Item 1. Financial Statements
ITEM
1 : Financial Statements
AIM
IMMUNOTECH INC. AND SUBSIDIARIES
Consolidated
Balance Sheets
(in
thousands, except for share and per share data)
(Unaudited)
March
31, 2021
December
31, 2020
ASSETS
Current assets:
Cash and cash
equivalents
$ 48,773
$ 38,501
Marketable securities
1,164
501
Funds receivable from New
Jersey net operating loss
1,090
1,090
Accounts receivable, net
34
34
Prepaid
expenses and other current assets
158
184
Total
current assets
51,219
40,310
Property and equipment,
net
6,311
6,473
Right of use asset, net
168
179
Patent and trademark rights,
net
1,798
1,498
Marketable securities, long
term
13,664
15,376
Other
assets
929
748
Total
assets
$ 74,089
$ 64,584
LIABILITIES AND STOCKHOLDERS’
EQUITY
Current liabilities:
Accounts payable
$ 189
$ 383
Accrued expenses
498
442
Current portion of operating
lease liability
49
47
Current
portion of financing obligation
234
230
Total
current liabilities
970
1,102
Long-term liabilities:
Operating lease liability
119
132
Financing obligation arising from sale leaseback
transaction (Note 13)
1,816
1,876
Redeemable warrants
217
180
Commitments and contingencies (Notes 11, 12,
13, and 14)
Stockholders’ equity:
Series B Convertible Preferred Stock, stated
value $1,000 per share, 725 shares designated, 732 shares issued and outstanding
725
732
Common Stock, par value $0.001 per share, authorized
350,000,000 shares; issued and outstanding 47,832,997 and 42,154,371, respectively
48
42
Additional paid-in capital
415,955
402,541
Accumulated other comprehensive loss
(208 )
(47 )
Accumulated deficit
(345,553 )
(341,974 )
Total
stockholders’ equity
70,967
61,294
Total
liabilities and stockholders’ equity
$ 74,089
$ 64,584
See
accompanying notes to consolidated financial statements.
2
AIM
IMMUNOTECH INC. AND SUBSIDIARIES
Consolidated
Statement of Operations and Comprehensive Loss
(in
thousands, except share and per share data)
(Unaudited)
Three
months ended March 31,
2021
2020
Revenues:
Clinical treatment
programs - US
$ 28
$ 43
Clinical
treatment programs - Europe
—
2
Total Revenues
28
45
Costs and Expenses:
Production costs
237
204
Research and development
1,424
898
General
and administrative
2,112
2,268
Total Costs and Expenses
3,773
3,370
Operating loss
(3,745 )
(3,325 )
Interest and other income
72
21
Interest expense and other
finance costs
(50 )
(322 )
Redeemable warrants valuation
adjustment
(37 )
(182 )
Gain
from sale of Income tax operating losses
181
—
Net Loss
(3,579 )
(3,808 )
Other comprehensive (loss)
Reclassification adjustment
for realized investment lost
2
—
Change
in unrealized loss on marketable securities available for sale
(163 )
(4 )
Comprehensive
loss
$ (3,740 )
$ (3,812 )
Basic and diluted loss
per share
$ (0.08 )
$ (0.22 )
Weighted average shares outstanding basic
and diluted
45,726,855
17,490,322
See
accompanying notes to consolidated financial statements.
3
AIM
IMMUNOTECH INC. AND SUBSIDIARIES
Consolidated
Statement of Changes in Stockholders’ Equity
For
the Three Months Ended March 31, 2021 and 2020
(in
thousands except share data)
(Unaudited)
Series
B Preferred
Common
Stock
Shares
Common
Stock
Additional
Paid-in
Capital
Accumulated
other Comprehensive
Income (Loss)
Accumulated
Deficit
Total
Stockholders’
Equity
Balance December 31, 2020
$ 732
42,154,371
$ 42
$ 402,541
$ (47 )
$ (341,974 )
$ 61,294
Shares issued for:
Common stock issuances, net of costs
—
5,678,626
6
12,881
—
—
12,887
Equity-based compensation
—
—
—
526
—
—
526
Series B preferred shares converted to common
shares
(7 )
—
—
7
—
—
—
Comprehensive
loss
—
—
—
—
(161 )
(3,579 )
(3,740 )
Balance March 31, 2021
$ 725
47,832,997
$ 48
$ 415,955
$ (208 )
$ (345,553 )
$ 70,967
Series
B Preferred
Common
Stock Shares
Common
Stock
Additional
Paid-in Capital
Accumulated
other Comprehensive Income (Loss)
Accumulated
Deficit
Total
Stockholders’ Equity
Balance December 31, 2019
$ 778
10,386,754
$ 10
$ 340,228
$ —
$ (328,109 )
$ 12,907
Shares issued for:
Common stock issuance, net of costs
—
17,628,996
18
25,755
—
—
25,773
Warrant modification
—
—
—
46
—
—
46
Equity-based compensation
—
—
—
196
—
—
196
Shares issued to pay accounts payable
—
4,762
—
10
—
—
10
Series B preferred shares converted to common
shares
(9 )
—
—
—
—
—
(9 )
Comprehensive
loss
—
—
—
—
(4 )
(3,808 )
(3,812 )
Balance March 31, 2020
$ 769
28,020,512
$ 28
$ 366,235
$ (4 )
$ (331,917 )
$ 35,111
See
accompanying notes to consolidated financial statements.
4
AIM
IMMUNOTECH INC. AND SUBSIDIARIES
Consolidated
Statements of Cash Flows
For
the Three Months Ended March 31, 2021 and 2020
(in
thousands)
(Unaudited)
2021
2020
Cash flows from operating activities:
Net loss
$ (3,579 )
$ (3,808 )
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation of property
and equipment
162
173
Redeemable warrants valuation
adjustment
37
182
Warrant modification
—
46
Amortization of patent,
trademark rights
65
18
Changes in ROU assets
11
11
Loss on available for sale
marketable securities
2
—
Gain from sale of income
tax operating losses
(181 )
—
Equity-based compensation
526
196
Amortization of finance
and debt issuance costs
36
181
Change in assets and liabilities:
Accounts
receivable
—
(2 )
Prepaid expenses and other
current assets and other non current assets
26
49
Lease liability
(11 )
(11 )
Accounts payable
(194 )
(307 )
Accrued interest expense
—
139
Accrued
expenses
55
(117 )
Net cash used in operating
activities
(3,045 )
(3,250 )
Cash flows from investing activities:
Proceeds from sale of marketable
securities
2,039
14,116
Purchase of short-term
marketable securities
(1,151 )
(10,319 )
Purchase of property and
equipment
—
(7 )
Purchase
of patent and trademark rights
(365 )
(107 )
Net
cash provided by investing activities
523
3,683
Cash flows from financing activities:
Financing obligation payments
(93 )
(86 )
Proceeds
from sale of stock, net of issuance costs
12,887
25,773
Net cash provided by
financing activities
12,794
25,687
Net increase in cash and cash equivalents
10,272
26,120
Cash and cash equivalents
at beginning of period
38,501
1,470
Cash and cash equivalents
at end of period
$ 48,773
$ 27,590
Supplemental disclosures of non-cash investing
and financing cash flow information:
Stock
issued to settle accounts payable
$ —
$ 10
Conversion
of Series B preferred
$ 7
$ 9
See
accompanying notes to consolidated financial statements.
5
AIM
IMMUNOTECH INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note
1: Business and Basis of Presentation
AIM
ImmunoTech Inc. and its subsidiaries (collectively, “AIM” or the “Company”) are an immuno-pharma company headquartered
in Ocala, Florida and focused on the research and development of therapeutics to treat multiple types of cancers, viruses and immune-deficiency
disorders. The Company has 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.
AIM’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 is also known as a new molecular entity that contains an active
moiety. Ampligen has not been approved by the FDA or marketed in the United States.
Since
the outbreak of SARS-CoV-2, the novel virus that causes COVID-19, the Company has been actively engaged in determining whether
Ampligen could be an effective treatment for this virus or could be part of a vaccine. The Company believes that Ampligen has
the potential to be both an early-onset treatment for and prophylaxis against SARS-CoV-2. Ampligen also has potential as a COVID-19
vaccine strategy that combines Ampligen as an immune enhancer seeking to boost the efficacy of the vaccine and also convey cross-reactivity
and cross-protection against future mutations. The Company believes that prior studies of Ampligen in SARS-CoV-1 animal experimentation
may predict similar protective effects against the new virus. Given the evolution of uncertainty associated with SAR-CoV-2,
there is uncertainty as to the effects on the Company’s financial position, results of operations or cash flows.
The
full impact of the COVID-19 outbreak continues to evolve, as such, it is uncertain as to the full magnitude that the pandemic
will have on the Company’s financial condition, liquidity, and future results of operations.
Management
is actively monitoring the global situation on its financial condition, liquidity, operations, scientific collaborations, suppliers,
industry, and workforce. Given the daily evolution of the COVID-19 outbreak and the global responses to curb its spread, the Company
is not able to estimate the effects of the COVID-19 outbreak on its results of operations, financial condition, or liquidity for
fiscal year 2021.
