HEB Hemispherx Biopharma Inc New

ITEM 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations

Special Note Regarding Forward-Looking Statements

Certain statements in this Report contain forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended, which we refer to as the Exchange Act. These statements are based on our management’s current beliefs, expectations and assumptions about future events, conditions and results and on information currently available to us. Discussions containing these forward-looking statements may be found, among other places, in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section; Item 1 “Legal Proceedings” in Part II; Item 1A. “Risk Factors” in Part II.

All statements, other than statements of historical fact, included or incorporated herein regarding our strategy, future operations, financial position, future revenues, projected costs, plans, prospects and objectives are forward-looking statements. Words such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “seek,” “estimate,” “think,” “may,” “could,” “will,” “would,” “should,” “continue,” “potential,” “likely,” “opportunity” and similar expressions or variations of such words are intended to identify forward-looking statements but are not the exclusive means of identifying forward-looking statements.

Among the factors that could cause actual results to differ materially from those indicated in the forward-looking statements are risks and uncertainties inherent in our business including, without limitation: our ability to adequately fund our projects as we will need additional funding to proceed with our objectives, the potential therapeutic effect of our products, the possibility of obtaining regulatory approval, our ability to find senior co-development partners with the capital and expertise needed to commercialize our products and to enter into arrangements with them on commercially reasonable terms, our ability to manufacture and sell any products, our ability to enter into arrangements with third party vendors, market acceptance of our products, our ability to earn a profit from sales or licenses of any drugs, our ability to discover new drugs in the future, changing market conditions, changes in laws and regulations affecting our industry, and issues related to our New Brunswick, New Jersey facility. In February 2013, we received a Complete Response Letter from the Food and Drug Administration, or FDA, for our Ampligen New Drug Application, or NDA, for the treatment of Chronic Fatigue Syndrome. The FDA communicated that we should conduct at least one additional clinical trial, complete various nonclinical studies and perform a number of data analysis. Accordingly, the remaining steps to potentially gain FDA approval of the Ampligen NDA, the final results of these and other ongoing activities could vary materially from our expectations and could adversely affect the chances for approval of the Ampligen NDA. These activities and the ultimate outcomes are subject to a variety of risks and uncertainties, including but not limited to risks that (i) the FDA may ask for additional data, information or studies to be completed or provided; and (ii) the FDA may require additional work related to the commercial manufacturing process to be completed or may, in the course of the inspection of manufacturing facilities, identify issues to be resolved.

In August 2016, we received approval of our NDA from Administracion Nacional de Medicamentos, Alimentos y Tecnologia Medica, or ANMAT, for commercial sale of rintatolimod (U.S. tradename: Ampligen®) in the Argentine Republic for the treatment of severe CFS. The product will be marketed by GP Pharm, our commercial partner in Latin America. We believe, but cannot assure, that this approval provides a platform for potential sales in certain countries within the European Union under regulations that support cross-border pharmaceutical sales of licensed drugs. In Europe, approval in a country with a stringent regulatory process in place, such as Argentina, should add further validation for the product as the Early Access Program, or EAP, as discussed below and underway in Europe in pancreatic cancer. ANMAT approval is only an initial, but important, step in the overall successful commercialization of our product. There are a number of actions that must occur before we could be able to commence commercial sales in Argentina. In September 2019, AIM received clearance from the FDA to ship Ampligen to Argentina for the commercial launch and subsequent sales. Commercialization in Argentina will require an appropriate reimbursement level, and appropriate marketing strategies. Approval of rintatolimod for severe CFS in the Argentine Republic does not in any way suggest that the Ampligen NDA in the United States or any comparable application filed in the European Union or elsewhere will obtain commercial approval.

In May 2016, we entered into a five-year agreement with myTomorrows, a Netherlands based company, for the commencement and management of an EAP in Europe and Turkey related to CFS. Pursuant to the agreement, myTomorrows, as our exclusive service provider and distributor in this territory, is performing EAP activities. In January 2017, the EAP was extended to pancreatic cancer patients beginning in the Netherlands. In February 2018, we signed an amendment to extend the territory to cover Canada to treat pancreatic cancer patients, pending government approval. In March 2018, we signed an amendment to which myTomorrows will be our exclusive service provider for special access activities in Canada for the supply of Ampligen for the treatment of CFS. No assurance can be given that we can sufficiently supply product should we experience an unexpected demand for Ampligen in our clinical studies, the commercial launch in Argentina or pursuant to the EAPs. No assurance can be given that Ampligen will prove effective in the treatment of pancreatic cancer.

Currently, six Ampligen clinical trials are open for enrollment. All six of the trials are at university cancer centers testing whether tumor microenvironments can be reprogrammed to increase the effectiveness of cancer immunotherapy, including checkpoint blockade. Four are at Roswell Park Comprehensive Cancer Center and the other two are at the University of Pittsburgh Medical Center. No assurance can be given as to the results of these underway trials. Five additional cancer trials in collaboration with University Medical/Cancer Research Centers are in various pre-enrollment stages. These five trials are using Ampligen plus checkpoint blockade or chemokine modulation. No assurance can be given as to whether some or all of the planned additional oncology clinical trials will occur, and they are subject to many factors including lack of regulatory approval(s), lack of study drug, or a change in priorities at the sponsoring Universities or Cancer Centers. Even if these additional clinical trials are initiated, we cannot assure that these clinical studies or the six studies underway will be successful or yield any useful data.

Our overall objectives include plans to continue seeking approval for commercialization of Ampligen in the United States and abroad as well as seeking to broaden commercial therapeutic indications for Alferon N Injection presently approved in the United States and Argentina. We continue to pursue senior co-development partners with the capital and expertise needed to commercialize our products and to enter into arrangements with them on commercially reasonable terms. Our ability to commercialize our products, widen commercial therapeutic indications of Alferon N Injection and/or capitalize on our collaborations with research laboratories to examine our products are subject to a number of significant risks and uncertainties including, but not limited to our ability to enter into more definitive agreements with some of the research laboratories and others that we are collaborating with, to fund and conduct additional testing and studies, whether or not such testing is successful or requires additional testing and meets the requirements of the FDA and comparable foreign regulatory agencies. We do not know when, if ever, our products will be generally available for commercial sale for any indication.

