1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarterly Period Ended June 30, 1997
Commission File Number: 0-27072
HEMISPHERx BIOPHARMA, INC.
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(Exact name of registrant as specified in its charter)
Delaware 52-0845822
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1617 JFK Boulevard, Suite 660, Philadelphia, PA 19103
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(Address of principal executive offices) (Zip Code)
(215) 988-0080
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(Registrant's telephone number, including area code)
Not Applicable
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(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
/X/ Yes / / No
16,518,599 shares of common stock issued and outstanding as of June 30, 1997.
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PART I - FINANCIAL INFORMATION
ITEM 1: Financial Statements
HEMISPHERx BIOPHARMA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<CAPTION)
(Unaudited)
December 31, June 30,
1996 1997
----------- -----------
ASSETS
Current assets:
Cash and cash equivalents $ 5,279,429 $ 2,826,185
Prepaid expenses and other current assets 105,341 137,095
----------- ----------
Total current assets 5,384,770 2,963,280
Property and equipment, net 83,475 75,396
Patent and trademark rights, net 1,502,816 1,486,303
Security deposits 28,323 18,323
----------- ----------
Total assets $ 6,999,384 $ 4,543,302
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 598,078 $ 566,495
Accrued expenses 548,312 421,626
----------- ----------
Total current liabilities 1,146,390 988,121
Commitments and contingencies
Stockholders' equity:
Preferred stock 50 47
Common stock 16,160 16,518
Additional paid-in capital 54,080,171 55,315,659
Accumulated deficit (48,243,387) (51,777,043)
----------- ----------
Total stockholders' equity 5,852,994 3,555,181
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Total liabilities and stockholders' equity $ 6,999,384 $ 4,543,302
=========== ==========
See accompanying notes to condensed consolidated financial statements.
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HEMISPHERx BIOPHARMA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION)
(Unaudited)
For the Three months ended
June 30,
--------------------------
1996 1997
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Revenues:
Research and development $ 15 $ 31,618
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Total revenues 15 31,618
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Costs and expenses:
Research and development 395,805 670,678
General and administrative 721,753 502,887
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Total cost and expenses 1,117,558 1,173,565
Interest income 43,165 44,524
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Net loss $(1,074,378) $(1,097,423)
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Weighted average shares outstanding 15,581,729 16,413,637
Net loss per share $ (0.07) $ (0.07)
========== ==========
See accompanying notes to condensed consolidated financial statements.
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HEMISPHERx BIOPHARMA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the Six months ended
June 30,
--------------------------
1996 1997
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Revenues:
Research and development $ 18,369 $ 61,825
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Total revenues 18,369 61,825
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Costs and expenses:
Research and development 694,505 1,326,933
General and administrative 1,235,566 1,026,403
Preferred stock conversion expense - 1,227,864
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Total cost and expenses 1,930,071 3,581,200
Interest income 165,565 110,718
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Net loss $(1,746,137) $(3,408,657)
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Weighted average shares outstanding 15,581,661 16,315,246
Net loss per share $ (0.11) $ (0.21)
========== ==========
See accompanying notes to condensed consolidated financial statements.
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HEMISPHERx BIOPHARMA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Six months ended
June 30,
-------------------------
1996 1997
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Cash flows from operating activities:
Net loss $(1,746,137) $(3,408,657)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation of property and equipment 24,636 13,740
Amortization of patents rights 43,238 59,833
Write-off of patent rights - 46,451
Preferred stock conversion expense - 1,227,864
Changes in assets and liabilities:
Prepaid expenses and other current assets (24,207) (31,754)
Accounts payable (304,155) (31,583)
Accrued expenses (1,688,981) (79,910)
Security deposits 28,242 10,000
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Net cash used in operating activities (3,667,364) (2,194,016)
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Cash flows from investing activities:
Purchase of property and equipment ( 31,747) (5,661)
Additions to patent rights (136,301) (89,772)
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Net cash used in investing activities (168,048) (95,433)
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Cash flows from financing activities:
Proceeds from issuance of preferred stock - 4,834,923
Preferred stock redeemed - (5,000,000)
Payments on stockholder notes (4,920,000) -
Common stock issued 3,125 1,282
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Net cash used in financing activities (4,916,875) (163,795)
--------- ---------
Net decrease in cash and cash equivalents (8,752,287) (2,453,244)
Cash and cash equivalents at beginning of period 11,291,167 5,279,429
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Cash and cash equivalents at end of period $2,538,880 $2,826,185
========= =========
See accompanying notes to condensed consolidated financial statements.
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HEMISPHERx BIOPHARMA, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of
Hemispherx BioPharma, Inc. (the "Company"), a Delaware corporation and all
its wholly owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated. The Company's interim consolidated
financial statements are unaudited.
