ITEM
1
:
Financial Statements
HEMISPHERX
BIOPHARMA, INC. AND SUBSIDIARIES
Consolidated
Balance Sheets
(in
thousands, except for share amounts)
(Unaudited)
|
|
March
31, 2019
|
|
|
December
31, 2018
|
|
ASSETS
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
2,394
|
|
|
$
|
299
|
|
Marketable
securities
|
|
|
2,486
|
|
|
|
1,526
|
|
Funds
receivable from sale of New Jersey net operating loss
|
|
|
—
|
|
|
|
859
|
|
Accounts
receivable
|
|
|
101
|
|
|
|
235
|
|
Prepaid
expenses and other current assets
|
|
|
874
|
|
|
|
880
|
|
Total
current assets
|
|
|
5,855
|
|
|
|
3,799
|
|
Property
and equipment, net
|
|
|
7,602
|
|
|
|
7,782
|
|
Right
of use assets, net
|
|
|
137
|
|
|
|
—
|
|
Patent
and trademark rights, net
|
|
|
1,019
|
|
|
|
912
|
|
Other
assets
|
|
|
1
,352
|
|
|
|
1,352
|
|
Total
assets
|
|
$
|
15,965
|
|
|
$
|
13,845
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
768
|
|
|
$
|
680
|
|
Accrued
expenses
|
|
|
1,082
|
|
|
|
1,005
|
|
Convertible
note payable
|
|
|
—
|
|
|
|
3,408
|
|
Current
portion of operating lease liabilities
|
|
|
36
|
|
|
|
—
|
|
Current
portion of financing obligation
|
|
|
201
|
|
|
|
199
|
|
Total
current liabilities
|
|
|
2,087
|
|
|
|
5,292
|
|
|
|
|
|
|
|
|
|
|
Long-term
liabilities:
|
|
|
|
|
|
|
|
|
Operating
lease obligation
|
|
|
104
|
|
|
|
—
|
|
Convertible
note payable
|
|
|
3,682
|
|
|
|
—
|
|
Financing
obligation arising from sale leaseback transaction (Note 13)
|
|
|
2,267
|
|
|
|
2,318
|
|
Redeemable
warrants
|
|
|
3,895
|
|
|
|
1,061
|
|
Commitments
and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’
equity:
|
|
|
|
|
|
|
|
|
Preferred
stock, par value $0.01 per share, authorized 5,000,000
|
|
|
—
|
|
|
|
—
|
|
8,000 shares designated as Series B Convertible Preferred Stock, stated value $1,000 per share.
|
|
|
2,519
|
|
|
|
—
|
|
Common
stock, par value $0.001 per share, authorized 350,000,000 shares; issued and outstanding 62,900,318 and 48,734,712, respectively
|
|
|
63
|
|
|
|
49
|
|
Additional
paid-in capital
|
|
|
323,289
|
|
|
|
323,701
|
|
Accumulated
other comprehensive loss
|
|
|
—
|
|
|
|
(3
|
)
|
Accumulated
deficit
|
|
|
(321,941
|
)
|
|
|
(318,573
|
)
|
Total
stockholders’ equity
|
|
|
3,930
|
|
|
|
5,174
|
|
Total
liabilities and stockholders’ equity
|
|
$
|
15,965
|
|
|
$
|
13,845
|
|
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 March 31,
|
|
|
|
2019
|
|
|
2018
|
|
Revenues:
|
|
|
|
|
|
|
Clinical
treatment programs -United States
|
|
$
|
—
|
|
|
$
|
13
|
|
Clinical
treatment programs - Europe
|
|
|
—
|
|
|
|
43
|
|
|
|
|
|
|
|
|
|
|
Total
revenues
|
|
|
—
|
|
|
|
56
|
|
|
|
|
|
|
|
|
|
|
Costs
and expenses:
|
|
|
|
|
|
|
|
|
Production
costs
|
|
|
231
|
|
|
|
208
|
|
Research
and development
|
|
|
928
|
|
|
|
855
|
|
General
and administrative
|
|
|
1,767
|
|
|
|
1,563
|
|
|
|
|
|
|
|
|
|
|
Total
costs and expenses
|
|
|
2,926
|
|
|
|
2,626
|
|
|
|
|
|
|
|
|
|
|
Operating
loss
|
|
|
(2,926
|
)
|
|
|
(2,570
|
)
|
|
|
|
|
|
|
|
|
|
Interest
and other income
|
|
|
12
|
|
|
|
4
|
|
Interest
expense and other finance costs
|
|
|
(246
|
)
|
|
|
(139
|
)
|
Debt discount associated with extinguished
debt
|
|
|
(250
|
)
|
|
|
—
|
|
Fair
value of convertible note adjustment
|
|
|
90
|
|
|
|
—
|
|
Redeemable
warrants valuation adjustment
|
|
|
(45
|
)
|
|
|
(231
|
)
|
Gain
on sale of building
|
|
|
—
|
|
|
|
223
|
|
Loss
on sale of marketable securities
|
|
|
(3
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
(3,368
|
)
|
|
|
(2,713
|
)
|
|
|
|
|
|
|
|
|
|
Other
comprehensive income (loss):
|
|
|
|
|
|
|
|
|
Reclassification
adjustments for loss on sales of marketable securities
|
|
|
3
|
|
|
|
—
|
|
Unrealized
loss on marketable securities
|
|
|
—
|
|
|
|
(12
|
)
|
Net
comprehensive loss
|
|
$
|
(3,365
|
)
|
|
$
|
(2,725
|
)
|
|
|
|
|
|
|
|
|
|
Basic
and diluted loss per share
|
|
$
|
(0.07
|
)
|
|
$
|
(0.07
|
)
|
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding, basic and diluted
|
|
|
50,903,398
|
|
|
|
36,269,388
|
|
See
accompanying notes to consolidated financial statements.
HEMISPHERX
BIOPHARMA, INC. AND SUBSIDIARIES
Consolidated
Statement of Changes in Stockholders’ Equity
For
the Three Months Ended March 31, 2019 and 2018
(in
thousands except share data)
(Unaudited)
|
|
Common
Stock Shares
|
|
|
Common
Stock $0.001 Par Value
|
|
|
Series
B Preferred
|
|
|
Additional
Paid-In
Capital
|
|
|
Accumulated
Other
Compre-
hensive
Loss
|
|
|
Accumulated
Deficit
|
|
|
Total
Stockholders’
Equity
|
|
Balance
at December 31, 2018
|
|
|
48,734,712
|
|
|
$
|
49
|
|
|
$
|
—
|
|
|
$
|
323,701
|
|
|
$
|
(3
|
)
|
|
$
|
(318,573
|
)
|
|
$
|
5,174
|
|
Equity-based
compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
175
|
|
|
|
—
|
|
|
|
—
|
|
|
|
175
|
|
Redeemable
warrants
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(2,787
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(2,787
|
)
|
Common
stock issuance, net of costs
|
|
|
14,165,606
|
|
|
|
14
|
|
|
|
—
|
|
|
|
2,200
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,214
|
|
Series
B preferred shares issued, net of costs
|
|
|
—
|
|
|
|
—
|
|
|
|
5,312
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,312
|
|
Series
B preferred shares converted to common shares
|
|
|
—
|
|
|
|
—
|
|
|
|
(2,793
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(2,793
|
)
|
Net
comprehensive loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3
|
|
|
|
(3,368
|
)
|
|
|
(3,365
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at March 31, 2019
|
|
|
62,900,318
|
|
|
$
|
63
|
|
|
$
|
2,519
|
|
|
$
|
323,289
|
|
|
$
|
—
|
|
|
$
|
(321,941
|
)
|
|
$
|
3,930
|
|
|
|
Common
Stock
Shares
|
|
|
Common Stock $0.001 Par Value
|
|
|
Series B Preferred
|
|
|
Additional Paid-In Capital
|
|
|
Accumulated Other Compre- hensive Income (Loss)
|
|
|
Accumulated Deficit
|
|
|
Total
Stockholders’ Equity
|
|
Balance at December 31, 2017
|
|
|
32,884,786
|
|
|
$
|
33
|
|
|
$
|
0
|
|
|
$
|
317,419
|
|
|
$
|
11
|
|
|
$
|
(308,760
|
)
|
|
$
|
8,703
|
|
Equity-based compensation
|
|
|
438,385
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
286
|
|
Warrants issued for building sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
leaseback
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,149
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,149
|
|
Redeemable warrants
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
221
|
|
|
|
—
|
|
|
|
—
|
|
|
|
221
|
|
Common stock issuance, net of costs
|
|
|
5,375,288
|
|
|
|
5
|
|
|
|
—
|
|
|
|
2,321
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,326
|
|
Common stock issued to settle accounts payable
|
|
|
520,909
|
|
|
|
1
|
|
|
|
—
|
|
|
|
239
|
|
|
|
—
|
|
|
|
—
|
|
|
|
240
|
|
Net comprehensive (loss)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(12
|
)
|
|
|
(2,713
|
)
|
|
|
(2,725
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2018
|
|
|
39,219,368
|
|
|
$
|
39
|
|
|
$
|
0
|
|
|
$
|
321,635
|
|
|
$
|
(1
|
)
|
|
$
|
(311,473
|
)
|
|
$
|
10,200
|
|
See
accompanying notes to consolidated financial statements.
HEMISPHERX
BIOPHARMA, INC. AND SUBSIDIARIES
Consolidated
Statements of Cash Flows
For
the Three Months Ended March 31, 2019 and 2018
(in
thousands)
(Unaudited)
|
|
2019
|
|
|
2018
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(3,368
|
)
|
|
$
|
(2,713
|
)
|
Adjustments
to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
of property and equipment
|
|
|
194
|
|
|
|
216
|
|
Redeemable
warrants valuation adjustment
|
|
|
45
|
|
|
|
231
|
|
Fair
value of convertible note adjustment
|
|
|
(90
|
)
|
|
|
15
|
|
Change in convertible debt
– refinancing
|
|
|
20
|
|
|
|
—
|
|
Deferred debt write-off
|
|
|
344
|
|
|
|
|
|
Amortization
of patent, trademark rights, and ROU assets
|
|
|
28
|
|
|
|
—
|
|
Equity-based
compensation
|
|
|
175
|
|
|
|
286
|
|
Realized
loss on sale of marketable securities
|
|
|
3
|
|
|
|
—
|
|
Gain
on sale of building
|
|
|
—
|
|
|
|
(223
|
)
|
Amortization
of finance and debt issuance costs
|
|
|
35
|
|
|
|
140
|
|
Change
in assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts
and other receivables
|
|
|
993
|
|
|
|
(6
|
)
|
Prepaid
expenses and other current assets
|
|
|
7
|
|
|
|
(385
|
)
|
Lease liability payments
|
|
|
(8
|
)
|
|
|
—
|
|
Accounts
payable
|
|
|
87
|
|
|
|
245
|
|
Accrued
expenses
|
|
|
78
|
|
|
|
(348
|
)
|
Net
cash used in operating activities
|
|
|
(1,457
|
)
|
|
|
(2,542
|
)
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
Sale
and maturities of short term marketable securities
|
|
|
(960
|
)
|
|
|
—
|
|
Purchase
of property and equipment
|
|
|
(14
|
)
|
|
|
—
|
|
Proceeds
from sale of building
|
|
|
—
|
|
|
|
1,050
|
|
Purchase
of patent and trademark rights
|
|
|
(124
|
)
|
|
|
(14
|
)
|
Net
cash (used in) provided by investing activities
|
|
|
(1,098
|
)
|
|
|
1,036
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
Proceeds
from lease financing obligation
|
|
|
—
|
|
|
|
4,080
|
|
Finance
and debt issuance costs
|
|
|
—
|
|
|
|
(268
|
)
|
Financing
obligation payment payments
|
|
|
(84
|
)
|
|
|
(19
|
)
|
Payoff
of mortgage note payable
|
|
|
—
|
|
|
|
(1,957
|
)
|
Security
deposits paid
|
|
|
—
|
|
|
|
(111
|
)
|
Proceeds
from sale of stock, net of issuance costs
|
|
|
4,734
|
|
|
|
2,326
|
|
Net
cash provided by financing activities
|
|
|
4,650
|
|
|
|
4,051
|
|
|
|
|
|
|
|
|
|
|
Net
increase in cash and cash equivalents
|
|
|
2,095
|
|
|
|
2,545
|
|
Cash
and cash equivalents at beginning of period
|
|
|
299
|
|
|
|
1,412
|
|
Cash
and cash equivalents at end of period
|
|
$
|
2,394
|
|
|
$
|
3,957
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosures of non-cash investing and financing cash flow information:
|
|
|
|
|
|
|
|
|
Unrealized
gain on marketable securities
|
|
$
|
—
|
|
|
$
|
(12
|
)
|
Stock
issued to settle accounts payable
|
|
|
|
|
|
|
240
|
|
ROU
assets obtained in exchanged for operating lease liabilities
|
|
$
|
148
|
|
|
$
|
|
|
See
accompanying notes to consolidated financial statements.
