and $1,685,000,
respectively, reflecting a decrease of approximately $51,000 or 3%. The decrease in G&A expenses in 2016 was mainly due to
lower professional and legal fees of approximately $50,000 during the current quarter.
Insurance settlement net of litigation
expenses
The Company recorded a
net insurance settlement of $190,000 during the three months ended September 30, 2016 which resulted from the legal settlements
of various class action lawsuits during the current period. There were no such occurrences in the prior period.
Interest and Other Income
Interest and other income
for the three months ended September 30, 2016 and 2015 were approximately $40,000 and $181,000, respectively, representing a decrease
of approximately $141,000 or 78%. The primary cause for the decrease in investment income during the current period was primarily
due to lower balances available to invest in the current period as compared to the prior period.
Redeemable Warrants
The quarterly fiscal revaluation
of certain redeemable warrants resulted in a non-cash gain to the redeemable warrants liability for the three months ended September
30, 2016 amounting to a gain of approximately $103,000 (see Part I - Financial Information; Item 1; Financial Statements; “Note
13: Fair Value” for the various factors considered in the valuation of redeemable warrants).
Nine months ended September 30, 2016
versus nine months ended September 30, 2015
Net Loss
Our net loss was approximately
$6,329,000 and $12,093,000 for the nine months ended September 30, 2016 and 2015, respectively, representing a decrease in loss
of approximately $5,764,000 or 48% when compared to the same period in 2015. This decrease in loss for these nine months was primarily
due to the following:
|
1)
|
a decrease in research and development expense of $3,837,000 or 54%;
|
|
2)
|
a decrease in production costs of approximately $402,000 or 33%;
|
|
3)
|
an insurance settlement net of litigation expenses recorded as other income of $1,626,000;
|
|
4)
|
an increase in the gain from sale of income tax net operating losses of $187,000 or 14%; and
|
|
5)
|
a gain on the valuation adjustment on the redeemable warrants of approximately $103,000; offset by
|
|
6)
|
a decrease in interest and other income of approximately $187,000 or 55%.
|
Net loss per share was
$(0.30) and $(0.62) for the nine months ended September 30, 2016 and 2015, respectively. The weighted average number of shares
of our common stock outstanding as of September 30, 2016 was 21,046,418 as compared to 19,358,962 as of September 30, 2015.
Revenues
Revenues from our Ampligen®
Cost Recovery Program were $76,000 and $106,000 for the nine months ended September 30, 2016 and 2015, respectively. For the nine
months ended September 30, 2016 and 2015, we had no Alferon N Injection® Finished Good product to commercially sell and all
revenue was generated from the FDA approved open-label treatment protocol, (“AMP 511”), that allows patient access
to Ampligen
®
for treatment in an open-label safety study.
Production Costs
Production costs were approximately
$830,000 and 1,232,000, respectively, for the nine months ended September 30, 2016 and 2015. This decrease of approximately $402,000
or 33% was primarily due to a decline in ongoing stability testing on Alferon® work-in-process inventory.
Research and Development Costs
Overall Research and Development
(“R&D”) costs for the nine months ended September 30, 2016 were approximately $3,244,000 as compared to $7,081,000
for the same period a year ago, reflecting a decrease of approximately $3,837,000 or 54%. The primary reason for the decrease in
research and development costs was due to a decrease in general R&D expenses of approximately $2,400,000 including Alferon
N Injection® compliance testing and clinical work and a decrease in executive salaries and wages of approximately $1,362,000.
This was offset by a general net increase in R&D expenses of approximately $231,000 associated with Ampligen®
.
These decreases in general R&D expenses were mainly the result of implementing a strong financial austerity plan whereby
we conducted an analysis of our research and development programs and our staffing levels within our New Jersey manufacturing facility.
General and Administrative Expenses
General and Administrative
(“G&A”) expenses for the nine months ended September 30, 2016 and 2015, were approximately $5,721,000 and $5,600,000,
respectively, reflecting an increase of approximately $121,000 or 2%. The increase in G&A expenses in 2016 was mainly due to
higher salaries and wages and severance related costs of approximately $107,000.
Interest and Other Income
Interest and other income
for the nine months ended September 30, 2016 and 2015 were approximately $156,000 and $343,000, respectively, representing a decrease
of approximately $187,000 or 55%. The primary cause for the decrease in investment income during the current period was primarily
due to lower balances available to invest in the current period as compared to the prior period.
Insurance settlement net of litigation
expenses
The Company recorded a
net insurance settlement of $1,626,000 during the nine months ended September 30, 2016 which resulted from the legal settlements
of various class action lawsuits during the current period. Insurance proceeds received of $3,726,000 were offset by litigation
settlement expenses of $2,100,000. There were no such expenses in the prior period (see "Part II - Other Information; Item
1: Legal Proceedings" for details).
