Ampio Pharmaceuticals(AMPE) - 2020 Q3 - Quarterly Report

PART I – FINANCIAL INFORMATION This section details the company's unaudited condensed financial statements, accounting policies, and going concern issues Item 1. Financial Statements This section presents the company's unaudited condensed financial statements and accompanying detailed notes Condensed Balance Sheets This section details the company's financial position, including assets, liabilities, and stockholders' equity Condensed Balance Sheet Highlights | Metric | September 30, 2020 | December 31, 2019 | | :-------------------------- | :----------------- | :---------------- | | Cash and cash equivalents | $9,361,000 | $6,532,000 | | Total current assets | $10,836,000 | $8,250,000 | | Total assets | $15,544,000 | $14,001,000 | | Total current liabilities | $1,919,000 | $4,284,000 | | Total liabilities | $4,819,000 | $7,558,000 | | Total stockholders' equity | $10,725,000 | $6,443,000 | | Accumulated deficit | $(195,911,000) | $(184,633,000) | Condensed Statements of Operations This section outlines the company's financial performance, detailing revenues, expenses, and net loss Condensed Statements of Operations Highlights | Metric | Three Months Ended Sep 30, 2020 | Three Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | | :-------------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Research and development | $1,655,000 | $3,428,000 | $7,027,000 | $7,129,000 | | General and administrative | $1,647,000 | $1,745,000 | $4,896,000 | $4,301,000 | | Total operating expenses | $3,302,000 | $5,173,000 | $11,923,000 | $11,430,000 | | Derivative gain (loss) | $7,000 | $(2,054,000) | $163,000 | $(1,233,000) | | Net loss | $(3,368,000) | $(7,219,000) | $(11,277,000) | $(12,610,000) | | Net loss per common share (Basic/Diluted) | $(0.02) | $(0.05) | $(0.07) | $(0.10) | Condensed Statements of Stockholders' Equity (Deficit) This section tracks changes in the company's equity, reflecting stock issuances, net losses, and adjustments - Total stockholders' equity increased from $6,443,000 at December 31, 2019, to $10,725,000 at September 30, 2020, primarily due to additional paid-in capital from common stock issuances, partially offset by net losses[15] - Accumulated deficit increased from $(184,633,000) at December 31, 2019, to $(195,911,000) at September 30, 2020, reflecting ongoing net losses[15] Condensed Statements of Cash Flows This section details the company's cash flows from operating, investing, and financing activities Condensed Statements of Cash Flows Highlights | Metric | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | | :-------------------------------------- | :----------------------------- | :----------------------------- | | Net cash used in operating activities | $(11,849,000) | $(10,632,000) | | Net cash used in investing activities | $(48,000) | $(14,000) | | Net cash provided by financing activities | $14,726,000 | $11,105,000 | | Net change in cash and cash equivalents | $2,829,000 | $459,000 | | Cash and cash equivalents at end of period | $9,361,000 | $8,044,000 | Note 1 – The Company and Summary of Significant Accounting Policies This note describes Ampio Pharmaceuticals' business, its immunology focus, and significant accounting policies - Ampio Pharmaceuticals, Inc. is a biopharmaceutical company focused on immunology-based therapies for inflammatory conditions[17] - The company paused its Phase III clinical trial (AP-013 study) for severe Osteoarthritis of the Knee (OAK) in April 2020 due to the COVID-19 pandemic and is reviewing FDA guidance for evaluating impacted clinical trial data[20] - The company adopted ASU 2018-13, 'Fair Value Measurement - Disclosure Framework (Topic 820)', in Q1 2020, which did not materially impact financial statements[24] Note 2 - Going Concern This note addresses the company's ability to continue operations, highlighting financial position, losses, and capital needs - As of September 30, 2020, the company had $9.4 million in cash and cash equivalents and a net loss of $11.3 million for the nine months, with an accumulated deficit of $196.0 million, raising substantial doubt about its ability to continue as a going concern[26] - The company believes it has sufficient liquidity to fund operations through Q3 2021, relying on its 'at-the-market' (ATM) equity offering program and considering other equity offerings[29] - Future capital investments are expected to support clinical development of Ampion, BLA preparation, base business operations, and commercial development activities[29] Note 3 – Prepaid Expenses and Other This note provides a breakdown of the company's prepaid expenses and other current assets Prepaid Expenses and Other Balances | Item | September 30, 2020 | December 31, 2019 | | :---------------------------------- | :----------------- | :---------------- | | Unamortized commercial insurance premiums | $970,000 | $502,000 | | Deposits | $214,000 | $1,162,000 | | BLA consulting services refund | $182,000 | - | | Receivable | $14,000 | $14,000 | | Other | $95,000 | $40,000 | | Total prepaid expenses and other | $1,475,000 | $1,718,000 | Note 4 – Fixed Assets This note details the company's fixed assets, including improvements, facilities, equipment, and depreciation Fixed Assets, Net | Asset Category | Net Book Value Dec 31, 2019 | Additions | Disposals | Accumulated Depreciation | Net Book Value Sep 30, 2020 | | :--------------------------------- | :-------------------------- | :-------- | :-------- | :----------------------- | :-------------------------- | | Leasehold improvements | $2,850,000 | $— | $— | $(450,000) | $2,400,000 | | Manufacturing facility/clean room | $1,550,000 | $9,000 | $(73,000) | $(370,000) | $1,116,000 | | Lab equipment and office furniture | $348,000 | $39,000 | $— | $(65,000) | $322,000 | | Total fixed assets, net | $4,748,000 | $48,000 | $(73,000) | $(885,000) | $3,838,000 | Depreciation and Amortization Expense | Period | Three Months Ended Sep 30, 2020 | Three Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | | :------------------------------------ | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Depreciation and amortization expense | $294,000 | $320,000 | $885,000 | $975,000 | Note 5 – Accounts Payable and Accrued Expenses This note details the company's current liabilities, including accounts payable and various accrued expenses Accounts Payable and Accrued Expenses | Item | September 30, 2020 | December 31, 2019 | | :--------------------------------------- | :----------------- | :---------------- | | Accounts payable | $398,000 | $151,000 | | Commercial insurance premium financing agreement | $721,000 | $21,000 | | Clinical trials | $225,000 | $3,288,000 | | Professional fees | $181,000 | $317,000 | | Other | $116,000 | $176,000 | | Accrued incentive compensation | $— | $72,000 | | Total accounts payable and accrued expenses | $1,641,000 | $4,025,000 | Note 6 – Paycheck Protection Program This note discusses the company's Paycheck Protection Program loan, including the amount received and forgiveness status - The company received $544,000 under the Paycheck Protection Program (PPP) in April 2020[36] - The company elected to extend the covered period for PPP loan forgiveness to the lesser of 24 weeks or when qualified expenses equal loan proceeds, and expects the loan to be fully forgiven[38] - The PPP loan forgiveness application was submitted in October 2020 and approved by the Lender, but final SBA approval is pending[39] Note 7 - Commitments and Contingencies This note outlines the company's contractual obligations, potential liabilities, and the impact of the COVID-19 pandemic Summary of Commitments and Contingencies (as of Sep 30, 2020) | Obligation | Total | 2020 | 2021 | 2022 | 2023 | 2024 | Thereafter | | :------------------------------------------ | :----------- | :--------- | :---------- | :---------- | :------- | :----- | :--------- | | Key clinical research trial obligations | $2,915,000 | $675,000 | $2,240,000 | $— | $— | $— | $— | | BLA consulting services | $1,143,000 | $— | $457,000 | $686,000 | $— | $— | $— | | Statistical analysis and programming consulting services | $318,000 | $30,000 | $288,000 | $— | $— | $— | $— | | Employment agreements | $1,478,000 | $216,000 | $783,000 | $466,000 | $13,000 | $— | $— | | Commercial insurance premium financing agreement | $721,000 | $474,000 | $247,000 | $— | $— | $— | $— | | Total | $6,575,000 | $1,395,000 | $4,015,000 | $1,152,000 | $13,000 | $— | $— | - The AP-013 study for OAK remains paused due to COVID-19, with $2.1 million in outstanding future obligations, though this amount may change due to pandemic uncertainties[45][46] - The company completed a pre-clinical inhaled safety study for Ampion for COVID-19 and received IND approval for the AP-014 study (inhaled treatment) and AP-016 study (IV treatment), with the AP-016 study completed in September 2020[47][48][50] - BLA consulting services have an outstanding obligation of $1.1 million, with the BLA filing postponed until late fiscal 2021 or later due to COVID-19 impacts on the AP-013 study[53] Note 8 – Warrants This note details the company's outstanding warrants, including exercise prices, contractual life, and activity - As of September 30, 2020, the company had 5.4 million warrants outstanding, with a weighted average exercise price of $0.61 and a remaining contractual life of 2.52 years[66] - During the nine months ended September 30, 2020, 1.7 million warrants were exercised, generating $465,000 in cash proceeds from investor warrants[66] Note 9 - Fair Value Considerations This note explains the valuation of financial instruments, specifically warrant derivative liability, and its fair value hierarchy - The warrant derivative liability, valued at approximately $1.9 million as of September 30, 2020, is classified as Level 3 in the fair value hierarchy and valued using the Black-Scholes valuation methodology[67][71] Note 10 - Common Stock This note details the company's common stock