AmpliPhi Biosciences Pursuing a Capital-Efficient Development Strategy

Company Overview

AmpliPhi Biosciences Corporation (NYSEMKT: APHB) is a biopharmaceutical company engaged in the discovery, development, and commercialization of phage therapeutics. The company has developed a pipeline of naturally occurring viruses called bacteriophages which are natural predators of pathogenic bacteria. Phage-based therapy is an alternative approach to treating bacterial infections, especially those that have developed resistance to current therapies.

The company was originally incorporated in 1989 as a wholly owned subsidiary of Immunex Corporation, and began operations as an independent company in 1992 as Targeted Genetics Corporation. The company, which was renamed AmpliPhi Biosciences Corporation in February 2011, is headquartered in San Diego, California.

Technology

Phages are environmental viruses that grow only within bacteria. As they grow, phages kill their bacterial host by multiplying inside and then bursting through the cell membrane. The process is repeated as more bacteriophages are created until all hostile bacteria is eliminated. See below for an illustration:

Source: Company Presentation

The primary benefit of using bacteriophages is their ability to disrupt biofilms, external layers of aggregated bacteria and other extracellular components which serve as a defense mechanism. These biofilms, which are present in the majority of infections, can render traditional antibiotics almost completely ineffective. In comparison, bacteriophages can penetrate these biofilms and are highly effective at treating infections. Other benefits include:

  • Limited side effects as compared to conventional antibiotics;
  • Phages are precise – they cannot kill mammalian cells and have a minimal impact on beneficial bacteria; and
  • As bacteria evolve to resist phage infection, phages have the potential to evolve and develop countermeasures to overcome new defense mechanisms.

Product Pipeline

AmpliPhi’s most advanced product candidates are for the treatment of S. aureus infections (including Methicillin-resistant Staphylococcus aureus or MRSA) and P. aeruginosa infections. The status of each of is detailed below:

Source: Company Presentation

AB-SA01 is being developed for the treatment of acute and chronic infections caused by S. aureus, including infections caused by MRSA, which is one of the most common hospital-acquired infections. The company has already completed two Phase 1 clinical trials.

AB-PA01 is being developed for the treatment of P. aeruginosa, the most prevalent infection in Cystic Fibrosis patients. AmpliPhi has also begun an evaluation of its P. aeruginosa phages in animal models of CRS. With successful proof-of-concept studies, the company may consider developing this compound to treat other chronic lung infections such as ventilator associated bacterial pneumonia, chronic obstructive pulmonary disease, and chronic suppurative otitis media, where P. aeruginosa is the primary pathogen.

Development Strategy

We previously wrote about AmpliPhi in late April (http://tradersnewssource.com/aphb/) and the main concern at the time was the company’s long-term capital plan. With a relatively high burn rate and dwindling cash reserves, the company retained investment bank H.C. Wainright & Co. to explore strategic alternatives.

AmpliPhi announced in May that it was shifting toward a new development strategy for its product candidates. The company will now focus on personalized phage treatments for patients with antibiotic-resistant infections under compassionate use guidelines, which gives seriously ill patients access to unapproved drugs when no other treatments are available. The company intends to treat at least 10 patients in 2017 suffering from serious or life-threatening multi-drug resistant infections.

The hope is that personalized treatments can be used to demonstrate clinical efficiency. On a recent conference call, Chief Operating Officer Dr. Igor P. Billinsky noted that data gleaned from compassionate use treatments could then be presented to the FDA to define a regulatory approval path. At a February Type B meeting, the FDA said it was open for continued discussion regarding phage therapy and suggested various next steps.

AmpliPhi intends to continue its full-scale clinical studies for AB-SA01 and AB-PA01, but is currently seeking partners and/or non-dilutive financing to do so. The current strategy allows the company to continue collecting data while maximizing the longevity its remaining financial resources. Depending on the results of the compassionate use treatments, the company could initiate Phase II / registrational studies as early as the middle of 2018.

