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MarketScreener Homepage  >  Equities  >  Nasdaq  >  Altimmune Inc    ALT

ALTIMMUNE INC

(ALT)
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ALTIMMUNE : Management's Discussion and Analysis of Financial Condition and Results of Operations. (form 10-Q)

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08/13/2019 | 04:14pm EDT
The following discussion and analysis of our financial condition and results of
operations should be read together with our consolidated financial statements
and related notes appearing elsewhere in this quarterly report on Form 10-Q and
our consolidated financial statements and related notes for the year ended
December 31, 2018 included in our annual report on Form 10-K, which was filed
with the Securities and Exchange Commission on April 1, 2019.

This quarterly report on Form 10-Q contains forward-looking statements that
involve substantial risks and uncertainties. The words "expect," "anticipate,"
"intend," "plan," "believe," "estimate," "may," "will," "should," "could,"
"target," "strategy," "intend," "project," "guidance," "likely," "usually,"
"potential," or the negative of these words or variations of such words, similar
expressions, or comparable terminology are intended to identify such
forward-looking statements, although not all forward-looking statements contain
these identifying words. There are a number of important risks and uncertainties
that could cause our actual results to differ materially from those indicated by
forward-looking statements. We may not actually achieve the plans, intentions or
expectations disclosed in our forward-looking statements, and you should not
place undue reliance on our forward-looking statements. Actual results or events
could differ materially from the plans, intentions and expectations disclosed in
the forward-looking statements we make. We have included important factors in
the cautionary statements included in this quarterly report on Form 10-Q,
particularly in the section entitled "Risk Factors" in Part II, Item 1A, that
could cause actual results or events to differ materially from the
forward-looking statements that we make. Our forward-looking statements do not
reflect the potential impact of any future acquisitions, mergers, dispositions,
joint ventures or investments that we may make.

We have based the forward-looking statements included in this quarterly report
on Form 10-Q on information available to us on the date of this quarterly
report, and we assume no obligation to update any such forward-looking
statements, other than as required by law. Although we undertake no obligation
to revise or update any forward-looking statements, whether as a result of new
information, future events or otherwise, you are advised to consult any
additional disclosures that we may make directly to you or through reports that
we, in the future, may file with the SEC, including annual reports on Form 10-K,
quarterly reports on Form 10-Q and current reports on Form 8-K.

Overview


Altimmune, Inc. is a clinical stage biopharmaceutical company focused on
developing liver disease and immune modulating therapies. Our diverse pipeline
includes next generation peptide therapeutics for NASH (ALT-801) and chronic
Hepatitis B (HepTcellTM), conjugated immunostimulants for the treatment of
cancer (ALT-702) and intranasal vaccines (NasoVAXTM and NasoShieldTM).

Reverse Stock Split


On September 13, 2018 we amended our Amended and Restated Certificate of
Incorporation to effect a reverse stock split of our issued and outstanding
common stock at a ratio 1-for-30, or the "Reverse Stock Split". The Reverse
Stock Split was effective on September 13, 2018, and our shares of common stock
commenced trading on the NASDAQ Global Market on a post-Reverse Stock Split
basis on September 14, 2018. Unless otherwise noted, all share and per share
numbers in this Quarterly Report on Form 10-Q are reflected on a Post-Reverse
Stock Split basis for all periods presented.

Acquisition


Subsequent to the quarter ended June 30, 2019, the Company entered into a
definitive agreement to acquire all of the equity interests of Spitfire Pharma,
Inc. ("Spitfire") on July 8, 2019. Spitfire was a privately held, preclinical
pharmaceutical company developing a novel dual GLP-1/glucagon receptor agonist
for the treatment of non-alcoholic steatohepatitis.