We outsource certain components of our manufacturing, quality control, marketing and distribution while maintaining control over the entire process through our quality assurance and regulatory groups. We cannot provide any guarantee that the facility or our contract manufacturer will necessarily pass an FDA pre-approval inspection for Alferon manufacture.

The production of new Alferon Active Pharmaceutical Ingredient, or API, inventory will begin once the validation phase is complete. While the facility has already been approved by the FDA under the Biological License Application, or BLA, for Alferon, this status will need to be reaffirmed by a successful Pre-Approval Inspection by the FDA prior to commercial sale of newly produced inventory product. If and when the Company obtains a reaffirmation of FDA BLA status and has begun production of new Alferon API, it will need FDA approval as to the quality and stability of the final product before commercial sales can resume. We will need additional funds to finance the revalidation process in our facility to initiate commercial manufacturing, thereby readying ourselves for an FDA Pre-Approval Inspection. If we are unable to gain the necessary FDA approvals related to the manufacturing process and/or final product of new Alferon inventory, our operations most likely will be materially and/or adversely affected. Considering these contingencies, there can be no assurances that the approved Alferon N Injection product will be returned to production on a timely basis, if at all, or that if and when it is again made commercially available, it will return to prior sales levels. In addition, we are currently manufacturing polymers in our New Brunswick facility to be used for the production of Ampligen to satisfy our future needs. While we anticipate that we will continue to manufacture polymers at the New Brunswick facility, we may need additional funding. There cannot be any guarantee that we will obtain adequate funds to sustain manufacturing at the New Brunswick facility or that the facility will be able to manufacture sufficient lots for the commercial launch of Ampligen. We believe, and are investigating, Ampligen’s potential role in enhancing the activity of influenza vaccines. While certain studies involving rodents, non-human primates (monkeys) and healthy human subjects indicate that Ampligen may enhance the activity of influenza vaccines by conferring increased cross-reactivity or cross-protection, further studies will be required and no assurance can be given that Ampligen will assist in the development of a universal vaccine for influenza or other viruses.

Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified and some of which are beyond our control, you should not rely on these forward-looking statements as predictions of future events. The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements. Moreover, we operate in an evolving environment. New risk factors and uncertainties may emerge from time to time, and it is not possible for management to predict all risk factors and uncertainties. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained or incorporated herein, whether as a result of any new information, future events, changed circumstances or otherwise.

This Report also refers to estimates and other statistical data made by independent parties and by us relating to market size and growth and other data about our industry. This data involves a number of assumptions and limitations, and you are cautioned not to give undue weight to such estimates. In addition, projections, assumptions and estimates of our future performance and the future performance of the markets in which we operate are necessarily subject to a high degree of uncertainty and risk.

Overview

General

AIM ImmunoTech Inc. and its subsidiaries (collectively, “AIM”, “Company”, “we” or “us”) are an immuno-pharma company headquartered in Ocala, Florida and focused on the research and development of therapeutics to treat multiple types of cancers, as well as immune-deficiency disorders. We have established a strong foundation of laboratory, pre-clinical and clinical data with respect to the development of nucleic acids and natural interferon to enhance the natural antiviral defense system of the human body and to aid the development of therapeutic products for the treatment of certain cancers and chronic diseases.

AIM’s flagship products include Ampligen® (rintatolimod), a first-in-class drug of large macromolecular RNA (ribonucleic acid) molecules, and Alferon N Injection® (Interferon Alfa-N3). A first-in-class drug also known as a new molecular entity, is a drug that contains an active moiety that has not been approved by the FDA or marketed in the US.

Ampligen® represents an RNA being developed for globally important cancers, viral diseases and disorders of the immune system. Ampligen® has in the clinic demonstrated the potential for standalone efficacy in a number of solid tumors. We have also seen success in increasing survival rates and efficacy in the treatment of animal tumors when Ampligen® is used in combination with checkpoint blockade therapies. This success in the field of immuno-oncology has guided our focus toward the potential use of Ampligen® as a combinational therapy for the treatment of a variety of solid tumor types. There are currently multiple Ampligen® clinical trials — both underway and planned — at major cancer research centers around the country. Ampligen ® has also been used as a monotherapy to treat pancreatic cancer patients in an Early Access Program (EAP) approved by the Inspectorate of Healthcare in the Netherlands at Erasmus Medical Center.

Ampligen® is also being evaluated for the treatment of myalgic encephalomyelitis/chronic fatigue syndrome (ME/CFS). AIM is currently sponsoring an expanded access program (EAP) for ME/CFS patients in the U.S. In August 2016, we received approval of our NDA from Administracion Nacional de Medicamentos, Alimentos y Tecnologia Medica (ANMAT) for commercial sale of Ampligen® (trade name rintatolimod) in the Argentine Republic for the treatment of severe CFS. With regulatory approval in Argentina, Ampligen® is the world’s only approved therapeutic for ME/CFS. We continue to pursue our Ampligen New Drug Application, or NDA, for the treatment of CFS with the U.S. Food and Drug Administration, or FDA. Please see “Myalgic Encephalomyelitis/Chronic Fatigue Syndrome (“ME/CFS”)” below.

Alferon N Injection® is approved for a category of sexually transmitted diseases infection and patients that are intolerant to recombinant interferon in Argentina. Alferon is the only natural-source, multi-species alpha interferon currently approved for sale in the U.S. for the intralesional treatment of refractory (resistant to other treatment) or recurring external condylomata acuminata/genital warts (GW) in patients 18 years of age or older. Certain types of human papilloma viruses cause GW. AIM also has approval from ANMAT for the treatment of refractory patients that failed or were intolerant to treatment with recombinant interferon in Argentina. We have developed and, with proper funding, will be seeking FDA Pre-Approval Inspection of a high-volume, high-efficiency, upgraded manufacturing process to allow for the commercial viability of Alferon®.

We operate a 30,000 sq. ft. facility in New Brunswick, NJ with the objective of producing Ampligen® and Alferon®. We are committed to a focused business plan oriented toward finding senior co-development partners with the capital and expertise needed to commercialize the many potential therapeutic aspects of Ampligen® and our FDA-approved drug Alferon® N.

