Market Overview

Aradigm Announces Fourth Quarter 2017 and Full Year Financial Results

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Subsequent Highlights

  • Cash and cash equivalents of $7.1 million expected to be sufficient to
    fund operations for Q1 2018; temporary measures implemented to
    preserve cash resources
  • Focus on European Approval for Linhaliq – Marketing Authorization
    Application for EU filed
  • Patients and patient advocacy groups have expressed support for
    allowing NCFBE patients to receive the benefits of Linhaliq

Aradigm Corporation (NASDAQ:ARDM) (the "Company") today
announced financial results for the fourth quarter and full year ended
December 31, 2017.

Fourth Quarter 2017 Results

The Company recorded $2.4 million in revenue in the fourth quarter of
2017 compared with $125,000 in revenue in the fourth quarter of 2016.
The Company recognized $2.3 million in contract revenue – related party,
$27,000 in government contract revenue and $71,000 in government grant
revenue for the fourth quarter of 2017, as compared to $116,000 in
government contract revenue and $9,000 in government grant revenue for
the fourth quarter of 2016. The increase in revenue was from the
Company's adoption of ASC Topic 606, Revenue from Contracts with
Customers and primarily resulted from regulatory submission services
provided for the New Drug Application (NDA) filing.

Total operating expenses for the fourth quarter of 2017 were $5.6
million, compared with total operating expenses of $7.2 million for the
fourth quarter of 2016. The decrease in operating expenses was primarily
due to lower research and development expenses because the Linhaliq™
Phase 3 clinical trials in non-cystic fibrosis bronchiectasis (NCFBE)
are complete. This decrease was offset by higher consulting expenses in
support of the regulatory approval process and higher costs in general
and administrative expenses related to stock compensation expense, bonus
expense and corporate insurance expense.

The Company's net loss for the fourth quarter of 2017 was $4.2 million,
or $0.28 per share, compared with a net loss of $7.9 million, or $0.54
per share, for the same period in 2016. For the quarter ended December
31, 2017, the decrease in net loss resulted primarily from an increase
in revenue of $2.2 million and a decrease in operating expenses of $1.6
million, partially offset by an increase in interest expense of $0.1
million.

Full Year Results

Revenues for the year ended December 31, 2017 were $14.5 million,
compared with revenues of $195,000 thousand in 2016. The Company
recognized $14.1 million in contract revenue – related party, $268,000
in government contract revenue and $122,000 in government grant revenue
for the year ended December 31, 2017, as compared to $40,000 in contract
revenue – related party, $116,000 in government contract revenue and
$39,000 in government grant revenue for the year ended December 31,
2016. The increase in revenue was primarily from the Company's adoption
of ASC Topic 606, Revenue from Contracts with Customers, which resulted
in the recognition of $9.5 million in contract revenue – related party
associated with regulatory submission and approval of services provided
for the NDA filing combined with $4.5 million in contract revenue –
related party from a change in estimated variable consideration
associated with the $5 million regulatory milestone for the NDA filing
allocated to performance obligations satisfied in the current or prior
periods.

Total operating expenses for 2017 were $21.4 million, compared with
total operating expenses of $30.2 million in 2016. Research and
development expenses decreased by $10.6 million and general and
administrative expenses increased by $1.8 million. The decrease in
research and development expenses was due to lower contract
manufacturing, contract testing and clinical trial costs because the
Linhaliq™ Phase 3 clinical trials in non-cystic fibrosis bronchiectasis
(NCFBE) are complete. The decrease was offset by higher employee-related
expenses, higher consulting, meeting and travel expenses in support of
the Linhaliq regulatory process towards U.S. and European Union
approvals for market authorization. The increase in general and
administrative expenses of $1.8 million was primarily related to higher
performance bonus expense, higher legal expense, higher corporate
insurance expense, higher non-cash stock compensation expense and higher
consulting expense.

The net loss for the year ended December 31, 2017 was $10.7 million, or
$0.72 per share, compared with a net loss of $32.9 million, or $2.23 per
share, in 2016. Net loss decreased primarily from an increase in revenue
of $14.3 million, a decrease in operating spend of $8.8 million related
to the completion of the Phase 3 clinical trials for Linhaliq in non-CF
BE in the fourth quarter of 2016, a decrease in other expense of $0.6
million in 2017, offset by an increase in interest expense of $1.5
million related to the Note Financing.