activity, including shares, options, warrants, and equity offering proceeds - As of September 30, 2020, the company had 300 million authorized shares, with 183.9 million outstanding, 5.5 million options outstanding, 5.4 million warrants outstanding, and 8.6 million shares reserved for the 2019 Stock and Incentive Plan, leaving 96.5 million available shares[73] - The company has $88.4 million remaining under its New Shelf Registration Statement (effective May 2020) for future securities offerings[74] ATM Equity Offering Program Sales (Nine Months Ended Sep 30, 2020) | Metric | Total (Nine Months) | | :----------------------------------- | :------------------ | | Total shares of common stock sold | 23,715,000 | | Average price per share | $0.64 | | Gross Proceeds | $15,136,000 | | Commissions earned by placement agents | $(607,000) | | Issuance / subsequent recurring fees | $(266,000) | | Net Proceeds | $14,263,000 | Note 11 - Equity This note provides information on the company's equity plans, outstanding stock options, and stock-based compensation - The 2019 Stock and Incentive Plan has 8.6 million shares remaining available for future equity awards[79] - As of September 30, 2020, 5.5 million stock options were outstanding with a weighted average exercise price of $1.11 and an aggregate intrinsic value of $1.4 million[80] Stock-Based Compensation Expense | Expense Category | Three Months Ended Sep 30, 2020 | Three Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | | :----------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Research and development expenses | $72,000 | $46,000 | $142,000 | $77,000 | | General and administrative expenses | $405,000 | $209,000 | $612,000 | $278,000 | | Issuance of common stock for services | $— | $— | $80,000 | $60,000 | | Total stock-based compensation | $477,000 | $255,000 | $834,000 | $415,000 | Note 12 - Earnings Per Share This note presents the calculation of basic and diluted earnings per share, considering net loss and common shares Earnings Per Share (Basic and Diluted) | Metric | Three Months Ended Sep 30, 2020 | Three Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | | :-------------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Net (loss) income | $(3,368,000) | $(7,219,000) | $(11,277,000) | $(12,610,000) | | Loss available to common stockholders | $(3,368,000) | $(7,219,000) | $(11,440,000) | $(12,610,000) | | Basic weighted-average common shares outstanding | 178,622,000 | 142,208,000 | 168,062,000 | 122,895,000 | | Diluted weighted-average shares outstanding | 178,622,000 | 142,208,000 | 169,354,000 | 122,895,000 | | Earnings per share – basic | $(0.02) | $(0.05) | $(0.07) | $(0.10) | | Earnings per share – diluted | $(0.02) | $(0.05) | $(0.07) | $(0.10) | - Potentially dilutive shares, including stock options and warrants, were excluded from diluted EPS calculations due to their anti-dilutive effect, totaling 10.9 million for the three months and 9.6 million for the nine months ended September 30, 2020[88] Note 13 – Litigation This note provides an update on the company's legal proceedings, including the dismissal of previously disclosed lawsuits - The Securities Class Action (Shi v. Ampio Pharmaceuticals, Inc., et al.) was dismissed with prejudice on June 19, 2020, and the plaintiff did not appeal, concluding the case[89] - Derivative actions (Cetrone v. Macaluso, et al. and Theise v. Macaluso, et al.) were dismissed without prejudice in August 2020[92] - As of September 30, 2020, the company is not a party to any ongoing lawsuits[93] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on financial condition, operations, COVID-19 impact, liquidity, and capital needs EXECUTIVE SUMMARY This summary introduces Ampio Pharmaceuticals as a pre-revenue biopharmaceutical company developing immunology-based therapies - Ampio Pharmaceuticals is a pre-revenue biopharmaceutical company developing immunology-based therapies for inflammatory conditions like severe OAK and COVID-19 complications[95][96] - The company aims to achieve FDA marketing approval and commercialization of Ampion while maintaining streamlined and efficient business operations[97] Overview This section provides an overview of Ampion's development for severe OAK and COVID-19 complications, with clinical trial updates - Ampion is currently in development as an intra-articular injection for severe OAK, an IV treatment for COVID-19 patients requiring supplemental oxygen, and an inhaled treatment for COVID-19 induced respiratory distress[99] - The AP-013 study for OAK was paused in April 2020 due to COVID-19, and the company is evaluating FDA guidance to determine the best approach for its completion[100] - The Phase I AP-016 study for IV Ampion in COVID-19 patients was completed in September 2020, showing Ampion to be safe and well-tolerated, with secondary efficacy endpoints suggesting improved clinical outcomes[101] - The Phase I AP-014 study for inhaled Ampion in COVID-19 patients with respiratory distress is expected to