SEC Company Response from AIM ImmunoTech Inc. (AIM) (CIK 0000946644) (AIM) — Nov 16, 2010
AIM ImmunoTech Inc. (AIM) (CIK 0000946644)
Date: Nov. 16, 2010 · CIK: 0000946644 · Accession: 0001144204-10-061533
AI Filing Summary & Sentiment
Reasoning
Referenced dates: October 8, 2010
Letter
Division of Corporation Finance Securities and Exchange Commission Hemispherx Biopharma, Inc. Form 10-K for the year ended December 31, 2009 Form 10-K/A for the year ended December 31, 2009 (SEC filing No. 1-13441)
Dear Mr. Rosenberg:
We hereby respond to the comments contained in your November 4, 2010 comment letter related to the above referenced Form 10-K and Form 10-K/A of Hemispherx Biopharma, Inc. (the "Company"). Draft revised disclosure for inclusion in the next amended Form 10-K, as requested by the Staff, is attached hereto as Appendix A (the “Appendix”) and marked to show the suggested revisions to the disclosure provided in Appendix A of our prior response letter dated October 8, 2010.
Form 10-K for the fiscal year ended December 31, 2009
Item 1. Business
Our Products, page
Comment 1. We acknowledge your response to prior comment 2. Please disclose the costs incurred to date related to Ampligen. You also indicated that you are in process of undergoing the tests needed for the validation phase to address the issues identified in the CRL. Since you are aware of what needs to be done to comply with the FDA requirements, it appears that costs could be estimated or a range of estimated costs could be determined. Please revise your proposed disclosure to indicate the nature, timing and estimated costs of the efforts necessary to complete the Ampligen project and the anticipated completion dates or the reason that an estimate cannot be made.
Corporate Headquarters
One Penn Center, 1617 JFK Blvd., Philadelphia, PA 19103
t: 215-988-0080
f: 215-988-1739
Jim B. Rosenberg
November 16, 2010
Page -
Response:
Costs incurred to date related to Ampligen:
For the reasons stated below, the Company will add disclosure at the end of the “Our Products” subsection of Item 1. “Business” (p. A-8) for Costs and Expense consistent with the three years presented in the Company’s Consolidated Statements of Operation. The disclosure also will note that the Company’s aggregate expenses from the time that we first started developing nucleic acid pharmaceutical technology in the mid 1980s through March 2003 were substantially related to the development of Ampligen®, and from that date through the current period were substantially related to Ampligen® and Alferon®.
The Company did not historically track its internal and external costs for Ampligen®, Alferon® or other products on an individual basis. The Company utilized substantially the same personnel and resources for all products and historically tracked costs on an expense category type, rather than product basis. As a result, costs incurred with respect to Ampligen® overlapped across multiple development efforts. The Company believes that collection and evaluation of historical information necessary to determine “to date” costs incurred from the time that we first started developing nucleic acid pharmaceutical technology in the mid 1980s, would be unduly burdensome and in some cases not possible. The Company also believes that allocation of such expense cannot be determined with any reasonable certainty as data and information covers an approximate fifteen year period.
The Company also believes that such pre-2007 historical information may not provide a meaningful benefit to investors.
The nature, timing and estimated costs of the efforts necessary to complete the Ampligen project:
Please see the revised disclosure in the “Our Products” subsection of Item 1. “Business” (pp. A-4 - A-5).
(17) Fair value, page F-33
Comment 2. We acknowledge your response to prior comment 5. You stated that the probability - adjusted Black-Scholes value of your warrants is zero. Please tell us the assumed probability of an event taking place that would cause cash settlement. Please also tell us the various factors considered that decreased the likelihood of a Fundamental Transaction occurring that would require cash settlement. Please provide us with your analysis that supports the probability of each of these factors to be zero and that the value of the warrants is zero for each scenario considered, including scenarios that do not require cash settlement.