OUR PRODUCTS

Our primary pharmaceutical product platform consists of Ampligen®, first-in-class drug of large macromolecular double-stranded (ds) RNA (ribonucleic acid) molecules and our FDA approved natural alpha-interferon product, Alferon N Injection®.

Ampligen®

Ampligen® is approved for sale in Argentina for severe Chronic Fatigue Syndrome (CFS) and is an experimental drug in the United States currently undergoing clinical development for the treatment of certain cancers and ME/CFS. Over its developmental history, Ampligen® has received various designations, including Orphan Drug Product Designation (FDA and European Medicines Agency (“EMA”)), Treatment protocol (e.g., “Expanded Access” or “Compassionate” use authorization) with Cost Recovery Authorization (FDA) and “promising” clinical outcome recognition based on the evaluation of certain summary clinical reports (“AHRQ” or Agency for Healthcare Research and Quality). Ampligen® represents the first drug in the class of large (macromolecular) dsRNA molecules to apply for NDA review. Based on the results of published, peer reviewed pre-clinical studies and clinical trials, we believe that Ampligen® may have broad-spectrum anti-viral and anti-cancer properties.

We believe that nucleic acid compounds represent a potential new class of pharmaceutical products designed to act at the molecular level for treatment of many human diseases. There are two forms of nucleic acids, deoxyribonucleic acid (“DNA”) and ribonucleic acid (“RNA”). DNA is a group of naturally occurring molecules found in chromosomes, the cell’s genetic machinery. RNA is a group of naturally occurring informational molecules which orchestrate a cell’s behavior which, in turn, regulates the action of groups of cells, including the cells which compromise the body’s immune system. RNA directs the production of proteins and regulates certain cell activities including the activation of an otherwise dormant cellular defense against viruses and tumors. Our drug technology utilizes specifically-configured RNA and is a selective TLR3 agonist that is administered intravenously. Ampligen® has been assigned the generic name rintatolimod by the United States Adopted Names Council (USANC) and has the chemical designation poly(I):poly(C₁₂U).

EAP/clinical trials of Ampligen® that have been conducted or that are ongoing include studies of the potential treatment of patients with renal cell carcinoma, malignant melanoma, non-small cell lung, ovarian, breast, colorectal, urothelial, prostate and pancreatic cancer, CFS, Hepatitis B and HIV.

We have received approval of our NDA from ANMAT for commercial sale of rintatolimod (U.S. tradename: Ampligen®) in the Argentine Republic for the treatment of severe CFS. The product will be marketed by GP Pharm, our commercial partner in Latin America. In September 2019, AIM received clearance from the FDA to ship Ampligen to Argentina for the commercial launch and subsequent sales. Commercialization in Argentina will require, GP Pharm to establish disease awareness, medical education, creation of an appropriate reimbursement level, and design of marketing strategies.

The FDA has authorized an open-label expanded access treatment protocol, (“AMP-511”), allowing patient access to Ampligen® in an open-label safety study under which severely debilitated CFS patients have the opportunity to be on Ampligen® to treat this very serious and chronic condition. The data collected from the AMP-511 protocol through clinical sites provide safety information regarding the use of Ampligen® in patients with CFS. We are establishing an enlarged data base of clinical safety information which we believe will provide further documentation regarding the absence of autoimmune disease associated with Ampligen® treatment. We believe that continued efforts to understand existing data, and to advance the development of new data and information, will ultimately support our future filings for Ampligen® and/or the design of future clinical studies that the FDA requested in a complete response letter. The FDA has approved the increase reimbursement level from $200 to $345 per 200mg vial of Ampligen, due to increased production costs. At this time, we do not plan on passing this adjustment along the patients in this program. As of September 30, 2019, there are 13 patients being treated in this open-label expanded access treatment protocol.

In May 2016, we entered into a five-year agreement with myTomorrows, a Netherlands based company, for the commencement and management of an Early Access Program (“EAP”) in Europe and Turkey (the “Territory”) related to ME/CFS. Pursuant to the agreement, as amended, myTomorrows also will manage all Early Access Programs and Special Access Programs in Europe, Canada and Turkey to treat pancreatic cancer and ME/CFS patients.

In April 2018, we completed data analysis of an intranasal human safety study of Ampligen® plus FluMist® known as AMP-600. The study was previously closed after the US Centers for Disease Control and Prevention (“CDC”) recommended against the use of FluMist®. Intranasal Ampligen® in combination with FluMist® was generally well-tolerated in the study.

In June 2018, Ampligen® was cited as outperforming two other TLR3 agonists, poly IC and natural double stranded RNA, in creating an enhanced tumor microenvironment for checkpoint blockage therapy in the journal of Cancer Research (http://cancerres.aacrjournals.org/content/early/2018/05/31/0008-5472.CAN-17-3985). In a head-to-head study in explant culture models, Ampligen® activated the TLR3 pathway and promoted an accumulation of killer T cells but, unlike the other two TLR3 agonists, it did so without causing regulatory T cell (Treg) attraction. These findings were considered important because they indicate that Ampligen® selectively reprograms the tumor microenvironment by inducing the beneficial aspects of tumor inflammation (attracting killer T cells), without amplifying immune suppressive elements such as regulatory T cells. The study was conducted at the University of Pittsburgh and Roswell Park Comprehensive Cancer Center, as a part of the NIH-funded P01 CA132714 and Ovarian Cancer Specialized Program of Research Excellence (SPORE). Based upon these findings AIM and Roswell Park Comprehensive Cancer Center expanded their existing scientific collaboration to advance the clinical development of Ampligen® which has shown promise in preclinical studies when combined with checkpoint inhibitors (CPIs). The parties executed a Memorandum of Understanding (“MOU”) designed to further assess the clinical potential of Ampligen® in treating certain cancers.

Current Ampligen inventory is being used for multiple programs including the treatment of ME/CFS, the pancreatic cancer EAP in the Netherlands, ongoing and future clinical studies in oncology, and our ME/CFS EAP in the U.S.

