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.
Products
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.
Currently, AmpliPhi has product candidates for the treatment of S. aureus infections (including Methicillin-resistant Staphylococcus aureus or MRSA), P. aeruginosa infections, and C. difficile infections. AmpliPhi’s most advanced product candidate is AB-SA01, a treatment for S. aureus. The status of each of the company’s pipeline products 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 completed two Phase 1 clinical trails. The first study, which evaluated the impact on patients with Chronic Rhinosinusitis (CRS), demonstrated AB-SA01 was well tolerated and all patients experienced a reduction in S. aureus bacteria. The second study indicated that AB-SA01 was well tolerated when applied to the intact skin of healthy patients.
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. As shown above, the company is targeting Phase 1 trials in 2018.
AB-DC01 is being developed for the treatment of C. difficile. While current pathogenic strains of this bacteria are not yet antibiotic-resistant, the Centers for Disease Control and Prevention (CDC) has categorized C. difficile as an urgent threat in need of aggressive action. Data published from 2016 studies suggest that phages significantly reduced biofilms in vitro.
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 April 17, 2017, AmpliPhi announced that the FDA provided positive feedback on the company’s proposal to commence a Phase 2 clinical trial for AB-SA01 for the treatment of antibiotic-resistant S. aureus infections in patients with CRS. The FDA also acknowledged that phage therapy is an exciting approach to the treatment of multidrug-resistant organisms and pledged to address the unique regulatory challenges that may arise during product development.
The company also disclosed that it has retained H.C. Wainright & Co., LLC, an investment banking firm, to explore strategic alternatives to maximize value for shareholders. AmpliPhi did not provide further details regarding this process.
On April 14, 2017, AmpliPhi announced that its board of directors had approved a one-for-ten reverse stock split. The company’s intention is to increase the marketability and liquidity of the shares. The reverse split is scheduled to become effective at 5:00 PM Eastern Time on April 24, 2017, and shares will begin trading on a split-adjusted basis on April 25, 2017.
Full-Year Earnings Review
AmpliPhi reported fourth quarter and full-year results on March 27, 2017. Revenue for the year ended December 31, 2016 was $0.3 million, a slight decrease from the prior year revenue of $0.5 million. This revenue is related to sub-licensing agreements from the company’s former gene therapy program. AmpliPhi does not expect material revenue from sub-licensing in the future.
Research & Development expenses for the year ended December 31, 2016, climbed to $5.7 million from $4.0 million. The company cited higher personnel and clinical expenses as the primary cause. General & Administrative expenses increased to $8.4 million over the same period, primarily due to higher stock-based compensation expenses. We also note that AmpliPhi recorded a $9.6 million impairment charge related to its goodwill and In Process Research & Development assets.
Cash used in operating activities for the year ended December 31, 2016 increased to $10.6 million. AmpliPhi estimates that the current cash burn rate is approximately $1.0 million per month. As of December 31, 2016, the company listed cash balance of $5.7 million.
AmpliPhi raised an aggregate $9.0 million from equity offerings in June 2016 and November 2016. However, we note that the company’s independent auditors have stated that the company’s ongoing losses and negative cash flows raise substantial doubt in AmpliPhi’s ability to continue as a going concern.
Stock Influences
- Approval to market AB-SA01;
- Significant developments with respect to the company’s other product candidates.
- Discovery of new revenue streams from intellectual property and other assets; and
- Changes to the company’s capital structure.
Risk Factors
- As noted above, there is substantial doubt about the company’s ability to continue as a going concern. This may impact the company’s ability to obtain future financing and to continue operations;
- The company does not have material sources of revenue;
- 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 April 21, 2017, shares of AmpliPhi closed at $0.32, gaining four percent for the day and yielding a market capitalization of $5.3 million. In the past year, shares have declined 90 percent from a high of $3.28. Over the same period, AmpliPhi’s annualized daily volatility was 115 percent. Daily trading volume generally fell between 50,000 and 300,000 shares. However, there were 13 trading days in the past 12 months where daily volume was greater than one million shares.
Summary
AmpliPhi has multiple product candidates that could make a significant contribution to the global market for treating bacterial infections, and the recent feedback from the FDA regarding AB-SA01 was positive. Still, with no material sources of revenue, a cash burn rate of approximately $1 million per month, and no definitive timeline for bringing a product to market, the company is in need of long-term financing. The company has retained an investment bank, but its future capital plan is uncertain.
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