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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarterly Period Ended June 30, 1999
Commission File Number: 0-27072
HEMISPHERx BIOPHARMA, INC.
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(Exact name of registrant as specified in its charter)
Delaware 52-0845822
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1617 JFK Boulevard, Suite 660, Philadelphia, PA 19103
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(Address of principal executive offices) (Zip Code)
(215) 988-0080
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(Registrant's telephone number, including area code)
Not Applicable
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(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
/X/ Yes / / No
26,256,751 shares of common stock issued and outstanding as of June 30,
1999.
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PART I - FINANCIAL INFORMATION
ITEM 1: Financial Statements
HEMISPHERx BIOPHARMA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited)
December 31, June 30,
1998 1999
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $12,025,073 $9,097,423
Short Term Investments 1,591,378 -
Accounts Receivable 56,500 50,925
Prepaid expenses and other current assets 56,214 80,762
----------- ----------
Total current assets 13,729,165 9,229,110
Property and equipment, net 181,724 301,064
Patent and trademark rights, net 1,356,139 1,367,527
Investment in unconsolidated affiliates 1,038,000 1,413,000
Other assets 22,184 53,233
----------- ----------
Total assets $16,327,212 $12,363,934
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 802,538 $ 1,897,247
Accrued expenses 339,374 289,398
----------- ----------
Total current liabilities 1,141,912 2,186,645
Commitments and contingencies
Stockholders' equity:
Common stock 26,162 26,399
Additional paid-in capital 78,059,650 79,129,195
Treasury stock - (839,160)
Deferred compensation (1,184,830) (973,151)
Accumulated other comprehensive gain 324 4,358
Accumulated deficit (61,716,006) (67,170,352)
----------- ----------
Total stockholder's equity 15,185,300 10,177,289
----------- ----------
Total liabilities and stockholders' equity $16,327,212 $12,363,934
=========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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HEMISPHERx BIOPHARMA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION> (Unaudited)
For the Three months ended
June 30
--------------------------
<S> <C> <C>
1998 1999
---------- ----------
Revenues:
Cost recovery - clinical treatment programs $ 95,939 $ 154,592
---------- ----------
Total revenues 95,939 154,592
---------- ----------
Costs and expenses:
Research and development 1,087,916 1,351,612
General and administrative 500,020 1,133,760
Stock compensation expense 204,481 331,347
---------- ----------
Total cost and expenses 1,792,417 2,816,719
Interest income 117,903 107,834
---------- ----------
Net loss $(1,578,575) $(2,554,293)
========== ==========
Basic loss per share $ (0.07) $ (0.10)
========== ==========
Weighted average shares outstanding 21,374,685 26,237,453
========== ==========
Diluted loss per share $ (0.07) $ (0.10)
========== ==========
Weighted average common and dilutive
equivalent shares outstanding 21,374,685 26,237,453
========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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HEMISPHERx BIOPHARMA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION> (Unaudited)
For the Six months ended
June 30
--------------------------
<S> <C> <C>
1998 1999
---------- ----------
Revenues:
Cost recovery - clinical treatment programs $ 181,850 $ 286,320
---------- ----------
Total revenues 181,850 286,320
---------- ----------
Costs and expenses:
Research and development 2,007,524 2,887,110
General and administrative 1,067,871 2,398,874
Stock compensation expense 421,289 709,426
---------- ----------
Total cost and expenses 3,496,684 5,995,410
Interest income 255,670 254,744
---------- ----------
Net loss $(3,059,164) $(5,454,346)
========== ==========
Basic loss per share $ (0.14) $ (0.21)
========== ==========
Weighted average shares outstanding 21,216,076 26,255,479
========== ==========
Diluted loss per share $ (0.14) $ (0.21)
========== ==========
Weighted average common and dilutive
equivalent shares outstanding 21,216,076 26,255,479
========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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HEMISPHERx BIOPHARMA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS'
EQUITY(DEFICIT) AND COMPREHENSIVE LOSS
For the six months ended June 30, 1999
<TABLE>
<CAPTION> Total
Common stock Common Stock Additional Deferred Accumulated other Accumulated Treasury stockholders'
shares Par value paid-in capital Compensation comprehensive loss deficit stock equity/(deficit)
------------ ------------ --------------- ------------ ------------------ ------------ -------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance 12/31/98 26,162,040 $26,162 $78,059,650 $(1,184,830) $ 324 $(61,716,006) $ - $15,185,300