HEMISPHERX
BIOPHARMA, INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note
1: Business and Basis of Presentation
Hemispherx
Biopharma, Inc. and its subsidiaries (collectively, “Hemispherx”, “Company”, “we” or “us”)
are an immuno-pharma company headquartered in Ocala, Florida and focused on the research and development of therapeutics to treat
multiple types of cancers, as well as immune-deficiency disorders. We have established a strong foundation of laboratory, pre-clinical
and clinical data with respect to the development of nucleic acids and natural interferon to enhance the natural antiviral defense
system of the human body and to aid the development of therapeutic products for the treatment of certain cancers and chronic diseases.
Hemispherx’s
flagship products include Ampligen® (Rintatolimod), a first-in-class drug of large macromolecular RNA (ribonucleic acid) molecules,
and Alferon N Injection® (Interferon Alfa-N3). A first-in-class drug also known as a new chemical entity, is a drug that contains
an active moiety that has not been approved by the FDA or marketed in the US.
Hemispherx
received approval of our NDA from ANMAT for commercial sale of rintatolimod (U.S. tradename: Ampligen®) in the Argentine Republic
for the treatment of severe CFS in 2016. The product will be marketed by GP Pharm, our commercial partner in Latin America. Commercialization
in Argentina will require, among other things, GP Pharm to establish disease awareness, medical education, creation of an appropriate
reimbursement level, design of marketing strategies and completion of manufacturing preparations for launch.
Hemispherx
is committed to a focused business plan oriented toward finding senior co-development partners with the capital and expertise
needed to commercialize the many potential therapeutic aspects of our drug, Ampligen, and our approved drug, Alferon N Injection.
Lastly, the Company plans to access the public equity markets to raise further capital.
In
the opinion of Management, all adjustments necessary for a fair presentation of such consolidated financial statements have been
included. Such adjustments consist of normal recurring items. Interim results are not necessarily indicative of results for a
full year.
The
interim consolidated financial statements and notes thereto are presented as permitted by the Securities and Exchange Commission
(“SEC”), and do not contain certain information which will be included in the Company’s annual consolidated
financial statements and notes thereto.
These
consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements for
the years ended December 31, 2018 and 2017, contained in the Company’s Annual Report on Form 10-K for the year ended December
31, 2018 filed on April 1, 2019.
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 71,858,564 and 11,105,515 of stock options and warrants are excluded
from the calculation of diluted net loss per share for the three months ended March 31, 2019 and 2018, respectively, since
their effect is antidilutive due to the net loss.
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 1,727,756 and
1,336,505 options granted in the three months ended March 31, 2019 and 2018, respectively.
Stock
option for employees’ activity during the three months ended March 31, 2019 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, 2019
|
|
|
5,110,589
|
|
|
$
|
0.75
|
|
|
|
9.01
|
|
|
$
|
—
|
|
Granted
|
|
|
1,213,070
|
|
|
|
0.22
|
|
|
|
—
|
|
|
|
—
|
|
Forfeited
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Expired
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Outstanding
March 31, 2019
|
|
|
6,323,659
|
|
|
$
|
0.65
|
|
|
|
8.99
|
|
|
$
|
—
|
|
Vested
and expected to vest March 31, 2019
|
|
|
6,323,659
|
|
|
$
|
0.65
|
|
|
|
8.99
|
|
|
$
|
—
|
|
Exercisable
March 31, 2019
|
|
|
2,518,172
|
|
|
$
|
0.82
|
|
|
|
7.48
|
|
|
$
|
—
|
|
Unvested
stock option activity for employees:
|
|
Number
of
Options
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Contractual
Term
(Years)
|
|
|
Aggregate
Intrinsic
Value
|
|
Unvested
January 1, 2019
|
|
|
3,305,659
|
|
|
$
|
0.32
|
|
|
|
9.31
|
|
|
$
|
—
|
|
Granted
|
|
|
1,213,070
|
|
|
|
0.22
|
|
|
|
—
|
|
|
|
—
|
|
Vested
|
|
|
(713,242
|
)
|
|
|
0.28
|
|
|
|
—
|
|
|
|
—
|
|
Unvested
March 31, 2019
|
|
|
3,805,487
|
|
|
$
|
0.30
|
|
|
|
9.32
|
|
|
$
|
—
|
|
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, 2019
|
|
|
2,425,692
|
|
|
$
|
0.68
|
|
|
|
8.55
|
|
|
$
|
—
|
|
Granted
|
|
|
514,686
|
|
|
|
0.22
|
|
|
|
—
|
|
|
|
—
|
|
Forfeited
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Expired
|
|
|
(1,666
|
)
|
|
|
8.64
|
|
|
|
—
|
|
|
|
—
|
|
Outstanding
March 31, 2019
|
|
|
2,938,712
|
|
|
$
|
0.59
|
|
|
|
8.60
|
|
|
$
|
—
|
|
Vested
and expected to vest March 31, 2019
|
|
|
2,938,712
|
|
|
$
|
0.59
|
|
|
|
8.60
|
|
|
$
|
—
|
|
Exercisable
March 31, 2019
|
|
|
1,121,456
|
|
|
$
|
1.25
|
|
|
|
7.97
|
|
|
$
|
—
|
|
Unvested
stock option activity for non-employees:
|
|
Number
of
Options
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Contractual
Term
(Years)
|
|
|
Aggregate
Intrinsic
Value
|
|
Unvested
January 1, 2019
|
|
|
1,551,528
|
|
|
$
|
0.31
|
|
|
|
8.84
|
|
|
$
|
—
|
|
Granted
|
|
|
514,686
|
|
|
|
0.22
|
|
|
|
|
|
|
|
—
|
|
Vested
|
|
|
(248,958
|
)
|
|
|
0.31
|
|
|
|
|
|
|
|
—
|
|
Unvested
March 31, 2019
|
|
|
1,817,256
|
|
|
$
|
0.28
|
|
|
|
8.86
|
|
|
$
|
—
|
|
Stock-based
compensation expense was approximately $175,000 and $286,000 for the three months ended March 31, 2019 and 2018 resulting in
an increase in general and administrative expenses, respectively.
As
of March 31, 2019, and 2018, respectively, there was approximately $1,324,000 and $755,000 of unrecognized equity-based
compensation cost related to options granted under the Equity Incentive Plan.
Note
4: Inventories
The
Company uses the lower of first-in, first-out (“FIFO”) cost or net realizable value method of accounting for inventory.
Commercial
sales of Alferon in the U.S. will not resume until new batches of commercial filled and finished product are produced and released
by the Food and Drug Administration (“FDA”). While the facility is approved by the FDA under the Biologics License
Application (“BLA”) for Alferon, this status will need to be reaffirmed by an FDA pre-approval inspection. The Company
also will need the FDA’s approval to release commercial product once it has submitted satisfactory stability and quality
release data. Currently, the manufacturing process is on hold and there is no definitive timetable to have the facility back online.
The Company estimates it will need approximately $10,000,000 to commence the manufacturing process. Due to the Company extending
the timeline of Alferon production to an excess of one year, the Company reclassified Alferon work in process inventory of $1,095,000
to other assets within our balance sheet as of December 31, 2018 and 2017 and due to the high cost estimates to bring the facility
back online. The above estimated cost includes additional funds needed for the revalidation process in the Company’s facility
to initiate commercial manufacturing, thereby readying itself for an FDA Pre-Approval Inspection. If the Company is unable to
gain the necessary FDA approvals related to the manufacturing process and/or final product of new Alferon inventory, its operations
most likely will be materially and/or adversely affected. In light of these contingencies, there can be no assurances that the
approved Alferon N Injection product will be returned to production on a timely basis, if at all, or that if and when it is again
made commercially available, it will return to prior sales levels.
The
Alferon work in process is currently compliant with our internal protocols, is stored in a controlled state, and the Company regularly
monitors the stability of the product. All of these factors contribute to the potential sale of the Alferon work in process, after
validation lots have been produced and including a successful pre-approval inspection.
Note
5: Marketable Securities
Marketable
securities consist of mutual funds. For the three months ended March 31, 2019 and December 31, 2018, it was determined that none
of the marketable securities had other-than-temporary impairments. At March 31, 2019 and December 31, 2018, all securities were
classified as available for sale investments and were measured as Level 1 instruments of the fair value measurements standard
(see Note 12: Fair Value).
Securities
classified as available for sale consisted of:
March
31, 2019
(in
thousands)
Securities
|
|
Amortized
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
Short-Term
Investments
|
|
Mutual
Funds
|
|
$
|
2,486
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,486
|
|
|
$
|
2,486
|
|
Totals
|
|
$
|
2,486
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,486
|
|
|
$
|
2,486
|
|
December
31, 2018
(in
thousands)
Securities
|
|
Amortized
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
Short-Term
Investments
|
|
Mutual
Funds
|
|
$
|
1,529
|
|
|
$
|
—
|
|
|
$
|
(3
|
)
|
|
$
|
1,526
|
|
|
$
|
1,526
|
|
Totals
|
|
$
|
1,526
|
|
|
$
|
—
|
|
|
$
|
(3
|
)
|
|
$
|
1,526
|
|
|
$
|
1,526
|
|
Unrealized
losses on investments
There
were no investments with continuous unrealized losses for less than 12 months and 12 months or greater at March 31, 2019
and December 31, 2018.
Note
6: Accrued Expenses
Accrued
expenses consist of the following:
|
|
(in
thousands)
|
|
|
|
March
31, 2019
|
|
|
December
31, 2018
|
|
Compensation
|
|
$
|
642
|
|
|
$
|
613
|
|
Professional
fees
|
|
|
59
|
|
|
|
83
|
|
Clinical
trial expenses
|
|
|
7
|
|
|
|
7
|
|
Other
expenses
|
|
|
374
|
|
|
|
302
|
|
|
|
$
|
1,082
|
|
|
$
|
1,005
|
|
Note
7: Property and Equipment
|
|
(in
thousands)
|
|
|
|
March
31, 2019
|
|
|
December
31, 2018
|
|
Land,
buildings and improvements
|
|
$
|
10,547
|
|
|
$
|
10,547
|
|
Furniture,
fixtures, and equipment
|
|
|
5,059
|
|
|
|
5,045
|
|
Total
property and equipment
|
|
|
15,606
|
|
|
|
15,592
|
|
Less:
accumulated depreciation
|
|
|
(8,004
|
)
|
|
|
(7,810
|
)
|
Property
and equipment, net
|
|
$
|
7,602
|
|
|
$
|
7,782
|
|
Property
and equipment are recorded at cost. Depreciation is computed using the straight-line method over the estimated useful lives
of the respective assets, ranging from three to thirty-nine years.
On
March 16, 2018, the Company sold land and a building for $4,080,000 and concurrently entered into an agreement to lease the property
back for ten years. The lease payments are initially $408,000 per year for two years through March 31, 2020 and will escalate
in subsequent years. (See Note 13 – Financing Obligation Arising from Sale Leaseback Transaction for more details on the
sale leaseback of the property and equipment).
In
February 2018, the Company sold the building located adjacent to its manufacturing facility located at 5 Jules Lane, New Brunswick,
New Jersey to an unaffiliated party. The purchase price was $1,050,000 and the Company netted $963,000 in cash.
Note
8: Stockholders’ Equity
(a)
Preferred Stock
The
Company is authorized to issue 5,000,000 shares of $0.01 par value preferred stock with such designations, rights and preferences
as may be determined by the Board of Directors. Of our authorized preferred stock, 250,000 shares have been designated as Series
A Junior Participating Preferred Stock and 8,000 shares have been designated as Series B Convertible Preferred Stock. The Series
B Convertible Preferred Stock has a stated value $1,000 per share.
The
Company is authorized to issue 8,000 Series B Convertible Preferred Stock, no par value, stated value $1,000 per share. As of
March 31, 2019, the Company had 2,519 shares of Series B Convertible Preferred Stock outstanding. Each such
Preferred Share is convertible into 5,000 shares of common stock.
Pursuant
to a registration statement relating to a rights offering declared effective by the SEC on February 14, 2019, Hemispherx distributed
to its holders of common stock and to holders of certain options and warrants as of February 14, 2019, at no charge, one non-transferable
subscription right for each share of common stock held or deemed held on the record date. Each right entitled the holder to purchase
one unit, at a subscription price of $1,000 per unit, consisting of one share of Series B Convertible Preferred Stock with a face
value of $1,000 (and immediately convertible into common stock at an assumed conversion price of $0.20) and 5,000 warrants with
an assumed exercise price of $0.20. The warrants are exercisable for five years after the date
of issuance. The net proceeds realized from the rights offering were approximately $4.7 million.
(b)
Common Stock
The
Company is authorized to issue 350,000,000 shares of $0.001 par value common stock with specific limitations and restrictions
on the usage of 8,000,000 of the 350,000,000 authorized shares.
In
August 2016, the Company effected a 12 to 1 reverse stock split of the outstanding shares, in order to become compliant with the
NYSE regulations. This did not affect the number of authorized shares.
On
September 6, 2016, we entered into a Securities Purchase Agreement (the “September Purchase Agreement”) with certain
investors for the sale by us of 3,333,334 shares of our common stock registered under our S-3 shelf registration statement on
at a purchase price of $1.50 per share. Concurrently with the sale of the common stock, pursuant to the September Purchase Agreement,
we also sold unregistered warrants to purchase 2,500,000 shares of common stock for aggregate gross proceeds of $5,000,000. Subject
to certain ownership limitations, the warrants are initially exercisable six-month after issuance at an exercise price equal to
$2.00 per share of common stock, subject to adjustments as provided under the terms of the warrants. The warrants are exercisable
for five years from the initial exercise date. Pursuant to an engagement agreement, we paid our placement agent an aggregate fee
equal to 7% of the gross proceeds received by us from the sale of the securities in the offering and granted to our placement
agent or its designees warrants to purchase up to 5% of the aggregate number of shares sold in the transactions amounting to 166,667
unregistered warrants. The placement agent warrants have substantially the same terms as the investor warrants, except that the
placement agent warrants will expire on September 1, 2021 and have an exercise price equal to $1.875 per share of common stock.