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 1996 consolidated financial statements included in the Company's
Form 10K statement filed with the SEC on March 26, 1997.
NOTE 2: SERIES D CONVERTIBLE PREFERRED STOCK
On July 3, 1996 the Company issued and sold 6,000 shares of Series D
Convertible Preferred Stock ("the Preferred Stock") at $1,000 per share for
an aggregate total of $6,000,000. The proceeds, net of issuance costs,
realized by the Company were $5,395,885. In addition to the issuance of the
Preferred Stock, the Company issued to the buyer Warrants ("the Warrants")
to purchase 100,000 shares of Common Stock at the strike price of $4 per
share.
The Preferred Stock earned dividends at the rate of $50 per annum per share.
The dividends were cumulative and payable quarterly commencing October 1,
1996 as declared by the Board of Directors of the Corporation.
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In October,1996, the Preferred Shareholder converted 1,381 shares of Series
D Convertible Preferred Stock into 576,527 shares of common stock.
On September 16, 1996 the Company's registration statement registering the
common stock underlying the Preferred Stock and the Warrants was declared
effective by the SEC.
On March 7, 1997, the Company retired all the outstanding Series D Convertible
Preferred Stock.(See note 3).
NOTE 3: SERIES E CONVERTIBLE PREFERRED STOCK
On March 7, 1997, the Company used the services of an investment banking
firm to privately place $5 million of Series E Convertible Preferred Stock.
The proceeds from placement were used to retire the $5 million balance of
Series D Convertible Stock issued on July 3, 1996. In conjunction with this
transaction, the Company issued 200,000 shares of common stock with a
guaranteed value of $6.00 per share within the subsequent six months of
issuance. Consequently, the Company incurred a $1.2 million charge which
had no effect on the total stockholders' equity as it was offset by an
increase in additional paid-in capital.
NOTE 4: STOCK COMPENSATION:
The Company recorded stock/warrant compensation expense of $27,864 during
the quarter ended March 31, 1997 on the basis of granting 150,000 warrants
to purchase Common stock to non-employees of the Company.
NOTE 5: NEW ACCOUNTING PRONOUNCEMENTS:
In February, 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 128, "Earnings Per Share." This statement establishes standards
for computing and presenting earnings per share (EPS) and applies to entities
with publicly held common stock or potential common stock. This Statement
simplifies the standards for computing earnings per share previously found
in APB Opinion NO. 15, "Earnings Per Share," and makes them comparable to
international EPS standards. It replaces the presentation of primary EPS
with a presentation of basic EPS. It also requires dual presentation of basic
and diluted EPS on the face of the income statement for all entities with
complex capital structures and requires a reconciliation of the numerator
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and denominator of the basic EPS computation to the numerator and denominator
of the diluted EPS computation. This Statement is effective for financial
statements issued for periods ending after December 15, 1997, including
interim periods; earlier application in not permitted. This Statement requires
restatement of all prior-period EPS data presented. The adoption of this
Statement will not have any impact on the Company's EPS disclosure, as the
Company's stock options and warrants are anti-dilutive and will be excluded
from the denominator of earnings per share; thus, earnings per common share
is equal to basic earnings per share as computed under SFAS No. 128.
ITEM 2: Managements Discussion and Analysis of Financial Condition and
Results of Operations.
GENERAL
The Company was incorporated in Maryland in 1966 under the name HEM
Research, Inc. and originally served as a supplier of research support
products. The Company's business was redirected in the early 1980's to the
development of nucleic acid pharmaceutical technology and the
commercialization of RNA drugs. The Company was reincorporated in Delaware and
changed its name to HEM Pharmaceuticals Corp. in 1991 and to Hemispherx
BioPharma, Inc. in June 1995. The Company has three subsidiaries--BioPro
Corp., BioAegean Corp. and Core BioTech Corp., all of which were incorporated
in Delaware in 1994. The Company has reported net profit only from 1985
through 1987. Since 1987, the Company has incurred substantial operating
losses. Prior to completing an Initial Public Offering (IPO) in November 1995,
the Company financed operations primarily through the private placement of
equity and debt securities, equipment lease financing, interest income and
revenues from licensing and royalty agreements.
The development of the Company's products has required and will continue
to require the commitment of substantial resources to conduct the
time-consuming research, preclinical development, and clinical trials
necessary to bring pharmaceutical products to market and establish commercial
production and marketing capabilities. Accordingly, the Company will need to
raise additional funds through additional equity or debt financing,
collaborative arrangements with corporate partners, off balance sheet
financing or from other sources in order to complete the necessary clinical
trials and the regulatory approval processes and begin commercializing its
products.