Common stock
issued 237,200 230 520,250 520,480
Purchase of
142,500 shares
of Treasury stock (839,160) (839,160)
Stock compensation 497,747 211,679 709,426
Stock issued in settlement
of legal matters 7 51,548 51,555
Total comprehensive loss 4,034 (5,454,346) (5,450,312)
------------ ------------ --------------- ------------ ------------------ ------------ --------- --------------
Balance 6/30/99 26,399,251 $ 26,399 $79,129,195 $ (973,151) $ 4,358 $(67,170,352) $(674,186) $10,177,289
============ ============ =============== ============ ================== ============ ========= ==============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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HEMISPHERx BIOPHARMA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(Unaudited)
For the six months ended
--------------------------
June 30
1998 1999
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(3,059,164) $(5,454,346)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation of property and equipment 15,885 45,379
Amortization of patents rights 111,139 56,898
Write-off of patent rights 55,551 40,235
Stock issued in settlement of debt - 51,555
Stock option compensation expense 421,289 709,426
Changes in assets and liabilities:
Accounts receivable (29,486) 5,575
Prepaid expenses and other current assets 6,740 (24,548)
Accounts payable 327,296 1,094,709
Accrued expenses 24,287 (49,976)
Other assets (1,130) (31,049)
--------- ---------
Net cash used in operating activities (2,127,593) (3,556,142)
--------- ---------
Cash flows from investing activities:
Purchase of property and equipment (44,469) (164,719)
Additions to patent rights (111,910) (108,521)
Marketable securities matured - 1,595,412
Investment in CIMM - (375,000)
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Net cash provided (used in) by investing activities (156,379) 947,172
--------- ---------
Cash flows from financing activities:
Exercise of warrants 56,508 520,480
Stock issuance cost (181,486) -
Purchase of treasury stock - (839,160)
--------- ---------
Net cash used in financing activities (124,978) (318,680)
--------- ---------
Net decrease in cash and cash equivalents (2,408,950) (2,927,650)
Cash and cash equivalents at beginning of period 8,965,714 12,025,073
--------- ---------
Cash and cash equivalents at end of period $6,556,764 $9,097,423
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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HEMISPHERx BIOPHARMA, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of
Hemispherx BioPharma, Inc. (the "Company"), a Delaware corporation and all
its wholly owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated. The Company's interim consolidated
financial statements are unaudited.
In the opinion of management, all adjustments necessary for a fair
presentation of such consolidated financial statements have been included.
Such adjustments consist of normal recurring items. Interim results are
not necessarily indicative of results for a full year.
The interim consolidated financial statements and notes thereto are
presented as permitted by the Securities and Exchange Commission (SEC),
and do not contain certain information which will be included in the
Company's annual consolidated financial statements and notes thereto.
These consolidated financial statements should be read in conjunction with
the Company's 1998 consolidated financial statements included in the
Company's Form 10K statement filed with the SEC on March 30, 1999.
NOTE 2: STOCK COMPENSATION:
The Company recorded stock/warrant compensation expense of $709,426 during
the six months ended June 30, 1999 for warrants granted to purchase Common
stock to non-employees of the Company.
In 1998, the Company granted 1,163,000 stock warrants to Directors and
certain employees in recognition of services performed and services to be
performed. These options are exercisable at the fair value price on the
date of grant ranging from $3-$6 per share. The Company applies APB
Opinion No. 25 in accounting for stock-based compensation of its employees
and, accordingly, no compensation expense has been recognized for stock
purchase rights issued to employees in the financial statements.
NOTE 3: COMPREHENSIVE INCOME:
In January, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130, Reporting Comprehensive Income ("Statement 130"),
Statement 130 establishes new rules for the reporting and display of
comprehensive income and its components; however, the adoption of this
Statement had no impact on the Company's net loss or stockholders' equity.
Comprehensive income is defined as the change in equity of a business
enterprise during a period from transactions and other events and
circumstances from non-owner sources. It includes all changes in equity
during a period except those resulting from investments by owners and
distributions to owners. The term "other comprehensive income" refers to
revenues, expenses, gains and losses that under generally accepted
accounting principles are included in comprehensive income but excluded
from net income.