The transaction closed on July 12, 2019. The Company issued 1,887,250
unregistered shares of its common stock (the "Shares") as upfront consideration
to certain former securityholders of Spitfire (collectively, the "Spitfire
Equityholders"), representing an amount equal to $5.0 million less working
capital and transaction expense adjustment amounts (the "Closing
Consideration"). The number of Shares issued as payment of the Closing
Consideration was determined based on the average of the closing prices of the
Company's common stock as reported on the Nasdaq Global Market for the twenty
(20) consecutive trading days prior to and including July 8, 2019, the date on
which the parties entered into the Agreement and Plan of Merger and
Reorganization (the "Merger Agreement").



The Merger Agreement also includes $88.0 million in future contingent payments
based on regulatory, clinical and sales milestones using the acquired
intellectual property. The Company will record the contingent consideration when
and if the milestones are achieved and the milestone payments become payable.

Critical Accounting Policies and Significant Judgment and Estimates


Management's Discussion and Analysis of Financial Condition and Results of
Operations is based upon our unaudited consolidated financial statements, which
have been prepared in accordance with accounting principles generally accepted
in the U.S. and the rules and regulations of the SEC for interim financial
reporting. The preparation of these financial statements requires us to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues, and expenses, and the related disclosure of contingent assets and
liabilities. We base our estimates and judgments on historical experience,
knowledge of current conditions, and expectations of what could occur in the
future given available information.

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There have been no changes in our critical accounting policies and significant
judgment and estimates as disclosed in our annual report on Form 10-K for the
year ended December 31, 2018 except for recently adopted accounting standards
(See note 2). For more information regarding our critical accounting policies,
we encourage you to read the discussion contained in Item 7 under the heading
"Critical Accounting Policies and Significant Judgments and Estimates" and
Note 2 "Summary of Significant Accounting Policies" included in the notes to the
consolidated financial statements contained in our annual report on Form 10-K
for the year ended December 31, 2018.

Results of Operations

Comparison of the three months ended June 30, 2019 and 2018:



                                                              For the Three Months Ended
                                                                       June 30,
                                              2019             2018                Increase (Decrease)

Revenue                                   $  1,626,029$   2,417,140$   (791,111 )        (32.7 ) %
Operating expenses
Research and development                     2,945,096         4,918,961       (1,973,865 )        (40.1 )
General and administrative                   2,231,817         2,933,982         (702,165 )        (23.9 )
Total operating expenses                     5,176,913         7,852,943       (2,676,030 )        (34.1 )
Loss from operations                        (3,550,884 )      (5,435,803 )      1,884,919          (34.7 )
Other income (expense):
Changes in fair value of warrant
  liability                                    (46,000 )      (5,228,691 )      5,182,691          (99.1 )
Changes in fair value of embedded
  derivative                                         -             4,912           (4,912 )            -
Interest expense                                  (748 )          (1,921 )          1,173          (61.1 )
Interest income                                239,964            25,617          214,347          836.7
Other income (expenses)                        (29,220 )             (49 )        (29,171 )     59,532.7
Total other income (expense)                   163,996        (5,200,132 )      5,364,128         (103.2 )
Net loss before income tax benefit          (3,386,888 )     (10,635,935 )      7,249,047          (68.2 )
Income tax benefit                                   -         1,497,093       (1,497,093 )            -
Net loss                                  $ (3,386,888 )$  (9,138,842 )$  5,751,954          (62.9 ) %

Comparison of the six months ended June 30, 2019 and 2018:

                                                                For the Six Months Ended
                                                                        June 30,
                                                2019             2018               Increase (Decrease)
Revenue                                     $  4,581,622$   5,108,121$   (526,499 )      (10.3 )  %
Operating expenses
Research and development                       6,162,768        10,665,890       (4,503,122 )      (42.2 )
General and administrative                     4,298,299         5,381,917       (1,083,618 )      (20.1 )
Goodwill impairment                                    -           490,676         (490,676 )          -
Total operating expenses                      10,461,067        16,538,483       (6,077,416 )      (36.7 )
Loss from operations                          (5,879,445 )     (11,430,362 )      5,550,917        (48.6 )
Other income (expense):
Changes in fair value of warrant
  liability                                      (46,000 )      (3,680,709 )      3,634,709        (98.8 )
Changes in fair value of embedded
  derivative                                           -            (2,130 )          2,130            -
Interest expense                                  (1,488 )          (2,791 )          1,303        (46.7 )
Interest income                                  425,211            57,206          368,005        643.3
Other income (expenses)                           17,528           257,675         (240,147 )      (93.2 )
Total other income (expense)                     395,251        (3,370,749 )      3,766,000       (111.7 )
Net loss before income tax benefit            (5,484,194 )     (14,801,111 )      9,316,917        (62.9 )
Income tax benefit                                     -         2,488,731       (2,488,731 )          -
Net loss                                    $ (5,484,194 )$ (12,312,380 )$  6,828,186        (55.5 )  %