The consolidated financial statements include the financial statements
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of Hemispherx BioPharma, Inc. and its three wholly-owned subsidiaries, BioPro
Corp., BioAegean Corp. and Core BioTech Corp. which were incorporated in
September 1994 for the purpose of developing technology for ultimate sale
into certain nonpharmaceutical specialty consumer markets. All significant
intercompany balances and transactions have been eliminated in consolidation.
During fiscal 1994 and 1995, the Company focused on negotiating and
executing the SAB Agreement, exploring potential partnerships to pursue
additional clinical trials with special emphasis on the HBV disease
indication, restructuring certain of its outstanding debt, conducting the 1994
Common Stock Financing and the Bridge Financing and completing its IPO. In
1996, the Company reviewed and restructured the Ampligen manufacturing
process. Second sources were established to procure raw materials,
lyophilization services and release testing. In the areas of research and
clinical efforts, the Company established with the FDA a roadmap of research
and clinical studies to be completed . These studies include animal toxicity
and clinical studies in HIV and CFS. One HIV clinical study was approved by
the FDA and started in early 1997. The animal toxicity studies requested by
the FDA began in 1996. In addition, the Company shipped the initial inventory
of Ampligen to Canada to use in its cost recovery program there.
The Company expects to continue its research and clinical efforts for
the next several years with benefit occurring as a result of certain revenues
from cost recovery programs, notably in Canada, Belgium, and the U.S.
Beginning in October, 1993, limited revenues were initiated in Belgium from
sales under the cost recovery provision for conducting clinical tests in
ME/CFS. However, the Company may continue to incur losses over the next
several years due to clinical costs which are partially offset by revenues and
potential licensing fees. Such losses may fluctuate from quarter to quarter as
a result of differences in the timing of significant expenses incurred and
receipt of licensing fees and/or revenues from cost recovery based sales in
Belgium, Canada and the United States. The Company is also pursuing similar
programs in other countries.
Recent Developments
In June, 1997, the Company received notification of acceptance of four
new patents in New Zealand covering various medical indications for its
double-stranded RNAs, including Ampligen.
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On May 1, 1997, the Company received permission from the U.S. Food
and Drug Administration (FDA) to recover costs from Chronic Fatigue Syndrome
(CFS) patients in the Company's AMP-511 open-label treatment protocol. In
June, 1997, five (5) clinical sites across the United States had been approved
to participate in this protocol. The cost of Ampligen is $2,100 for the first
eight weeks of treatment and $2,400 for each additional eight-week period
thereafter. This treatment protocol has begun to enroll CFS patients at these
centers in the U.S. At the same time, the Company is in discussion with the
FDA on the design of a controlled CFS clinical trial (AMP-516) which should
start no later than the fourth quarter of 1997.
In March, 1997, The Company sold 5,000 shares of Series E Convertible
Preferred Stock at $1,000 per share in a private offering pursuant to
Regulation D of the Securities Act of 1933, as amended, and Rule 506
promulgated thereunder. The proceeds of this placement were used to retire
the convertible preferred stock (Series D), which was placed under Regulation
D filing with the SEC during 1996. As a result of this transaction in 1997,
the Company incurred a $1.2 million charge which had no effect on total
stockholders' equity as it was offset by an increase in additional paid-in
capital.
In January 1997, the Company began a Phase II clinical trial in Texas
treating HIV infected patients with Ampligen. The trial, approved by the
FDA, is studying the effect of Ampligen on viral load, or burden, in HIV
patients with CD4 levels over 400 cells/mm who are not being treated with
any other HIV medications. The principal investigator in the trial, Dr.
Patricia Salvato, specializes in the treatment of individuals with HIV
infection. Dr. Salvato is a Clinical Associate Professor at the University
of Texas Health Science Center, and has participated in prior clinical trials
of Ampligen for various chronic viral diseases including HIV and CFS.
In December, 1996 the Company and Temple University settled their legal
disputes regarding the license agreement between the parties covering the
Oragen drugs. The parties signed the documents required to consummate their
settlement, which includes a worldwide license for the commercial sale of
all Oragen products based on patents and related technology held by Temple.
This agreement was originally executed in 1988. In 1994, Temple terminated
the agreement, which caused the company to file legal action to re-instate
the 1988 agreement.
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On October 15, 1996, results of a Belgium clinical study were presented
at the annual scientific meeting of the American Association for Chronic
Fatigue Syndrome (AACFS) evidencing that Ampligen produced significant
physical and cognitive improvements among patients suffering from Chronic
Fatigue Syndrome. The study was presented by Kenny De Meirleir, M.D., Ph.D.
from the University of Brussels, and by David S. Strayer, M.D., Professor of
Medicine at Allegheny University, PA, and Medical Director for the Company.