Although
the Company cannot estimate the length or gravity of the impact of the COVID-19 outbreak at this time, if the pandemic continues,
it may have a material adverse effect on the Company’s results of future operations, financial position, and liquidity for
the fiscal year 2021.
Beginning
in April 2020, the Company entered into confidentiality and non-disclosure agreements with numerous companies for the potential outsourcing
of the production of polymer, enzyme, placebo as well as Ampligen and one Contract Research Organization which may also assist with the
planning, presentation and filing of documents with the FDA. These confidentiality and non-disclosure agreements are only the initial
step in forging relationships with these entities to obtain contract manufacturers and research partners. No assurance can be given as
to how many of these, initial explorations, if any, will result in definitive arrangements or, with regard to potential research partners,
what research arrangements will develop and thereafter prove fruitful.
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. The Company has 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 the Company’s 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 testing Ampligen in
humans — both underway and planned — at major cancer research centers. Ampligen was 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.
In September 2020, AIM reported receipt of statistically significantly results of positive survival benefit when using Ampligen in patients
with locally advanced/metastatic pancreatic cancer after systemic chemotherapy. AIM will work with its Contract Research Organization,
Amarex Clinical Research LLC, to seek FDA “fast-track” and possibly even FDA “breakthrough” designations and
to obtain authorization to conduct follow-up pancreatic cancer Phase 2/3 clinical trials with potential sites in the Netherlands at Erasmus
MC under Prof. van Eijck, and also at major cancer research centers in the United States.
Ampligen
is also being evaluated for the treatment of myalgic encephalomyelitis/chronic fatigue syndrome (ME/CFS). AIM is currently sponsoring
an expanded access program for ME/CFS patients in the U.S. In August 2016, the Company received approval of its New Drug Application,
or 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. Shipment of the drug product to Argentina was initiated in 2018 to complete the release testing by ANMAT needed for commercial
distribution. On September 19, 2019, we received clearance from the FDA to ship Ampligen to Argentina for the commercial launch and subsequent
sales. On June 10, 2020, the Company received import clearance from ANMAT to import the first shipment of commercial grade vials of Ampligen
to Argentina. The next steps in the commercial launch of Ampligen include ANMAT conducting a final inspection of the product and release
tests before granting final approval to begin commercial sales. AIM has supplied GP Pharm with the Ampligen required for testing and
ANMAT release. Once final approval by ANMAT is obtained, the Company anticipates that GP Pharm will begin distributing Ampligen in Argentina.
The Company continues to pursue its Ampligen NDA, for the treatment of CFS with the FDA.
6
Alferon
N Injection is approved for a category of sexually transmitted disease infections 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. AIM also has approval from ANMAT for the treatment of refractory
patients that failed or were intolerant to treatment with recombinant interferon in Argentina.
The
Company operates a 30,000 sq. ft. facility at 783 Jersey Ave, New Brunswick, NJ, where it conducts testing and has produced limited quantities
of active pharmaceutical ingredients (“API”) for its products. The Company has reviewed its operations at the facility and
believes that some of the equipment most likely should be upgraded to realize greater efficiencies, when and if it requires more API
than is currently in storage. The Company is also exploring engaging a Contract Manufacturing Organization (“CMO”) to produce
API. While the Company believes it has sufficient API to meet its current needs, it is also continually exploring new efficiencies so
as to maximize its ability to fulfill future obligations. On April 5, 2021, the Company’s board of directors approved the exercise
of AIM’s option to re-purchase the New Brunswick facility, pursuant to the terms of the March 16, 2018 sale and lease-back agreement
and, thereafter, the Company sold certain equipment and machinery that it determined to be obsolete and no longer needed for current
and future manufacturing.
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, 2020 and 2019, contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 filed
on March 31, 2021.
Note
2: Net Loss Per Share
Basic
and diluted net loss per share is computed using the weighted average number of shares of common stock outstanding during the period.
Equivalent common shares, consisting of stock options and warrants which amounted to 1,672,825 and 520,508 are excluded from the calculation
of diluted net loss per share for the three months ended March 31, 2021 and 2020, 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 no options granted in the three months ended
March 31, 2021 and 2020.
7
Stock
option for employees’ activity during the three months ended March 31, 2021 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, 2021
1,049,695
$ 5.38
9.28
$ —
Granted
—
—
—
—
Forfeited
—
—
—
—
Expired
(189 )
68.64
—
—
Outstanding March 31, 2021
1,049,506
$ 5.37
9.03
$ —
Vested and expected
to vest March 31, 2021
1,049,506
$ 5.37
9.03
$ —
Exercisable March 31, 2021
518,194
$ 4.73
8.24
$ —
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, 2021
767,029
$ 3.71
9.68
$ —
Granted
—
—
—
—
Expired
(189 )
68.64
—
—
Vested
(235,528 )
2.51
—
—
Unvested March 31, 2021
531,312
$ 8.35
7.47
$ —
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, 2021
166,533
$ 11.03
6.88
$ —
Granted
—
—
—
—
Forfeited
—
—
—
—
Expired
(322 )
955.93
—
—
Outstanding March 31, 2021
166,211
$ 9.18
7.30
$ —
Vested and expected
to vest March 31, 2021
166,211
$ 9.18
7.30
$ —
Exercisable March 31, 2021
129,758
$ 4.73
7.73
$ —
8
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, 2021
66,202
$ 7.24
6.63
$ —
Granted
—
—
—
—
Expired
—
—
—
—
Vested
(29,749 )
4.69
—
—
Unvested March 31, 2021
36,453
$ 9.32
5.73
$ —
Stock-based
compensation expense was approximately $526,000 and $196,000 for the three months ended March 31, 2021 and 2020 resulting in an increase
in general and administrative expenses, respectively.
As
of March 31, 2021, and 2020, respectively, there was approximately $914,000 and $1,324,000 of unrecognized equity-based compensation
cost related to options granted under the Equity Incentive Plan.
Note
4: Marketable Securities
Marketable
securities consist of debt securities. As of March 31, 2021, and December 31, 2020, it was determined that none of the marketable securities
had an other-than-temporary impairment. At March 31, 2021 and December 31, 2020, all securities were measured as Level 1 instruments
of the fair value measurements standard (see Note 12: Fair Value). As of March 31, 2021, and December 31, 2020 the Company held $14,828,000
and $15,877,000 in debt and equity securities, respectively.
Debt
securities classified as available for sale consisted of:
March
31, 2021
(in thousands)
Securities
Amortized
Cost
Gross
Unrealized Gains /(Losses)
Fair
Value
Marketable
Securities
U.S. Treasury notes
$ 5,699
$ (48 )
$ 5,651
$ 5,651
U.S. Government mortgage backed securities
4,200
(43 )
4,157
4,157
Corporate bonds
5,090
(70 )
5,020
5,020
Totals
$ 14,989
$ (161 )
$ 14,828
$ 14,828
December
31, 2020
(in thousands)
Securities
Amortized
Cost
Gross
Unrealized Gains /(Losses)
Fair
Value
Marketable
Securities
U.S. Treasury notes
$ 5,746
$ (47 )
$ 5,699
$ 5,699
U.S. Government mortgage backed securities
4,890
(52 )
4,838
4,838
Corporate bonds
5,288
52
5,340
5,340
Totals
$ 15,924
$ (47 )
$ 15,877
$ 15,877
9
The
following presents available-for-sale securities’ gross unrealized losses and fair value aggregated by the short- and long-term
maturity.
March
31, 2021
(in thousands)
Less
than 12 Months
12
Months or More
Total
Securities
Fair
Value
Gross
Unrealized Gains
Fair
Value
Gross
Unrealized Gains
Fair
Value
Gross
Unrealized Gains
U.S. Treasury
notes
$ 1,164
$ (5 )
$ 4,487
$ (43 )
$ 5,651
$ (48 )
U.S. Government mortgage backed
securities
—
—
4,157
(43 )
4,157
(43 )
Corporate
bonds
—
—
5,020
(70 )
5,020
(70 )
Totals
$ 1,164
$ (5 )
$ 13,664
$ (156 )
$ 14,828
$ (161 )
December
31, 2020
(in thousands)
Less
than 12 Months
12
Months or More
Total
Securities
Fair
Value
Gross
Unrealized Gains
Fair
Value
Gross Unrealized
Gains
Fair
Value
Gross
Unrealized Gains
U.S. Treasury notes
$ 501
$ —
$ 5,245
$ (47 )
$ 5,699
$ (47 )
U.S. Government mortgage backed securities
—
—
4,890
(52 )
4,838
(52 )
Corporate bonds
—
—
5,288
52
5,340
52
Totals
$ 501
$ —
$ 15,423
$ (47 )
$ 15,877
$ (47 )
Note
5: Accrued Expenses
Accrued
expenses consist of the following:
(in thousands)
March
31, 2021
December
31, 2020
Compensation
$ 16
$ 2
Professional fees
279
124
Other expenses
203
316
$ 498
$ 442
10
Note
6: Property and Equipment
(in thousands)
March
31, 2021
December
31, 2020
Land, buildings and improvements
$ 10,547
$ 10,547
Furniture, fixtures,
and equipment
5,136
5,136
Total property and equipment
15,683
15,683
Less: accumulated depreciation
(9,372 )
(9,210 )
Property and equipment,
net
$ 6,311
$ 6,473
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).