Jim B. Rosenberg
November 16, 2010
Page -
Response: The Company utilized the following information in its determination of the Warrant valuation related to:
1.
the assumed probability of an event taking place that would cause cash settlement;
2.
the various factors considered that decreased the likelihood of a Fundamental Transaction occurring that would require cash settlement; and
3.
the analysis that supports the probability of each of these factors to be zero and that the value of the warrants is zero for each scenario considered, including scenarios that do not require cash settlement.
Generally Accepted Accounting Principles requires the value of a liability to be recorded where the warrant holder has a put option or is able to receive cash for their warrants.
Section 3.(e) of the Warrants issued on May 18 and 21, 2009, addresses the potential of a Fundamental Transaction (“Transaction”) occurring while the Warrants are outstanding. The Transaction which allows the warrant holders to receive cash is defined as (i) an all cash transaction, (ii) a “Rule 13e-3 Transaction” as defined in Rule 13e-3 under the Exchange Act, or (iii) a Transaction involving a person or entity not traded on a national securities exchange.
The following “Factors” were considered in determining the fair value of such liability regarding the assumed probability of an event taking place that would cause a cash settlement, especially regarding a potential Transaction:
1)
The Company has been in business for over 20 years and has only had one product reach FDA approval which was via an acquisition of a company with an existing FDA approved product;
2)
Based on having the NDA rejected by the FDA in November 2010, the Company will have to perform two Phase III clinical trials, that will cost millions of dollars for the possibility of FDA approval of Ampligen in addition to required funding for commercialization of this product;
3)
Industry and market conditions at May 2009 included a global market recession, adding risk;
4)
Available capital for a potential buyer in a cash transaction as of May 2009 was limited;
5)
The nature of a life sciences company is heavily dependent on future funding and high fixed costs, including research & development;
6)
According to Forbes.com, of approximately 17,000 public companies, fewer than 30 went private in 2008 and nearly 100 going private deals were completed in 2007, representing a probability ratio of 0.18% and 0.6%, respectively. This probability would be further reduced based on the nature of a life sciences company and the potential lack of revenues, cash flows, and the Company’s funding needs;
Jim B. Rosenberg
November 16, 2010
Page –
7)
Rights to acquire common stock, pursuant to Company's Rights Agreement, make it less attractive to a buyer and therefore less likely to be acquired.
With the factors identified above regarding the probability of an event taking place that could cause cash settlement, a sensitivity analysis was created to estimate the probability-adjusted likelihood of a Transaction occurring which would affect the value of a liability. The Warrants’ valuation was estimated as follows:
Warrants’ Valuation
December 31, 2009
Grant Date 05/18/09 (Deal #1)
Grant Date 05/21/09 (Deal #2)
Series I
Investors
Investors
Agent
Unexercised
Agent
Underlying Price
$ 0.56
$ 0.56
$ 0.56
$ 0.56
Exercise (Strike) Price
$ 1.65
$ 1.38
$ 1.31
$ 1.34
Est. Time To Expiration in Years (d)
2.50
2.50
2.20
2.20
Volatility
%
%
%
%
Interest Rate (e)
1.42 %
1.42 %
1.14 %
1.14 %
Yield Rate
0.0 %
0.0 %
0.0 %
0.0 %
Warrant Value using Black-Scholes-Merton Pricing Model
$ 0.00
$ 0.00
$ 0.00
$ 0.00
Number of Warrants Outstanding at 12/31/09
6,136,364
750,000
2,272,440
654,884
Fair Value of Warrants
$ -0-
$ -0-
$ -0-
$ -0-
Total Fair Value at December 31, 2009
$ -0-
$ -0-
Notes
(d) Time to Expiration Calculation
(remaining contract period + vesting period( /2
Deal #1 (59 months + 0)/2 = 2.5 years
Deal #2 (53 months + 0)/2 = 2.2 yrs
(e) Interest Rate Calculation
year constant maturity rate at 12/31/09
1.14 %
year constant maturity rate at 12/31/09
1.70 %
Average
1.42 %
Jim B. Rosenberg
November 16, 2010
Page -
In summary, the Company’s valuation of the probability - adjusted Black-Scholes value of the warrants issued on May 18 and 21 was calculated at zero to both the low probability of conversion to cash, estimated at a probability of 0.5% to 5%, and that the underlying price of the stock was at $0.56 when the exercise (Strike) Prices ranged from $1.31 to $1.65. Accordingly, the Company presented an estimated value of $-0- as Total Fair Value at December 31, 2009. To assure proper valuation, the Company undertakes a similar analysis at the end of each fiscal quarter to determine if the Fair Value of the Warrants has changed. In the event that the Company determined that the Fair Value has materially changed, the Company will revise its valuation of the Warrants and properly disclose the event in the related 10-Q or 10-K filing.