On
February 1, 2017, we entered into Securities Purchase Agreements (each, a “February Purchase Agreement”) with certain
investors for the sale by us of 1,818,185 shares of our common stock at a purchase price of $0.55 per share. Concurrently with
the sale of the common stock, pursuant to the February Purchase Agreement, we also sold unregistered warrants to purchase 1,363,639
shares of common stock for aggregate gross proceeds of approximately $1,000,000. The warrants have an exercise price of $0.75
per share, are exercisable six months after issuance, and will expire five years from the initial exercise date. Pursuant to an
engagement agreement, we paid our placement agent an aggregate fee equal to 7% of the gross proceeds received by us from the sale
of the securities in the offering and granted to our placement agent or its designees warrants to purchase up to 5% of the aggregate
number of shares sold in the transactions amounting to 90,910 unregistered warrants. The placement agent warrants have substantially
the same terms as the investor warrants, except that the placement agent warrants will expire on February 1, 2022 and have an
exercise price equal to $0.6875 per share of common stock. The Company subsequently registered the shares issuable upon exercise
of the warrants on Form S-1.
The
Board of Directors approved up to $500,000 for all directors, officers and employees to buy Company shares from the Company
at the market price. As of the last issuance dated November 5, 2018, the Company had issued all the authorized shares for this
program (980,392 shares) at prices between $0.20 and $0.69 per share directly to executives
and employees, for $373,852 in a series of private transactions pursuant to stock purchase agreements.
On
June 1, 2017, the exercise price of Warrants issued in September 2016 was changed to $0.50. As a result, the warrant holders exercised
these Warrants and purchased 2,370,000 shares of Company common stock. The Company realized net proceeds of $1,055,000 from this
exercise. In conjunction with the foregoing, the Company also issued 2,370,000 series A warrants with an exercise price of $0.60
per share, an initial exercise date of December 1, 2017 and expiring March 6, 2022 (the “Series A Warrants”) and 7,584,000
series B warrants with exercise price of $0.60, an initial exercise date December 1, 2017 per share and expiring March 1, 2018.
The foregoing transactions are hereinafter referred to as the “Exchange Transaction”. In addition, on July 10, 2017,
the warrant holders exercised the remaining 130,000 warrants issued in September 2016 and purchased 130,000 shares of common stock.
The Company realized net proceeds of $65,000 from this exercise. In conjunction with the foregoing the Company issued 130,000
Series A Warrants and 416,000 Series B Warrants (with an exercise price of $0.60 and an initial exercise date January 10, 2018
on the three-month anniversary of the of the initial exercise date).
Pursuant
to an engagement agreement, the Company paid its placement agent an aggregate fee equal to 7% and 10.5%, respectively, of the
gross proceeds received by the Company from the sale of the securities in the offerings and granted to its placement agent or
its designees warrants to purchase up to 5% of the aggregate number of shares sold in the transactions amounting to 166,667 and
107,759, respectively, unregistered warrants. The placement agent warrants have substantially the same terms as the investor warrants,
except that the 166,667 placement agent warrants issued in September 2017 will expire September 1, 2021 and have an exercise price
equal to $1.875 per share of common stock and the 107,759 placement agent warrants issued in June 2017 will expire June 1, 2022
and have an exercise price of $0.625.
On
August 23, 2017, the Holders of the Series A Warrants and Series B Warrants exchanged all of their Warrants for new warrants (respectively,
the “Series A Exchange Warrants” and the “Series B Exchange Warrants” and, collectively, the “Exchange
Warrants”) identical to the Warrants except as follows: The exercise price of both Exchange Warrants is $0.45 per share,
subject to adjustment therein, and the number of Series B Exchange Warrants issued was proportionately reduced to an aggregate
of 2,800,000 warrants so that all Exchange Warrants in the Exchange Transaction do not exceed 19.9% of the number of the Company’s
issued and outstanding shares of Common Stock as of May 31, 2017, the date of the Exchange Transaction offer letters. The issuance
of the Exchange Warrants by the Company and the shares of Common Stock issuable upon exercise of the Exchange Warrants is exempt
from registration pursuant to Sections 3(a)(9) and 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”).
The 2,800,000 warrants with an expiration date of March 1, 2018 and an exercise price on $0.45 were exercised in January and February
2018. The Company realized proceeds of $1,260,000 from these exercises.
On
November 27, 2017, the Company reactivated equity distribution agreement with Maxim Group LLC (the “EDA”) pursuant
to which it could sell shares of its common stock from time to time through Maxim, as sales agent. During the year ended December
31, 2018 and the three months ended March 31, 2019, the Company sold, respectively, an aggregate of 2,176,392 and 115,606 shares
under the EDA for proceeds of $802,000 and $26,000 , respectively, net of $25,000 and $
1,000,
respectively, in commissions.
Pursuant to a prospectus supplement dated February 7, 2018, the Company was able to sell up to 6,549,157 of its common stock (inclusive
of shares already sold under the prospectus supplement) under the EDA. The actual number of shares, that the Company can sell,
and the proceeds to be received there from are dependent upon the market price of its common stock.
As
part of the cash conservation program adopted on August 28, 2017, starting with the month of September 2017, the directors agreed
to defer 100% of their fees until cash is available. In consideration of this deferral, 226,023 options were issued to each of
the two independent directors in February 2018 with an exercise price of $0.37; 152,053 options were issued to each of the two
independent directors in May 2018 with an exercise price of $0.30, and 98,098 options were issued in July 2018 with an exercise
price of $0.31. All of the foregoing options and the options discussed below are exercisable for a period of 10 years with a vesting
period of three years. This program was suspended as of July 15, 2018 and all remaining deferred fees were paid in July 2018.
This Program was reactivated as of August 16, 2018 with the understanding that options would not be issued on the deferred amounts
until the 2018 Equity Incentive Plan was approved by the stockholders and the securities issuable thereunder were registered with
the SEC. The 2018 Equity Incentive Plan was approved by the stockholders and the securities issuable thereunder were registered
with the SEC and, on October 17, 2018, 172,786 options were issued to each of the two independent directors with an exercise price
of $0.22 for a period of ten years with a vesting period of one year. On January 28, 2019, an aggregate of 514,686 options
were issued to each of the directors with an exercise price of $0.22 for a period of ten years with a vesting period of one year
for the deferral of fees and for chairing various committees, respectively.
Also
as part of the cash conservation program adopted on August 28, 2017, starting with the month of September 2017, certain officers
agreed to defer 40% of their salaries until cash is available. In consideration of this deferral, 884,459 options were issued
to these officers in February 2018 with an exercise price of $0.37; 599,168 options were issued to these officers in May 2018
with an exercise price of $0.30, and 389,249 options were issued to these officers in July 2018 with an exercise price of $0.31.
This program was suspended as of July 15, 2018 and all remaining deferred salaries were paid on July 2018. This Program was reactivated
as of August 16, 2018 for 50% of their salaries with the understanding that options would not be issued on the deferred amounts
until the 2018 Equity Incentive Plan was approved by the shareholders and the plan registered with the SEC. The 2018 Equity Incentive
Plan has been approved by the shareholders and registered with the SEC and on October 17, 2018, 808,712 options were issued to
these officers with an exercise price on $0.22 for a period of ten years with a vesting period of one year. On January 28, 2019,
1,213,069 options were issued to each of these officers with an exercise price of $0.22 for a period of ten years with a vesting
period of one year.
Also
as part of the cash conservation program adopted on August 28, 2017, all employees agreed to be paid 50% of their salaries in
the form of unrestricted common stock of the Company. Starting with the month of September 2017, the salaries of all the employees
of the Company were paid 50% in the form of unrestricted common stock of the Company. The total number of shares issued as of
June 30, 2018 to the employees under this program was 2,116,881 shares at stock prices ranging from $0.31 to $0.55 per share.
This program was suspended by the Board of Directors on June 30, 2018.
On
March 24, 2018, the Company sold 1,250,000 shares of common stock under its S-3 shelf registration. The Company realized net proceeds
of $475,000 from this stock offering and paid $25,000 in placement agent fees.
On
April 20, 2018, the Company entered into Securities Purchase Agreements (the “Purchase Agreements”) with certain investors
(the “Investors”) for the sale by the Company of an aggregate of 6,600,000 shares (the “Common Shares”)
of the Company’s common stock, par value $0.001 per share (the “Common Stock”), at a purchase price of $0.39
per share. Concurrently with the sale of the Common Shares, pursuant to the Purchase Agreements the Company also sold 6,600,000
warrants, 50% of which are Class A Warrants and 50% of which are Class B Warrants (collectively, the “Warrants”).
The Company received gross proceeds from the sale of the Warrants solely to the extent such Warrants are exercised for cash. Both
classes of Warrants will not be exercisable until six months after issuance and will have an exercise price of $0.39 per share,
subject to adjustments as provided under the terms of the Warrants. The Class A Warrants and Class B Warrants will expire, respectively,
two and five years after the date on which they are first exercisable. The closing of the sales of these securities under the
Purchase Agreements took place on April 24, 2018. The Company received net proceeds from the transactions of $2,343,820 after
deducting certain fees due to the placement agent and the Company’s transaction expenses.
The
2009 Equity Incentive Plan, effective June 24, 2009, as amended, authorizes the grant of non-qualified and incentive stock options,
stock appreciation rights, restricted stock and other stock awards. A maximum of 22,000,000 shares of common stock is reserved
for potential issuance pursuant to awards under the 2009 Equity Incentive Plan. Unless sooner terminated, the 2009 Equity Incentive
Plan will continue in effect for a period of 10 years from its effective date. During 2018, there were 4,675,221 options granted
by the Company under this Plan.
The
2018 Equity Incentive Plan, effective September 12, 2018, authorizes the grant of (i) Incentive Stock Options, (ii) Nonstatutory
Stock Options, (iii) Stock Appreciation Rights, (iv) Restricted Stock Awards, (v) Restricted Stock Unit Awards, (vi) Performance
Stock Awards, (vii) Performance Cash Awards, and (viii) Other Stock Awards. Initially, a maximum of 7,000,000 shares of common
stock is reserved for potential issuance pursuant to awards under the 2018 Equity Incentive Plan. Unless sooner terminated, the
2018 Equity Incentive Plan will continue in effect for a period of 10 years from its effective date. On October 17, 2018, the
Board of Directors issued 1,154,284 options to the officers and directors at the exercise price of $0.22 expiring in 10 years,
and on November 14, 2018, the Board of Directors issued 1,000 options to each employee, officer and director at the exercise price
of $0.22 expiring in ten years. On January 28, 2019, 1,727,755 options were issued to the officers and directors with an exercise
price of $0.22 for a period of ten years with a vesting period of one year.
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. Generally Accepted Accounting Standards (“U.S.GAAP”) and replace it with a principal-based
approach for determining revenue recognition. ASU 2014-09 will require that companies recognize revenue based on the value of
transferred goods or services as they occur in the contract. ASU 2014-09 also will require additional disclosure about the nature,
amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and
changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. ASU 2014-09 is effective for reporting
periods beginning after December 15, 2017, and early adoption is not permitted. Entities can transition to the standard either
retrospectively or as a cumulative-effect adjustment as of the date of adoption. As of March 31, 2019, we have not identified
any accounting changes that would materially impact the amount of reported revenues with respect to our product revenues. The
Company applied the Full Retrospective Application to implement the new Accounting Standards Codification (“ASC”)
606. The Company, based on the nature of its Ampligen sales under its cost recovery programs, determined that there were no material
differences between the new accounting standard and legacy GAAP and that difficulties will not arise for any “open”
contract issues with its customers during the transition period. The Company also determined that the adoption of this standard
had little or no impact to the Company’s opening balance of retained earnings.
In
January 2016, the FASB has issued Accounting Standards Update (ASU) No. 2016-01,
Financial Instruments – Overall (Subtopic
825-10): Recognition and Measurement of Financial Assets and Financial Liabilities
. The new guidance is intended to improve
the recognition and measurement of financial instruments. The new guidance is effective for public companies for fiscal years
beginning after December 15, 2017, including interim periods within those fiscal years. The new guidance permits early adoption
of the own credit provision. The Company believes that the adoption of the guidance will have no material impact on the Company’s
financial statement presentation or disclosures.
In
August 2016,
the FASB issued ASU 2016-15 -
Statement of Cash Flows (Topic 230): Classification
of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force). The new guidance is intended to address
the diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash
flows under Topic 230, Statement of Cash Flows, and other Topics. The guidance addresses eight specific cash flow issues with
the objective of reducing the existing diversity in practice. The amendments apply to all entities, including both business entities
and not-for-profit entities that are required to present a statement of cash flows under Topic 230. The amendments are effective
for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years.
Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period,
any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. An entity that elects
early adoption must adopt all of the amendments in the same period. The amendments in this Update should be applied using a retrospective
transition method to each period presented. The Company believes that the adoption of the guidance will not have a material impact
on the Company’s financial statement presentation or disclosures.