Alferon N Injection®

Alferon N Injection® is the registered trademark for our injectable formulation of natural alpha interferon. Alferon® is the only natural-source, multi-species alpha interferon currently approved for sale in the U.S. and Argentina for the intralesional (within lesions) treatment of refractory (resistant to other treatment) or recurring external genital warts in patients 18 years of age or older. Alferon® is also approved in Argentina for the treatment of refractory patients that failed or were intolerant to treatment with recombinant interferons. Certain types of human papilloma viruses (“HPV”) cause genital warts, a sexually transmitted disease (“STD”). According to the CDC, HPV is the most common sexually transmitted infection, with approximately 79 million Americans — most in their late teens and early 20s — infected with HPV. In fact, the CDC states that “HPV is so common that nearly all sexually active men and women get the virus at some point in their lives.” Although they do not usually result in death, genital warts commonly recur, causing significant morbidity and entail substantial health care costs.

Interferons are a group of proteins produced and secreted by cells to combat diseases. Researchers have identified four major classes of human interferon: alpha, beta, gamma and omega. Alferon N Injection® contains a multi-species form of alpha interferon. The world-wide market for injectable alpha interferon-based products has experienced rapid growth and various alpha interferon injectable products are approved for many major medical uses worldwide. Alpha interferons are manufactured commercially in three ways: by genetic engineering, by cell culture, and from human white blood cells. All three of these types of alpha interferon are or were approved for commercial sale in the U.S. Our natural alpha interferon is produced from human white blood cells.

The potential advantages of natural alpha interferon over recombinant (synthetic) interferon produced and marketed by other pharmaceutical firms may be based upon their respective molecular compositions. Natural alpha interferon is composed of a family of proteins containing many molecular species of interferon. In contrast, commercial recombinant alpha interferon products each contain only a single species. Researchers have reported that the various species of interferons may have differing antiviral activity depending upon the type of virus. Natural alpha interferon presents a broad complement of species, which we believe may account for its higher activity in laboratory studies. Natural alpha interferon is also glycosylated (partially covered with sugar molecules). Such glycosylation is not present on the currently U.S. marketed recombinant alpha interferons. We believe that the absence of glycosylation may be, in part, responsible for the production of interferon-neutralizing antibodies seen in patients treated with recombinant alpha interferon. Although cell culture-derived interferon is also composed of multiple glycosylated alpha interferon species, the types and relative quantity of these species are different from our natural alpha interferon.

Alferon N Injection® [Interferon alfa-n3 (human leukocyte derived)] is a highly purified, natural-source, glycosylated, multi-species alpha interferon product. There are essentially no neutralizing antibodies observed against Alferon N Injection® to date and the product has a relatively low side-effect profile. The recombinant DNA derived alpha interferon formulations have been reported to have decreased effectiveness after one year of treatment, probably due to neutralizing antibody formation.

See “Manufacturing” and “Marketing/Distribution” sections below for more details on the manufacture and marketing/distribution of Alferon N Injection®.

Cancer

We have been working with the University of Pittsburgh’s chemokine modulation research initiative which includes the use of Ampligen® as a potential adjuvant to modify the tumor microenvironment (TME) with the goal of increasing anti-tumor responses to check point inhibitors (CPI). As part of this collaboration, AIM has supplied Ampligen® (rintatolimod) to the University. The study, under the leadership of Robert P. Edwards, MD, chair of gynecologic services at Magee-Women’s Hospital of the University of Pittsburgh School of Medicine, and Professor of Surgery Pawel Kalinski, M.D., Ph.D., at Roswell Park Comprehensive Cancer Center, Buffalo, N.Y., involved the chemokine modulatory regimen developed by Dr. Kalinski’s group and successfully completed the Phase 1 dose escalation in patients with resectable colorectal cancer. In the 1st quarter of 2017, Dr. Kalinski relocated to Roswell Park Comprehensive Cancer Center (“Roswell”) in Buffalo, NY and has established a cancer program which will continue to require a supply of Ampligen®.

In October 2018, we signed a clinical trial agreement with Roswell Park Comprehensive Cancer Center to evaluate Ampligen® in combination with checkpoint inhibitors (CPIs). The Phase IIa clinical trial will evaluate the immune-mediated effects of cytokine modulation in combination with CPIs in patients with primary resistance to CPI therapy. The protocol will seek to evaluate the combination of Ampligen® and CPIs in patients with advanced urothelial carcinoma, renal cell carcinoma and melanoma. Ampligen® is our investigational immune-enhancing TLR3 agonist that has demonstrated a robust anti-cancer effect in preclinical models when combined with CPIs. This new agreement expands the extensive prior clinical and preclinical work into the clinical checkpoint blockade arena and offers the opportunity to begin evaluation of this combination therapy in patients with a variety of solid tumors where large numbers of patients do not respond or progress following treatment with standard CPI-based therapy.

Currently, six Ampligen® clinical trials are open to enrollment at university cancer centers testing whether tumor microenvironments can be reprogrammed to increase the effectiveness of cancer immunotherapy, including checkpoint inhibitors:

Advanced Recurrent Ovarian Cancer — Phase 1/2 study of intraperitoneal chemo-immunotherapy in advanced recurrent ovarian cancer at University of Pittsburgh Medical Center (UPMC). Phase 1 portion established intraperitoneal safety of Ampligen plus Intron A with positive survival data. Dr. Robert Edwards, world renowned expert in ovarian cancer is the lead investigator. An interim report from Dr. Edwards’ team was received and a summary of same was disclosed. See: https://www.clinicaltrials.gov/ct2/show/NCT02432378

Advanced Recurrent Ovarian Cancer — Follow-up Phase 2 study of advanced recurrent ovarian cancer using cisplatin, pembrolizumab, plus Ampligen at UPMC. Up to 45 patients to be enrolled. Enrollment has commenced and the first patients have begun treatment. See: https://www.clinicaltrials.gov/ct2/show/NCT03734692

Stage 4 Metastatic Triple Negative Breast Cancer — Phase 2 study of metastatic triple-negative breast cancer using chemokine modulation therapy, including Ampligen and pembrolizumab at Roswell Park Comprehensive Cancer Center (Roswell). Two of the planned six patients enrolled and treated. Dr. M. Opyrchal, PI. See: https://www.clinicaltrials.gov/ct2/show/NCT03599453

Stage 4 Colorectal Cancer Metastatic to the Liver — Phase 2a study of Ampligen as component of chemokine modulatory regimen on colorectal cancer metastatic to liver at Roswell. Dr. S. Mukherjee, PI. Seven of 12 planned patients enrolled and treated. See: https://www.clinicaltrials.gov/ct2/show/NCT03403634

Early-Stage Prostate Cancer — Phase 2 study investigating the effectiveness and safety of aspirin and Ampligen with or without interferon-alpha 2b (Intron A) compared to no drug treatments in a randomized three-arm study of patients with prostate cancer before undergoing radical prostatectomy at Roswell. Dr. G. Chatta, PI. IRB and FDA approval to proceed received; pending internal tasks before the study can be opened. Up to 60 patients to be enrolled. See: https://clinicaltrials.gov/ct2/show/NCT03899987.