Revenue

Revenue consists primarily of research grants from Biomedical Advanced Research
and Development Authority, or BARDA, and the National Institute of Allergy and
Infectious Diseases, or NIAID, in the United States for our anthrax vaccine
product candidates. These grants consist of cost reimbursement contracts, with a
fixed fee based on either costs or milestones.

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Revenue decreased by $0.79 million, or 32.7%, for the three months ended June 30, 2019 as compared to the same period in 2018. The increase was primarily the result of:

• a decrease of $0.34 million in BARDA revenue due directly to changes in

       spending on the NasoShield program; and


    •  a decrease of $0.45 million in NIAID revenue due to the activities
       diminishing under the SparVax-L program as it approaches conclusion.


Revenue decreased by $0.53 million, or 10.3%, for the six months ended June 30,
2019, as compared to the same period in 2018. The increase was primarily the
result of:

• an increase of $0.53 million in BARDA revenue due directly to changes in

       spending on the NasoShield program; and


    •  a decrease of $1.06 million in NIAID revenue due to the activities
       diminishing under the SparVax-L program as it approaches conclusion.

Research and development expenses


Research and development operating expense decreased by $1.97 million, or 40.1%,
for the three months ended June 30, 2019 as compared to the same period in 2018.
The decrease was primarily the result of:

    •  a decrease of $1.45 million due to timing of clinical trial and
       manufacturing development activities for NasoVAX;

• a decrease of $0.58 million due to timing of a clinical trial and related

activities for HepTcell;

• a decrease of $0.26 million due to reduced development cost for SparVax-L

       as it approaches conclusion;


    •  a decrease of $0.24 million due to timing of clinical trial and
       manufacturing development activities for NasoShield;


    •  a decrease of $0.06 million in non-project specific research and

development costs including employee compensation and facility costs; and

• an increase of $0.62 million due to transaction costs incurred with respect

to the Spitfire acquisition.



Research and development operating expense decreased by $4.50 million, or 42.2%,
for the six months ended June 30, 2019, as compared to the same period in 2018.
The decrease was primarily the result of:

    •  a decrease of $3.12 million due to timing of clinical trial and
       manufacturing development activities for NasoVAX;

• a decrease of $1.56 million due to timing of a clinical trial and related

activities for HepTcell;

• a decrease of $0.60 million due to reduced development cost for SparVax-L

       as it approaches conclusion;


    •  a decrease of $0.25 million in non-project specific research and

development costs including employee compensation and facility costs;

• an increase of $0.41 due to timing of clinical trial and manufacturing

development activities for NasoShield; and

• an increase of $0.62 million due to due to transaction costs incurred with

respect to the Spitfire acquisition.

General and administrative expenses


General and administrative expense decreased by $0.7 million, or 23.9%, for the
three months ended June 30, 2019 and by $1.1 million, or 20.1% for the six
months ended June 30, 2019, as compared to the same periods in 2018 primarily
due to a reduction in labor, legal and professional costs.

Goodwill impairment


Goodwill impairment charges reported during the six months ended June 30, 2018
represented an adjustment recorded during the measurement period to reduce the
tax refund receivable acquired in connection with a 2017 business combination.
We recorded adjustments to the purchase price allocation resulting in a net
decrease in tax refunds receivable, with a corresponding net increase in
goodwill, of $490,676. As goodwill related to this transaction had previously
been determined to be fully impaired, we recognized an impairment charge of
$490,676. The purchase price allocation was considered final in May 2018, and no
further adjustments were recorded.