In
2019, the FASB also issued Accounting Standards Updates (“ASU”) 2019-01 through 2018-03. These updates did not have
a significant impact on the financial statements.
Note
11: Convertible Note Payable
On
September 28, 2018, the Company issued a Secured Convertible Promissory Note (the “Convertible Note”) to a Lender
with an original principal amount of $3,170,000 that bears interest at a rate of 10% per annum and matures on September 28, 2019,
unless earlier paid, redeemed or converted in accordance with its terms.
On
March 13, 2019, the Company amended the Purchase Agreement pursuant to which it issued the Convertible Note (the “Amendment”).
The Amendment extends the maturity of the Note to September 28, 2020. In addition, the redemption conversion rates were revised
to a price to be determined by mutual agreement between the Company and the Holder. In the event that the Company and the Holder
are unable to reach a mutually agreeable price, the Company will be required to pay the applicable redemption amount in cash.
The maximum amount of the Convertible Note the Lender will be able to redeem in any given calendar month is $300,000.
The
Company evaluated the Amendment in accordance with ASC 470,
Debt
(“ASC 470”) and determined the Amendment is
considered an extinguishment of the existing debt and issuance of net debt. As a result, the Company derecognized the liability
and recorded a loss on the extinguishment of debt of $272,812 which was equal to the difference between the reacquisition price
of the debt and the net carrying amount (amount due at maturity, adjusted for unamortized discounts) of the extinguished debt.
Subsequently, the amended note was recorded in accordance with ASC 480 at the fair value that the note was issued with changes
in fair value recorded through earnings at each reporting period.
Interest
expense associated with the amended note was $4,280 for the three months ended March 31, 2019, which included $2,543 associated
with the amortization of applicable discounts.
Note
12: Fair Value
The
Company is required under U.S. GAAP to disclose information about the fair value of all the Company’s financial
instruments, whether or not these instruments are measured at fair value on the Company’s consolidated balance
sheets.
The
Company estimates that the fair values of cash and cash equivalents, other assets, accounts payable and accrued expenses approximate
their carrying values due to the short-term maturities of these items. The Company also has certain warrants with a cash settlement
feature in the unlikely occurrence of a Fundamental Transaction, namely (1) a merger or consolidation with another person; (2)
sale of substantially all of its assets; (3) holders of common stock sell 50% or more of outstanding shares; (4) the Company effects
an exchange of all its securities for other securities, cash or property, and (5) the Company effects a stock purchase agreement
or business combination for more than 50% of outstanding shares. The fair value of the redeemable warrants (“Warrants”)
related to the Company’s August 2016, February 2017, June 2017, August 2017, April 2018 and March 2019 common stock 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:
|
|
March
31, 2019
|
|
|
December
31, 2018
|
|
Underlying
price per share
|
|
$
|
0.16
|
|
|
$
|
0.18
|
|
Exercise price
per share
|
|
$
|
1.88
|
|
|
$
|
1.88
|
|
Risk-free
interest rate
|
|
|
2.24
|
%
|
|
|
2.47
|
%
|
Expected holding
period
|
|
|
2.42
|
|
|
|
2.67
|
|
Expected
volatility
|
|
|
70
|
%
|
|
|
70
|
%
|
Expected
dividend yield
|
|
|
-
|
|
|
|
-
|
|
The
Company utilized the following assumptions to estimate the fair value of the February 2017 Warrants:
|
|
March
31, 2019
|
|
|
December
31, 2018
|
|
Underlying
price per share
|
|
$
|
0.16
|
|
|
$
|
0.18
|
|
Exercise price
per share
|
|
$
|
0.69-0.75
|
|
|
$
|
0.69-$0.75
|
|
Risk-free
interest rate
|
|
|
2.21
|
%
|
|
|
2.47
|
%
|
Expected holding
period
|
|
|
3.34-3.35
|
|
|
|
3.59-3.60
|
|
Expected
volatility
|
|
|
75
|
%
|
|
|
75
|
%
|
Expected
dividend yield
|
|
|
-
|
|
|
|
-
|
|
The
Company utilized the following assumptions to estimate the fair value of the June 2017 Warrants:
|
|
March
31, 2019
|
|
|
December
31, 2018
|
|
Underlying
price per share
|
|
$
|
0.16
|
|
|
$
|
0.18
|
|
Exercise price
per share
|
|
$
|
0.63
|
|
|
$
|
0.63
|
|
Risk-free
interest rate
|
|
|
2.21
|
%
|
|
|
2.47
|
%
|
Expected holding
period
|
|
|
3.17
|
|
|
|
3.42
|
|
Expected
volatility
|
|
|
75
|
%
|
|
|
70
|
%
|
Expected
dividend yield
|
|
|
-
|
|
|
|
-
|
|
The
Company utilized the following assumptions to estimate the fair value of the August 2017 Warrants:
|
|
March
31, 2019
|
|
|
December
31, 2018
|
|
Underlying
price per share
|
|
$
|
0.16
|
|
|
$
|
0.18
|
|
Exercise price
per share
|
|
$
|
0.45
|
|
|
$
|
0.45
|
|
Risk-free
interest rate
|
|
|
2.21
|
%
|
|
|
2.46
|
%
|
Expected holding
period
|
|
|
2
.93
|
|
|
|
3.18
|
|
Expected
volatility
|
|
|
70
|
%
|
|
|
70
|
%
|
Expected
dividend yield
|
|
|
-
|
|
|
|
-
|
|
The
Company utilized the following assumptions to estimate the fair value of the April 2018 Warrants:
|
|
March
31, 2019
|
|
|
December
31, 2018
|
|
Underlying
price per share
|
|
$
|
0.16
|
|
|
$
|
0.18
|
|
Exercise price
per share
|
|
$
|
0.39
|
|
|
$
|
0.39
|
|
Risk-free
interest rate
|
|
|
2.23%-2.33
|
%
|
|
|
2.51
|
%
|
Expected holding
period
|
|
|
1.57-4.57
|
|
|
|
1.82-4.82
|
|
Expected
volatility
|
|
|
65%-70
|
%
|
|
|
70
|
%
|
Expected
dividend yield
|
|
|
-
|
|
|
|
-
|
|
The
Company utilized the following assumptions to estimate the fair value of the March 2019 Warrants:
|
|
March
31, 2019
|
|
|
March
8, 2019
|
|
Underlying
price per share
|
|
$
|
0.16
|
|
|
$
|
0.15
|
|
Exercise price
per share
|
|
$
|
0.20
|
|
|
$
|
0.20
|
|
Risk-free
interest rate
|
|
|
2.23
|
%
|
|
|
2.42
|
%
|
Expected holding
period
|
|
|
4.94
|
|
|
|
5.00
|
|
Expected
volatility
|
|
|
65
|
%
|
|
|
65
|
%
|
Expected
dividend yield
|
|
|
-
|
|
|
|
-
|
|
The
significant assumptions using the Monte Carlo Simulation approach for valuation of the Warrants are:
|
(i)
|
Risk-Free
Interest Rate
. The risk-free interest rates for the Warrants are based on U.S. Treasury constant maturities for periods
commensurate with the remaining expected holding periods of the warrants.
|
|
(ii)
|
Expected
Holding Period
. The expected holding period represents the period of time that the Warrants are expected to be outstanding
until they are exercised. The Company utilizes the remaining contractual term of the Warrants at each valuation date as the
expected holding period.
|
|
(iii)
|
Expected
Volatility
. Expected stock volatility is based on daily observations of the Company’s historical stock values for
a period commensurate with the remaining expected holding period on the last day of the period for which the computation is
made.
|
|
(iv)
|
Expected
Dividend Yield
. Expected dividend yield is based on the Company’s anticipated dividend payments over the remaining
expected holding period. As the Company has never issued dividends, the expected dividend yield is $0.00 and this assumption
will be continued in future calculations unless the Company changes its dividend policy.
|
|
(v)
|
Expected
Probability of a Fundamental Transaction.
The possibility of the occurrence of a Fundamental Transaction triggering a
Put right is extremely remote. As discussed above, a Put right would only arise if a Fundamental Transaction (1) is an all
cash transaction; (2) results in the Company going private; or (3) is a transaction involving a person or entity not traded
on a national securities exchange. The Company believes such an occurrence is highly unlikely because:
|
|
a.
|
The
Company only has one product that is FDA approved but which will not be available for commercial sales for 18 months at the
earliest;
|
|
b.
|
The
Company flagship product is approved only in Argentina for Severely Debilitated CFS patients;
|
|
c.
|
The
Company may have to perform additional clinical trials for FDA approval of its flagship product;
|
|
d.
|
Industry
and global market conditions continue to include uncertainty, adding risk to any transaction;
|
|
e.
|
Available
capital for a potential buyer in a cash transaction continues to be limited;
|
|
f.
|
The
nature of a life science company is heavily dependent on future funding and high costs, including research & development;
|
|
g.
|
The
Company has minimal revenues streams which are insufficient to meet the funding needs for the cost of operations or construction
at their manufacturing facility; and
|
|
h.
|
The
Company’s Rights Agreement and Executive Agreements make it less attractive to a potential buyer.
|
With
the above factors utilized in analysis of the likelihood of the Put’s potential Liability, the Company estimated the range
of probabilities related to a Put right being triggered as:
Range
of Probability
|
|
Probability
|
|
Low
|
|
|
0.5
|
%
|
Medium
|
|
|
1.0
|
%
|
High
|
|
|
5.0
|
%
|
The
Monte Carlo Simulation has incorporated a 5.0% probability of a Fundamental Transaction to date for the life of the securities.
|
(vi)
|
Expected
Timing of Announcement of a Fundamental Transaction.
As the Company has no specific expectation of a Fundamental Transaction,
for reasons stated above, the Company used a discrete uniform probability distribution over the Expected Holding Period to
model the potential announcement of a Fundamental Transaction occurring during the Expected Holding Period.
|
|
(vii)
|
Expected
100 Day Volatility at Announcement of a Fundamental Transaction
. An estimate of future volatility is necessary as there
is no mechanism for directly measuring future stock price movements. Daily observations of the Company’s historical
stock values for the 100 days immediately prior to the Warrants’ grant dates, with a floor of 100%, were utilized as
a proxy for the future volatility.
|
|
(viii)
|
Expected
Risk-Free Interest Rate at Announcement of a Fundamental Transaction
. The Company utilized a risk-free interest rate corresponding
to the forward U.S. Treasury rate for the period equal to the time between the date forecast for the public announcement of
a Fundamental Transaction and the Warrant expiration date for each simulation.
|
|
(ix)
|
Expected
Time Between Announcement and Consummation of a Fundamental Transaction.
The expected time between the announcement and
the consummation of a Fundamental Transaction is based on the Company’s experience with the due diligence process performed
by acquirers, and is estimated to be six months. The Monte Carlo Simulation approach incorporates this additional period to
reflect the delay Warrant Holders would experience in receiving the proceeds of the Put.
|
While
the assumptions remain consistent from period to period (e.g., using historical stock prices), the numbers input change from period
to period (e.g., the actual historical prices input for the relevant period).
The
Company applies FASB ASC 820 that defines fair value, establishes a framework for measuring fair value in U.S. GAAP, and expands
disclosures about fair value measurements. The guidance does not impose any new requirements around which assets and liabilities
are to be measured at fair value, and instead applies to asset and liability balances required or permitted to be measured at
fair value under existing accounting pronouncements. The Company measures its warrant liability for those warrants with a cash
settlement feature at fair value.
FASB
ASC 820-10-35-37 establishes a valuation hierarchy based on the transparency of inputs used in the valuation of an asset or liability.