Form 10-K/A filed April 30,
Comment 3. We note your response to our prior comment 8. It appears that the figures in the 2008 Stock Awards and Option Awards columns of the Summary Compensation Table on page A-41 of your response letter have not changed from the disclosure included in your Form 10-K for the fiscal year ended December 31, 2008. Please confirm that all the figures appearing on page A-41 of your response were calculated in accordance with FASB ASC 718.
Response: The Company has undertaken an analysis of the 2008 Stock Awards and Option Awards columns of the Summary Compensation Table utilizing the Black-Scholes-Merton Pricing Model for stock based compensation in accordance with FASB ASC 718, which recently superseded FASB 123R. Under each of the above two standards, the dollar value of the compensation remained unchanged as originally presented.
The Company acknowledges that:
·
the Company is responsible for the adequacy and accuracy of the disclosures in the filing;
·
the Staff comments or changes to disclosure in response to Staff comments do not foreclose the Commission from taking any action with respect to the filing; and
·
the Company may not assert Staff comments as a defense in any proceeding initiated by the Commission or any p
Show Raw Text
CORRESP
1
filename1.htm
Unassociated Document
November
16, 2010
Jim B.
Rosenberg
Senior
Assistant Chief Accountant
Division
of Corporation Finance
Securities
and Exchange Commission
100 F
Street, NE
Washington,
DC 20549
Re:
Hemispherx
Biopharma, Inc.
Form 10-K for the year ended December
31, 2009
Form
10-K/A for the year ended December 31, 2009
(SEC filing No.
1-13441)
Dear Mr.
Rosenberg:
We hereby
respond to the comments contained in your November 4, 2010 comment letter
related to the above referenced Form 10-K and Form 10-K/A of Hemispherx
Biopharma, Inc. (the "Company"). Draft revised disclosure for
inclusion in the next amended Form 10-K, as requested by the Staff, is attached
hereto as Appendix A (the “Appendix”) and marked to show the suggested revisions
to the disclosure provided in Appendix A of our prior response letter dated
October 8, 2010.
Form 10-K for the fiscal
year ended December 31, 2009
Item 1.
Business
Our Products, page
2
Comment
1. We acknowledge your response to
prior comment 2. Please disclose the costs incurred to date related to
Ampligen. You also indicated that you are in process of undergoing
the tests needed for the validation phase to address the issues identified in
the CRL. Since you are aware of what needs to be done to comply with
the FDA requirements, it appears that costs could be estimated or a range of
estimated costs could be determined. Please revise your proposed
disclosure to indicate the nature, timing and estimated costs of the efforts
necessary to complete the Ampligen project and the anticipated completion dates
or the reason that an estimate cannot be made.
Corporate
Headquarters
One
Penn Center, 1617 JFK Blvd., Philadelphia,
PA 19103
t:
215-988-0080
f:
215-988-1739
Jim B.
Rosenberg
November
16, 2010
Page -
2
Response:
Costs incurred to date
related to Ampligen:
For the
reasons stated below, the Company will add disclosure at the end of the “Our
Products” subsection of Item 1. “Business” (p. A-8) for Costs and Expense
consistent with the three years presented in the Company’s Consolidated
Statements of Operation. The disclosure also will note that the
Company’s aggregate expenses from the time that we first started developing
nucleic acid pharmaceutical technology in the mid 1980s through March 2003 were
substantially related to the development of Ampligen®, and from that date
through the current period were substantially related to Ampligen® and
Alferon®.