Early-Stage Triple Negative Breast Cancer — Phase 1 study of chemokine modulation plus neoadjuvant chemotherapy in patients with early-stage triple negative breast cancer has received FDA authorization at Roswell. The objective of this study is to evaluate the safety and tolerability of a combination of Ampligen, celecoxib with or without Intron A, when given along with chemotherapy. The goal of this approach is to increase survival. Dr. S Gandhi, PI. See: https://www.clinicaltrials.gov/ct2/show/NCT04081389.

In addition, five Ampligen clinical trials are planned for initiation in 2019 or early 2020, subject to funding:

In January 2017, the EAP through our agreement with myTomorrows designed to enable access of Ampligen® to ME/CFS patients had been extended to pancreatic cancer patients beginning in the Netherlands. myTomorrows is our exclusive service provider in Europe and Turkey and will manage all EAP activities relating to the pancreatic cancer extension of the program. In February 2018, the agreement with myTomorrows was extended to cover Canada to treat pancreatic cancer patients, pending government approval.

The EAP is located at Erasmus University and is being conducted by Professor Casper van Eijck. Eligible patients include adults with metastatic or locally advanced pancreatic carcinoma following FOLFIRINOX (a combination of cancer drugs) and adults post-Whipple procedure. The EAP was initially approved for extremely advanced cases, but is now approved for all pancreatic cancer, regardless of stage. Under the EAP, Immune-Inflammation Index and restaging scans/x-rays were performed every six weeks. The drug is being found to be generally well tolerated, with subjects reporting improved quality of life. Publication of data from the first two years is expected within the first half of 2020

Myalgic Encephalomyelitis/Chronic Fatigue Syndrome (“ME/CFS”)

Myalgic Encephalomyelitis/Chronic Fatigue Syndrome, also known as Chronic Fatigue Immune Dysfunction Syndrome (“CFIDS”) and Chronic Fatigue Syndrome is a serious and debilitating chronic illness and a major public health problem. ME/CFS is recognized by both the government and private sector as a significant unmet medical need, including the U.S. National Institutes of Health (“NIH”), FDA and the CDC. The CDC states on its website at https://www.cdc.gov/me-cfs/ that “Myalgic encephalomyelitis/chronic fatigue syndrome (ME/CFS) is a serious, long-term illness that affects many body systems. People with ME/CFS are often not able to do their usual activities. At times, ME/CFS may confine them to bed. People with ME/CFS have severe fatigue and sleep problems. ME/CFS may get worse after people with the illness try to do as much as they want or need to do. This symptom is known as post-exertional malaise (PEM). Other symptoms can include problems with thinking and concentrating, pain, and dizziness.”

Many severe ME/CFS patients become completely disabled or totally bedridden and are afflicted with severe pain and mental confusion even at rest. ME/CFS is characterized by incapacitating fatigue with profound exhaustion and extremely poor stamina, sleep difficulties and problems with concentration and short-term memory. It is also accompanied by flu-like symptoms, pain in the joints and muscles, tender lymph nodes, sore throat and new headaches. A distinctive characteristic of the illness is a worsening of symptoms following physical or mental exertion, which do not subside with rest.

In October 2016, an analysis of a subset of CFS patients from the AMP-516 Phase 3 study was performed and presented at the IACFS/ME annual meeting in Fort Lauderdale, FL. The ITT Population (n=208) was separated into two subsets based primarily on baseline CFS symptom duration (2-8 years (n=75) and <2 years plus >8 years (n=133)). Responder analyses of the ITT Population and both subsets were performed. Responder analyses of rintatolimod vs. placebo patients improving ET duration from baseline by ≥25% shows over twice the % of patients with clinical enhancement in ET effect in the rintatolimod cohort compared to placebo for the 2-8 year subset vs. the ITT population. This subset may assist in the design of future clinical studies of Ampligen® in the treatment for ME/CFS patients.

Other Diseases

In Europe, the EMA has approved the Orphan Medicinal Products Designation for rintatolimod (Ampligen®) as a potential treatment of Ebola virus disease and for Alferon® N Injection, also known as interferon alfa-n3, as a potential treatment of MERS.

We concluded our series of collaborations designed to determine the potential effectiveness of Ampligen® and Alferon® N as potential preventative and/or therapeutic treatments for Ebola related disorders. Although we believe that the threat of both MERS and Ebola globally may reemerge in the future, it appears that the spread of these disorders has somewhat diminished. As a result, we have elected to focus our research and development efforts on other areas at this time.

Manufacturing

In January 2017, AIM and Jubilant Hollister-Stier LLC (“Jubilant”) entered into a commitment pursuant to which Jubilant has manufactured commercial size batches of Ampligen®. Two commercial size batches consisting of over 16,000 vials were produced in 2018 for use in our clinical studies and EAP.

Jubilant was approved by the FDA as a manufacturer of Ampligen by the successful completion of a previous preapproval inspection by the agency. The National Administration of Drugs, Food and Medical Devices (ANMAT) in Argentina has approved Ampligen for commercial distribution for the treatment of Chronic Fatigue Syndrome (CFS). The release testing of the drug, which is needed by ANMAT has been initiated in Argentina. In September 2019, AIM received clearance from the FDA to ship Ampligen to Argentina for the commercial launch and subsequent sales. We are currently working with GP Pharma on the commercial launch of Ampligen in Argentina.

The production of the polymers (Ampligen intermediates) at our New Brunswick facility is required for the production of additional lots of Ampligen. The manufacture of polymer is currently in production to provide the intermediates needed to produce additional lots of Ampligen at Jubilant in December 2019 and January 2020.