Classification is based on the lowest level of inputs that is significant to the fair value measurement. The valuation hierarchy
contains three levels:
|
●
|
Level
1 – Quoted prices are available in active markets for identical assets or liabilities at the reporting date. Generally,
this includes debt and equity securities that are traded in an active market.
|
|
●
|
Level
2 – Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices
in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially
the full term of the assets or liabilities. Generally, this includes debt and equity securities that are not traded in an
active market.
|
|
●
|
Level
3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value
of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using
pricing models, discounted cash flow methodologies, or other valuation techniques, as well as instruments for which the determination
of fair value requires significant management judgment or estimation. As of March 31, 2019, the Company has classified the
warrants with cash settlement features and convertible debt 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 March 31, 2019
|
|
|
|
Total
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable
securities
|
|
$
|
2,486
|
|
|
$
|
2,486
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redeemable
warrants
|
|
$
|
3,895
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
3,895
|
|
Convertible
note payable
|
|
$
|
3,682
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
3,682
|
|
|
|
(in
thousands)
As of December 31, 2018
|
|
|
|
Total
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable
securities
|
|
$
|
1,526
|
|
|
$
|
1,526
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redeemable
warrants
|
|
$
|
1,061
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,061
|
|
Convertible
note payable
|
|
$
|
3,408
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
3,408
|
|
The
changes in Level 3 Liabilities measured at fair value on a recurring basis are summarized as follows (in thousands):
Redeemable
warrants:
Balance
at December 31, 2018
|
|
$
|
1,061
|
|
Warrants
exercised and cancelled
|
|
|
(1
|
)
|
Warrants
issued
|
|
|
2,790
|
|
Fair
value adjustments
|
|
|
45
|
|
Balance
at March 31, 2019
|
|
$
|
3,895
|
|
Convertible
debt:
Balance
at December 31, 2018
|
|
$
|
3,408
|
|
Deferred
debt discount written off due to refinancing
|
|
|
344
|
|
Pay
off of old note payable
|
|
|
(3,722
|
)
|
Amount
of new note payable
|
|
|
3,742
|
|
Fair
value adjustments
|
|
|
(90
|
)
|
Balance
at March 31, 2019
|
|
$
|
3,682
|
|
Note
13: Financing Obligation Arising from Sale Leaseback Transaction
On
March 16, 2018, the Company sold land and a building for $4,080,000 and concurrently entered into an agreement to lease the property
back for ten years at $408,000 per year for two years through March 31, 2020. The lease payments will increase 2.5% per year for
the next three years through March 31, 2023 and the lease payments will increase 3% for the remaining five years through March
31, 2028. The sale of the property includes an option to repurchase the property at fair value which does not permanently transfer
all the risks and rewards of ownership to the buyer. The option to repurchase the property also would be at a higher price than
the sales price and is considered likely based upon the Company’s plans going forward. Because the sale of the property
includes the option to repurchase the property and includes the above attributes, the transaction was accounted for as a financing
transaction whereby the Company debited cash for the amount of cash received and credit financing obligation. The Company will
continue to report the property as an asset and the property will continue to be depreciated. The fair value repurchase option
is accounted for similar to a share appreciation mortgage. Accordingly, the guidance in ASC 470-30 related to participating mortgage
loans would be applied to the liability. If the option expires unused, the sale is recognized at that time. The gain on the sale
would be the excess of the liability (current fair value of the property) over its carrying amount. If the option is exercised,
the cash payment by the seller-lessee is to pay off the financing obligation. As part of the sale of this building, warrants were
provided to the buyer for the purchase of up to 3,225,806 shares of Company common stock for a period of five years at an exercise
price of $0.3875 per share, 125% of the closing price of the common stock on the NYSE American on the date of execution of the
letter of intent for the purchase. The warrants cannot be exercised to the extent that any exercise would result in the purchaser
owning in excess of 4.99% of our issued and outstanding shares of common stock.
The
Property and Equipment in Note 7 above are the property and equipment involved in this transaction. Depreciation on the
building will continue until a sale has been recognized.
Future
minimum payments required under the Financing Obligation and the balance of the Finance Obligation as of March 31, 2019 are as
follows:
During
the year:
|
|
|
(in
thousands)
|
|
2019
|
|
|
306
|
|
2020
|
|
|
417
|
|
2021
|
|
|
427
|
|
2022
|
|
|
438
|
|
2023
|
|
|
450
|
|
Thereafter
|
|
|
2,025
|
|
Total
of payments
|
|
|
4,063
|
|
Less
deferred issuance costs
|
|
|
(239
|
)
|
Less
discount on debt instrument
|
|
|
(1,025
|
)
|
Less
imputed interest
|
|
|
(331
|
)
|
Total
balance
|
|
|
2,468
|
|
Less
current portion
|
|
|
201
|
|
Long
term portion
|
|
$
|
2,267
|
|
Interest
expense relating to this financing agreement was $18,000 for the three months ended March 31, 2019.
Note
14: Leases
In
February 2016, the FASB established Topic 842, Leases, by issuing Accounting Standards Update (ASU) No. 2016-02, which requires
lessees to recognize leases on-balance sheet and disclose key information about leasing arrangements. Topic 842 was subsequently
amended by ASU No. 2018-01, Land Easement Practical Expedient for Transition to Topic 842; ASU No. 2018-10, Codification Improvements
to Topic 842, Leases; ASU No. 2018-11, Targeted Improvements; and ASU No. 2018-20, Narrow-Scope Improvements for Lessors. The
new standard establishes a right-of-use model (ROU) that requires a lessee to recognize a ROU asset and lease liability on the
balance sheet for all leases with a term longer than 12 months. Leases are classified as finance or operating, with classification
affecting the pattern and classification of expense recognition in the income statement.
The
new standard was effective for the Company on January 1, 2019, with early adoption permitted. The Company adopted the new standard
on its effective date. A modified retrospective transition approach is required, applying the new standard to all leases existing
at the date of initial application. An entity may choose to use either (1) its effective date or (2) the beginning of the earliest
comparative period presented in the financial statements as its date of initial application. If an entity chooses the second option,
the transition requirements for existing leases also apply to leases entered into between the date of initial application and
the effective date. The entity must also recast its comparative period financial statements and provide the disclosures required
by the new standard for the comparative periods. The Company adopted the new standard on January 1, 2019 and used the effective
date as our date of initial application. Consequently, financial information will not be updated, and the disclosures required
under the new standard will not be provided for dates and periods before January 1, 2019.
The
new standard provides several optional practical expedients in transition. The Company elected the ‘package of practical
expedients’, which permits the Company not to reassess under the new standard our prior conclusions about lease identification,
lease classification and initial direct costs. The Company elected all the new standard’s available transition practical
expedients other than the use-of hindsight.
The
new standard also provides practical expedients for an entity’s ongoing accounting. The Company elected the short-term lease
recognition exemption for all leases that qualify. This means, for those leases that qualify, The Company will not recognize ROU
assets or lease liabilities, and this includes not recognizing ROU assets or lease liabilities for existing short-term leases
of those assets in transition. The Company also currently elected the practical expedient to not separate lease and non-lease
components for leases of office equipment.
On
adoption, the Company recognized additional operating liabilities of approximately $148,000 with corresponding ROU assets of the
same amount, based on the present value of the remaining minimum rental payments under current leasing standards for existing
operating leases.
As
of March 31, 2019, the balance of the right of use assets was $137,000 and the corresponding lease liability balance was
$140,000. Total rent expense was $27,000 for the three months ended March 31, 2019.
Note
15: Subsequent Events
As of March 31, 2019,
our stockholders’ equity was below $6 million, the minimum required for continued listing on the NYSE American. However,
subsequent to March 31, 2019 and as of the date of filing of the Form 10-Q in which these financials have been included, the Company’s
stockholders’ equity is above $6 million as a result of the following: (1) there were a series of debt conversions which
partially converted $1,800,000 of the $3,170,000 convertible debt, as amended, in to stockholders’ equity, adding approximately
$1,800,000 to shareholders’ equity; (2) on May 2, 2019, the Company entered into an agreement with the holders of 4,550,000
warrants (classified as debt) pursuant to which the warrant exercise price was reduced to $0.15 and all of the warrants were exercised,
reducing the liability attributed to the warrants by approximately $404,000, and the Company realized about $682,000 in net proceeds,
resulting in an addition to stockholders’ equity of approximately $1,086,000; and (3) on and after May 8, 2019, approximately
14 million of the warrants (also classified as debt) issued in the Company’s rights offering were exercised on a cashless
basis for 70% of the number of shares issuable upon such exercise, resulting in approximately $1,500,000 added to stockholders’
equity.
The
Company evaluated subsequent events through the date on which these financial statements were issued and determined that no subsequent
event, other than the above, constituted a matter that required adjustment to the financial statements for the three months ended
March 31, 2019.
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 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 are based on our
management’s current beliefs, expectations and assumptions about future events, conditions and results and on information
currently available to us. Discussions containing these forward-looking statements may be found, among other places, in this “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” section; Item 1 “Legal Proceedings”
in Part II; Item 1A. “Risk Factors” in Part II.
All
statements, other than statements of historical fact, included or incorporated herein regarding our strategy, future operations,
financial position, future revenues, projected costs, plans, prospects and objectives are forward-looking statements. Words such
as “expect,” “anticipate,” “intend,” “plan,” “believe,” “seek,”
“estimate,” “think,” “may,” “could,” “will,” “would,”
“should,” “continue,” “potential,” “likely,” “opportunity” and similar
expressions or variations of such words are intended to identify forward-looking statements but are not the exclusive means of
identifying forward-looking statements.
Among
the factors that could cause actual results to differ materially from those indicated in the forward-looking statements are risks
and uncertainties inherent in our business including, without limitation: our ability to adequately fund our projects as we will
need additional funding to proceed with our objectives, the potential therapeutic effect of our products, the possibility of obtaining
regulatory approval, our ability to find senior co-development partners with the capital and expertise needed to commercialize
our products and to enter into arrangements with them on commercially reasonable terms, our ability to manufacture and sell any
products, our ability to enter into arrangements with third party vendors, market acceptance of our products, our ability to earn
a profit from sales or licenses of any drugs, our ability to discover new drugs in the future, changing market conditions, changes
in laws and regulations affecting our industry, and issues related to our New Brunswick, New Jersey facility. In February 2013,
we received a Complete Response Letter from the Food and Drug Administration, or FDA, for our Ampligen New Drug Application, or
NDA, for the treatment of CFS. The FDA communicated that we should conduct at least one additional clinical trial, complete various
nonclinical studies and perform a number of data analysis. 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.
In
August 2016, we received approval of our NDA from Administracion Nacional de Medicamentos, Alimentos y Tecnologia Medica, or ANMAT,
for commercial sale of rintatolimod (U.S. tradename: Ampligen®) in the Argentine Republic for the treatment of severe CFS.
The product will be marketed by GP Pharm, our commercial partner in Latin America. We believe, but cannot assure, that this approval
provides a platform for potential sales in certain countries within the European Union under regulations that support cross-border
pharmaceutical sales of licensed drugs. In Europe, approval in a country with a stringent regulatory process in place, such as
Argentina, should add further validation for the product as the Early Access Program, or EAP, as discussed below and underway
in Europe in pancreatic cancer. ANMAT approval is only an initial, but important, step in the overall successful commercialization
of our product. There are a number of actions that must occur before we could be able to commence commercial sales in Argentina.
Commercialization in Argentina will require, among other things, an appropriate reimbursement level, appropriate marketing strategies,
completion of manufacturing preparations for launch. Approval of rintatolimod for severe CFS in the Argentine Republic does not
in any way suggest that the Ampligen NDA in the United States or any comparable application filed in the European Union or elsewhere
will obtain commercial approval.
In
May 2016, we entered into a five-year agreement with myTomorrows, a Netherlands based company, for the commencement and management
of an EAP in Europe and Turkey related to CFS. Pursuant to the agreement, myTomorrows, as our exclusive service provider and distributor
in this territory, is performing EAP activities. In January 2017, the EAP was extended to pancreatic cancer patients beginning
in the Netherlands. In February 2018, we signed an amendment to extend the territory to cover Canada to treat pancreatic cancer
patients, pending government approval. In March 2018, we signed an amendment to which myTomorrows will be our exclusive service
provider for special access activities in Canada for the supply of Ampligen for the treatment of CFS. No assurance can be given
that we can sufficiently supply product should we experience an unexpected demand for Ampligen in our clinical studies, the commercial
launch in Argentina or pursuant to the EAPs. No assurance can be given that Ampligen will prove effective in the treatment of
pancreatic cancer.
Currently,
four Ampligen clinical trials are underway. Two of the trials have a number of subjects enrolled at university cancer centers
testing whether tumor microenvironments can be reprogrammed to increase the effectiveness of cancer immunotherapy, including checkpoint
blockade. One is at Roswell Park Comprehensive Cancer Center and the other is at the University of Pittsburgh Medical Center.
The other two trials have been approved for enrollment and subjects are being screened for enrollment at Roswell Park Comprehensive
Cancer Center and the University of Pittsburgh Medical Center using Ampligen in conjunction with pembrolizumab. No assurance can
be given as to the results of these underway trials. Five additional cancer trials in collaboration with University Medical/Cancer
Research Centers are in various pre-enrollment stages. Four of these trials are using Ampligen plus checkpoint blockade and one
trial is using Ampligen as pre-treatment/neoadjuvant conditioning. No assurance can be given as to whether some or all of the
planned additional oncology clinical trials will occur and they are subject to many factors including lack of regulatory approval(s),
lack of study drug, or a change in priorities at the sponsoring Universities or Cancer Centers. Even if these additional clinical
trials are initiated, we cannot assure that these clinical studies or the four studies underway will be successful or yield any
useful data.
Our
overall objectives include plans to continue seeking approval for commercialization of Ampligen in the United States and abroad
as well as seeking to broaden commercial therapeutic indications for Alferon N Injection presently approved in the United States
and Argentina. We continue to pursue senior co-development partners with the capital and expertise needed to commercialize our
products and to enter into arrangements with them on commercially reasonable terms. Our ability to commercialize our products,
widen commercial therapeutic indications of Alferon N Injection and/or capitalize on our collaborations with research laboratories
to examine our products are subject to a number of significant risks and uncertainties including, but not limited to our ability
to enter into more definitive agreements with some of the research laboratories and others that we are collaborating with, to
fund and conduct additional testing and studies, whether or not such testing is successful or requires additional testing and
meets the requirements of the FDA and comparable foreign regulatory agencies. We do not know when, if ever, our products will
be generally available for commercial sale for any indication.
We
outsource certain components of our manufacturing, quality control, marketing and distribution while maintaining control over
the entire process through our quality assurance and regulatory groups. We cannot provide any guarantee that the facility or our
contract manufacturer will necessarily pass an FDA pre-approval inspection for Alferon manufacture.
The
production of new Alferon Active Pharmaceutical Ingredient, or API, inventory will begin once the validation phase is complete.