The
Company did not historically track its internal and external costs for
Ampligen®, Alferon® or other products on an individual basis. The
Company utilized substantially the same personnel and resources for all products
and historically tracked costs on an expense category type, rather than product
basis. As a result, costs incurred with respect to Ampligen®
overlapped across multiple development efforts. The Company believes
that collection and evaluation of historical information necessary to determine
“to date” costs incurred from the time that we first started developing nucleic
acid pharmaceutical technology in the mid 1980s, would be unduly burdensome and
in some cases not possible. The Company also believes that allocation
of such expense cannot be determined with any reasonable certainty as data and
information covers an approximate fifteen year period.
The
Company also believes that such pre-2007 historical information may not provide
a meaningful benefit to investors.
The nature, timing and
estimated costs of the efforts necessary to complete the Ampligen
project:
Please
see the revised disclosure in the “Our Products” subsection of Item 1.
“Business” (pp. A-4 - A-5).
(17) Fair value, page
F-33
Comment
2. We acknowledge your response to
prior comment 5. You stated that the probability - adjusted
Black-Scholes value of your warrants is zero. Please tell us the
assumed probability of an event taking place that would cause cash
settlement. Please also tell us the various factors considered that
decreased the likelihood of a Fundamental Transaction occurring that would
require cash settlement. Please provide us with your analysis that
supports the probability of each of these factors to be zero and that the value
of the warrants is zero for each scenario considered, including scenarios that
do not require cash settlement.
Jim B.
Rosenberg
November
16, 2010
Page -
3
Response:
The Company utilized the following information in its determination of the
Warrant
valuation related to:
1.
the
assumed probability of an event taking place that would cause cash
settlement;
2.
the
various factors considered that decreased the likelihood of a Fundamental
Transaction occurring that would require cash settlement;
and
3.
the
analysis that supports the probability of each of these factors to be zero
and that the value of the warrants is zero for each scenario considered,
including scenarios that do not require cash
settlement.
Generally
Accepted Accounting Principles requires the value of a liability to be recorded
where the warrant holder has a put option or is able to receive cash for their
warrants.
Section
3.(e) of the Warrants issued on May 18 and 21, 2009, addresses the potential of
a Fundamental Transaction (“Transaction”) occurring while the Warrants are
outstanding. The Transaction which allows the warrant holders to
receive cash is defined as (i) an all cash transaction, (ii) a “Rule 13e-3
Transaction” as defined in Rule 13e-3 under the Exchange Act, or (iii) a
Transaction involving a person or entity not traded on a national securities
exchange.
The
following “Factors” were considered in determining the fair value of such
liability regarding the assumed probability of an event taking place that would
cause a cash settlement, especially regarding a potential
Transaction:
1)
The
Company has been in business for over 20 years and has only had one
product reach FDA approval which was via an acquisition of a company with
an existing FDA approved
product;
2)
Based
on having the NDA rejected by the FDA in November 2010, the Company will
have to perform two Phase III clinical trials, that will cost millions of
dollars for the possibility of FDA approval of Ampligen in addition to
required funding for commercialization of this
product;
3)
Industry
and market conditions at May 2009 included a global market recession,
adding risk;
4)
Available
capital for a potential buyer in a cash transaction as of May 2009 was
limited;
5)
The
nature of a life sciences company is heavily dependent on future funding
and high fixed costs, including research &
development;
6)
According
to Forbes.com, of approximately 17,000 public companies, fewer than 30
went private in 2008 and nearly 100 going private deals were completed in
2007, representing a probability ratio of 0.18% and 0.6%,
respectively. This probability would be further reduced based
on the nature of a life sciences company and the potential lack of
revenues, cash flows, and the Company’s funding
needs;
Jim B.