Other income (expense)


Other income (expense) decreased by $5.4 million and $3.8 million during the
three and six months ended June 30, 2019, respectively, as compared to the same
periods in 2018. The decreases are primarily due to changes in the fair value of
warrant liability and embedded derivatives.

Income tax benefit


We recorded no income tax benefit or expense for the three and six months ended
June 30, 2019, as compared to an income tax benefit of $1.5 million and $2.5
million for the same respective periods in 2018. We had a valuation allowance
against most of the deferred tax assets. During the three and six months ended
June 30, 2019, we did not identify any discrete items, therefore all of our tax
loss was applied to the valuation allowance. During the six months ended
June 30, 2018, our income tax benefit included $1.5 million for our projected
2018 unlimited

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lived Federal net operating loss determined to be realizable, $0.7 million due to Maryland state net operating losses, and discrete tax benefits of $0.3 million related to a change in estimate.

Liquidity and Capital Resources

Overview


Our primary sources of cash during the six months ended June 30, 2019 was the
cash on-hand as of January 1, 2019 and the receipt of $12.7 million in proceeds
from the Registered Direct Offering. Our cash and cash equivalents were $41.7
million at June 30, 2019. We believe, based on the operating cash requirements
and capital expenditures expected for 2019, our cash on hand at June 30, 2019,
and revenue from our government sponsored contracts, are sufficient to fund
operations for at least a twelve-month period from the issuance date of our June
30, 2019 financial statements.

We have not generated any revenues from the sale of any products to date, and
there is no assurance of any future revenues from product sales. Our sources of
revenue consist of revenues under our contract with BARDA and NIAID for the
development of NasoShield and SparVax-L, respectively, and to a lesser degree
from other licensing arrangements. We have incurred significant losses since we
commenced operations. As of June 30, 2019, we had accumulated losses of $122.3
million since our inception. In addition, we have not generated positive cash
flows from operations. We have had to rely on a variety of financing sources,
including the issuance of debt and equity securities. As capital resources are
consumed to fund our research and development activities, we may not have
sufficient capital to fund our plan of operations. In order to address our
capital needs, including our planned clinical trials, we must continue to
actively pursue additional equity or debt financing, government funding, and
monetization of our existing programs through partnership arrangements or sales
to third parties.

In July 2016, we signed a five-year contract with BARDA. The contract, as
amended, has a total value of up to $130.0 million and is used to fund clinical
development of NasoShield. Under the contract, BARDA pays us a fixed fee and
reimburses certain costs for the research and development of an Ad5-vectored,
protective antigen-based intranasal anthrax vaccine through cGMP manufacture and
conduct of a Phase 1 clinical trial dose ranging assessment of safety and
immunogenicity. The contract consists of an initial base performance period
providing approximately $24.1 million in funding for the period July 2016
through November 2019. BARDA has seven options to extend the contract to fund
certain continued development and manufacturing activities for the anthrax
vaccine, including Phase 2 clinical trials. Each option, if exercised by BARDA,
would provide additional funding ranging from approximately $1.1 million to
$34.4 million for the period November 2019 through July 2021. Through June 30,
2019, we have received an aggregate of approximately $19.6 million under the
current BARDA contract.

We have a NIAID contract that is incrementally funded for the development of
SparVax-L. Over the base period of the contract, approximately $5.2 million was
awarded for initial funding, which includes a cost reimbursement component and a
fixed fee component payable upon achievement of certain milestones. NIAID
exercised options under this agreement to provide additional funding of
approximately $10.1 million and an extension of the period of performance
through September 2019. The contract had a maximum total value of up to
approximately $28.1 million if all technical milestones were met and all eight
contract options were exercised by NIAID. Work under all exercised options will
bring total committed and final funding under the NIAID contract to $15.3
million. Activities under this contract are substantially complete, and we are
seeking additional government funding to advance the program beyond the
completion of this contract. No such funding has been identified as of the date
of this filing.