Market Overview

The market for antibiotics is estimated to reach $44.7 billion in annual sales globally by 2020. Nearly one in five deaths worldwide occurs due to infection, and according to the World Health Organization (WHO), many bacterial infections will become difficult or impossible to cure as the efficacy of current antibiotic drugs wanes.

The 2016 O’Neill Report commissioned by the UK government projects that the failure to respond to the threat of antibiotic resistance and the rise of superbugs could lead to an estimated 10 million deaths from antibiotic-resistant infections worldwide by 2050, with an accumulated global cost of $100 trillion and a 3.5% reduction in global GDP.

The CDC estimates that more than 850,000 patients were treated for S. aureus infections of the skin or soft tissue in 2013, and many initial treatments were not successful. Global Data estimates the market for MRSA infection treatments alone was more than $2.7 billion in 2007. This market is forecasted to grow to more than $3.5 billion by 2019. It should also be noted that the major European Union and United States markets for C. difficile therapies grew to more than $314 million in 2011, and they are expected to grow to more than $500 million by 2019.

Recent Developments

  • On May 10, 2017, the company closed on a public offering of common stock and warrants that yielded net proceeds of approximately $9.1 million. This was slightly less than the $9.8 million originally projected.
  • On May 15, 2017, the company held a conference call announcing its new personalized phage therapy initiative.
  • On May 31, 2017, M. Scott Salka was replaced as CEO by Dr. Paul C. Grint, who will lead the company’s new product development strategy.

First Quarter Earnings Review

In the first quarter ended March 31, 2017, AmpliPhi reported revenue of $29,000 related to its former gene therapy program. This revenue has been declining, and the company does not expect to generate revenue from the commercial sale of its product candidates for the foreseeable future.

Research and development expenses decreased 25 percent year-over-year to $1.5 million. The company cited $0.4 million of nonrecurring expenses associated with the acquisition of Novolytics in January 2016. General and administrative expenses decreased 28 percent over the same period to $1.9 million. This was primarily attributable to reductions in non-cash stock-based compensation and professional fees.

Cash used in operating activities for the quarter ended March 31, 2017 increased to $3.3 million, slightly higher than the $3.1 million reported in the first quarter of 2016. As of March 31, 2017, the company listed a cash balance of $2.2 million.

As noted above, AmpliPhi netted $9.1 million from its May 2017 public offering. The company has also filed for a $1.8 million tax rebate from the Australian government. Current cash resources are expected to fund operations through the second quarter of 2018.

Stock Influences

  • Significant developments related to the company’s personalized phage therapy program;
  • Additional guidance from the FDA regarding future clinical studies;
  • Partnerships and/or other non-dilutive sources of financing for AB-SA01 and AB-PA01; and
  • Changes to the company’s capital structure.

Risk Factors

  • The company has recently shifted its product development strategy, which could significantly extend the marketing and approval timeline for its product candidates;
  • The company does not have material sources of revenue, and current financing is projected to last approximately one year;
  • The biopharmaceutical industry is highly competitive and relies heavily on the protection of intellectual property;
  • There are no approved bacteriophage products in the United States, and there is no guarantee any of the company’s products will advance beyond clinical testing.

Stock Performance

As of July 7, 2017, shares of AmpliPhi closed at $0.95, losing nearly 20 percent for the day and yielding a market capitalization of approximately $10 million. This capped off a rocky holiday week that saw shares trading as high as $1.18 and as low as $0.78. Trading volume in the past two days has increased significantly, reaching nearly 10 million shares on July 6th and four million shares on July 7th. In the month prior to the recent spikes, the average daily volume was 350,000 shares.

Summary

Our prior coverage of AmpliPhi questioned whether the company could secure long-term financing. With the latest public offering, management is confident that it has sufficient cash to fund operations through the middle of 2018. This is partly due to the fact that the company’s strategic focus on personalized phage therapies will be less capital-intensive. While this new approach will preserve cash, it could extend the development timeline for AB-SA01 and AB-PA01 outside of compassionate use guidelines. It will be critical for AmpliPhi to leverage the patient data collected from personalized phage therapies to secure an efficient path towards regulatory approval.

 

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