On
May 13, 2021, the Company completed its re-purchase of the land and building for $4,661,400 pursuant to its repurchase option
in the property lease.
Note
7: Patents
December 31, 2019
$ 1,151
Acquisitions
573
Abandonments
(68 )
Amortization
(158 )
December 31, 2020
$ 1,498
Acquisitions
365
Amortization
(65 )
March 31, 2021
$ 1,798
Patents
and trademarks are stated at cost (primarily legal fees) and are amortized using the straight-line method of the estimated useful life
of 17 years. During the years ended December 31, 2020, the Company decided not to pursue certain patents in various countries for strategic
reasons and recorded abandonment charges which are included in research and development.
Amortization
of patents and trademarks for each of the next five years is as follows:
Year Ending December 31,
2021
$ 115
2022
132
2023
152
2024
175
2025
201
Thereafter
1,023
Total
$ 1,798
11
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 its 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,
2021, and December 31, 2020, the Company had 725 and 732 shares of Series B Convertible Preferred Stock outstanding, respectively. Each
such Preferred Share is convertible into 114 shares of common stock.
Pursuant
to a registration statement relating to a rights offering declared effective by the SEC on February 14, 2019, AIM 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 $8.80) and 114 warrants with
an assumed exercise price of $8.80. The warrants are exercisable for five years after the date of issuance. The net proceeds realized
from the rights offering were approximately $4,700,000. During the three months ending March 31, 2021, 7 shares of Series
B Convertible Preferred stock were converted into common stock, and for the twelve months ending December 31, 2020, 46 shares
of Series B Convertible Preferred Stock were converted into common stock
(b)
Common Stock
The
Company has authorized shares of 350,000,000 with specific limitations and restrictions on the usage of 8,000,000 of the 350,000,000
authorized shares.
On
July 7, 2020, 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 August 31, 2020, the Company has issued 10,730 shares of its common stock at a price of $2.33 for
a total of $25,000. This plan expired September 10, 2020.
On
September 4, 2020, 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 October 31, 2020, the Company has issued 12,316 shares of its common stock at a price of $2.03
for a total of $25,000. This plan expired November 1, 2020.
On
November 5, 2020, 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 December 31, 2020, the Company has issued 14,435 shares of its common stock at a price of $1.72
for a total of $25,000. This plan expired January 2, 2021.
On
January 4, 2021, 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 March 31, 2021, the Company has issued 21,700 shares of its common stock at a price ranging of
$2.26 to $2.35 for a total of $50,000. This plan expired March 4, 2021.
On
March 4, 2021 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 March 31, 2021, the Company had issued 0 shares of its common stock.
12
On
September 27, 2019, the Company closed a public offering underwritten by A.G.P./Alliance Global Partners, LLC (the “Offering”)
of (i) 1,740,550 shares of Common Stock; (ii) pre-funded warrants exercisable for 7,148,310 shares of Common Stock (the “Pre-funded
Warrants”), and (iii) warrants to purchase up to an aggregate of 8,888,860 shares of Common Stock (the “Warrants”).
In conjunction with the Offering, a Representative’s
Warrant to purchase up to an aggregate of 266,665 shares of common stock (the “Representative’s Warrant”) .
The shares of Common Stock and Warrants were sold at a combined Offering price of $0.90, less underwriting discounts and commissions.
Each Warrant sold with the shares of Common Stock represents the right to purchase one share of Common Stock at an exercise price of
$0.99 per share. The Pre-Funded Warrants and Warrants were sold at a combined Offering price of $0.899, less underwriting discounts and
commissions. The Pre-Funded Warrants were sold to purchasers whose purchase of shares of Common Stock in the Offering would otherwise
result in the purchaser, together with its affiliates and certain related parties, beneficially owning more than 4.99% of the Company’s
outstanding Common Stock immediately following the consummation of the Offering, in lieu of shares of Common Stock. Each Pre-Funded Warrant
represents the right to purchase one share of Common Stock at an exercise price of $0.001 per share. The Pre-Funded Warrants are exercisable
immediately and may be exercised at any time until the Pre-Funded Warrants are exercised in full. A registration statement on Form S-1,
relating to the Offering was filed with the SEC and was declared effective on September 25, 2019, the net proceeds were approximately
$7,200,000. During the year ending December 31 , 2020, 1,870,000 of the Pre-funded Warrants
were exercised and 7,687,860 Warrants were exercised. In addition, on March 25, 2020, the Representative’s Warrant was amended
to permit exercise of such warrant to commence on March 30, 2020. These warrants were exercised on March 31, 2020 and an aggregate of
266,665 shares were issued upon exercise of this warrant for gross proceeds of approximately $264,000 and a $46,000 expense for the warrant
modification.
On
July 19, 2019, the Company entered into a new Equity Distribution Agreement (the “2019 EDA”) with Maxim Group LLC (“Maxim”),
pursuant to which it could sell from time to time, shares of its Common Stock through Maxim, as agent (the “Offering”). The
2019 EDA replaced a prior EDA with Maxim. For the year ended December 31, 2020, the Company sold 20,444,807 shares under the 2019 EDA
for total gross proceeds of $53,936,615, which includes a 3.5% fee to Maxim of $1,888,727. During the period ending March 31, 2021, the
Company sold 5,665,731 shares under the 2019 EDA for total gross proceeds of $13,301,526, which includes a 3.5% fee to Maxim of $465,533.
The 2019 EDA was terminated in early February 2021.
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 26,324 options
to the officers and directors at the exercise price of $9.68 expiring in 10 years, and on November 14, 2018, the Board of Directors issued
23 options to each employee, officer and director at the exercise price of $9.68 expiring in ten years. On January 28, 2019, 27,570 options
were issued to each of these officers with an exercise price of $9.68 for a period of ten years with a vesting period of one year. In
August 2020, 400,000 options were issued to each of these officers with an exercise price range of $2.77 to $3.07 for a period of ten
years with a vesting period of one year. During December 2020, 675,000 options were issued to employees with an exercise price range
of $1.85 to $1.96 for a period of ten years with a vesting period of one year.
As
of March 31, 2021, and December 31, 2020, there were 47,832,997 and 42,154,371 shares outstanding, respectively.
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.
13
Note
10: Recent Accounting Pronouncements
In
August 2020, the FASB issued ASU 2020-06, “Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and
Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40)” (“ASU 2020-06”) . ASU 2020-06 reduces
the number of models used to account for convertible instruments, amends diluted EPS calculations for convertible instruments, and amends
the requirements for a contract (or embedded derivative) that is potentially settled in an entity’s own shares to be classified
in equity. The amendments add certain disclosure requirements to increase transparency and decision-usefulness about a convertible instrument’s
terms and features. Under the amendment, the Company must use the if-converted method for including convertible instruments in diluted
EPS as opposed to the treasury stock method. ASU 2020-06 is effective for annual reporting periods beginning after December 15, 2023.
Early adoption is allowed under the standard with either a modified retrospective or full retrospective method. The Company early
adopted ASU 2020-06 on January 1, 2021 using the modified retrospective method. As a result of Management’s evaluation, the adoption
of ASU 2020-06 did not have a material impact on the consolidated financial statements.
Note
11: Long-Term Debt
On
August 5, 2019, the Company issued a Secured Promissory Note (the “CV Note”) with Chicago Venture Partners, L.P. (the “CV”).
The Note has an original principal amount of $2,635,000, bears interest at a rate of 10% per annum and will mature in 24 months, unless
earlier paid in accordance with its terms. The Company received proceeds of $1,900,000 after an original issue discount and payment of
Lender’s legal fees. Pursuant to a Security Agreement between the Company and the Lender, repayment of the Note is secured by substantially
all of its assets other than its intellectual property.
During
the quarter ending June 30, 2020, the Holder made redemptions of $650,000 reducing the principal to $1,985,000. On May 29, 2020, the
Company paid off the outstanding CV note consisting of principal of $1,985,000, and accrued interest payable of $220,000. The net payment
of $1,795,000, less the write off of the origination discount of $369,000 and issuance costs of $6,000, resulted in a gain on extinguishment
of $66,000.
Interest
expense associated with the CV Note was approximately $0, for the period ending March 31, 2021 and approximately $70,000,
for the period ending March 31, 2020.
On
December 5, 2019, the Company issued a secured Promissory Note (the “AS Note”) to Atlas Sciences L.P. (“AS”).
The AS Note has an original principal amount of $2,175,000, bears interest at a rate of 10% per annum and will mature in 24 months, unless
earlier paid in accordance with its term.
On
June 19, 2020, the Company paid off the outstanding AS note which consisted of original principal of $2,175,000, and accrued interest
payable of $122,000 less origination discount of $376,000 and issuance costs of $7,000, with a net note payable of $1,838,000, including
a gain on extinguishment of $76,000.
Interest
expense associated with AS Note for the period ending March 31, 2021 was $0 and was approximately $56,000 for the period ending March
31, 2020.
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 issuances, 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.