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The components of comprehensive (loss):
For the six months ending
June 30, 1998 June 30, 1999
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Net loss $(3,059,164) $(5,454,346)
Unrealized (loss)gain on
short term investments (940) 4,034
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Total comprehensive loss $(3,060,104) $(5,450,312)
============= =============
The components of accumulated other comprehensive income are as
follows:
December 31, 1998 June 30, 1999
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Unrealized gain in
marketable securities $ 324 $ 4,358
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Accumulated other
comprehensive income $ 324 $4,358
============= =============
ITEM 2: Management's Discussion and Analysis of Financial Condition and
Results of Operations.
GENERAL
The Company is currently conducting clinical trials to determine the
efficacy of its lead product Ampligen . Ampligen , one of the Company's
double-stranded RNA drug products, is being developed for various
therapeutic indications including Myalgic Encephalomyelitis/Chronic
Fatigue Syndrome ("ME/CFS"), Hepatitis B and C ("HBV"), Human
Immunodeficiency Virus ("HIV") and certain cancers. Ampligen has been
clinically evaluated as an investigational drug in over 400 patients for
different therapeutic indications to determine its most promising
therapeutic role. The clinical profile that is developing indicates that
Ampligen has broad-spectrum antiviral and immune modulating activity and
is generally well tolerated.
The Company is actively enrolling patients in Phase III clinical tests for
the treatment of Myalgic Encephalomyelitis/Chronic Fatigue Syndrome
("ME/CFS") at various medical centers in the United States. In parallel,
the Company is expanding cost recovery treatment programs for ME/CFS
patients in the United States, Canada, Belgium and Austria. Similar cost
recovery treatment programs are to be initiated in other European
countries in the near future. The Food and Drug Administration ("FDA")
has authorized the enrollment of up to 100 patients in the ME/CFS cost
recovery treatment program in the United States.
The Company recently acquired an equity interest in the California
Institute of Molecular Medicine (CIMM). CIMM's apparent ability to
isolate the Hepatitis virus ex vivo could be a major leap in the
development of improved treatments for Hepatitis patients. Hemispherx
acquired certain rights of first refusal to market any therapeutic and/or
diagnostic products emanating from CIMM. Also the Company continues to
evaluate the proposed spin-off of its wholly owned subsidiary, which has
licensing rights to the Company's Hepatitis technology. The Spin-off
would include any marketing rights derived from its CIMM investments and
its rights to another anti-hepatitis compound, termed polyadenur, which it
derives by virtue of its broad patent estate.
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<PAGE> 9
The Company maintains staffing, offices and clinical operations in both
the United States and European Union, as well as ownership interests in a
related European based diagnostic company and in a South African
manufacturing entity which produces its raw drug materials. In December,
1998, the Company completed and filed an application with the European
Medical Evaluation Agency ("EMEA") in the European Union for commercial
approval of Ampligen for use in treating ME/CFS patients.
The Company is not yet profitable and may continue to have operating
losses, dependent on the rate of progressive regulatory approvals in
various global markets. The Company's current revenues are derived from
the sale of Ampligen on a pre-approved, cost recovery, expanded access
basis to certain patients afflicted with ME/CFS. Such cost recovery
programs have been approved by the various regulatory bodies in the United
States, Canada, Belgium and Austria and are presently being expanded. The
Company's other major source of income comes from interest earned on the
short term investment of surplus funds.
ME/CFS
In October, 1998, the Company initiated, with the U.S. Food and Drug
Administration authorization, a double-blind, placebo-controlled clinical
study with Poly I:Poly C12U (Ampligen ) in patients with severely
debilitating Myalgic Encephalomyelitis/Chronic Fatigue Syndrome (ME/CFS).
The objective of this clinical study is to determine the safety and
efficacy of Ampligen as a treatment for CFS/ME.
As of July 23, 1999, eight (8) clinical investigators, at various medical
facilities throughout the U.S., were recruiting patients for this clinical
study. These clinical investigators have recruited approximately 48% of
the required 230 patients needed to complete this clinical study. The
Company expects to engage the services of at least four (4) additional
clinical investigators to assist in the recruitment of patients to
participate in this study.