While the facility has already been approved by the FDA under the Biological License Application, or BLA, for Alferon, this status
will need to be reaffirmed by a successful Pre-Approval Inspection by the FDA prior to commercial sale of newly produced inventory
product. If and when the Company obtains a reaffirmation of FDA BLA status and has begun production of new Alferon API, it will
need FDA approval as to the quality and stability of the final product before commercial sales can resume. We will need additional
funds to finance the revalidation process in our facility to initiate commercial manufacturing, thereby readying ourselves for
an FDA Pre-Approval Inspection. If we are unable to gain the necessary FDA approvals related to the manufacturing process and/or
final product of new Alferon inventory, our operations most likely will be materially and/or adversely affected. In light of these
contingencies, there can be no assurances that the approved Alferon N Injection product will be returned to production on a timely
basis, if at all, or that if and when it is again made commercially available, it will return to prior sales levels. In addition,
we are currently readying the New Brunswick facility to start manufacturing polymers used for the production of Ampligen to satisfy
our future needs. While we anticipate that we will be able to commence manufacturing polymers at the New Brunswick facility, we
may need additional funding to continue manufacturing. There cannot be any guarantee that we will obtain adequate funds to sustain
manufacturing at the New Brunswick facility or that the facility will be able to manufacture sufficient lots for the commercial
launch of Ampligen.
We
believe, and are investigating, Ampligen’s potential role in enhancing the activity of influenza vaccines. While certain
studies involving rodents, non-human primates (monkeys) and healthy human subjects indicate that Ampligen may enhance the activity
of influenza vaccines by conferring increased cross-reactivity or cross-protection, further studies will be required and no assurance
can be given that Ampligen will assist in the development of a universal vaccine for influenza or other viruses.
Because
forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified
and some of which are beyond our control, you should not rely on these forward-looking statements as predictions of future events.
The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could
differ materially from those projected in the forward-looking statements. Moreover, we operate in an evolving environment. New
risk factors and uncertainties may emerge from time to time, and it is not possible for management to predict all risk factors
and uncertainties. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements
contained or incorporated herein, whether as a result of any new information, future events, changed circumstances or otherwise.
This
Report also refers to estimates and other statistical data made by independent parties and by us relating to market size and growth
and other data about our industry. This data involves a number of assumptions and limitations, and you are cautioned not to give
undue weight to such estimates. In addition, projections, assumptions and estimates of our future performance and the future performance
of the markets in which we operate are necessarily subject to a high degree of uncertainty and risk.
Overview
General
Hemispherx
Biopharma, Inc. and its subsidiaries (collectively, “Hemispherx”, “Company”, “we” or “us”)
are an immuno-pharma company headquartered in Ocala, Florida and focused on the research and development of therapeutics to treat
multiple types of cancers, as well as immune-deficiency disorders. We have established a strong foundation of laboratory, pre-clinical
and clinical data with respect to the development of nucleic acids and natural interferon to enhance the natural antiviral defense
system of the human body and to aid the development of therapeutic products for the treatment of certain cancers and chronic diseases.
Hemispherx’s
flagship products include Ampligen® (Rintatolimod), a first-in-class drug of large macromolecular RNA (ribonucleic acid) molecules,
and Alferon N Injection® (Interferon Alfa-N3). A first-in-class drug also known as a new chemical entity, is a drug that contains
an active moiety that has not been approved by the FDA or marketed in the US.
Ampligen®
represents an RNA being developed for globally important cancers, viral diseases and disorders of the immune system. Ampligen®
has in the clinic demonstrated the potential for standalone efficacy in a number of solid tumors. We have also seen success in
increasing survival rates and efficacy in the treatment of animal tumors when Ampligen® is used in combination with checkpoint
blockade therapies. This success in the field of immuno-oncology has guided our focus toward the potential use of Ampligen®
as a combinational therapy for the treatment of a variety of solid tumor types. There are currently multiple Ampligen® clinical
trials — both underway and planned — at major cancer research centers around the country. Ampligen ® is also being
used as a monotherapy to treat pancreatic cancer patients in an Early Access Program (EAP) approved by the Inspectorate of Healthcare
in the Netherlands at Erasmus Medical Center.
Ampligen®
is also being evaluated for the treatment of myalgic encephalomyelitis/chronic fatigue syndrome (ME/CFS). Hemispherx is currently
sponsoring an expanded access program (EAP) for ME/CFS patients in the U.S. In August 2016, we received approval of our NDA from
Administracion Nacional de Medicamentos, Alimentos y Tecnologia Medica (ANMAT) for commercial sale of Ampligen® in the Argentine
Republic for the treatment of severe CFS. With regulatory approval in Argentina, Ampligen® is the world’s only approved
therapeutic for ME/CFS. We continue to pursue our Ampligen New Drug Application, or NDA, for the treatment of CFS with the Food
and Drug Administration, or FDA. Please see “Research And Development (“R&D”); Myalgic Encephalomyelitis/Chronic
Fatigue Syndrome (“ME/CFS”)” below.
Alferon
N Injection® is approved for a category of STD infection and patients that are intolerant to recombinant interferon in Argentina.
Alferon is the only natural-source, multi-species alpha interferon currently approved for sale in the U.S. for the intralesional
treatment of refractory (resistant to other treatment) or recurring external Condylomata Acuminata/genital warts (GW) in patients
18 years of age or older. Certain types of human papilloma viruses cause GW. Hemispherx also has approval from ANMAT for the treatment
of refractory patients that failed or were intolerant to treatment with recombinant interferon in Argentina. We have developed
and, with proper funding, will be seeking FDA Pre-Approval Inspection of a high-volume, high-efficiency, upgraded manufacturing
process to allow for the commercial viability of Alferon®.
We
operate a 30,000 sq. ft. facility in New Brunswick, NJ with the objective of producing Ampligen® and Alferon®. 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 Ampligen® and our FDA-approved drug Alferon® N.
OUR
PRODUCTS
Our
primary pharmaceutical product platform consists of Ampligen®, first-in-class drug of large macromolecular double-stranded
(ds) RNA (ribonucleic acid) molecules and our FDA approved natural alpha-interferon product, Alferon N Injection®.
Ampligen®
Ampligen®
is approved for sale in Argentina for severe Chronic Fatigue Syndrome (CFS) and is an experimental drug in the United States currently
undergoing clinical development for the treatment of certain cancers and ME/CFS. Over its developmental history, Ampligen®
has received various designations, including Orphan Drug Product Designation (FDA and European Medicines Agency (“EMA”)),
Treatment protocol (e.g., “Expanded Access” or “Compassionate” use authorization) with Cost Recovery Authorization
(FDA) and “promising” clinical outcome recognition based on the evaluation of certain summary clinical reports (“AHRQ”
or Agency for Healthcare Research and Quality). Ampligen® represents the first drug in the class of large (macromolecular)
dsRNA 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 designed to act at the molecular
level for treatment of many human diseases. There are two forms of nucleic acids, deoxyribonucleic acid (“DNA”) and
ribonucleic acid (“RNA”). DNA is a group of naturally occurring molecules found in chromosomes, the cell’s genetic
machinery. RNA is a group of naturally occurring informational molecules which orchestrate a cell’s behavior which, in turn,
regulates the action of groups of cells, including the cells which compromise the body’s immune system. RNA directs the
production of proteins and regulates certain cell activities including the activation of an otherwise dormant cellular defense
against viruses and tumors. Our drug technology utilizes specifically-configured RNA and is a selective TLR3 agonist that is administered
intravenously. Ampligen® has been assigned the generic name rintatolimod by the United States Adopted Names Council (USANC)
and has the chemical designation poly(I):poly(C
12
U).
EAP/clinical
trials of Ampligen® that have been conducted or that are ongoing include studies of the potential treatment of patients with
renal cell carcinoma, malignant melanoma, non-small cell lung, ovarian, breast, colorectal, urothelial, prostate and pancreatic
cancer, CFS, Hepatitis B and HIV.
We
have received approval of our NDA from ANMAT for commercial sale of rintatolimod (U.S. tradename: Ampligen®) in the Argentine
Republic for the treatment of severe CFS. The product will be marketed by GP Pharm, our commercial partner in Latin America. Commercialization
in Argentina will require, among other things, GP Pharm to establish disease awareness, medical education, creation of an appropriate
reimbursement level, design of marketing strategies and completion of manufacturing preparations for launch.
The
FDA has authorized an open-label expanded access treatment protocol, (“AMP-511”), allowing patient access to Ampligen®
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 clinical sites provide safety information
regarding the use of Ampligen® in patients with CFS. We are establishing an enlarged data base of clinical safety information
which we believe will provide further documentation regarding the absence of autoimmune disease associated with Ampligen®
treatment. We believe that continued efforts to understand existing data, and to advance the development of new data and information,
will ultimately support our future filings for Ampligen® and/or the design of future clinical studies that the FDA requested
in a complete response letter. The FDA recently approved the increase reimbursement level from $200 to $345 per 200mg vial of
Ampligen, due to increased production costs. At this time, we do not plan on passing this adjustment along the patients in this
program. As of March 31, 2019, there are 13 patients being treated in this open-label expanded access treatment protocol.
In
May 2016, we entered into a five-year agreement with myTomorrows, a Netherlands based company, for the commencement and management
of an Early Access Program (“EAP”) in Europe and Turkey (the “Territory”) related to ME/CFS. Pursuant
to the agreement, as amended, myTomorrows also will manage all Early Access Programs and Special Access Programs in Europe, Canada
and Turkey to treat pancreatic cancer and ME/CFS patients.
In
April 2018, we completed data analysis of an intranasal human safety study of Ampligen® plus FluMist® known as AMP-600.
The study was previously closed after the US Centers for Disease Control and Prevention (“CDC”) recommended against
the use of FluMist®. Intranasal Ampligen® in combination with FluMist® was generally well-tolerated in the study.
In
June 2018, Ampligen® was cited as outperforming two other TLR3 agonists, poly IC and natural double stranded RNA, in creating
an enhanced tumor microenvironment for checkpoint blockage therapy in the journal of Cancer Research (
http://cancerres.aacrjournals.org/content/early/2018/05/31/0008-5472.CAN-17-3985
).
In a head-to-head study in explant culture models, Ampligen® activated the TLR3 pathway and promoted an accumulation of killer
T cells but, unlike the other two TLR3 agonists, it did so without causing regulatory T cell (Treg) attraction. These findings
were considered important because they indicate that Ampligen® selectively reprograms the tumor microenvironment by inducing
the beneficial aspects of tumor inflammation (attracting killer T cells), without amplifying immune suppressive elements such
as regulatory T cells. The study was conducted at the University of Pittsburgh and Roswell Park Comprehensive Cancer Center, as
a part of the NIH-funded P01 CA132714 and Ovarian Cancer Specialized Program of Research Excellence (SPORE). Based upon these
findings Hemispherx and Roswell Park Comprehensive Cancer Center expanded their existing scientific collaboration to advance the
clinical development of Ampligen® which has shown promise in preclinical studies when combined with checkpoint inhibitors
(CPIs). The parties executed a Memorandum of Understanding (“MOU”) designed to further assess the clinical potential
of Ampligen® in treating certain cancers. This phase I/II study will evaluate the potential of Ampligen® to enhance the
immune mediated effects of CPIs in patients with advanced solid tumors including bladder, melanoma and renal cell carcinoma.
Current
Ampligen inventory is being used for multiple programs including the product launch in Argentina, for the treatment of ME/CFS,
the pancreatic cancer EAP in the Netherlands, ongoing and future clinical studies in oncology, and our ME/CFS EAP in the U.S.
and Europe.
Alferon
N Injection®
Alferon
N Injection® is the registered trademark for our injectable formulation of natural alpha interferon. Alferon® is the only
natural-source, multi-species alpha interferon currently approved for sale in the U.S. and Argentina 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. Alferon® is also approved in Argentina for the treatment of refractory patients that failed or were intolerant to
treatment with recombinant interferons. Certain types of human papilloma viruses (“HPV”) cause genital warts, a sexually
transmitted disease (“STD”). According to the CDC, HPV is the most common sexually transmitted infection, with approximately
79 million Americans — most in their late teens and early 20s — infected with HPV. In fact, the CDC states that “HPV
is so common that nearly all sexually active men and women get the virus at some point in their lives.” Although they do
not usually result in death, genital warts commonly recur, causing significant morbidity and entail substantial health care costs.
Interferons
are a group of proteins produced and secreted by cells to combat diseases. Researchers have identified four major classes of human
interferon: alpha, beta, gamma and omega. Alferon N Injection® contains a multi-species form of alpha interferon. The world-wide
market for injectable alpha interferon-based products has experienced rapid growth and various alpha interferon injectable products
are approved for many major medical uses worldwide. Alpha interferons are manufactured commercially in three ways: by genetic
engineering, by cell culture, and from human white blood cells. All three of these types of alpha interferon are or were approved
for commercial sale in the U.S. Our natural alpha interferon is produced from human white blood cells.
The
potential advantages of natural alpha interferon over recombinant (synthetic) interferon produced and marketed by other pharmaceutical
firms may be based upon their respective molecular compositions. Natural alpha interferon is composed of a family of proteins
containing many molecular species of interferon. In contrast, commercial recombinant alpha interferon products each contain only
a single species. Researchers have reported that the various species of interferons may have differing antiviral activity depending
upon the type of virus. Natural alpha interferon presents a broad complement of species, which we believe may account for its
higher activity in laboratory studies. Natural alpha interferon is also glycosylated (partially covered with sugar molecules).