Rosenberg
November
16, 2010
Page –
4
7)
Rights
to acquire common stock, pursuant to Company's Rights Agreement, make it
less attractive to a buyer and therefore less likely to be
acquired.
With the
factors identified above regarding the probability of an event taking place that
could cause cash settlement, a sensitivity analysis was created to estimate the
probability-adjusted likelihood of a Transaction occurring which would affect
the value of a liability. The Warrants’ valuation was estimated as
follows:
Warrants’ Valuation
December 31, 2009
Grant Date 05/18/09 (Deal #1)
Grant Date 05/21/09 (Deal #2)
Series I
Investors
Investors
Agent
Unexercised
Agent
Underlying
Price
$
0.56
$
0.56
$
0.56
$
0.56
Exercise
(Strike) Price
$
1.65
$
1.38
$
1.31
$
1.34
Est.
Time To Expiration in Years (d)
2.50
2.50
2.20
2.20
Volatility
138
%
138
%
146
%
146
%
Interest
Rate (e)
1.42
%
1.42
%
1.14
%
1.14
%
Yield
Rate
0.0
%
0.0
%
0.0
%
0.0
%
Warrant
Value using Black-Scholes-Merton Pricing Model
$
0.00
$
0.00
$
0.00
$
0.00
Number
of Warrants Outstanding at 12/31/09
6,136,364
750,000
2,272,440
654,884
Fair
Value of Warrants
$
-0-
$
-0-
$
-0-
$
-0-
Total
Fair Value at December 31, 2009
$
-0-
$
-0-
Notes
(d) Time to Expiration
Calculation
(remaining
contract period + vesting period( /2
Deal
#1 (59 months + 0)/2 = 2.5 years
Deal
#2 (53 months + 0)/2 = 2.2 yrs
(e) Interest Rate
Calculation
2
year constant maturity rate at 12/31/09
1.14
%
3
year constant maturity rate at 12/31/09
1.70
%
Average
1.42
%
Jim B.
Rosenberg
November
16, 2010
Page -
5
In
summary, the Company’s valuation of the probability - adjusted Black-Scholes
value of the warrants issued on May 18 and 21 was calculated at zero to both the
low probability of conversion to cash, estimated at a probability of 0.5% to 5%,
and that the underlying price of the stock was at $0.56 when the exercise
(Strike) Prices ranged from $1.31 to $1.65. Accordingly, the Company presented
an estimated value of $-0- as Total Fair Value at December 31, 2009. To assure
proper valuation, the Company undertakes a similar analysis at the end of each
fiscal quarter to determine if the Fair Value of the Warrants has changed. In
the event that the Company determined that the Fair Value has materially
changed, the Company will revise its valuation of the Warrants and properly
disclose the event in the related 10-Q or 10-K filing.
Form 10-K/A filed April 30,
2010
Comment
3. We note your response to our prior
comment 8. It appears that the figures in the 2008 Stock Awards and
Option Awards columns of the Summary Compensation Table on page A-41 of your
response letter have not changed from the disclosure included in your Form 10-K
for the fiscal year ended December 31, 2008. Please confirm that all
the figures appearing on page A-41 of your response were calculated in
accordance with FASB ASC 718.
Response: The
Company has undertaken an analysis of the 2008 Stock Awards and Option Awards
columns of the Summary Compensation Table utilizing the Black-Scholes-Merton
Pricing Model for stock based compensation in accordance with FASB ASC 718,
which recently superseded FASB 123R. Under each of the above two
standards, the dollar value of the compensation remained unchanged as originally
presented.
The
Company acknowledges that:
·
the
Company is responsible for the adequacy and accuracy of the disclosures in
the filing;
·
the
Staff comments or changes to disclosure in response to Staff comments do
not foreclose the Commission from taking any action with respect to the
filing; and
·
the
Company may not assert Staff comments as a defense in any proceeding
initiated by the Commission or any p