The Company has established strategic relationships with three (3) other
companies to provide clinical/pharmacy support services and to facilitate
the conduct of its clinical studies according to GCP (Good Clinical
Practice) standards. Two entities, Olsten Health Services and Clinical
Studies Management Group provide clinical monitors who verify the accuracy
of the data collected by the clinical investigators for analysis by the
Company. Additionally, a third entity consisting primarily of exercise
physiologists, WorkWell, provides exercise physiologists to conduct
exercise tolerance and oxygen consumption tests at the clinical facilities
as a means of standardizing the procedure. The Company believes that it
has in place various corporate relationships to insure the quality of data
collection to a high international regulatory standard.
In March, 1999 the U.S. Food and Drug Administration authorized the Company to
expand the ME/CFS Cost Recovery Treatment Program to provide therapy to
100 patients. Under this clinical study, the enrolled patients pay the
Company for the cost of the Ampligen that usually totals approximately
$7,200 (plus certain related medical administrative costs) for a 24 week
treatment program. Approximately 82% of the patients who enter the
program opt to extend their therapy by an additional 24 weeks with the
consent of their health care providers. In the six (6) months ending June
30, 1999, the Company has received $177,431 in reimbursement for Ampligen
used under this plan from the U.S. component of ME/CFS treatment
protocols. Overall income from these programs was $286,320 for the first
6 months, which includes Europe.
As of July 23, 1999, twelve (12) clinical investigators in the U.S. were
conducting this program. These clinical investigators have enrolled 46
patients of which approximately 48% are still receiving treatment. Some
35 patients are being pre-screened for enrollment in the program by the
end of September 1999.
<PAGE>
<PAGE> 10
The Company continues to identify clinical investigators across the United
States with patients interested in enrolling in this program. As a result
of these efforts, six (6) additional clinical investigators are expected
to start enrolling patients in this study during the next three months.
The ME/CFS Cost Recovery Treatment Program in Belgium was started in 1994
with the approval of the Belgium Regulatory authorities. Since its
inception, over 100 patients have enrolled in this program. Clinical data
being collected in the treatment of ME/CFS patients will be of benefit in
supporting the EMEA Drug Approval Application. This program is being
expanded to several other affiliated hospitals in the Brussels area and
clinical experts in this disease category have been identified in other
European countries to establish similar clinical research/treatment
centers for ME/CFS. A similar program in Austria is currently undergoing
expansion.
HIV
While the Company is currently concentrating on Ampligen as a treatment
for ME/CFS, recent developments in the healthcare community with respect
to future care and treatment of HIV patients is now prompting the Company
to reexamine and consider the acceleration of developing Ampligen for the
treatment of patients with HIV.
Today, patients infected with HIV receive a number of different
combinations of anti-retroviral compounds (so called "Cocktails") that
target the essential viral enzymes, including reverse transcriptase and
protease. However, it appears that after some period of time, the HIV
virus may become resistant to these antiviral drugs and that drug
resistance profile is a critical obstacle to the long-term efficacy of
present 'cocktail' therapies for HIV.
Most recently, HIV strains which are resistant to essentially all of the
currently available anti-retroviral drugs are now being increasingly
reported in patients in the U.S. who have received highly active anti-
retroviral therapy, termed "HAART." Many HIV patients who receive HAART
(including a protease inhibitor) will encounter virologic failure within
one year. Last year, of an estimated 100,000 new patients in the U.S.A.
initiating HAART, there were approximately 150,000 "treatment switches,"
evidencing significant problems with the regimens. Moreover, the presence
of latently infected, resting immune cells termed CD4+ T cells carrying
replication-competent HIV has been demonstrated in patients receiving
HAART. Sometimes, these cells are called "viral sanctuary regions".
Ampligen may have the potential, as an adjunct to HAART to restore
certain functional components of the immune process which becomes
deficient in HIV disease; secondly, Ampligen may have potential to
mitigate the deterioration in CD4 count when patients are failing HAART
therapy; thirdly, Ampligen has potential to assist HAART therapy because
of its apparent synergistic activity with AZT and possibly other cocktail
components (these studies are underway). These presumptive benefits are
being evaluated by the Company in either ongoing ex vivo or in proposed in
vivo clinical programs.