RESULTS OF OPERATIONS
Six months ended June 30, 1997 versus six months ended June 30, 1996
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The Company reported a net loss of $3,408,657 for the six months ended
June 30, 1997 versus a net loss of $1,746,137 for the same period in 1996.
Several factors contributed to the increased loss of $1,667,520.
Revenues were up for the six months of 1997 due to increased cost
recovery from the clinical trials in Belgium and the United States.
Research and development costs increased $632,428 in the six months
ended June 30, 1997 due primarily to increased efforts in toxicity studies
and on the Canadian and Belgium clinical programs.
General and administrative expenses in the first six months of 1996
included a one time gain in the amount of $318,757 resulting from the
forgiveness of certain lease obligations in connection with the restructuring
of the Company's principal office lease. Excluding this one time gain general
and administrative expenses in the first six months of 1997 decreased by
$527,920. This decrease is primarily due to lower legal and consulting fees,
and various other administrative expenses.
Preferred stock conversion expense of $1,227,864 primarily resulted
from the issuance of Series E Convertible Preferred Stock. (See notes 3 and
4 to unaudited condensed consolidated financial statements).
Interest income decreased in the six months ended June 30, 1997 compared
to 1996 due to lower cash and cash equivalents available for short term
investments.
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Three months ended June 30, 1997 versus three months ended June 30, 1997
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The Company reported a net loss of $1,097,423 for the three months
ended June 30, 1997 versus a net loss of $1,074,378 for the same period in
1996. Several factors contributed to the increased loss of $23,045.
Revenues were up for the three months ended June 30, 1997 due to
increased cost recovery from the clinical trials in Belgium and the United
States.
Research and development costs increased $274,873 in the three months
ended June 30, 1997 due primarily to increased efforts in toxicity studies
and on the Canadian and Belgium clinical programs.
General and administrative expenses decreased by $218,866 in the three
months ended June 30, 1997. This decrease is primarily due to lower legal
and consulting fees, and various other administrative expenses.
Interest income increased $1,359 in the three months ended June 30,
1997 compared to 1996 due to higher cash and cash equivalents available for
short term investments.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents at June 30, 1997 was $2,826,185 compared
to $5,279,429 at December 31, 1996. Because of the Company's long-term capital
requirements, it may seek to access the public equity market whenever
conditions are favorable, even if it does not have an immediate need for
additional capital at that time. 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. The Company may also
need additional funding earlier than anticipated, and the Company's cash
requirements in general may vary materially from those now planned, for
reasons including, but not limited to, changes in the Company's research and
development programs, clinical trials, competitive and technological advances,
the regulatory process, and higher than anticipated expenses and lower than
anticipated revenues from certain of the Company's clinical trials for which
cost recovery from participants has been approved.
13
On July 3, 1996 the Company issued and sold 6,000 of Series D Convertible
Preferred Stock.The net proceeds realized by the Company were $5,395,885.
On March 7, 1997, the company retired Series D Convertible Preferred Stock.
(see notes 2 and 3 to unaudited condensed consolidated financial statements).
On March 7, 1997, the Company used the services of an investment banking
firm to privately place $5 million of Series E Convertible Preferred Stock.
The proceeds from placement were used to retire the $5 million balance of
Series D Convertible Stock issued on July 3, 1996. (see notes 2 and 3 to
unaudited condensed consolidated financial statements).
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PART II - OTHER INFORMATION
ITEM 1: Legal Proceedings
None
ITEM 2: Changes in Securities
In July 1996, the Company separated it's public stock unit (consisting
of one share of Common Stock and one Warrant to purchase Common Stock). The
Common shares (HEMX), and Warrants (HEMXW) are now separately traded on
NASDAQ. The units were delisted in July, 1996.
On July 3, 1996, the Company completed a $6 million private placement
with a single institutional investor in the form of a newly issued Series
D Preferred Stock which is convertible into Common Stock. The proceeds from
this private placement were used to expand drug inventory.
On March 7, 1997, the Company used the services of an investment banking
firm to privately place $5 million of Series E Convertible Preferred Stock.
The proceeds from placement were used to retire the $5 million balance of
Series D Convertible Stock issued on July 3, 1996.
ITEM 3: Defaults in Senior Securities
None
ITEM 4: Submission of Matters to a Vote of Security Holders
None
ITEM 5:Other Information
None
ITEM 6: Exhibits and Reports on Form 8K
Reports on Form 8K - None
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HEMISPHERx BIOPHARMA, INC.
/s/ William a. Carter
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Date: August 12, 1997 William A. Carter, M.D.
Chief Executive Officer & President
/s/ Robert Peterson
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Date: August 12, 1997 Robert E. Peterson
Chief Financial Officer