Alferon® is approved by the FDA for commercial sales in the US for the treatment of genital warts. It is also approved by ANMAT in Argentina for commercial sales for the treatment of genital warts and in patients refractory to treatment with recombinant interferons. While the AIM facility in New Brunswick is approved by the FDA under the Biologic License Application (BLA) for Alferon®, this status will need to be reaffirmed by an FDA pre-approval inspection which will not occur until new batches of commercial filled and finished product are produced and released by the FDA. Currently, the manufacturing process is on hold and there is no definitive timetable to have the facility back online until additional funding is obtained.

In an effort to reduce costs, through attrition, we have restructured our manufacturing operations. These reductions allow us to be more efficient and, we believe, will reduce our overall burn rate going forward.

Marketing/Distribution

In May 2016, we entered into a five-year exclusive Renewed Sales, Marketing, Distribution and Supply Agreement (the “Agreement”) with GP Pharm. Under this Agreement, GP Pharm was responsible for gaining regulatory approval in Argentina for Ampligen® to treat severe CFS in Argentina and for commercializing Ampligen® for this indication in Argentina. We granted GP Pharm the right to expand rights to sell this experimental therapeutic into other Latin America countries based upon GP Pharm achieving certain performance milestones. We also granted GP Pharm an option to market Alferon N Injection® in Argentina and other Latin America countries.

In January 2017, the ANMAT granted a five-year extension to a previous approval to sell and distribute Alferon N Injection® (under the brand name “Naturaferon”) in Argentina. This extends the approval until 2022. In February 2013, we received the ANMAT approval for the treatment of refractory patients that failed or were intolerant to treatment with recombinant interferon, with Naturaferon® in Argentina.

In May 2016, we entered into a five-year agreement (the “Impatients Agreement”) with Impatients, N.V. (“myTomorrows”), a Netherlands based company, for the commencement and management of an EAP in Europe and Turkey (the “Territory”) related to ME/CFS. Pursuant to the agreement, myTomorrows, as our exclusive service provider and distributor in the Territory, is performing EAP activities. These activities will be directed to (a) the education of physicians and patients regarding the possibility of early access to innovative medical treatments not yet the subject of a Marketing Authorization (regulatory approval) through named-patient use, compassionate use, expanded access and hospital exemption, (b) patient and physician outreach related to a patient-physician platform, (c) the securing of Early Access Approvals (exemptions and/or waivers required by regulatory authorities for medical treatments prior to Marketing Authorization) for the use of such treatments, (d) the distribution and sale of such treatments pursuant to such Early Access Approvals, (e) pharmacovigilance (drug safety) activities and/or (f) the collection of data such as patient-reported outcomes, doctor-reported experiences and registry data. We are supporting these efforts and supplying Ampligen® to myTomorrows at a predetermined transfer price. In the event that we receive Marketing Authorization in any country in the Territory, we will pay myTomorrows a royalty on products sold. Pursuant to the Impatients Agreement, the royalty would be a percentage of Net Sales (as defined in the Impatients Agreement) of Ampligen® sold in the Territory where Marketing Authorization was obtained, and the maximum royalty would be a percentage of Net Sales. The formula to determine the percentage of Net Sales will be based on the number of patients that are entered into the EAP. The Company believes that disclosure of the exact maximum royalty rate and royalty termination date could cause competitive harm. However, to assist the public in gauging these terms, the actual maximum royalty rate is somewhere between 2% and 10% and the royalty termination date is somewhere between five and fifteen years from the First Commercial Sale of a product within a specific country. The parties established a Joint Steering Committee comprised of representatives of both parties to oversee the EAP. No assurance can be given that activities under the EAP will result in Marketing Authorization or the sale of substantial amounts of Ampligen® in the Territory.

In January 2017, the EAP through our agreement with myTomorrows designed to enable access of Ampligen® to ME/CFS patients has been extended to pancreatic cancer patients beginning in the Netherlands. myTomorrows is our exclusive service provider in the Territory and will manage all EAP activities relating to the pancreatic cancer extension of the program.

In February 2018, we signed an amendment to the EAP with myTomorrows. This amendment extended the territory to cover Canada to treat pancreatic cancer patients, pending government approval.

In March 2018, we signed an amendment to the EAP with myTomorrows, pursuant to which myTomorrows will be our exclusive service provider for special access activities in Canada for the supply of Ampligen® for the treatment of ME/CFS.

In August 2017, we extended our agreement with Asembia, formerly Armada Healthcare, LLC, to undertake the marketing, education and sales of Alferon N Injection® throughout the United States.

401(k) Plan

Each participant immediately vests in his or her deferred salary contributions, while Company contributions will vest over one year. The 6% Company matching contribution was terminated effective January 1, 2016. For the nine months ended September 30, 2019, the Company did not make any contributions towards the 401(k) Plan.

New Accounting Pronouncements

See “Note 10: Recent Accounting Pronouncements”.

Disclosure About Off-Balance Sheet Arrangements

None.

Critical Accounting Policies

There have been no material changes in our critical accounting policies and estimates from those disclosed in Part II; Item 7: “Management’s Discussion and Analysis of Financial Condition and Results of Operations; Critical Accounting Policies” contained in our Annual Report on Form 10-K for the year ended December 31, 2018.

RESULTS OF OPERATIONS

Three months ended September 30, 2019 versus three months ended September 30, 2018

Net Loss

Our net loss was approximately $2,948,000 and $3,078,000 for the three months ended September 30, 2019 and 2018, respectively, representing a decrease in loss of approximately $130,000 or 4% when compared to the same period in 2018. This decrease in loss for these three months was primarily due to the following:

Net loss per share was $(1.12) and $(2.87) for the three months ended September 30, 2019 and 2018, respectively. The weighted average number of shares of our common stock outstanding as of September 30, 2019 was 2,603,854 as compared to 1,072,371 as of September 30, 2018.

Revenues

Revenues from our Ampligen Cost Recovery Program were $61,000 and $38,000 for the three months ended September 30, 2019 and 2018, respectively. The sales increased as clinical sites resumed purchase of product after 2018 inventory build.