In conjunction with AZT, Ampligen infusion therapy was historically well
tolerated in the initial clinical tests. Thus, overall safety assessments
supported the notion of potential efficacy with a reasonable safety
profile of this drug combination consisting of an antiretroviral agent
(AZT) utilized in conjunction with a specific dsRNA (Ampligen ). Studies
are now being considered to combine Ampligen with other reverse
transcriptase inhibitors of HIV as well as protease inhibitors of HIV. Ex
vivo tests are presently being conducted at various academic and
industrial laboratories around the U.S.A. via consultative agreements and
corporate partnerships recently initiated by the Company.
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Manufacturing
The Company is in the process of validating a number of new analytical
methods to ensure the quality, purity and potency of its Ampligen product.
These procedures also will allow more rapid, decisive analysis of multiple
manufactured lots of Ampligen anticipated to be produced in coming
quarters of the year for its European and North American operations. The
Company also plans to move production to much larger manufacturing
facilities capable of manufacturing up to the metric ton levels, if
marketing conditions so dictate, while being in full compliance with
global GMP (Good Manufacturing Practice) standards.
Preclinical Product Development
The Company continues an active program of filing patents based on its
Oragen program, a program designed to provide a series of orally
bioavailable antiviral drugs. The Company has established a worldwide
patent portfolio with these compounds and has conducted certain promising
preclinical research in the area of hepatitis with the National Institutes
of Health.
European Operations
The European Medical Evaluation Agency (EMEA) continues their review of
the Company's new drug application which was filed last December. The
application requests EMEA approval to use Ampligen for the treatment
of diagnosed ME/CFS patients in the European Union. The
Company submitted extensive data and analysis in support of the
application. The review process by EMEA has produced ongoing dialogue.
There has not yet been specific indications as to the probable timing or
outcome of this review; the Company is undertaking an acceleration of the
overall process by utilizing certain "special circumstances" provisions
which are being developed by the European Parliament to accelerate drug
availability for certain classes of severe diseases without adequate
treatment.
Hemispherx Biopharma Europe is developing an organization and
infrastructure to expand market access to Ampligen in anticipation of
receiving EMEA approval to market and distribute Ampligen . Initial
efforts include recruiting staff to establish distribution and marketing
processes with the immediate focus on setting up Expanded Access Cost
Recovery Treatment Programs of ME/CFS patients in France, Italy, Spain and
Germany. If successful, this program will allow ME/CFS patients in those
countries to have access to Ampligen prior to the completion of the final
EMEA registration process. During this time, the Company would also
realize enhanced revenues from its expanded access programs. Also this
program will allow the Company to have a basic marketing and distribution
system in place by the time the EMEA registration process is completed.
Spin-off of Subsidiary
The evaluation process continues with respect to the proposed spin-off of
the Company's wholly-owned subsidiary Core Biotech Corporation. As a
separate entity, Core Biotech would research, develop and commercialize
therapeutic drug products and diagnostic technologies related to Hepatitis
B. The purpose of the proposed spin-off would be to provide a vehicle to
focus and obtain resources necessary to pursue the use of Ampligen and
related products in treating patients afflicted with Hepatitis B or
Hepatitis C. The spin-off and timetable for such is subject to further
review and approval by the Board of Directors.
<PAGE>
<PAGE> 12
Recent Developments
ME/CFS was also given official recognition by the U.S. Social Security
Administration, rendering ME/CFS patients eligible for disability benefits
and heightening awareness of this debilitating disease in the medical
community. Further scientific publications by independent academicians on
the accurate laboratory diagnosis of CFS were announced to appear in peer-
reviewed journals between September and December, 1999. The U.S. Centers
for Disease Control (Atlanta, GA) reconfirmed its research commitment to
CFS following an audit by the U.S. Government Accounting Office (GAO)
which was announced approximately July 28, 1999. A competing company in
the ME/CFS area, Shire Pharmaceuticals, announced that its drug
(galantamine) failed a Phase II test.
Year 2000 Project
The network hardware and principal software used in Administration,
Finance and Research and Development are Y2K compliant to the limit of
current technologies. All computers deemed non-Y2K compliant have been
replaced with computers that are compliant. Also, processing software
packages have been upgraded to provide a uniform platform which is Y2K
compliant. The Research and Development groups are in the process of
converting their clinical databases from the old system to the new system.