Cash Flows

The following table provides information regarding our cash flows for the three months ended June 30, 2019 and 2018:



                                               For the Six Months Ended
                                                       June 30,
                                                 2019             2018
           Net cash provided by (used in):
           Operating activities              $ (5,173,080 )$ (3,210,558 )
           Investing activities              $    (17,100 )$   (839,151 )
           Financing activities              $ 12,542,963$ (3,441,146 )




Operating Activities

Net cash used in operating activities was $5.2 million for the six months ended
June 30, 2019 compared to $3.2 million during the six months ended June 30,
2018. Our sources of cash provided by operations during the three months ended
June 30, 2019 were primarily cash receipts of revenue generated by our BARDA and
NIAID contracts. The primary uses of cash from our operating activities include
payments for labor and labor-related costs, professional fees, research and
development costs associated with our clinical trials, and other general
corporate expenditures. The increase in cash used in operations of $2.0 million
year over year is due to a decrease in net loss as adjusted for noncash items of
$3.5 million offset by changes in working capital accounts of $5.5 million.

Investing Activities


Net cash used in investing activities was $0.02 million for the six months ended
June 30, 2019 compared to $0.84 million during the six months ended June 30,
2018. The net cash used in investing activities during 2018 was primarily due to
purchases of property and equipment related to the buildout of the Company's new
office and laboratory facilities which was completed in 2018.

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Financing Activities

Net cash provided by financing activities during the six months ended June 30,
2019 was $12.5 million compared to net cash used in financing activities of $3.4
million for the same period in 2018. The net cash provided by financing
activities during the six months ended June 30, 2019 was primarily the result of
the receipt of $12.7 million in proceeds from the Registered Direct Offering (as
discussed below). The net cash used by financing activities during the six
months ended June 30, 2018 was the result of cash paid to redeem preferred stock
and retire certain warrants.

Financing


On March 12, 2019, we issued a combined total of 1,500,000 common units and
2,861,370 pre-funded units to certain institutional investors in a registered
direct offering or the "Registered Direct Offering". Each common unit in the
Registered Direct Offering was sold at a price of $3.21 and consisted of one
share of our common stock and 0.70 of a warrant to purchase one share of our
common stock at an exercise price of $3.21. Each warrant sold in the Registered
Direct Offering was exercisable immediately and expires five years from the date
of issuance. Each pre-funded unit in the Registered Direct Offering was sold at
a public offering price of $3.20 and consisted of a pre-funded warrant to
purchase one share of our common stock at an exercise price of $0.01 per share
and 0.70 of a warrant to purchase one share of our common stock at an exercise
price of $3.21. The pre-funded warrants were immediately exercisable and were
able to be exercised at any time until all of the pre-funded warrants are
exercised in full. All of the pre-funded warrants were exercised prior to March
31, 2019. The net proceeds of the Registered Direct Offering were approximately
$12.7 million, after deducting the underwriting discount and offering expenses
payable by us. The Registered Direct Offering triggered an adjustment to the
exercise price of the warrants issued with the offering of common units and
pre-funded units on October 2, 2018 from $4.1798 to $2.7568.

Current Resources


We have financed our operations to date principally through proceeds from
issuances of our preferred stock, common stock, and warrants. At June 30, 2019,
we had $41.7 million of cash, cash equivalents and restricted cash. Accordingly,
management believes that the Company has sufficient capital to fund its plan of
operations for at least a twelve-month period from the issuance date of our
June 30, 2019 financial statements. However, in order to address our capital
needs in the long-term, including our planned clinical trials, we must continue
to actively pursue additional equity or debt financing, government funding, and
monetization of our existing programs through partnership arrangements or sales
to third parties.

Off-Balance Sheet Arrangements


As of June 30, 2019, we did not have any relationships with unconsolidated
entities or financial partnerships, such as entities often referred to as
"special purpose" entities, which would have been established for the purpose of
facilitating off-balance sheet arrangements or other contractually narrow or
limited purposes.

© Edgar Online, source Glimpses

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