Such glycosylation is not present on the currently U.S. marketed recombinant alpha interferons. We believe that the absence of
glycosylation may be, in part, responsible for the production of interferon-neutralizing antibodies seen in patients treated with
recombinant alpha interferon. Although cell culture-derived interferon is also composed of multiple glycosylated alpha interferon
species, the types and relative quantity of these species are different from our natural alpha interferon.
Alferon
N Injection® [Interferon alfa-n3 (human leukocyte derived)] is a highly purified, natural-source, glycosylated, multi-species
alpha interferon product. There are essentially no neutralizing antibodies observed against Alferon N Injection® to date and
the product has a relatively low side-effect profile. The recombinant DNA derived alpha interferon formulations have been reported
to have decreased effectiveness after one year of treatment, probably due to neutralizing antibody formation.
See
“Manufacturing” and “Marketing/Distribution” sections below for more details on the manufacture and marketing/distribution
of Alferon N Injection®.
Cancer
We
have been working with the University of Pittsburgh’s chemokine modulation research initiative which includes the use of
Ampligen® as a potential adjuvant to modify the tumor microenvironment (TME) with the goal of increasing anti-tumor responses
to check point inhibitors (CPI). As part of this collaboration, Hemispherx has supplied Ampligen® (rintatolimod) to the University.
The study, under the leadership of Robert P. Edwards, MD, chair of gynecologic services at Magee-Women’s Hospital of the
University of Pittsburgh School of Medicine, and Professor of Surgery Pawel Kalinski, M.D., Ph.D., at Roswell Park Comprehensive
Cancer Center, Buffalo, N.Y., involved the chemokine modulatory regimen developed by Dr. Kalinski’s group and successfully
completed the Phase 1 dose escalation in patients with resectable colorectal cancer. In the 1st quarter of 2017, Dr. Kalinski
relocated to Roswell Park Comprehensive Cancer Center (“RPCCC”) in Buffalo, NY and has established a cancer program
which will continue to require a supply of Ampligen®.
In
October 2018, we signed a clinical trial agreement with Roswell Park Comprehensive Cancer Center to evaluate Ampligen® in
combination with checkpoint inhibitors (CPIs). The Phase IIa clinical trial will evaluate the immune-mediated effects of cytokine
modulation in combination with CPIs in patients with primary resistance to CPI therapy. The protocol will seek to evaluate the
combination of Ampligen® and CPIs in patients with advanced urothelial carcinoma, renal cell carcinoma and melanoma. Ampligen®
is our investigational immune-enhancing TLR3 agonist that has demonstrated a robust anti-cancer effect in preclinical models when
combined with CPIs. This new agreement expands the extensive prior clinical and preclinical work into the clinical checkpoint
blockade arena and offers the opportunity to begin evaluation of this combination therapy in patients with a variety of solid
tumors where large numbers of patients do not respond or progress following treatment with standard CPI-based therapy.
Currently,
four Ampligen® clinical trials are underway at university cancer centers testing whether tumor microenvironments can be reprogrammed
to increase the effectiveness of cancer immunotherapy, including checkpoint inhibitors:
Recurrent
Ovarian Cancer
- Phase 1 / 2 study of intraperitoneal chemo-immunotherapy in recurrent ovarian cancer at University of Pittsburgh
Medical Center. Dr. R. Edwards, PI. Study underway. An interim report from Dr. Edwards’ team is expected within thirty days
and a summary of same will be disclosed upon receipt. See: https://www.clinicaltrials.gov/ct2/show/NCT02432378
Colorectal
Cancer
- Phase 2a study of Ampligen as component of chemokine modulatory regimen on colorectal cancer metastatic to liver
at Roswell Park Comprehensive Cancer Center. Dr. P. Boland, PI. This study is underway. See: https://www.clinicaltrials.gov/ct2/show/NCT03403634
Metastatic
Triple Negative Breast Cancer
- Open label study of metastatic triple-negative breast cancer using chemokine modulation therapy,
including Ampligen and pembrolizumab, at Roswell Park Comprehensive Cancer Center. Dr. M. Opyrchal, PI. This study is underway.
See: https://www.clinicaltrials.gov/ct2/show/NCT03599453
Recurrent
Ovarian Cancer
– This is a Phase 2 investigator-sponsored trial being conducted in advanced recurrent ovarian cancer
at the University of Pittsburgh Medical Center that will evaluate Ampligen in combination with pembrolizumab and cisplatin.
Patient enrollment has been initiated in this study designed for 45 subjects. Dr. Robert Edwards, world renowned expert in ovarian
cancer is the lead investigator. See: https://www.clinicaltrials.gov/ct2/show/NCT03734692
In
addition, five Ampligen clinical trials are planned for initiation in 2019, subject to funding:
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Phase
2 study that will evaluate Ampligen in combination with pembrolizumab in refractory metastatic colorectal carcinoma at Roswell
Park Comprehensive Cancer Center. Dr. P. Boland, PI. Study design and budget being developed.
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Phase
2 study of advanced urothelial (bladder), melanoma and renal cell carcinoma, resistant to checkpoint blockade that will evaluate
Ampligen in combination with a checkpoint blockade therapy at Roswell Park Comprehensive Cancer Center. Dr. M. Opyrchal, PI.
Protocol design currently being finalized. Hemispherx Biopharma signed a clinical trial agreement with Roswell Park Comprehensive
Cancer Center to study Ampligen in combination with checkpoint inhibitors in a phase 2a study in urothelial carcinoma, renal
cell carcinoma and melanoma. This Phase 2a study will be led by Mateusz Opyrchal, MD, PhD, Assistant Professor of Medicine
and Associate Director of the Early Phase Clinical Trial Program at Roswell Park, in collaboration with Dr. Kalinski.
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First-line
therapy for non-small cell lung cancer with SOC chemotherapy that will evaluate Ampligen in combination with pembrolizumab
at University of Nebraska Medical Center. Dr. V. Ernani, PI. Study design and budget being developed.
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Phase
2 study in advanced pancreatic cancer using checkpoint blockade plus Ampligen at University of Nebraska Medical Center. Dr.
K. Klute, PI. Protocol and budget being developed. Based upon success in the initial animal studies, an additional round of
more extensive and comprehensive pre-clinical animal pancreatic cancer studies are being conducted at University of Nebraska
to reconfirm results, test additional PC tumor types, examine anti-PD-1 in addition to the prior anti-PD-L1 analysis, then
fine tune the focus of the proposed future pancreatic cancer clinical trial and reduce the chances of error in clinical trial
design. This information will also be used to formulate proposed future combination therapy clinical activity in the Kingdom
of the Netherlands.
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Phase
2 study of neoadjuvant conditioning of prostate cancer tumor microenvironment using Ampligen at Roswell Park Comprehensive
Cancer Center. Dr. G. Chatta, PI. This protocol is now authorized by the FDA. See: https://clinicaltrials.gov/ct2/show/NCT03899987.
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In
January 2017, the EAP through our agreement with myTomorrows designed to enable access of Ampligen® to ME/CFS patients had
been extended to pancreatic cancer patients beginning in the Netherlands. myTomorrows is our exclusive service provider in Europe
and Turkey and will manage all EAP activities relating to the pancreatic cancer extension of the program. In February 2018, the
agreement with myTomorrows was extended to cover Canada to treat pancreatic cancer patients, pending government approval.
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As
of March 31, 2019, 42 pancreatic cancer patients have received treatment with Ampligen® immuno-oncology therapy under the
EAP program at Erasmus University in the Netherlands.
Supervised by Prof. Casper
van Eijck, MD, a world-renowned specialist in this dread malignancy, and Diba Latifi, MD, the team at Erasmus is making progress.
As disclosed recently, the Dutch government has approved and extended the therapeutic program for an additional year. Early progress
was reported in a published abstract from Erasmus, and a copy of the abstract can be found at https://hemispherx.net/stockholder-meeting/.
The abstract was part of a larger original report covering a variety of medical topics, which can be found at
https://www.pancreasclub.com/wp-content/uploads/2018/06/Poster-Abstracts.pdf
.
As
of March 2019, we reported that four out of 24 patients with either locally advanced or metastatic disease have survived for more
than one year on the Ampligen protocol without additional therapy. Another four patients had survived for more than one year since
the start of the Ampligen protocol with palliative chemotherapy. However, in this group of patients 15 died within seven months
since start of Ampligen. Of the five resected patients two died on Ampligen, 24 and 27 months after resection. The other three
patients are still alive with a mean survival of 26 months after resection and adjuvant Ampligen treatment.
All
patients reported improvement in quality of life during treatment. We expect within 60 days a more comprehensive update from the
Erasmus team on the immunological response in relation to survival. Hemispherx hopes to work with Dr. Van Eijck, Dr. Latifi, and
Erasmus M.C. to initiate a combination therapy program to extend the results seen thus far in the Netherlands by combining Ampligen
with checkpoint blockade therapy.
Myalgic
Encephalomyelitis/Chronic Fatigue Syndrome (“ME/CFS”)
Myalgic
Encephalomyelitis/Chronic Fatigue Syndrome (“ME/CFS”), also known as Chronic Fatigue Immune Dysfunction Syndrome (“CFIDS”)
and Chronic Fatigue Syndrome (“CFS”), is a serious and debilitating chronic illness and a major public health problem.
ME/CFS is recognized by both the government and private sector as a significant unmet medical need, including the U.S. National
Institutes of Health (“NIH”), FDA and the CDC. The CDC states on its website at
https://www.cdc.gov/me-cfs/
that “
Myalgic encephalomyelitis/chronic fatigue syndrome (ME/CFS) is a serious, long-term illness that affects many body
systems. People with ME/CFS are often not able to do their usual activities. At times, ME/CFS may confine them to bed. People
with ME/CFS have severe fatigue and sleep problems. ME/CFS may get worse after people with the illness try to do as much as they
want or need to do. This symptom is known as post-exertional malaise (PEM). Other symptoms can include problems with thinking
and concentrating, pain, and dizziness.
”
Many
severe ME/CFS patients become completely disabled or totally bedridden and are afflicted with severe pain and mental confusion
even at rest. ME/CFS is characterized by incapacitating fatigue with profound exhaustion and extremely poor stamina, sleep difficulties
and problems with concentration and short-term memory. It is also accompanied by flu-like symptoms, pain in the joints and muscles,
tender lymph nodes, sore throat and new headaches. A distinctive characteristic of the illness is a worsening of symptoms following
physical or mental exertion, which do not subside with rest.
In
October 2016, an analysis of a subset of CFS patients from the AMP-516 Phase 3 study was performed and presented at the IACFS/ME
annual meeting in Fort Lauderdale, FL. The ITT Population (n=208) was separated into two subsets based primarily on baseline CFS
symptom duration (2-8 years (n=75) and <2 years plus >8 years (n=133)). Responder analyses of the ITT Population and both
subsets were performed. Responder analyses of rintatolimod vs. placebo patients improving ET duration from baseline by ≥25%
shows over twice the % of patients with clinical enhancement in ET effect in the rintatolimod cohort compared to placebo for the
2-8 year subset vs. the ITT population. This subset may assist in the design of future clinical studies of Ampligen® in the
treatment for ME/CFS patients.
Other
Diseases
In
Europe, the EMA has approved the Orphan Medicinal Products Designation for rintatolimod (Ampligen®) as a potential treatment
of Ebola virus disease and for Alferon® N Injection, also known as interferon alfa-n3, as a potential treatment of MERS.
We
concluded our series of collaborations designed to determine the potential effectiveness of Ampligen® and Alferon® N as
potential preventative and/or therapeutic treatments for Ebola related disorders. Although we believe that the threat of both
MERS and Ebola globally may reemerge in the future, it appears that the spread of these disorders has somewhat diminished. As
a result, we have elected to focus our research and development efforts on other areas at this time.
Manufacturing
In
January 2017, Hemispherx and Jubilant Hollister-Stier LLC (“Jubilant”) entered into a commitment pursuant to which
Jubilant has manufactured commercial size batches of Ampligen®. Two commercial size batches consisting of over 16,000 vials
were produced in 2018 for use in our clinical studies and EAP.
Jubilant
was approved by the FDA as a manufacturer of Ampligen by the successful completion of a previous preapproval inspection by the
agency. The National Administration of Drugs, Food and Medical Devices (A.N.M.A.T) in Argentina has approved Ampligen for commercial
distribution for the treatment of Chronic Fatigue Syndrome (CFS). The release testing of the drug, which is needed by A.N.M.A.T.,
has been initiated in Argentina.
We are currently working with the FDA to allow us to export Ampligen to Argentina.
The
production of the polymers (Ampligen intermediates) at our New Brunswick facility is required for the production of additional
lots of Ampligen. The manufacture of polymer is currently being worked on to provide the intermediates needed for the production
of Ampligen. Once polymer is available we will schedule the manufacture of additional lots at Jubilant.
Alferon®
is approved by the FDA for commercial sales in the US for the treatment of genital warts. It is also approved by A.N.M.A.T in
Argentina for commercial sales for the treatment of genital warts and in patients refractory to treatment with recombinant interferons.