The old computer network is still running parallel with the new system on
five (5) computers. These computers will remain connected to both systems
to facilitate the conversion of the existing clinical data from the old
system to the new system. It is anticipated that the conversion of the
clinical data will be completed by October, 1999.
All of the computers deemed non Y2K compliant have been replaced with
compliant machines for use in Manufacturing. Processing software packages
have been upgraded to Y2K compliant programs. A final Y2K compliance test
will be performed on all of the computers once the remainder of the
network has been installed. The installation of the network should be
completed by the end of August 1999. The replacement of a major database
with a new custom written, Y2K compliant database is still in progress.
The first module (portion) of the program has been completed by the vendor
and presented to the Company for revision. The specifications for the
second module have been issued and this portion is currently under
construction. The second portion of the program will be presented to the
Company in the third quarter.
Requests for statements of Y2K compliance have been mailed to 281
businesses that interact with the Company. To date, 151 have responded.
Of the responders, 133 stated they have completed their Y2K preparations.
A third mailing to the 148 non-responders/non-compliant businesses was
mailed about July 30, 1999.
<PAGE>
<PAGE> 13
RESULTS OF OPERATIONS
Three months ended June 30, 1999 versus Three months ended June 30, 1998
- ------------------------------------------------------------------------
The Company reported a net loss of $2,554,293 (including a non-cash loss
of $331,347) for the three months ended June 30, 1999 versus a net loss of
$1,578,575 for the same period in 1998. Several factors contributed to the
$975,718 increase in the loss in 1999, including significant increases in
Research and Development spending, legal fees and other administrative
expenses.
Overall Research and Development costs increased $263,696 or 24% over
expenses incurred in the same time period in 1998. Clinical costs to the
Company increased $333,016 or 111% primarily due to increased activity in
the AMP 516 ME/CFS clinical test initiated by the Company last October.
Expenses for this clinical test are in line with projections and the
Company expects the monthly expenses for this test may increase as more
patients are enrolled in the coming months. Manufacturing expenses were
down $60,008 reflecting reduced raw material purchases during the second
quarter of 1999. At the same time, the Company expects income from the
expanded access, cost recovery component, of its drug development program
to increase from sales of its present drug inventory.
General and Administrative expenses increased $633,740 over the same
period in 1998. Legal expenses to outside attorneys increased $290,868
primarily due to litigation associated with the Asensio Company Lawsuit,
the ELL & Co. lawsuit, the settlement of the VMR lawsuit and other routine
legal matters. Other administrative expense increases include expenses
for stock market and related fees totaling $82,000, expenses incurred
for public relations and stockholder communications of $99,757 and
expenses for drug marketing consultants of $84,886.
Stock compensation expense was $331,347 for the three month period ended
June 30, 1999 versus $204,481 recorded for the same period in 1998. Stock
compensation expenses reflect the formulated value of the common stock
including the warrants granted to non-employees of the Company.
Six Months Ended June 30, 1999 versus Six Months Ended June 30, 1998
- --------------------------------------------------------------------
The Company reported a net loss of $5,454,346 (including a non-cash loss
of $209,426) for the six months ended June 30, 1999 versus a net loss of
$3,059,164 for the same period in 1998. Several factors contributed to the
$2,395,182 increase in the loss in 1999, including major incremental costs
of securing larger drug supplies (which was fully expensed), increased
clinical testing activity, market development efforts (via increased
consultant fees), legal expenses, computer upgrades to become Y2K
compliant, as well as higher non-operating expenses due to stock
compensation expenses. Certain expenses such as computer programming
upgrades, and stock compensation expense are expected to be non-recurring.
Research and development costs increased $879,586. Raw material purchases
and production costs increased $488,601 over the first six months of 1999
in an effort to anticipate larger expanded access, cost-recovery programs
and clinical testing. This reflects the Company's strategy to increase
on-hand drug supplies in anticipation of meeting product needs for
increased clinical efforts and possible commercial needs. Certain
preclinical research expenses were decreased from the prior year by
$110,514 primarily due to major costs incurred in 1998 for animal
toxicology studies in support of various marketing applications being
considered or already filed in certain markets. Clinical trial expenses
increased $186,679 primarily due to activity on the AMP 516 ME/CFS
clinical program which was initiated in October, 1998.