commence in Q4 2020, following FDA agreement[102] AMPION This section details Ampion's mechanism of action and its development for severe OAK and COVID-19 complications - Ampion is a novel biologic drug containing a blood-derived cyclized peptide and small molecules that target multiple pathways in the innate immune response, repressing inflammation and activating anti-inflammatory proteins[104] - For Osteoarthritis, Ampion targets cellular pathways correlated with pain, inflammation, and joint damage, with the potential to be a disease-modifying biologic drug for severe OAK, an unmet medical need[105][106] - The AP-003-A Phase III trial showed statistically significant reduction in pain and improved function/quality of life in severe OAK patients, and the FDA agreed its design could support a BLA[108][109] - The AP-013 study for severe OAK, which received an SPA agreement from the FDA, was paused in April 2020 due to the COVID-19 pandemic, impacting its elderly patient population[111][112] - For COVID-19 complications, Ampion is being developed as an immunomodulatory agent to improve clinical course and outcome for patients requiring oxygen and experiencing respiratory distress, including ARDS and ALI, by interrupting the inflammatory cascade[118][119][121] - The AP-016 study for IV Ampion in COVID-19 patients was completed, showing safety and potential efficacy in improving clinical outcomes, while the AP-014 study for inhaled Ampion is expected to commence in Q4 2020[122][124][125] Recent Financing Activities This section refers to Note 10 for details on the company's recent capital raising efforts and equity offerings - Information on recent financing activities is detailed in Note 10 to the Financial Statements[127] Known Trends or Future Events; Outlook This section discusses the company's financial outlook, including accumulated deficit, COVID-19 impact, liquidity, and capital needs - The company has an accumulated deficit of $196.0 million as of September 30, 2020, and expects continued operating losses as it advances immunology-based therapies towards FDA approval and commercialization[128] - The COVID-19 pandemic has modestly impacted operations and caused the AP-013 study to remain paused, potentially delaying the BLA submission timeline significantly[129][130][131] - The company had $9.4 million in cash and cash equivalents as of September 30, 2020, and raised $15.1 million gross proceeds from its ATM equity offering program during the nine months ended September 30, 2020[132][133] - Management believes it has sufficient liquidity through Q3 2021, but uncertainties in public market capital raising and the evolving COVID-19 pandemic raise substantial doubt about its ability to continue as a going concern[133] - The New Shelf Registration Statement provides $88.4 million available for issuance, but securing additional financing is uncertain and may be costly or dilutive[134] ACCOUNTING POLICIES This section outlines the company's adherence to GAAP, use of estimates, and consistency of significant accounting policies - Financial statements are prepared in accordance with GAAP, requiring management to make estimates and assumptions for various financial items, which are evaluated on an ongoing basis[136] - Significant accounting policies and estimates have not substantially changed from those disclosed in the 2019 Annual Report[137] - Information regarding newly issued accounting pronouncements is contained in Note 1 to the Financial Statements[138] RESULTS OF OPERATIONS This section analyzes the company's financial performance, detailing changes in net loss, R&D, and G&A expenses - Net loss for the three months ended September 30, 2020, was $3.4 million, a decrease from $7.2 million in the prior year, primarily due to a $1.8 million decrease in R&D costs[139] - Net loss for the nine months ended September 30, 2020, was $11.3 million, compared to $12.6 million in the prior year, partially offset by $544,000 in PPP loan funding[140] - Research and development costs decreased by $1.8 million (51.7%) for the three months ended September 30, 2020, mainly due to the pause of the AP-013 study, partially offset by new COVID-19 related studies[143][144] - Operations/manufacturing expenses increased by $190,000 (422.2%) for the three months ended September 30, 2020, due to production of Ampion for COVID-19 studies[145] - General and administrative costs decreased by $98,000 (5.6%) for the three months ended September 30, 2020, primarily due to decreased legal fees from dismissed litigation, but stock-based compensation increased by $176,000 (76.8%)[150][151][152] - For the nine months ended September 30, 2020, general and administrative costs increased by $595,000 (13.8%), driven by higher insurance premiums and stock-based compensation[155][157][158] Cash Flows This section summarizes the company's cash movements from operating, investing, and financing activities Cash Flow Summary (Nine Months Ended September 30) | Category | 2020 | 2019 | | :---------------------------- | :------------ | :------------ | | Net cash used in operating activities | $(11,849,000) | $(10,632,000) | | Net cash used in investing activities | $(48,000) | $(14,000) | | Net cash provided by financing activities | $14,726,000 | $11,105,000 | | Net change in cash and cash equivalents | $2,829,000 | $459,000 | - Operating activities used $11.9 million in cash for the nine months ended September 30, 2020, primarily due to net loss and a decrease in working capital[160] - Financing activities provided $14.7 million in cash for the nine months ended September 30, 2020, mainly from $15.1 million gross proceeds from the ATM equity offering program and $465,000 from warrant exercises[162] Liquidity and Capital Resources This section discusses the company's current cash position, reliance on future financing, and risks of securing capital - The company has no fixed and determinable committed source of liquidity for the next twelve months and relies on its ATM equity offering program and potential future equity offerings[164] - The audit report for FY2019 contained a going concern explanatory paragraph, and the company's projection through September 30, 2021, is based on assumptions that may prove incorrect, leading to potential early exhaustion of cash[165] - Failure to obtain future funding could lead to delays, reductions, or elimination of development, manufacturing, and regulatory programs for Ampion, or even suspension of operations[168] Off Balance Sheet Arrangements This section confirms the absence of off-balance sheet arrangements, financings, or unconsolidated entity relationships - The company does not have off-balance sheet arrangements, financings, or relationships with unconsolidated entities[169] Item 3. Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, Ampio Pharmaceuticals is not required to provide market risk disclosures - The company is a smaller reporting company and is not required to provide information on market risk[169] Item 4. Controls and Procedures This section confirms the effectiveness of disclosure controls and procedures and reports no material changes in internal control - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of September 30, 2020[171] - There were no material changes in internal control over financial reporting during the period covered by the report[172] PART II – OTHER INFORMATION This section contains additional information not covered in financial statements, including legal proceedings, risk factors, and equity Item 1. Legal Proceedings This section refers to Note 13 for legal proceedings information, indicating dismissal of all previously disclosed lawsuits - Information regarding legal proceedings is contained in Note 13 to the Financial Statements[173] Item 1A. Risk Factors This section outlines key risks, including COVID-19 impact on operations, PPP loan forgiveness uncertainty, and stock price volatility - The COVID-19 pandemic has significantly affected the company's operations and clinical trials, particularly the AP-013 study, which remains paused[176][177] - There is no assurance that the $544,000 PPP loan will be forgiven in whole or in part, despite the forgiveness application being approved by the Lender[180][183] - The trading price of the company's common stock has been and is likely to remain highly volatile, potentially leading to substantial losses for purchasers and increasing the risk of class action lawsuits[184][185][186] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds During Q3 2020, the company issued 276,000 common shares via net warrant exercises to former placement agents, without cash proceeds - During Q3 2020, 276,000 shares of common stock were issued to former placement agents via net exercises of warrants (exercise price $0.50/share), with no cash proceeds received by the company[187] - These issuances were exempt from registration requirements under Rule 4(2) of the Securities Act of 1933 and/or Rule 506 of Regulation D[188] Item 3. Defaults Upon Senior Securities This item is not applicable to the company for the reporting period - This item is not applicable[188] Item 4. Mine Safety Disclosures This item is not applicable to the company for the reporting period - This item is not applicable[188] Item 5. Other Information This item is not applicable to the company for the reporting period - This item is not applicable[188] Item 6. Exhibits This section lists exhibits filed with the Quarterly Report on Form 10-Q, including corporate documents and certifications - The exhibits include corporate documents (Certificate of Incorporation, Bylaws), an amendment to the employment agreement with Daniel Stokely, and Section 302 and 906 certifications from the CEO and CFO[191] SIGNATURES The report is signed by the Chairman, CEO, CFO, and Secretary on November 3, 2020, certifying its submission - The report was signed by Michael Macaluso (Chairman and CEO) and Daniel G. Stokely (CFO and Secretary) on November 3, 2020[193]