Production Costs

Production costs were approximately $230,000 and $208,000, respectively, for the three months ended September 30, 2019 and 2018, representing an increase of $22,000 in production costs in the current period. These costs primarily represent production expenses related to Ampligen.

Research and Development Costs

Overall Research and Development (“R&D”) costs for the three months ended September 30, 2019 were approximately $1,190,000 as compared to $1,595,000 for the same period a year ago, reflecting a decrease of approximately $405,000 or 25%. Costs decreased primarily due to a general reduction of Ampligen manufacturing costs of $379,000 and a decrease of $19,000 in clinical research costs.

General and Administrative Expenses

General and Administrative (“G&A”) expenses for the three months ended September 30, 2019 and 2018, were approximately $1,846,000 and $1,273,000, respectively, reflecting an increase of approximately $573,000 or 45%. The increase in G&A expenses during the current period was mainly due to an increase in stock based compensation of $85,000, an increase in public relations of $34,000, an increase in investment banking fees of $100,000, and an increase in legal fees of $379,000, offset by reduction in legal fees of $263,000 from 2018 nonrecurring class action suit.

Other Income-Expenses

Interest and finance costs increased $134,000 in the three months ended September 30, 2019 mostly due to the costs associated with the convertible debt and promissory note which were not in effect in the three months ended September 30, 2018. The convertible debt is valued using the Monte Carlo method and for the three months ended September 30, 2019 there was loss of $4,000 as a result of the Monte Carlo method.

Redeemable Warrants

The quarterly revaluation of certain redeemable warrants resulted in a non-cash adjustment to the redeemable warrants liability for the three months ended September 30, 2019 which amounted to a gain of approximately $446,000, compared to a gain of $696,000 for September 30, 2018 (see Note 13: Fair Value - for the various factors considered in the valuation of redeemable warrants).

Nine months ended September 30, 2019 versus Nine months ended September 30, 2018

Net Loss

Our net loss was approximately $8,345,000 and $8,206,000 for the nine months ended September 30, 2019 and 2018, respectively, representing an increase in loss of approximately $139,000 or 2% when compared to the same period in 2018. This increase in loss for these nine months was primarily due to the following:

Net loss per share was $(4.41) and $(8.45) for the nine months ended September 30, 2019 and 2018, respectively. The weighted average number of shares of our common stock outstanding as of September 30, 2019 was 1,891,782 as compared to 971,570 as of September 30, 2018.

Revenues

Revenues from our Ampligen Cost Recovery Program were $90,000 and $127,000 for the nine months ended September 30, 2019 and 2018, respectively, showing a decrease of $37,000. The sales decreased because the clinical sites purchased more inventory in 2018 to make sure they have enough drug supply for the patients currently enrolled in the expanded access and cost recovery programs.

Production Costs

Production costs were approximately $676,000 and $602,000, respectively, for the nine months ended September 30, 2019 and 2018, representing an increase of $74,000 in production costs in the current period. These costs primarily represent production expenses related to Ampligen.

Research and Development Costs

Overall Research and Development (“R&D”) costs for the nine months ended September 30, 2019 were approximately $3,214,000 as compared to $3,791,000 for the same period a year ago, reflecting a decrease of approximately $577,000 or 15%. R&D costs decreased mainly due to a general reduction of Ampligen contract manufacturing costs of $931,000, Ampligen stability and compliance of $304,000 offset by an increase of $492,000 in polymer production, and an increase of $134,000 in clinical research costs.

General and Administrative Expenses

General and Administrative (“G&A”) expenses for the nine months ended September 30, 2019 and 2018, were approximately $5,555,000 and $4,569,000, respectively, reflecting an increase of approximately $986,000 or 22%. The increase in G&A expenses during the current period was mainly due to an increase in public relations expense of $154,000, stock compensation of $300,000, an increase in stock market fees of $20,000 and an increase in salaries of $147,000, offset by a non-recurring legal fees associated with 2018 class action of $343,000 and other normal variations in expenses.

Other Income-Expenses

There was a gain from the sale of the underutilized building in New Brunswick of $223,000 in 2018 which did not occur in 2019.

There was a write off of the balance of debt discounts associated with extinguished debt of $250,000 in 2019 which did not occur in 2018.

Preliminary settlement proceeds of $260,000 in September 30, 2019, versus vendor settlement proceeds of $474,000 in September 30, 2018 caused a reduction of net income of $214,000 when compared to the prior year period.

Convertible Debt

Interest expense and finance costs increased $285,000 in the nine months ended September 30, 2019 mostly due to costs associated with the convertible debt and promissory note.

The convertible debt is valued using the Monte Carlo method and for the three months ended September 30, 2019 there was a gain of $12,000 as a result of the Monte Carlo method.

The available shares for the conversion feature of the convertible note has been met.

Redeemable Warrants

The quarterly revaluation of certain redeemable warrants resulted in a non-cash adjustment to the redeemable warrants liability for the nine months ended September 30, 2019 which amounted to a gain of approximately $1,485,000, compared to a gain of $826,000 for September 30, 2018 (see Note 13: Fair Value - for the various factors considered in the valuation of redeemable warrants).

Liquidity and Capital Resources

On August 5, 2019, we entered into a Note Purchase Agreement (the “Purchase Agreement”) with Chicago Venture Partners, L.P. (the “Lender”), pursuant to which we issued a Secured Promissory Note (the “Note”) to the Lender. The Note has an original principal amount of $2,635,000, bears interest at a rate of 10% per annum and will mature in 24 months, unless earlier paid in accordance with its terms. We received proceeds of $1,900,000 after an original issue discount and payment of Lender’s legal fees. Pursuant to a Security Agreement between us and the Lender, repayment of the Convertible Note is secured by substantially all of our assets other than its intellectual property.

As of September 30, 2019, we had approximately $11,730,000 in cash, cash equivalents and marketable securities inclusive of approximately $2,114,000 in Marketable Securities, representing an increase of approximately $9,905,000 from December 31, 2018. Cash used in operating activities for the nine months ended September 30, 2019 was approximately $6,778,000 compared to approximately $8,221,000 for the same period in 2018, a decrease of $1,250,000 or 15%. The primary reason for this decrease was collection of other receivables in 2019.