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<PAGE> 14
General and administrative expenses increased $1,331,003 over the same
period in 1998 due to a variety of initiatives requiring additional legal
services and consultative skills, as well as increased stock compensation
costs. Expenses incurred for legal and audit, the spin-off evaluation of
Core Biotech to shareholders as a tax-exempt dividend, shareholder
communications and European matters increased materially in the first
quarter. Litigation work by outside attorneys on the Asensio company
lawsuit, the ELL & Co. lawsuit, resolution of the VMW lawsuit and other
legal matters increased resulting in additional expenses of approximately
$557,000. Work performed by attorneys and tax authorities in evaluating
and drafting documents in the matter of evaluating the spin-off as a
potential means to increase shareholder value was $124,000. There was no
such effort in 1998. Shareholder communications expenses were up $222,000
due to increased communications with the public shareholders. In
addition, consulting expenses increased $254,000 in the six months ended
June 30, 1999 due to efforts performed in support of the European
operations, including expanded access treatments and establishing an
operational presence in EU to increase revenues.
Stock compensation expense was $709,426 in the six months ended June 30,
1999 versus $421,289 recorded in 1998. Stock compensation expense
reflects the fair value of warrants to purchase common stock that were
granted to non-employees of the Company.
LIQUIDITY AND CAPITAL RESOURCES
Cash, cash equivalents and short term investments at June 30, 1999 was
$9,097,423 reflecting a net use of cash totaling $4,519,028 in the first
six months of 1999. Operating activities consumed $3,556,142 and non-operating
items used $1,487,400. Warrantholders exercising warrants produced new capital
in the amount of $520,480.
Cash for non-operating items include $839,160 used to acquire 142,500
shares of the Company's common stock pursuant to a share buy-back program
approved by the Company's Board of Directors. The Board authorized a buy-
back of up to 200,000 shares. In May, 1999, the Board authorized the
Company to invest up to $750,000 in a west coast based biopharmaceutical
firm named California Institute of Molecular Medicine (CIMM). This
investment acquires 30% of the fully diluted shares outstanding in this
privately held firm. As of June 30, 1999, the Company had paid $375,000
with the remaining $375,000 to be paid at a later date. In mid-1998, the
Board authorized the Company to implement a plan to assure that the
Company's computers and related systems are Y2K compliant by year end
2000. This plan required major upgrades to hardware and software. In the
first six months of 1999, expenditures for equipment and related items
totaled $164,719.
The Company's operating cash burn rate for the first six months of 1999
was approximately $590,000 per month. All manufacturing drug products
were fully expensed although some are expected to be sold under the
expanded access, cost-recovery, pre-marketing programs authorized by FDA
and various other regulatory bodies in other countries. As the clinical
testing effort in the United States accelerates and the European market
development activity increases, the operating burn rate may increase
periodically over the next six months. However, certain of the operating,
as well as the non-operating cash outlays are of a one time nature and are
expected to decline significantly. Also revenues from expanded access
product sales is expected to continue.
The Company expects warrant holders to continue exercising the Class A
redeemable warrants and private warrants from time to time depending on
the trading price of the Company common stock. As of June 30, 1999, the
Company has 5,648,810 Class A redeemable warrants outstanding. These
warrants can be exercised at $4.00 per share. In addition, there are
462,000 Class A redeemable warrants outstanding at an exercise price of
$6.60 per share. Non-public warrants outstanding total 9,083,900 with a
weighted average exercise price of $3.62.
<PAGE>
<PAGE> 15
Because of the Company's long-term capital requirements, it may seek to
access the public equity market whenever conditions are favorable, even if
it does not have an immediate need for additional capital at that time.
Any additional funding may result in significant dilution and could
involve the issuance of securities with rights which are senior to those
of existing stockholders. The Company may also need additional funding
earlier than anticipated, and the Company's cash requirements in general
may vary materially from those now planned, for reasons including, but not
limited to, changes in the Company's research and development programs,
clinical trials, competitive and technological advances, the regulatory
process, and higher than anticipated expenses and lower than anticipated
revenues from certain of the Company's clinical trials for which cost
recovery from participants has been approved.