Loss on Sale of Marketable Securities
Loss on sale of marketable
securities was $56,000 and $0, respectively, for the nine months ended September 30, 2016 and 2015. Our securities sold during
the current period resulted in net realized losses. There were no such sales that incurred losses in 2015 for the same period.
Sale of New Jersey Tax Net Operating
Loss
In January 2016, the Company
effectively sold $16,000,000 of its approximately $29,000,000 of New Jersey state net operating loss carryforwards (for the year
2014) for approximately $1,320,000 and sold research credits for $241,000. In January 2015, the Company effectively sold $14,291,000
of its approximately $28,000,000 of New Jersey state net operating loss carryforwards (for the year 2013) for approximately $1,374,000,
representing an increase in cash gain of $187,000 or 14% (see Part I - Financial Information; Item 1; Financial Statements; “Note
11
:
Funds Received from Sale of Income Tax Net Operating Losses”) for the nine months ended September 30, 2016 as
compared to the same period in 2015.
Redeemable Warrants
The quarterly fiscal revaluation
of certain redeemable warrants resulted in a non-cash adjustment to the redeemable warrants liability for the nine months ended
September 30, 2016 amounting to a gain of approximately $103,000 (see Part I - Financial Information; Item 1; Financial Statements;
“Note 13: Fair Value” for the various factors considered in the valuation of redeemable warrants).
Liquidity and Capital Resources
Cash used in operating
activities for the nine months ended September 30, 2016 was approximately $5,278,000 compared to approximately $12,739,000 for
the same period in 2015, a decrease of $7,461,000 or 59%. The primary reason for this decrease in cash used in operations in 2016
was due to lower operating expenses whereby we conducted an analysis of our research and development programs as well as our staffing
levels within our New Jersey manufacturing facility which resulted in a decrease in cash flow used in operations in 2016. In addition,
the Company received net proceeds from an insurance settlement of $1,626,000 which resulted from the legal settlements of various
class action lawsuits during the current period. Also, the Company paid the 2014 executive incentive bonuses in January 2015 for
approximately $1,232,000 reflected in accrued expenses and also paid for work in process inventory of $1,326,000 in 2015.
Cash provided by investing
activities for the nine months ended September 30, 2016 was approximately $2,943,000 compared to approximately $2,083,000 in cash
provided by investing activities for the same period in 2015, an increase of $860,000. The primary reason for the increase can
be attributable to additional sales and maturities of marketable securities during the current period of $3,371,000 as compared
to $2,497,000 in the prior period.
Cash provided by financing
activities for the nine months ended September 30, 2016 was approximately $4,693,000 compared to approximately $9,661,000 for the
same period in 2015, a decrease of $4,968,000. Cash provided by financing activities for the nine months ended September 30, 2016
primarily represented net proceeds received from the sale of common stock pursuant to a
Securities
Purchase Agreement (the “Purchase Agreement”) with certain investors for the sale by us of 3,333,334 shares of our
common stock at a purchase price of $1.50 per share. Concurrently with the sale of the common stock, pursuant to the Purchase Agreement,
we also sold warrants to purchase 2,500,000 shares of common stock for aggregate net proceeds of $4,520,000.
Cash provided
by financing activities for the nine months ended September 30, 2015 primarily represented the Company receiving net proceeds of
$9,680,000 from the sale of 3,416,141 shares sold pursuant to the ATM during the nine months ended September 30, 2015 (see Part
I - Financial Information; Item 1; Financial Statements; "Note 8: Stockholders' Equity”).
As of September 30, 2016,
we had approximately $8,009,000 in cash, cash equivalents and marketable securities, inclusive of approximately $3,536,000 in Marketable
Securities, representing a decrease of approximately $901,000 from December 31, 2015. In an effort to conserve cash, we conducted
an analysis of our research and development programs as well as our staffing levels within our New Jersey manufacturing facility.
Our analysis disclosed an ability to gain efficiencies and eliminate redundancies within our staffing which will result in a decrease
in cash flow used in operations in 2016 and beyond. If we are unable to commercialize and sell Ampligen® or Alferon® LDO
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 repair issues mentioned above within our NJ facility
and 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 to initiate commercial manufacturing, thereby readying ourselves for an FDA Pre-Approval Inspection. However,
there is no assurance that such financing will be available.