14
The
Company utilized the following assumptions to estimate the fair value of the August 2016 Warrants:
March
31, 2021
December
31, 2020
Underlying price per share
$ 2.27
$ 1.79
Exercise price per share
$ 82.50
$ 82.50
Risk-free interest rate
0.04 %
0.09 %
Expected holding period
0.42
0.67
Expected volatility
80 %
75 %
Expected dividend yield
-
-
The
Company utilized the following assumptions to estimate the fair value of the February 2017 Warrants:
March
31, 2021
December
31, 2020
Underlying
price per share
$
2.27
$
1.79
Exercise
price per share
$
30.25
– 33.00
$
30.25-33.00
Risk-free
interest rate
0.10
- 0.11
%
0.12
%
Expected
holding period
1.34
– 1.35
1.58
– 1.60
Expected
volatility
155
%
130
%
Expected
dividend yield
-
-
The
Company utilized the following assumptions to estimate the fair value of the June 2017 Warrants:
March
31, 2021
December
31, 2020
Underlying price per share
$ 2.27
$ 1.79
Exercise price per share
$ 27.50
$ 27.50
Risk-free interest rate
0.09 %
0.11 %
Expected holding period
1.17
12.42
Expected volatility
160 %
135 %
Expected dividend yield
-
-
The
Company utilized the following assumptions to estimate the fair value of the August 2017 Warrants:
March
31, 2021
December
31, 2020
Underlying price per share
$ 2.27
$ 1.79
Exercise price per share
19.80
$ 19.80
Risk-free interest rate
0.07 %
0.11 %
Expected holding period
0.93
1.18
Expected volatility
90 %
110 %
Expected dividend yield
-
-
The
Company utilized the following assumptions to estimate the fair value of the April 2018 Warrants:
March
31 ,2021
December
31, 2020
Underlying price per share
$ 2.27
$ 1.79
Exercise price per share
$ 17.16
$ 17.16
Risk-free interest rate
0.27 %
0.16 %
Expected holding period
2.57
2.81
Expected volatility
135 %
105 %
Expected dividend yield
-
-
The
Company utilized the following assumptions to estimate the fair value of the March 2019 Warrants:
March
31, 2021
December
31, 2020
Underlying price per share
$ 2.27
$ 1.79
Exercise price per share
$ 8.80
$ 8.80
Risk-free interest rate
0.34 %
0.19 %
Expected holding period
2.94
3.19
Expected volatility
125 %
105 %
Expected dividend yield
-
-
15
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 Chronic Fatigue Syndrome 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.
16
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 certain U.S. and government agency 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 September 30, 2020, the Company has classified the warrants with cash
settlement features as Level 3. Management evaluates a variety of inputs and then estimates fair value based on those inputs. As
discussed above, the Company utilized the Monte Carlo Simulation Model in valuing these warrants.
The
table below presents the balances of assets and liabilities measured at fair value on a recurring basis by level within the hierarchy
as:
(in
thousands) As of March 31, 2021
Total
Level
1
Level
2
Level
3
Assets:
Marketable
securities
$ 14,828
$ 14,828
$ —
$ —
Liabilities:
Redeemable warrants
$ 217
—
—
217
(in
thousands) As of December 31, 2020
Total
Level
1
Level
2
Level
3
Assets:
Marketable
securities
$ 15,877
$ 15,877
$ —
$ —
Liabilities:
Redeemable warrants
$ 180
—
—
180
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, 2020
$ 180
Fair value adjustment
37
Balance at March 31, 2021
$ 217
17
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 credited financing obligation. The Company will continue to report the property as an asset
and the property will continue to be depreciated. 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 the Company’s issued and outstanding shares
of common stock.
The
Property and equipment in “Note 6 Property and Equipment” above are the property and equipment involved in this transaction.
Depreciation on the building will continue until a sale has been recognized. See Note 15 Subsequent Events.
Future
minimum payments required under the Financing Obligation and the balance of the Finance Obligation as of March 31, 2021, are as follows:
During
the year:
(in
thousands)
2021
$ 321
2022
437
2023
449
2024
463
2025
477
Thereafter
1,091
Total of payments
3,238
Less deferred issuance costs
(185 )
Less discount on debt instrument
(795 )
Less imputed interest
(208 )
Total balance
2,050
Less current portion
(234 )
Long term portion
$ 1,816
Interest
expense relating to this financing agreement was $14,000 for the three months ended March 31, 2021 and $16,000 for the three months ended
March 31, 2020.
Note
14: Leases
The
Company entered into a Lease Agreement for a term of five years commencing on September 14, 2020 with Fraser Advanced Information Systems,
pursuant to which the Company agreed to lease two Sharp copiers. The base of $1,415 per month.
18
On
June 13, 2018, the Company entered into a Lease Agreement for a term of six years commencing on July 1, 2018 with SML FL Holdings LLC,
pursuant to which the Company agreed to lease approximately 3,000 rentable square feet. The base rent increases by 3% each year, and
ranges from $2,100 per month for the first year to $2,785 per month for the sixth year.
On
May 1, 2019, the Company entered into a Lease Agreement for a term of three years commencing on May 1, 2019 with 604 Associates LLC,
pursuant to which the Company agreed to lease approximately 3,000 rentable square feet. The base rent is $1,500 per month for the term
of the lease.
The
expected lease term includes both contractual lease periods and, when applicable, cancelable option periods when it is reasonably certain
that the Company would exercise such options. The Company’s leases have remaining lease terms between 6 months and 4 years. As
of March 31, 2021, the weighted-average remaining term is 1.67 years.
The
Company has determined that the incremental borrowing rate is 10% as of March 31, 2021 based upon the recently completed financing transaction
in December 2019.
Year Ending March 31,
2021
$ 42
2022
55
2023
45
2024
49
2025
26
Thereafter
12
Less imputed interest
(61 )
Total
$ 168
As
of March 31, 2021, the balance of the right of use assets was $168,000 and the corresponding lease liability balance was $168,000. Total
rent expense was $11,000 for the three months ended March 31, 2021 and $11,000 for the three months end March 31, 2020.
Note
15: Subsequent Events
On
May 13, 2021, the Company completed its re-purchase of its New Brunswick, New Jersey facility pursuant to the repurchase option
in the facility lease for $4,661,400.
19
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; Part II, Item 1 “Legal Proceedings”; and Part
II, Item 1A “Risk Factors”.
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.
With
the outbreak of the COVID-19 coronavirus and our prior research into Ampligen’s antiviral activity against Severe Acute Respiratory
Syndrome, or SARS, we are focusing on the potential of Ampligen to serve as a protective prophylaxis and an early-onset therapeutic for
the virus. Significant testing and trials will be required to determine whether Ampligen will be effective in the treatment of the COVID-19
coronavirus in humans and no assurance can be given that it will be the case. Our beliefs rely on a number of studies. No assurance can
be given that future studies will not result in findings that are different from those reported in the studies we refer to. The pandemic
is disrupting world health and world economies and most likely will continue to do so for a long time. While we are able to continue
to operate, clearly, like all businesses, we are unable to gauge how bad this pandemic will affect our operations in the future. We reached
out to numerous foreign governments related to the COVID-19 coronavirus and, if successful, will be working in these countries. Operating
in foreign countries carries with it a number of risks, including potential difficulties in enforcing intellectual property rights. We
cannot assure that our potential operations in foreign countries will not be adversely affected by these risks. We have filed provisional
patent applications related to the COVID-19 coronavirus. However, these filings do not assure that patents will ultimately be granted.
In
February 2013, we received a Complete Response Letter (CRL) 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 analyses. Accordingly, the remaining steps to potentially gain FDA approval
of the Ampligen NDA, the final results of these and other ongoing activities could vary materially from our expectations and could adversely
affect the chances for approval of the Ampligen NDA. These activities and the ultimate outcomes are subject to a variety of risks and
uncertainties, including but not limited to risks that (i) the FDA may ask for additional data, information or studies to be completed
or provided; and (ii) the FDA may require additional work related to the commercial manufacturing process to be completed or may, in
the course of the inspection of manufacturing facilities, identify issues to be resolved.
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. In September 2019, we received clearance from the
FDA to ship Ampligen to Argentina for the commercial launch and subsequent sales. We are currently working with GP Pharma on the commercial
launch of Ampligen in Argentina. Commercialization in Argentina will require, among other things, an appropriate reimbursement level,
appropriate marketing strategies, completion of manufacturing preparations for launch and ANMAT conducting a final inspection of the
product and release tests before granting final approval to begin commercial sales. This testing and approval process is currently delayed
due to the COVID-19 pandemic and ANMAT’s internal processes. 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.
20
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,
six oncology Ampligen clinical trials are underway, in various phases of development and activity, with 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. Four studies are at Roswell Park and two
studies are at the University of Pittsburgh Medical Center. No assurance can be given as to the results of these underway
trials. Four additional cancer trials in collaboration with University Medical/Cancer Research Centers using Ampligen plus
checkpoint blockade are in various pre-enrollment stages. 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, as we are not the sponsor, we cannot assure that these clinical studies or the studies
underway will be successful or yield any useful data. In addition, initiation of planned clinical trials may not occur
secondary to many factors including lack of regulatory approval(s) or lack of study drug. Even if these clinical trials are
initiated, we cannot assure that the clinical studies will be successful or yield any useful data or require additional
funding.
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
strived to maximize the outsourcing of 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 manufacturers will pass an FDA pre-approval inspection for Alferon manufacturing.