Cash used in investing activities for the nine months ended September 30, 2019 was approximately $858,000 compared to cash provided by investing activities of approximately $1,610,000 for the same period in 2018, representing a change of $2,468,000. The primary reasons for the change during the current period is the receipt of $1,050,000 from the sale of the underutilized second building in New Brunswick, New Jersey in 2018, sale of marketable securities of $675,000 in 2018 and purchase of marketable securities of $588,000 in 2019 along with a purchase of equipment of $68,000 and payments of patent and trademark fees of $202,000 in 2019.

Cash provided by financing activities for the nine months ended September 30, 2019 was approximately $17,146,000, compared to approximately $9,254,000 for the same period in 2018, an increase of $7,892,000. The primary reasons for the increase can be attributed to our receipt of net proceeds of approximately $15,307,000 from the sale of our securities in a stock offering and in a rights offering, the exercise of warrants and the sale of common stock pursuant to our 2019 Equity Distribution Agreement with Maxim Group (the “2019 EDA”) — as compared to $4,904,000 in such proceeds in 2018 (see “Note 8: Stockholders’ Equity”). The increase for the period can also be attributed to the receipt of $4,080,000 in gross proceeds less payment of the mortgage of $1,957,000, and expenses of $479,000 with a net $1,678,000 from the sale leaseback of the main building located in New Brunswick, New Jersey in 2018.

If we are unable to commercialize and sell Ampligen and/or recommence material sales of Alferon N Injection, our operations, financial position and liquidity may be adversely impacted, and additional financing will be required. In this regard, due to the high cost estimates to bring the facility back online, we most likely will need additional funds to finance the revalidation process in our facility and to initiate commercial manufacturing, thereby readying ourselves for an FDA Pre-Approval Inspection and to commercialize our products. However, there is no assurance that such financing will be available.

As of September 1, 2017, the directors agreed to defer 100% of their fees until cash is available. In consideration of this deferral, 226,023 options were issued to each of the two independent directors in February 2018 with an exercise price of $0.37 for a period of 10 years with a vesting period of 3 years. As of September 1, 2017, certain officers agreed to defer 40% of their salaries until cash is available and all employees agreed to be paid 50% of their salaries in the form of unrestricted common stock of the Company. In April 2018, the Board of Directors approved a payment of 50% of the deferred Board fees and the deferred officer salaries. On April 1, 2019 50% of the current Board fees were paid in cash and 50% were paid in stock and 25% of the current officer salaries will continue to be deferred.

We reactivated our 2012 EDA with Maxim under our universal shelf registration statement in December 2017. Since December 5, 2017, we have sold an aggregate of 2,970,273 shares under the 2012 EDA for proceeds of $1,098,020 net of $32,940 in commissions. The 2012 EDA was terminated in July 2019, and a new Equity Distribution Agreement was entered into on July 19, 2019. See below.

In January and February 2018, we realized net proceeds of approximately $1,260,000 from the exercise of 63,637 warrants with an exercise price on $19.80.

On March 16, 2018, we sold our property located at 783 Jersey Ave, New Brunswick, NJ for $4,080,000 and the purchasers received 73,314 warrants to purchase common stock. Simultaneously therewith, we leased the facility back.

On March 24, 2018, we sold 28,409 shares of common stock for net proceeds of approximately $475,000 from this stock offering.

In February 2018, we sold our unencumbered, unutilized, and wholly owned property located at 5 Jules Lane, New Brunswick, New Jersey to Acellories, NJ LLC, a New Jersey limited liability company, pursuant to a sale agreement dated September 11, 2017. The sale price was $1,050,000.

On September 11, 2019, the Board of Directors authorized the purchase, by our employees and directors, of up to $500,000 worth of our Common Stock. The purchase price to be the closing price of the Common Stock on the NYSE American on the trading day prior to purchase. In September 2019, certain directors and officers purchased a total of 67,767 shares in accordance with this plan for a total of $274,000 at an average price of $4.04.

On July 19, 2019, we entered into a new Equity Distribution Agreement (the “2019 EDA”), with Maxim Group LLC, pursuant to which we may sell from time to time, shares of our Common Stock through Maxim, as agent (the “Offering”). The 2019 EDA replaced our prior 2012 Equity Distribution Agreement with Maxim. On July 19, 2019, we filed a prospectus supplement with the Securities and Exchange Commission (the “SEC”) in connection with the Offering (the “Prospectus Supplement”) under its existing Registration Statement on Form S-3 (File No 333-226059), which became effective on August 3, 2018 (the “Registration Statement”), related to the sale of Shares having an aggregate offering price of up to $4,508,244, the maximum number of Shares permitted to be sold under the 2019 EDA and Registration Statement at that time. The actual number of shares that we can sell pursuant to the 2019 EDA and the proceeds to be received therefrom are dependent upon the market price of our common stock. As of September 30, 2019, the Company sold 905,869 shares under the Distribution Agreement for a total of $2,553,079 which includes a 3.5% fee to Maxim of $89,358.

There can be no assurances that, if needed, we will be able to raise adequate funds from these or other sources or enter into licensing, partnering or other arrangements to advance our business goals. Our inability to raise such funds or enter into such arrangements, if needed, could have a material adverse effect on our ability to develop our products. Also, we have the ability to curtail discretionary spending, including some research and development activities, if required to conserve cash. Because of our long-term capital requirements, we may seek to access the public equity market whenever conditions are favorable, even if we do not have an immediate need for additional capital at that time. We are unable to estimate the amount, timing or nature of future sales of outstanding common stock or instruments convertible into or exercisable for our common stock. 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. We may also need additional funding earlier than anticipated, and our cash requirements, in general, may vary materially from those now planned, for reasons including, but not limited to, changes in our research and development programs, clinical trials, acquisitions of intellectual property or assets, enhancements to the manufacturing process, competitive and technological advances, the regulatory processes including the commercializing of Ampligen products or new utilization of Alferon products.

The proceeds from our financings have been used to fund operations, manufacturing of Ampligen, ongoing clinical trials and general administrative expenses. There can be no assurances that, if needed, we will raise adequate funds from these or other sources, which may have a material adverse effect on our ability to develop our products. Also, we have the ability to curtail discretionary spending, including some research and development activities, if required to conserve cash