Liquidity and Capital Resources and Related Matters

As of December 31, 2017, the Company's cash and cash equivalents totaled
$7.1 million.

Aradigm received a Complete Response Letter (CRL) from the FDA regarding
the New Drug Application (NDA) for Linhaliq as a treatment for
non-cystic fibrosis bronchiectasis (NCFBE) patients with chronic lung
infections with Pseudomonas aeruginosa (P. aeruginosa).

The CRL states that the FDA has determined that it cannot approve the
NDA in its present form and provides specific reasons for this action
along with recommendations needed for resubmission; the areas of concern
include clinical data, human factor validation study and product quality.

The Aradigm Board of Directors approved temporary measures on February
9, 2018 intended to preserve the Company's cash resources. The cash
preservation measures include the termination of the Amended and
Restated Aradigm Corporation Executive Officer Severance Benefit Plan,
the reduction of the annual base salary by 50% of certain executive
officers and the reduction of the cash compensation paid to members of
the Board for service on the Board and committees by 50%. Effective
February 11, 2018 the three Senior Executive Officers resigned all
offices and positions; the Board appointed Dr. John Siebert as the
Principal Executive Officer and the Principal Financial Officer.

"We are pursuing potential alternatives to resolve our cash position in
the short term as well as developing strategic options that would
provide for our long term viability. We feel it is important to bring
Linhaliq to commercialization in as many geographies as possible to
allow patients suffering from NCFBE to get the benefits of Linhaliq.
Patients, patient advocacy groups and key opinion leaders have expressed
support as we work towards this goal. The MAA was filed in early March
which is the first step in achieving regulatory approval in Europe,"
said John M. Siebert, PhD

About Non-Cystic Fibrosis Bronchiectasis

Non-CF BE is a severe, chronic and rare disease characterized by
abnormal dilatation of the bronchi and bronchioles, frequently
associated with chronic lung infections. It is often a consequence of a
vicious cycle of inflammation, recurrent lung infections, and bronchial
wall damage. Non-CF BE represents an unmet medical need with high
morbidity and mortality that affects more than 150,000 people in the
U.S. and over 200,000 people in Europe. There is currently no drug
approved for the treatment of this condition.

About Aradigm

Aradigm is an emerging specialty pharmaceutical company focused on the
development and commercialization of drugs for the prevention and
treatment of severe respiratory diseases. Aradigm has completed two
Phase 3 trials with Linhaliq, an investigational proprietary formulation
of ciprofloxacin for inhalation for the treatment of non-cystic fibrosis
BE and submitted an NDA to the FDA for this indication. Aradigm's
inhaled ciprofloxacin formulations including Pulmaquin are also product
candidates for treatment of patients with cystic fibrosis and
non-tuberculous mycobacteria, and for the prevention and treatment of
high threat and bioterrorism infections, such as inhaled tularemia,
pneumonic plague, melioidosis, Q fever and inhaled anthrax.

More information about Aradigm can be found at www.aradigm.com.

Forward-Looking Statements

Except for the historical information contained herein, this news
release contains forward-looking statements that involve risk and
uncertainties, including the risk that Linhaliq may not receive
regulatory approval or be successfully commercialized, as well as the
other risks detailed from time to time in the Company's filings with the
Securities and Exchange Commission (SEC), including the Company's Annual
Report on Form 10-K for the year ended December 31, 2016 filed with the
SEC on March 30, 2017, and the Company's Quarterly Reports on Form 10-Q.

Aradigm and the Aradigm Logo are registered trademarks of Aradigm
Corporation. Linhaliq is a registered trademark of Grifols, S.A.

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ARADIGM CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
 
  Three months ended   Year ended
December 31, December 31,
2017   2016 2017   2016
 
Revenue:
Contract revenue – related party $ 2,271 $ - $ 14,075 $ 40
Contract revenue 27 116 268 116
Grant revenue   71     9   122     39
Total revenues   2,369     125   14,465     195
Operating expenses:
Research and development 3,704 5,865 13,815 24,387
General and administrative 1,870 1,339 7,592 5,828
Restructuring and asset impairment - -

-

2
           
Total operating expenses   5,574     7,204   21,407     30,217
 
Loss from operations

(3,205)

(7,079)

(6,942)

(30,022)

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