The
production of new Alferon Active Pharmaceutical Ingredient, or API, inventory will begin at our New Brunswick facility 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 we obtain 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.
There
have been delays related to importing Ampligen to China. We are working with Shenzhen Smoore to alleviate these issues and to
identify a mutually beneficial course of action that would allow us to move forward with the proposed testing of Ampligen. We
will announce when the shipment for testing purposes has been completed. If we are unable to resolve these issues, we will explore
inhalation therapy elsewhere. AIM and Smoore signed a two-month extension of the MTA on April 1, 2021 and are working toward
agreement on a longer extension.
21
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 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
AIM
ImmunoTech Inc. and its subsidiaries (collectively, “AIM”, “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, various viruses and 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.
Our
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 is also known as a new molecular entity that contains an active
moiety. Ampligen has not been approved by the FDA or marketed in the US.
Since
the outbreak of SARS-CoV-2, the novel virus that causes COVID-19, we have been actively engaged in determining whether Ampligen could
be an effective treatment for this virus or could be part of a vaccine. We believe that Ampligen has the potential to be both an early-onset
treatment for and prophylaxis against SARS-CoV-2. Ampligen also has potential as a COVID-19 vaccine strategy that combines Ampligen as
an immune enhancer seeking to boost the efficacy of intranasal and other vaccines and, as to intranasal, also convey cross-reactivity
and cross-protection against future mutations. We believe that prior studies of Ampligen in SARS-CoV-1 animal experimentation may predict
similar protective effects against the new virus.
Beginning
in April 2020, we entered into confidentiality and non-disclosure agreements with numerous companies for the potential outsourcing of
the production of polymer, enzyme, placebo as well as Ampligen and one Contract Research Organization which may also assist with the
planning, presentation and filing of documents with the FDA. These confidentiality and non-disclosure agreements are only the initial
step in forging relationships with these entities to obtain contract manufacturers and research partners. No assurance can be given as
to how many of these, initial explorations, if any, will result in definitive arrangements or, with regard to potential research partners,
what research arrangements will develop and thereafter prove fruitful.
22
Ampligen
represents a dsRNA 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 testing Ampligen in humans — both underway
and planned — at major cancer research centers. Ampligen was 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. In September, we reported
receipt of statistically significantly results of positive survival benefit when using Ampligen in patients with locally advanced/metastatic
pancreatic cancer after systemic chemotherapy. We will work with our Contract Research Organization, Amarex Clinical Research LLC, to
seek FDA “fast-track” and possibly even FDA “breakthrough” designations and to obtain authorization to conduct
a follow-up pancreatic cancer Phase 2/3 clinical trials with potential sites in the Netherlands at Erasmus MC under Prof. van Eijck,
and also at major cancer research centers in the United States.
Ampligen
is also being evaluated for the treatment of myalgic encephalomyelitis/chronic fatigue syndrome (ME/CFS). We are currently sponsoring
an expanded access program for ME/CFS patients in the U.S. In August 2016, we received approval of our New Drug Application (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.
Shipment of the drug product to Argentina was initiated in 2018 to complete the release testing by ANMAT needed for commercial distribution.
On September 19, 2019, we received clearance from the FDA to ship Ampligen to Argentina for the commercial launch and subsequent sales.
On June 10, 2020, we received import clearance from ANMAT to import the first shipment of commercial grade vials of Ampligen to Argentina.
The next steps in the commercial launch of Ampligen include ANMAT conducting a final inspection of the product and release tests before
granting final approval to begin commercial sales. We have supplied GP Pharm with the Ampligen required for testing and ANMAT release.
This testing and approval process is currently delayed due to the COVID-19 pandemic and ANMAT’s internal processes. Once final
approval by ANMAT is obtained, GP Pharm will begin distributing Ampligen in Argentina. We continue to pursue our Ampligen NDA for the
treatment of CFS with the FDA.
Alferon
N Injection is approved for a category of sexually transmitted disease infections 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. We also have approval from ANMAT for the treatment of refractory
patients that failed or were intolerant to treatment with recombinant interferon in Argentina.
We
operate a 30,000 sq. ft. facility in New Brunswick, NJ, where we conduct testing and have produced limited quantities of active pharmaceutical
ingredients (“API”) for our products. We have reviewed our operations at the facility and believe that some of the equipment
most likely should be upgraded to realize greater efficiencies, when and if we require more API than is currently in storage. We are
also exploring engaging a Contract Manufacturing Organization (“CMO”) to produce API. While we believe we have sufficient
API to meet our current needs, we are also continually exploring new efficiencies so as to maximize our ability to fulfill future obligations.
Related, on April 5, 2021, the Company approved a proposal from Polysciences Inc. (“Polysciences”) for the manufacture of
AIM’s Poly I and Poly C12U polynucleotides and associated test methods at Polysciences’ Warrington, Penn. location to enhance
the Company’s capacity to produce the polymer precursors to Ampligen. The Company is working with Polysciences to finalize a Service
Agreement and a Quality Agreement.
OUR
PRODUCTS
Our
primary pharmaceutical product platform consists of Ampligen®, a 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.
23
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 Toll-like Receptor 3 (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, prostate and pancreatic cancer, ME/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. Shipment of the drug
product to Argentina was initiated in 2018 to complete the release testing by ANMAT needed for commercial distribution. On September
19, 2019, we received clearance from the FDA to ship Ampligen to Argentina for the commercial launch and subsequent sales. On June 10,
2020, we received import clearance from ANMAT to import the first shipment of commercial grade vials of Ampligen to Argentina. We are
currently working with GP Pharm on the commercial launch of Ampligen in Argentina. 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 and ANMAT conducting a final inspection of the product and release
tests before granting final approval to begin commercial sales. AIM has supplied GP Pharm with the Ampligen required for testing and
ANMAT release. This testing and approval
process is currently delayed due to the COVID-19 pandemic and ANMAT’s internal processes. Once final approval by ANMAT is obtained,
GP Pharm will begin distributing Ampligen in Argentina. We continue to pursue our Ampligen NDA, for the treatment of CFS with the FDA.
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 approved the increase
reimbursement level from $200 to $345 per 200 mg vial of Ampligen, due to increased production costs; which was re-authorized in 2021.
At this time, we do not plan on passing this adjustment along to the patients in this program. As of March 31, 2021, there are 11 patients
enrolled in this open-label expanded access treatment protocol. In October 2020, we received Institutional Review Board (IRB) approval
for the expansion of the AMP-511 Expanded Access Program (EAP) clinical trial for Myalgic Encephalomyelitis/Chronic Fatigue Syndrome
(ME/CFS) to include patients previously diagnosed with SARS-CoV-2 following clearance of the virus, but who still demonstrate chronic
fatigue-like symptoms; 1 of the 11 patients enrolled has post COVID chronic fatigue-like symptoms.
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. The agreement automatically extends for a period of 12 months on May 20, 2021.
24
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 as a part of the NIH-funded P01 CA132714 and Ovarian Cancer Specialized
Program of Research Excellence (SPORE). Based upon these findings we and Roswell Park expanded our 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. At the moment, this study is on hold
as we await updates and next steps from Roswell Park.
In
2018, we completed production of two commercial-size batches of more than 16,000 vials of Ampligen, following its “Fill & Finish”
at Jubilant HollisterStier, the Contract Manufacturing Organization. These lots passed all required testing for regulatory release for
human use and are being used for multiple programs including the treatment of ME/CFS, the pancreatic cancer EAP in the Netherlands, and
will continue to be used for ongoing and future clinical studies in oncology. Additionally, two lots of Ampligen were manufactured in
December 2019 and January 2020 at Jubilant. The current manufactured lots of Ampligen have been fully tested and released for commercial
product launch in Argentina and for clinical trials. Additionally, in December 2020, we added Pharmaceutics International Inc. (“Pii”)
as a “Fill & Finish” provider to enhance our capacity to produce Ampligen. This addition amplifies our manufacturing
capability by providing redundancy and cost savings. The contracts augment our existing fill and finish capacity.
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.
25
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, we have 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, 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 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 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 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. This study is on hold as we await next steps from Roswell Park.