Part II OTHER INFORMATION
ITEM 1: Legal Proceedings
On September 14, 1998, VMW, Inc. filed a complaint against the Company in
the United States District Court, Southern Division of New York. The
complaint alleges that the Company failed to fulfill its financial
obligations to VMW, Inc. with respect to a certain letter agreement
pertaining to marketing services rendered. A settlement was reached in
May, 1999 and the settlement did not have a material effect on the
financial position of the Company.
Ell & Co., and the Northern Trust Company, as Trustee of the AT&T Master
Pension Trust filed a complaint against the Company in the Court of
Chancery of the State of Delaware in and for New Castle County on
September 23, 1998. This complaint alleges that the Company breached its
contractual obligations as set forth in the Certificate of Powers,
Designations, Preferences and Rights of the Series E Convertible Stock.
The Plaintiff seeks to enforce its rights to convert 1,500 shares of
Series E Preferred Stock into 750,000 shares of freely traded common stock
and to recover damages for its inability to convert the preferred stock
when it requested to do so. The Company does not believe that the
complaint will have a material effect on the results of operations or
financial position of the Company. Although the Company maintains that
the 1,500 shares of Series E Preferred Stock had been properly redeemed
and, therefore, the plaintiff was not contractually able to effect a
proper conversion into common shares, the Company agreed in December, 1998
to convert the plaintiffs preferred stock to common stock. Currently the
claim is still in litigation.
The Company filed a complaint against Manual P. Asensio, Asensio &
Company, Inc. and others in the United States District Court for the
Eastern District of Pennsylvania on September 30, 1998. The Company
alleges the unlawful manipulation and short selling by defendants of the
Company's common stock on the American Stock Exchange on or about
September 15, 1998 through the present. The Company alleges, among other
things, that the defendants distributed materially false information
concerning Hemispherx to the public, thereby damaging the Company and its
shareholder equity. Asensio & Company is a defendant in numerous similar
litigations with other companies around the U.S. Certain defendants have
entered motions to dismiss all or part of the case. On March 18, 1999,
the court dismissed the charges relating to RICO violations and negligence
count on purely jurisdictional grounds. The fraud, misrepresentation and
defamation charges remain in effect and discovery on these matters is
proceeding.
ITEM 2: Changes in Securities
In February, 1998, the Company filed a Registration Statement with the
Securities and Exchange Commission (SEC) to register the common stock
placed in the September 1997 private placements. The statement included
common stock underlying certain stock purchase warrants with registration
rights.
<PAGE>
<PAGE> 16
In July, 1998, the Company's Common Stock and Class A Warrants were listed
on the Berlin Stock Exchange. The shares and warrants will trade under
the symbols HXB and HXBA respectively. The listing on the Berlin Stock
Exchange has been facilitated by Berliner Freiverkehr, a major German
investment banking and brokerage firm, with assistance from Value
Management & Research, GmbH, a European based Research and Investment
Firm.
In April, 1999, the company filed a Registration Statement with the
Securities and Exchange Commission (SEC) to register the common stock
privately placed in July, 1998. In addition, certain warrants and
underlying common stock was included in the Registration.
In February, March, April and May, 1999 the Company acquired 142,500
shares of Common Stock on the open market at an average cost of $5.89 per
share. This acquisition is part of the 200,000 share buy back program
authorized by the Board of Directors.
In June 1999, the Company filed a registration statement on Form S-3 with
the SEC registering certain warrants and the shares of Common Stock
underlying those warrants on behalf of certain warrantholders. The
Company has entered into agreements with certain of the warrantholders
providing for, among other things, (a) an escrow and conditional lockup of
one year from the effective date of the registration statement; and (b)
the sale of such warrantholders' warrants during such one year lockup
through an agent or by the Company at prices set by the warrantholders.
ITEM 3: Defaults in Senior Securities
None
ITEM 4: Submission of Matters to a Vote of Security Holders
None
ITEM 5: Other Information
None
ITEM 6: Exhibits and Reports on Form 8K
Reports on Form 8K - None
<PAGE>
<PAGE> 17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HEMISPHERx BIOPHARMA, INC.
/S/ William A. Carter
---------------------------
Date: August 13, 1999 William A. Carter, M.D.
Chief Executive Officer & President
/S/ Robert E. Peterson
--------------------------
Date: August 13, 1999 Robert E. Peterson
Chief Financial Officer
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