On
May 24, 2016, we entered into an amended and restated multi-year agreement with Impatients, N.V. ("Impatients"), a Netherlands
based company doing business as myTomorrows, for the commencement and management of an Early Access Program (“EAP”)
in Europe
and
Turkey (the “Territory”) related to Chronic Fatigue Syndrome. Pursuant
to the agreement, MyTomorrows, as Hemispherx’ exclusive service provider and distributor in the Territory, would perform
EAP activities. These activities would 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. Hemispherx would support these efforts and supply Ampligen to myTomorrows
at a predetermined transfer price. In the event that we receive Marketing Authorization in any country in the Territory, we would
pay myTomorrows a royalty on products sold. The parties would establish a Joint Steering Committee composes of representative of
both parties to oversee the EAP.
We
have been reexamining our fundamental priorities in terms of direction, corporate culture and our ability to fund operations. As
a result, there have been significant changes at the Company in the past few months. The CEO of the Company was terminated and
the Board of Directors has made several changes to the Company’s executive management team to provide effective and competent
leadership that, management believes, will properly position the Company to achieve its commercial goals and increase stockholder
value. Recent actions include aggressively pursuing international sales of clinical grade materials and implementing a strong financial
austerity plan. 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 its experimental drug and its approved drug Alferon®.
A co-development partner may help in the acceleration of the commercialization of many of our potential experimental drugs as they
have access to additional resources and capital; however, there can be no assurance that such co-development partnerships will
be on acceptable terms, or that such partnerships, will be acceptable from a profitability standpoint. Management’s primary
objectives are to create stockholder value and deliver much needed therapies to patients.
In 2015, Mr. Equels waived
his right under his employment agreement to any future payment of any incentive bonus related to the sale of the Company’s
stock or other securities by, or on behalf of, the Company pursuant to the Maxim Equity Distribution Agreement or any similar or
successor ATM equity distribution agreement. Mr. Equels voluntarily provided this waiver in an effort to preserve cash and to help
the Company to ensure its short term commercialization goals.
On January 26, 2016, the
Board, based on the recommendation of its Compensation Committee, established two programs - the 2016 Senior Executive Deferred
Cash Performance Award Plan for Dr. William A. Carter and Thomas K. Equels, the Company’s two primary executive officers,
and the 2016 Voluntary Incentive Stock Award Plan for Company employees and Board members other than Dr. Carter and Mr. Equels.
Both Plans include a Base Pay Supplement provision.
The
Company maintains a record of the number of shares of stock represented by each Incentive Right issued out of the 2016 Voluntary
Incentive Stock Award Plan. During the nine months ended September 30, 2016, the Company issued 140,936 incentive shares associated
with the Plan and recorded $219,000 in equity-based compensation. For a more detailed subscription of these plans, please see
Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations, Liquidity and Capital Resources
section within the Company’s 2015 Form 10-K filed with the SEC on March 29, 2016.
On
December 15, 2015, we entered into an Equity Distribution Agreement with Chardan Capital Markets, LLC (the “Chardan Agreement”)
to create an at-the-market equity program under which we may sell shares of our common stock from time to time through Chardan
Capital Markets, LLC, as sales agent (“Chardan”). Under the Chardan Agreement, Chardan will be entitled to a commission
at a fixed commission rate of 3.0% of the gross sales price of Shares sold under the Chardan Agreement. Sales of the Shares, if
any, under the Chardan Agreement may be made in transactions that are deemed to be “at-the-market” offerings as defined
in Rule 415 under the Securities Act of 1933, as amended, including sales made by means of ordinary brokers’ transactions,
including on the NYSE MKT, at market prices or as otherwise agreed with Chardan. The Company has no obligation to sell any of the
Shares, and may at any time suspend offers under the Chardan Agreement or terminate the Chardan Agreement.
Effective August
26, 2016, the Company halted all future offers and sales of its common stock under the Chardan Agreement and reduced the amount
of potential future offers and sales under the Chardan Agreement to $0.00. Between December 15, 2015, the date of the Chardan Agreement,
and August 26, 2016, we sold an aggregate of 114,394 shares of common stock pursuant to the Chardan Agreement for aggregate net
proceeds of approximately $174,000.
On
September 6, 2016, we entered into a Securities Purchase Agreement (the “Purchase Agreement”) with certain investors
for the sale by us of 3,333,334 shares of our Common Stock at a purchase price of $1.50 per share. Concurrently with the sale of
the Common Stock, pursuant to the Purchase Agreement, we also sold warrants to purchase 2,500,000 shares of common stock for aggregate
gross proceeds of $5,000,000. The net proceeds from the transactions were approximately $4,520,000 after deducting certain fees
due to the transaction expenses of the placement agent and the Company. The net proceeds received by the Company from the transactions
will be used for preparation for technology transfer opportunities, expenses related to Ampligen® manufacturing, working capital
and general corporate purposes.
See Part I - Financial Information;
Item 1; Financial Statements; “Note 8: Stockholders’ Equity”.
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. See Part II, Item 1A. Risk
Factors; “
We may require additional financing which may not be available.
"