Currently,
six 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:
●
Advanced
Recurrent Ovarian Cancer - Phase 1 / 2 study of intraperitoneal chemo-immunotherapy in advanced recurrent ovarian cancer; Phase
1 portion establishes intraperitoneal safety. Awaiting publication of Phase I results. https://clinicaltrials.gov/ct2/show/NCT02432378
●
Advanced
Recurrent Ovarian Cancer - A follow-up Phase 2 study of advanced recurrent ovarian cancer using cisplatin, pembrolizumab, plus
Ampligen; up to 45 patients to be enrolled; enrollment has commenced, and numerous patients have commenced treatment. https://clinicaltrials.gov/ct2/show/NCT03734692
●
Stage
4 Metastatic Triple Negative Breast Cancer - Phase 2 study of metastatic triple-negative breast cancer using chemokine modulation
therapy, including Ampligen and pembrolizumab. All patients have been treated or are in treatment. https://www.clinicaltrials.gov/ct2/show/NCT03599453
26
●
Stage
4 Colorectal Cancer Metastatic to the Liver - Phase 2a study of Ampligen as component of chemokine modulatory regimen on colorectal
cancer metastatic to liver; the majority of the 12 planned patients enrolled and treated. https://clinicaltrials.gov/ct2/show/NCT03403634
●
Early-Stage
Prostate Cancer - Phase 2 study investigating the effectiveness and safety of aspirin and Ampligen with or without interferon-alpha
2b (Intron A) compared to no drug treatments in a randomized three-arm study of patients with prostate cancer before undergoing radical
prostatectomy. Patient enrollment has been initiated in this study designed for up to 45 patients. https://clinicaltrials.gov/ct2/show/NCT03899987
●
Early-Stage
Triple Negative Breast Cancer - Phase 1 study of chemokine modulation plus neoadjuvant chemotherapy in patients with early-stage
triple negative breast cancer has received FDA authorization; the objective of this study is to evaluate the safety and tolerability
of a combination of Ampligen, celecoxib with or without Intron A, when given along with chemotherapy; the goal of this approach is
to increase survival. This study is recruiting patients designed for up to 24 patients. https://clinicaltrials.gov/ct2/show/NCT04081389
Six
Ampligen clinical trials are planned for initiation in 2021:
●
Brain-Metastatic
Breast Cancer — Phase 2 study to assess the effectiveness of a three-pronged strategy combining distinct immunotherapy
approaches, including Ampligen. Roswell Park and Moffitt Cancer Center have both received “Breakthrough Awards” from
the U.S. Department of Defense (DOD). Together, these separate but parallel proposed clinical trials are receiving approximately
$15 million in DOD funding to study Ampligen. Roswell Park is currently working on its draft of the IND, which its study and Moffitt’s
study require before next steps can be taken.
●
Stage
4 Refractory Metastatic Colorectal Carcinoma — Phase 2 study that will evaluate Ampligen in combination with pembrolizumab
in refractory metastatic colorectal carcinoma at Roswell Park. Up to 25 patients to be enrolled. This is expected to be funded by
grants, testing Ampligen and pembrolizumab. See: https://www.clinicaltrials.gov/show/NCT04119830
●
Refractory
Melanoma — Phase 2 study that will evaluate polarized dendritic cell vaccine, interferon alpha-2, Ampligen and celecoxib
for the treatment of HLA-A2+ refractory melanoma at Roswell Park. Up to 24 patients to be enrolled. See: https://www.clinicaltrials.gov/show/NCT04093323
●
Stage
4 Urothelial, Melanoma and Renal Cell Carcinoma — 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. Protocol design and funding currently being finalized.
●
Non-Small
Cell Lung Cancer — 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.
However, we now anticipate an extended delay, as other studies with funding have moved ahead of the Ampligen project. Roswell Park
is exploring a pilot study to establish proof of concept.
●
Advanced
Pancreatic Cancer — Phase 2 study in advanced pancreatic cancer using checkpoint blockade plus Ampligen at University of
Nebraska Medical Center and Erasmus University. Protocol and budget being developed. This proposed study may be based on data from
our Dutch EAP (see below) and UNMC animal experiment showing synergy between Ampligen and checkpoint therapy. A second confirmatory
animal trial has been completed; while it did not replicate the previous survival results, it did demonstrate a significant anti-tumor
effect.
In
addition, the National Cancer Institute awarded $14.5 million to Roswell Park to study Ampligen as part of five Roswell Park-led chemokine
modulation clinical trials in melanoma, colorectal and ovarian cancers.
In
January 2017, the EAP through our agreement with myTomorrows designed to enable access of Ampligen to ME/CFS patients was 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. There have been no physician requests
to date that would cause the program to move forward with the approval process.
27
A
total of 42 pancreatic cancer patients received treatment with Ampligen immuno-oncology therapy under the EAP program at Erasmus MC in
the Netherlands. Supervised by Prof. Casper van Eijck, MD, the team at Erasmus MC found a statistically significantly positive survival
benefit when using Ampligen in patients with locally advanced/metastatic pancreatic cancer after systemic chemotherapy. We will work
with our Contract Research Organization, Amarex Clinical Research LLC, to seek FDA “fast-track” and possibly even FDA “breakthrough”
designations and to obtain IND authorizations to conduct follow-up pancreatic cancer Phase 2/3 clinical trials with potential sites in
the Netherlands at Erasmus MC under Prof. van Eijck, and also at major cancer research centers in the United States. Additionally:
●
In
December 2020, the FDA granted Ampligen Orphan Drug Designation status for the treatment of pancreatic cancer. The Orphan Drug Designation
program provides orphan status to drugs and biologics which are defined as those intended for the treatment, prevention or diagnosis
of a rare disease or condition, which is one that affects less than 200,000 persons in the United States or meets cost recovery provisions
of the act. The status helps incentivize the treatment of therapies to treat unmet medical needs by providing a company with seven
years of exclusivity rights once a drug reaches market.
●
In
February 2021, our subsidiary, NV Hemispherx Biopharma Europe, received formal notification from the European Commission (EC) granting
Orphan Medicinal Product Designation for Ampligen as a treatment for pancreatic cancer. Orphan products, once commercially approved
in the European Union (EU), receive benefits including up to ten years of protection from market competition from similar medicines
with similar active component and indication for use that are not shown to be clinically superior.
In
September, we reported receipt of statistically significant results of positive survival benefit when using Ampligen in patients with
locally advanced/metastatic pancreatic cancer after systemic chemotherapy versus matched historical controls.
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 International
Association for Chronic Fatigue Syndrome/Myalgic Encephalomyelitis (IACFS/ME) annual meeting in Fort Lauderdale, FL. The intent to treat
(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 Ampligen
vs. placebo patients improving exercise tolerance (ET) duration from baseline by ≥25% shows over twice the percentage of patients
with clinical enhancement in ET effect in the Ampligen 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.
28
The
high number of younger people being hospitalized for COVID-19 suggests considerable numbers of people in the prime of their lives
may have a COVID-induced ME/CFS-like illness in their future. According to a 2016 journal article, the estimated annual cost
of lost productivity related to ME/CFS was $9-37 billion in the United States, and for direct medical costs it was $9-14 billion.
In
June of 2020, we filed a provisional patent application for, among other discoveries, the use of Ampligen as a potential early-onset
therapy for the treatment of COVID-19 induced chronic fatigue.
Many
survivors of the first SARS-CoV-1 epidemic in 2003 continued to report chronic fatigue, difficulty sleeping and shortness of breath months
after recovering from the acute illness. “After one year, 17% of patients had not returned to work and 9% more had not returned
to their pre-SARS work levels” (Simmaron Research) . Now there is increasing evidence that patients with COVID-19 can develop
a similar, ME/CFS-like illness. These patients are commonly referred to as “Long Haulers.” http://simmaronresearch.com/2020/04/will-covid-19-leave-an-explosion-of-me-cfs-cases-in-its-wake/
In
October 2020, we received Institutional Review Board (IRB) approval for the expansion of the AMP-511 Expanded Access Program (EAP) clinical
trial for Myalgic Encephalomyelitis/Chronic Fatigue Syndrome (ME/CFS) to include patients previously diagnosed with SARS-CoV-2 following
clearance of the virus, but who still demonstrate chronic fatigue-like symptoms.
On
November 2, 2020, we announced the publication of statistically significant data detailing how Ampligen could have a considerable positive
impact on people living with ME/CFS when administered in the early stages of the disease. The data were published in PLOS ONE ,
a peer-reviewed open access scientific journal published by the Public Library of Science. AIM researchers found that the TLR3 agonist
Ampligen substantially improved physical performance in a subset of ME/CFS patients.
COVID-19
Following
the SARS-CoV-1 outbreak in 2002-03, Ampligen exhibited excellent antiviral properties and protective survival effect in NIH-contracted
studies of SARS-infected mice, which is very similar to SARS-CoV-2, the novel virus that causes COVID-19.
●
The
Barnard 2006 study (https://journals.sagepub.com/doi/abs/10.1177/095632020601700505) found that Ampligen reduced virus lung
levels to below detectable limits.
●
The
Day 2009 study (https://www.ncbi.nlm.nih.gov/pmc/articles/PMC2787736/) found that, instead of 100% mortality, there was 100%
protective survival.
We
compared key transcription regulatory sequences of SARS-CoV-1 to SARS-CoV-2 and found significant similarities, suggesting highly probable
extension of the antiviral effects of Ampligen in the earlier NIH-contracted SARS experiments to COVID-19.
The
SARS-CoV-2 virus – which causes COVID-19 – shares important genomic and pathogenic similarities with SARS-CoV-1 (hence its
name). Since Ampligen has shown antiviral activity against more distantly related coronaviruses, there was a reasonable probability that
the antiviral effects of Ampligen against SARS-CoV-1 will likely extend to SARS-CoV-2, as discussed below, recently, Ampligen has demonstrated
in vitro antiviral activity against SARS-CoV-2. We believe that this creates a compelling case for clinical trials to evaluate Ampligen
as a potential tool in the fight against COVID-19.
Since
the late 2019 outbreak of SARS-CoV-2, we have been actively engaged in determining whether Ampligen could be an effective treatment for
this virus or could be part of a vaccine. We believe that Ampligen has the potential to be both an early-onset treatment for and prophylaxis
against SARS-Cov-2. We believe that prior studies of Ampligen in SARS-CoV-1 animal experimentation may predict similar protective effects
against the new virus.