While the Hemispherx facility in New Brunswick is approved by the FDA under the Biologic License Application (BLA) for Alferon®,
this status will need to be reaffirmed by an FDA pre-approval inspection which will not occur until new batches of commercial
filled and finished product are produced and released by the FDA. Currently, the manufacturing process is on hold and there is
no definitive timetable to have the facility back online until additional funding is obtained.
Marketing/Distribution
In
May 2016, we entered into a five-year exclusive Renewed Sales, Marketing, Distribution and Supply Agreement (the “Agreement”)
with GP Pharm. Under this Agreement, GP Pharm was responsible for gaining regulatory approval in Argentina for Ampligen® to
treat severe CFS in Argentina and for commercializing Ampligen® for this indication in Argentina. We granted GP Pharm the
right to expand rights to sell this experimental therapeutic into other Latin America countries based upon GP Pharm achieving
certain performance milestones. We also granted GP Pharm an option to market Alferon N Injection® in Argentina and other Latin
America countries.
In
January 2017, the ANMAT granted a five-year extension to a previous approval to sell and distribute Alferon N Injection® (under
the brand name “Naturaferon”) in Argentina. This extends the approval until 2022. In February 2013, we received the
ANMAT approval for the treatment of refractory patients that failed or were intolerant to treatment with recombinant interferon,
with Naturaferon® in Argentina.
In
May 2016, we entered into a five-year agreement (the “Impatients Agreement”) with Impatients, N.V. (“myTomorrows”),
a Netherlands based company, for the commencement and management of an EAP in Europe and Turkey (the “Territory”)
related to ME/CFS. Pursuant to the agreement, myTomorrows, as our exclusive service provider and distributor in the Territory,
is performing EAP activities. These activities will be directed to (a) the education of physicians and patients regarding the
possibility of early access to innovative medical treatments not yet the subject of a Marketing Authorization (regulatory approval)
through named-patient use, compassionate use, expanded access and hospital exemption, (b) patient and physician outreach related
to a patient-physician platform, (c) the securing of Early Access Approvals (exemptions and/or waivers required by regulatory
authorities for medical treatments prior to Marketing Authorization) for the use of such treatments, (d) the distribution and
sale of such treatments pursuant to such Early Access Approvals, (e) pharmacovigilance (drug safety) activities and/or (f) the
collection of data such as patient-reported outcomes, doctor-reported experiences and registry data. We are supporting these efforts
and supplying Ampligen® to myTomorrows at a predetermined transfer price. In the event that we receive Marketing Authorization
in any country in the Territory, we will pay myTomorrows a royalty on products sold. Pursuant to the Impatients Agreement, the
royalty would be a percentage of Net Sales (as defined in the Impatients Agreement) of Ampligen® sold in the Territory where
Marketing Authorization was obtained, and the maximum royalty would be a percentage of Net Sales. The formula to determine the
percentage of Net Sales will be based on the number of patients that are entered into the EAP. The Company believes that disclosure
of the exact maximum royalty rate and royalty termination date could cause competitive harm. However, to assist the public in
gauging these terms, the actual maximum royalty rate is somewhere between 2% and 10% and the royalty termination date is somewhere
between five and fifteen years from the First Commercial Sale of a product within a specific country. The parties established
a Joint Steering Committee comprised of representatives of both parties to oversee the EAP. No assurance can be given that activities
under the EAP will result in Marketing Authorization or the sale of substantial amounts of Ampligen® in the Territory.
In
January 2017, the EAP through our agreement with myTomorrows designed to enable access of Ampligen® to ME/CFS patients has
been extended to pancreatic cancer patients beginning in the Netherlands. myTomorrows is our exclusive service provider in the
Territory and will manage all EAP activities relating to the pancreatic cancer extension of the program.
In
February 2018, we signed an amendment to the EAP with myTomorrows. This amendment extended the territory to cover Canada to treat
pancreatic cancer patients, pending government approval.
In
March 2018, we signed an amendment to the EAP with myTomorrows, pursuant to which myTomorrows will be our exclusive service provider
for special access activities in Canada for the supply of Ampligen® for the treatment of ME/CFS.
In
August 2017, we extended our agreement with Asembia, formerly Armada Healthcare, LLC, to undertake the marketing, education and
sales of Alferon N Injection® throughout the United States.
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 three months ended March 31, 2019, the
Company did not make any contributions towards the 401(k) Plan.
New
Accounting Pronouncements
See
“Note 10: Recent Accounting Pronouncements”.
Disclosure
About Off-Balance Sheet Arrangements
None.
Critical
Accounting Policies
There
have been no material changes in our critical accounting policies and estimates from those disclosed in Part II; Item 7: “Management’s
Discussion and Analysis of Financial Condition and Results of Operations; Critical Accounting Policies” contained in our
Annual Report on Form 10-K for the year ended December 31, 2018.
RESULTS
OF OPERATIONS
Three
months ended March 31, 2019 versus three months ended March 31, 2018
Net
Loss
Our
net loss was approximately $3,368,000 and $2,713,000 for the three months ended March 31, 2019 and 2018, respectively, representing
an increase in loss of approximately $655,000 or 24% when compared to the same period in 2018. This increase in
loss for these three months was primarily due to the following:
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1)
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an
increase in general and administrative expense of $204,000 or 13%;
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2)
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a
gain from the sale of the underutilized building in New Brunswick of $223,000 in 2018 which did not occur in 2019; and
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3)
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a
write off of the balance of debt discounts associated with extinguished debt of $250,000.
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Net
loss per share was $(0.07) and $(0.07) for the three months ended March 31, 2019 and 2018, respectively. The weighted average
number of shares of our common stock outstanding as of March 31, 2019 was 50,903,398 as compared to 36,269,388 as of March 31,
2018.
Revenues
Revenues
from our Ampligen Cost Recovery Program were $0 and $56,000 for the three months ended March 31, 2019 and 2018, respectively.
There were no sales in the current quarter, because the clinical sites purchased inventory in 2018 to make sure they
have drug supply for the patients currently enrolled in the expanded access program.
Production
Costs
Production
costs were approximately $231,000 and $208,000, respectively, for the three months ended March 31, 2019 and 2018, representing
an increase of $23,000 in production costs in the current period. These costs primarily represent stability testing and pre-production
expenses related to Alferon. The increase in costs was primarily due to an overall increase in costs.
Research
and Development Costs
Overall
Research and Development (“R&D”) costs for the three months ended March 31, 2019 were approximately $928,000 as
compared to $855,000 for the same period a year ago, reflecting an increase of approximately $73,000 or 8%. Costs increased
mainly due to Ampligen stability costs, which increased $51,000, along with general maintenance costs increased $22,000.
General
and Administrative Expenses
General
and Administrative (“G&A”) expenses for the three months ended March 31, 2019 and 2018, were approximately $1,767,000
and $1,563,000, respectively, reflecting an increase of approximately $204,000 or 13%. The increase in G&A expenses
during the current period was mainly due to an increase in stock compensation of $84,000, an increase in stock market fees of
$20,000 and an increase in salaries of $64,000.
Other
Income-Expenses
There
was a gain from the sale of the underutilized building in New Brunswick of $223,000 in 2018 which did not occur in 2019.
There
was a write off of the balance of debt discounts associated with extinguished debt of $250,000 in 2019 which did not occur in
2018.
Convertible
Debt
Interest
and finance costs increased $107,000 in the three months ended March 31, 2019 mostly due to costs associated with the convertible
debt which was not in effect in the three months ended March 31, 2018.
The
convertible debt is valued using the Monte Carlo method and for the three months ended March 31, 2019 there was a gain of $90,000
as a result of the Monte Carlo method, which was not in effect in 2018.
Redeemable
Warrants
The
quarterly revaluation of certain redeemable warrants resulted in a non-cash adjustment to the redeemable warrants liability for
the three months ended March 31, 2019 which amounted to a loss of approximately $45,000, compared to a loss of $231,000
for March 31, 2018 (see Note 12: Fair Value - for the various factors considered in the valuation of redeemable warrants).
Liquidity
and Capital Resources
As
of March 31, 2019, we had approximately $4,880,000 in cash, cash equivalents and marketable securities inclusive of approximately
$2,486,000 in Marketable Securities, representing an increase of approximately $3,055,000 from December 31, 2018. Cash used in
operating activities for the three months ended March 31, 2019 was approximately $1,457,000 compared to approximately $2,542,000
for the same period in 2018, a decrease of 1,085,000 or 43%. The primary reason for this decrease was collection
of other receivables in 2019.
Cash
used in investing activities for the three months ended March 31, 2019 was approximately $1,098,000 compared to cash provided
by investing activities of approximately $1,036,000 for the same period in 2018, representing an increase of $2,134,000.
The primary reasons for the increase during the current period is the receipt of $963,000 from the sale of the underutilized second
building in New Brunswick, New Jersey in 2018 and use of marketable securities of $960,000 for operation, purchase of equipment
of $14,000 and payments of patent and trademark fees of $124,000.
Cash
provided by financing activities for the three months ended March 31, 2019 was approximately $4,650,000 compared to approximately
$4,051,000 for the same period in 2018, an increase of $599,000. The primary reasons for the increase in the three months
ended March 31, 2019 can be attributable to our receipt of net proceeds of approximately $4,734,000 from the sale common stock
pursuant to our EDA with Maxim Group, the exercise of warrants and the sale of shares through a stock offering as compared to
$2,326,000 in 2018 (see “Note 8: Stockholders’ Equity”). Also we received $1,678,000 from the sale leaseback
of the main building located in New Brunswick, New Jersey in 2018.
If
we are unable to commercialize and sell Ampligen and/or recommence material sales of Alferon N Injection, our operations, financial
position and liquidity may be adversely impacted, and additional financing will be required. In this regard, due to the
high cost estimates to bring the facility back online, we most likely will need additional funds to finance the revalidation process
in our facility and to initiate commercial manufacturing, thereby readying ourselves for an FDA Pre-Approval Inspection and to
commercialize our products. However, there is no assurance that such financing will be available.
As
of September 1, 2017, the directors agreed to defer 100% of their fees until cash is available. In consideration of this deferral,
226,023 options were issued to each of the two independent directors in February 2018 with an exercise price of $0.37 for a period
of 10 years with a vesting period of 3 years. As of September 1, 2017, certain officers agreed to defer 40% of their salaries
until cash is available and all employees agreed to be paid 50% of their salaries in the form of unrestricted common stock of
the Company. In April 2018, the Board of Directors approved a payment of 50% of the deferred Board fees and the deferred officer
salaries. However, 100% of the current Board fees and 40% of the current officer salaries continue to be deferred.
We
are committed to a focused business plan oriented toward finding senior co-development partners with the capital and expertise
needed to commercialize the many potential therapeutic aspects of our experimental drugs and our FDA approved drug Alferon.
We
reactivated our Equity Distribution Agreement with Maxim under our universal shelf registration statement in December 2017. Since
December 5, 2017, we have sold an aggregate of 2,970,273 shares under the EDA for proceeds of $1,098,020 net of
$32,940 in commissions. The actual number of shares that we can sell Pursuant to the EDA and the proceeds to be received
therefrom are dependent upon the market price of our common stock.
In
January and February 2018, we realized net proceeds of approximately $1,260,000 from the exercise of 2,800,000 warrants with an
exercise price on $0.45.
On
March 16, 2018, we sold our property located at 783 Jersey Ave, New Brunswick, NJ for $4,080,000 and the purchasers received 3,225,806
warrants to purchase common stock. Simultaneously therewith, we leased the facility back.
On
March 24, 2018, we sold 1,250,000 shares of common stock for net proceeds of approximately $475,000 from this stock offering.
In
February 2018, we sold our unencumbered, unutilized, and wholly owned property located at 5 Jules Lane, New Brunswick, New Jersey
to Acellories, NJ LLC, a New Jersey limited liability company, pursuant to a sale agreement dated September, 11, 2017. The sale
price was $1,050,000.
There
can be no assurances that, if needed, we will be able to raise adequate funds from these or other sources or enter into licensing,
partnering or other arrangements to advance our business goals. Our inability to raise such funds or enter into such arrangements,
if needed, could have a material adverse effect on our ability to develop our products. Also, we have the ability to curtail discretionary
spending, including some research and development activities, if required to conserve cash. Because of our long-term capital requirements,
we may seek to access the public equity market whenever conditions are favorable, even if we do not have an immediate need for
additional capital at that time. We are unable to estimate the amount, timing or nature of future sales of outstanding common
stock or instruments convertible into or exercisable for our common stock. Any additional funding may result in significant dilution
and could involve the issuance of securities with rights, which are senior to those of existing stockholders. We may also need
additional funding earlier than anticipated, and our cash requirements, in general, may vary materially from those now planned,
for reasons including, but not limited to, changes in our research and development programs, clinical trials, acquisitions of
intellectual property or assets, enhancements to the manufacturing process, competitive and technological advances, the regulatory
processes including the commercializing of Ampligen products or new utilization of Alferon products.
The
proceeds from our financings have been used to fund infrastructure growth including manufacturing, regulatory compliance and market
development along with our efforts regarding the Ampligen manufacturing, Ampligen NDA and preparedness for the FDA pre-approval
inspections of the New Brunswick manufacturing facility. There can be no assurances that, if needed, we will raise adequate funds
from these or other sources, which may have a material adverse effect on our ability to develop our products. Also, we have the
ability to curtail discretionary spending, including some research and development activities, if required to conserve cash