In
February 2020, we filed three provisional patent applications related to Ampligen in our efforts toward joining the global health community
in the fight against the deadly coronavirus (See: https://aimimmuno.com/press-release/aim-immunotech-files-provisional-patent-application-for-the-use-of-ampligenr-as-a-potential-therapy-for-covid-19-induced-chronic-
fatigue/). Our three provisional patent applications include: 1) Ampligen as a therapy for the coronavirus; 2) Ampligen as part of a
proposed intranasal universal coronavirus vaccine that combines Ampligen with inactivated coronavirus, conveying immunity and cross-protection
and; 3) a high-volume manufacturing process for Ampligen. Under the Patent Cooperation Treaty of 1970, which provides international protections
for patents, these three provisional patent applications were converted in to two international patent applications based on the date
of their filings.
29
On
April 1, 2020, we entered into a Material Transfer and Research Agreement (MTA) with Shenzhen Smoore Technology to study the utilization
of an innovative Smoore inhalation delivery device and Ampligen as a potential treatment approach for the SARS-CoV-2 pandemic.
There have been delays related to importing Ampligen to China. We are working with Smoore to alleviate these issues and to identify
a mutually beneficial course of action that would allow us to move forward with the proposed testing of Ampligen. AIM and Smoore
signed a two-month extension of the MTA on April 1, 2021 and are working toward agreement on a longer extension.
On
August 6, 2020, we contracted Amarex Clinical Research LLC (“Amarex”) to act as our Clinical Research Organization and provide
regulatory support with regard to a clinical trial testing Ampligen’s potential as a COVID-19 prophylaxis via intranasal delivery.
Amarex is providing us with monitoring support for our Phase I study with the Centre for Human Drug Research CHDR in The Netherlands.
For the subsequent Phase II/III studies we expect to incur clinical trial costs of up to $4-5 million.
Beginning
in April 2020, we entered into confidentiality and non-disclosure agreements with numerous companies for the potential outsourcing of
the production of polymer, enzyme, placebo as well as Ampligen, and one Contract Research Organization, Amarex, which will provide regulatory
and monitoring support related to a clinical trial testing Ampligen’s intranasal safety and potential as a COVID-19 prophylaxis
via intranasal delivery.
In
addition, we joined with ChinaGoAbroad (CGA) to facilitate the entry of Ampligen into the People’s Republic of China (PRC) for
use as a prophylactic/early-onset therapeutic against COVID-19. CGA is a member-based online information platform and offline advisory
firm serving to facilitate two-way international transactions relating to the PRC in collaboration with the China Overseas Development
Association (CODA). The relationship with ChinaGoAbroad is ongoing.
On
May 11, 2020, the FDA authorized an IND for Roswell Park to conduct a Phase 1/2a study of a regimen of Ampligen and interferon alpha
in cancer patients with mild or moderate COVID-19 infections. This new clinical trial, sponsored by the Roswell Park in collaboration
with us, will test the safety of this combination regimen in patients with cancer and mild to moderate COVID-19, and the extent to which
this therapy will promote clearance of the SARS-CoV-2 virus from the upper airway. It is planned that the phase 1/2a study will enroll
up to 44 patients in two stages. Phase 1 will see 12-24 patients receiving both Ampligen and interferon alfa-2b at escalating doses.
Once that initial phase is complete, further study participants will be randomized to two arms: one receiving the two-drug combination
and a control group who will not receive Ampligen or interferon alfa but will receive best available care. We intend to be a financial
sponsor of the study and will provide Ampligen at no charge for this study.
On
July 6, 2020, we entered into a clinical trial agreement with Roswell Park pursuant to which Roswell Park will conduct a Phase
1/2a trial of Ampligen (rintatolimod) in combination with interferon alfa, in cancer patients with COVID-19, the disease caused
by the SARS-CoV-2 coronavirus. We and National Cancer Institute are supporting this trial. We reported in September 2020
that recruitment in the trial had begun. See: clinicaltrials.gov/NCT04379518. On November 25, 2020, the first patient in the study
had been enrolled and treated. This study was recently amended to add 20 patients, with 10 randomized to receive a single dose
of Ampligen and 10 patients to receive current best therapies.
We
also entered into a material transfer agreement with the University of Rochester for a series of in vitro experiments to test the direct
antiviral activity of Ampligen on SARS-CoV-2, as well as the mechanism of action. They are currently engaged in experiments with multiple
cell lines as they work to establish the study model system. We also entered into a specialized services agreement with Utah State University
and have supplied Ampligen to support the University’s Institute for Viral Research in its research into SARS-CoV-2. The Utah State
results show that Ampligen was able to decrease SARS-CoV-2 infectious viral yields by 90% at clinically achievable intranasal Ampligen
dosage levels.
On
October 6, 2020, we received Institutional Review Board (IRB) approval for the expansion of the AMP-511 Expanded Access Program (EAP)
clinical trial for Myalgic Encephalomyelitis/Chronic Fatigue Syndrome (ME/CFS) to include patients previously diagnosed with SARS-CoV-2,
but who still demonstrate chronic fatigue-like symptoms. Patients in the trial are treated with our flagship pipeline drug Ampligen.
On January 6, 2021, we commenced with the treatment of the first previously diagnosed COVID-19 patient with long-COVID symptoms in the
AMP-511 study.
30
On
November 29, 2020, we entered into a Material Transfer and Research Agreement with Leyden Laboratories, B.V., (“Leyden Lab”)
to facilitate two proposed studies/research projects:
●
An
assessment of protective potential of intranasal administration of Ampligen in SARS-CoV-2 Syrian hamster challenge model; and
●
An
assessment of protective potential of intranasal Ampligen in lethal influenza mouse challenge model.
On
January 11, 2021, we entered into a Sponsor Agreement with the Centre for Human Drug Research (CHDR), a foundation located in the Leiden
in the Netherlands, to manage a Phase 1 randomized, double-blind study to evaluate the safety and activity of repeated intranasal administration
of Ampligen. The study protocol calls for the enrollment of eight healthy subjects in each of four Cohorts to receive Ampligen. In addition,
two healthy subjects in each Cohort will receive placebo, for a total of 40 healthy subjects. The subjects will receive intranasal dosing
every other day for 13 days, for a total of seven doses each. This study will assess the safety, tolerability and biological activity
of repeated administration of Ampligen intranasally. The protocol design is for subjects in Cohort 1 to receive 75 μg of Ampligen
or a matching placebo, Cohort 2 to receive 200 μg of Ampligen or a matching placebo, Cohort 3 to receive 500 μg of Ampligen or
a matching placebo, and Cohort 4 to receive 1250 μg of Ampligen or a matching placebo. We are sponsoring and funding the study. In
April 2021, dosing of Cohort 2 in the Phase 1 clinical study was completed with no serious adverse events reported, and paving the way
for escalation of the dose in Cohort 3. The trial is a critical step in our ongoing efforts to develop Ampligen as a potential prophylaxis
or treatment for COVID-19 and other respiratory viral diseases.
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.
On
April 5, 2021, we entered into an MTA with the University of Cagliari Dipartimento di Scienze della Vita e dell’Ambiente (UNICA),
an educational institution, under the laws of Italy, located in Monserrato (Cagliari), Italy. The MTA relates to the research and development
of the effects of Ampligen and its ability to induce interferon production in several cell lines and also on the ability of the Ebola
virus protein VP35 to bind to viral dsRNA and impede interferon’s upregulation and activity, and on Ampligen’s ability to
reverse VP35 inhibition of interferon production in biological systems.
MANUFACTURING
The
Administracion Nacional de Medicamentos, Alimentos y Tecnologia Medica (ANMAT) in Argentina approved Ampligen for commercial distribution
for the treatment of Chronic Fatigue Syndrome (CFS) in 2016. Shipment of the drug product to Argentina was initiated in 2018 to complete
the release testing by ANMAT needed for commercial distribution. On September 19, 2019, we received clearance from the FDA to ship Ampligen
to Argentina for the commercial launch and subsequent sales. On June 10, 2020, we received import clearance from ANMAT to import the
first shipment of commercial grade vials of Ampligen to Argentina. We are currently working with GP Pharma on the commercial launch of
Ampligen in Argentina See “Our Products; Ampligen” above.
31
Jubilant
HollisterStier (Jubilant) is our authorized CMO for Ampligen for our approval in Argentina. Since the 2017 engagement of Jubilant to
manufacture Ampligen, two lots of Ampligen consisting of more than 16,000 units have been manufactured and released in year 2018. These
lots have been designated for human use in the US in the cost recovery CFS program and for expanded oncology clinical trials. The production
of additional polymer (Ampligen intermediates) took place in 2019 at our New Brunswick facility. Additionally, two lots of Ampligen were
manufactured in December 2019 and January 2020 at Jubilant. The current manufactured lots of Ampligen have been fully tested and released
for commercial product launch in Argentina and for clinical trials. In addition, we have supplied GP Pharm with the Ampligen required
for testing and ANMAT release. Once final approval by ANMAT is obtained, we anticipate that GP Pharm will begin distributing Ampligen
in Argentina.
In
December 2020, we added Pharmaceutics International Inc. (“Pii”) as a “Fill & Finish” provider to enhance
our capacity to produce the drug Ampligen. This addition amplifies our manufacturing capability by providing redundancy and cost savings.
The contracts augment our existing fill and finish capacity.
Alferon
is approved by the FDA for commercial sales in the US for the treatment of genital warts. It is also approved by ANMAT in Argentina for
commercial sales for the treatment of genital warts and in patients who are refractory to treatment with recombinant interferons.
Commercial
sales of Alferon in the United States will not resume until new batches of commercial filled and finished product are produced and released
by the FDA. While our 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. We will also need the FDA’s approval to release commercial product
once we have submitted satisfactory stability and quality release data. Currently, the manufacturing process is on hold and there is
no definitive timetable to have the facility back online.
We
have reviewed our operations at the New Brunswick facility and determined that some of the equipment should be upgraded to realize greater
efficiencies, when and if we require more API than is currently in storage. We are also exploring engaging a Contract Manufacturing Organization
(“CMO”) to produce API. While we believe we have sufficient API to meet our current needs, we are also continually exploring
new efficiencies so as to maximize our ability to fulfill future obligations. In this regard, on April 5, 2021, we approved a proposal
from Polysciences Inc. (“Polysciences”) for the manufacture of our Poly I and Poly C 12 U polynucleotides and associated
test methods at Polysciences’ Warrington, PA location to enhance our capacity to produce the polymer precursors to the drug Ampligen.
We are working with Polysciences to finalize a Service Agreement and a Quality Agreement and will notify the market when those
are complete.
On
April 5, 2021, our board of directors approved the exercise of our option to re-purchase the New Brunswick manufacturing facility, pursuant
to the terms of the March 16, 2018 sale and lease-back agreement and, thereafter, we sold certain equipment and machinery that
we determined to be obsolete and no longer needed for current and future manufacturing.
Licensing/Collaborations/Joint
Ventures
To
maximize the availability of Ampligen to patients on a worldwide basis, we have embarked on a strategy to license the product and/or
to collaborate and/or create a joint venture with companies that have the demonstrated capabilities and commitment to successfully gain
approval and commercialize Ampligen in their respective territories of the world. Ideal partners would have the following characteristics:
well established global and regional experience and coverage, robust commercial infrastructure, strong track record of successful development
and registration of in-licensed products, as well as a therapeutic area fit (ME/CFS, immuno-oncology, etc.).
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. See “Our Products;
Ampligen” above.
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.
32
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. We believe 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
December 2020, we entered into a signed Letter of Agreement with myTomorrows for the delivery of Ampligen for the treatment of up to
16 pancreatic cancer patients.
In
August 2017, we extended our agreement with Asembia LLC, formerly Armada Healthcare, LLC, to undertake the marketing, education and sales
of Alferon N Injection throughout the United States. We are currently exploring an expansion of this relationship.
401(k)
Plan
Each
participant immediately vests in his or her deferred salary contributions, while our contributions will vest over one year. Our 6% matching
contribution was reinstated effective January 1, 2021. For the three months ended March 31, 2021, our contributions towards the 401(k)
Plan were approximately $37,000.
New
Accounting Pronouncements
See
“ Note 10: Recent Accounting Pronouncements”.
Disclosure
About Off-Balance Sheet Arrangements
None.
33
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, 2020.
RESULTS
OF OPERATIONS
Three
months ended March 31, 2021 versus three months ended March 31, 2020
Net
Loss
Our
net loss was approximately $3,579,000 and $3,808,000 for the three months ended March 31, 2021 and 2020, respectively, representing
a decrease in loss of approximately $229,000 or 6%. This decrease in loss was primarily due to the following:
●
an
increase in research and development expenses of $526,000;
●
an
increase in production costs of $33,000;
●
an
increase of $145,000 from the 2020 quarterly reevaluation of certain redeemable warrants;
●
an
increase in income tax operating tax of $181,000;
●
a
decrease in revenue of $17,000; offset by
●
a
decrease in selling, general and administrative cost of $156,000;
●
a
decrease in interest expense and other finance cost of $272,000; and
●
an
increase in interest income of $51,000.
Net
loss per share was $(0.08) and $(0.22) for the three months ended March 31, 2021 and 2020, respectively. The weighted average
number of shares of our common stock outstanding as of March 31, 2021 was 45,726,855 as compared to 17,490,322 as of March 31,
2020.
Revenues
Revenues
from our Ampligen® Cost Recovery Program were $28,000 and $45,000 for the quarters ended March 31, 2021 and 2020, respectively.
There was a decrease in revenues of $17,000. The change in revenue is related to timing of orders and shipments in the three months ending
March 31, 2020. The revenue was generated from the EAP and our FDA approved open-label treatment protocol, (“AMP 511”), that
allows patient access to Ampligen® for treatment in an open-label safety study.
Production
Costs
Production
costs were approximately $237,000 and $204,000, respectively, for the three months ended March 31, 2021 and 2020, representing
an increase of $33,000 in production costs in the current period. These costs primarily represent production expenses related to increased
roof maintenance in the three months ending March 31, 2021
Research
and Development Costs
Research
and Development (“R&D”) costs for the quarter ended March 31, 2021 were approximately $1,424,000 as compared to
$898,000 for the quarter ended March 31, 2020 reflecting an increase of approximately $526,000 or 59%. The reason for the increase
in research and development costs was due to increases in clinical expenses of $695,000, maintenance and engineering of $16,000 offset
by decreases in Ampligen compliance and stability of $168,000 and clinical research of $19,000 and cost recovery of $10,000.
General
and Administrative Expenses
General
and Administrative (“G&A”) expenses for the quarters ended March 31, 2021 and 2020 were approximately $2,112,000
and $2,268,000, respectively, reflecting a decrease of approximately $156,000 or 7%. The decrease in G&A expenses during the current
period was mainly due to a decrease in salaries, benefits and other compensation of $141,000, public relations of $54,000 and professional
fees of $24,000, offset by increases in insurance of $35,000 and taxes of $45,000.
34
Interest
Income
Interest
income increased $51,000 in the three months ended March 31, 2021 compared to the three months ended March 31, 2020, driven by
the increase in investments from the proceeds from stock sales.
Interest
Expense and Other Finance Costs
Interest
and other finance costs decreased $272,000 in the three months ended March 31, 2021 mostly due to the costs associated with the
long-term debt which were in effect in the three months ended March 31, 2020. The long-term debt was extinguished in the second
quarter of 2020.
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, 2021 which amounted to a loss of approximately $37,000 compared to a loss of $182,000 for March 31,
2020 (see Note 12: Fair Value - for the various factors considered in the valuation of redeemable warrants).
Income
Tax Operating Losses
The
quarterly income tax benefit for the three months ended March 31, 2021 amounted to a gain of approximately $181,000 due primarily
to the provision of the 2020 New Jersey NOL.
Liquidity
and Capital Resources
As
of March 31, 2021, we had approximately $63,601,000 in cash, cash equivalents and marketable securities. As of December 31, 2020,
we had approximately $54,378,000 in cash, cash equivalents and marketable securities. Cash used in operating activities for the
three months ended March 31, 2021 was $3,045,000 compared to $3,250,000. The primary reasons for the decrease was the increase
in accounts payable offset by increased other receivables.
Cash
used in investing activities for the three months ended March 31, 2021 was approximately $523,000 compared to $3,683,000 for the same
period in 2020, representing a decrease of $3,160,000. The primary reason for the decrease during the current period is the purchase
of marketable securities of $1,151,000 offset by the sale of marketable securities of $2,039,000.
Cash
provided by financing activities for the three months ended March 31, 2021 was approximately $12,794,000 compared to approximately
$25,687,000 for the same period in 2020, a decrease of $12,891,000. The primary reason for the decrease in the three months ended
March 31, 2021 is our receipt of net proceeds of approximately $12,887,000 from the sale common stock pursuant to our 2019 EDA
with Maxim Group compared to $25,773,000 for the same period in 2020.
On
August 6, 2020, we contracted Amarex to act as our Clinical Research Organization and provide regulatory support with regard to
a clinical trial testing Ampligen’s potential as a COVID-19 prophylaxis via intranasal delivery. For Phase I we anticipate
providing approximately $514,000 to Amarex. In Phase II we anticipate providing approximately an additional $650,000. (see
“Covid-19” above).
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.
The
development of our products requires the commitment of substantial resources to conduct the time-consuming research, preclinical
development and clinical trials that are necessary to bring pharmaceutical products to market. We believe, based on our current
financial condition, that we have adequate funds to meet our anticipated operational cash needs and fund current clinical trials
over approximately the next twenty-four months. At present we do not generate any material revenues from operations, and
we do not anticipate doing so in the near future. We may need to obtain additional funding in the future for new studies and/or
if current studies do not yield positive results, require unanticipated changes and/or additional studies. If we are unable to
commercialize and sell Ampligen and/or recommence material sales of Alferon N Injection, our operations, financial position and
liquidity may be adversely impacted, and additional financing may be required. There can be no assurances that, if needed, we
will be able to raise adequate funds or enter into licensing, partnering or other arrangements to advance our business goals.
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.
35
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.