ABEONA THERAPEUTICS INC. - Quarter Report: 2009 May (Form 10-Q)

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

 

Delaware		83-0221517
(State or other jurisdiction of		(I.R.S. Employer I.D. No.)
incorporation or organization)

 

Large accelerated filer o		Accelerated filer o		Non-accelerated filer o		Smaller reporting company þ
		(Do not check if a smaller reporting company)

 

 

 

 

ITEM 2

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

·

MuGard™ is our approved product for the management of oral mucositis, a frequent side-effect of cancer therapy for which there is no established treatment. The market for mucositis treatment is estimated to be in excess of $1 billion world-wide. MuGard, a proprietary nanopolymer formulation, has received marketing allowance in the U.S. from the Food & Drug Administration (“FDA”). On April 22, 2009, we announced that MuGard has been launched in Germany, Italy, UK, Greece and the Nordic countries by our European commercial partner, SpePharm.

·

Our lead development candidate for the treatment of cancer is ProLindac™, a nanopolymer DACH-platinum prodrug. We recently completed a Phase 2 clinical trial on ProLindac in the EU in patients with ovarian cancer. The clinical study had positive safety and efficacy results. We are currently planning a number of combination trials, looking at combining ProLindac with other cancer agents such as taxol and gemcitabine, in solid tumor indications including colorectal and ovarian. The DACH-platinum incorporated in ProLindac is the same active moiety as that in oxaliplatin (Eloxatin; Sanofi-Aventis), which has sales in excess of $2.0 billion.

·

Thiarabine, or 4-thio Ara-C, is a next generation nucleoside analog licensed from Southern Research Institute. Previously named SR9025 and OSI-7836, the compound has been in two Phase 1/2 solid tumor human clinical trials and was shown to have anti-tumor activity. We are working with leukemia and lymphoma specialists at MD Anderson Cancer Center in Houston and intend to initiate additional Phase 2 clinical trials in adult AML, ALL and other indications.

·

Pexiganan is a novel topical broad-spectrum antibiotic being developed for the treatment of mild-to-moderate diabetic foot ulcer infections. Pexiganan has been through two Phase 3 clinical trials, and data from these trials were presented last December 15, 2008 in the journal Clinical Infectious Diseases. We are actively seeking co-development partners for Pexiganan.

·

EcoNail is a proprietary lacquer formulation of the anti-fungal econazole and our Soft Enhancement of Percutaneous Absorption (SEPA) technology for the treatment of onychomycosis. A Phase 2 clinical trial on EcoNail was recently completed and we are currently evaluating its development and partnering strategy.

·

Phenylbutyrate (PB), an HDAC inhibitor and a differentiating agent, has been investigated in multiple Phase 1/2 NIH and clinician-sponsored trials, and is currently approved by the FDA for the treatment of hyperuremia, a pediatric orphan indication. For its use in cancer, phenylbutyrate is a Phase 2 clinical candidate.

·

Cobalamin™ is our proprietary preclinical nanopolymer oral drug delivery technology based on the natural vitamin B12 oral uptake mechanism. We are currently developing a product for the oral delivery of insulin, and are conducting sponsored development of a product for oral delivery of human growth hormone.

·	Angiolix® is our preclinical humanized monoclonal antibody which acts as an anti-angiogenesis factor and is targeted to lactadherin, a glycoprotein secreted by cancer cells, notably breast, ovarian and colorectal cancers.

·	Prodrax® is our non-toxic prodrug which is activated in the hypoxic zones of solid tumors to kill cancer cells. This product is in preclinical development.

·	Cobalamin-mediated cancer targeted delivery is a preclinical technology which makes use of the fact that cell surface receptors for vitamins such as B12 are often overexpressed by cancer cells.

Compound		Originator		Technology		Indication		Clinical Stage (1)
MuGard™		Access		Mucoadhesive liquid		Mucositis		(510k) Marketing clearance received
ProLindacTM (Polymer    Platinate, AP5346) (2)		Access / Univ of London		Synthetic polymer		Cancer		Phase 2
Thiarabine (4-thio Ara-C)		Southern Research Institute		Small molecule		Cancer		Phase 1/2
Pexiganan		Genaera Corp.		Small peptide		Diabetic foot ulcer infections		Phase 3
EcoNail		Access		SEPA		Onychomycosis		Phase 2
Phenylbutyrate (PB)		National Institute of Health		Small molecule		Cancer		Phase 2
Oral Insulin		Access		Cobalamin		Diabetes		Pre-clinical
Oral Delivery System		Access		Cobalamin		Various		Pre-clinical
Angiolix®		Immunodex, Inc.		Humanized monoclonal antibody		Cancer		Pre-clinical
Prodrax®		Univ of London		Small molecule		Cancer		Pre-clinical
Cobalamin-Targeted Therapeutics		Access		Cobalamin		Anti-tumor		Pre-clinical

(1)	For more information, see “Government Regulation” under Item 1 in our Annual Report on Form 10-K for the year endedDecember 31, 2008.

(2)	Licensed from the School of Pharmacy, The University of London. Subject to a 1% royalty and milestone payments on sales.

 

 

·	the Somanta acquisition on January 4, 2008, resulted in a first quarter 2008 one-time non cash in-process research and development expense of ($8,879,000);

·	research and development expenses incurred by MacroChem in the first quarter of 2008 which are no longer ongoing ($512,000);

·	costs for product manufacturing for a new ProLindac clinical trial in 2008 ($135,000); and

·	offset by other net increases in research spending ($56,000).

·	general and administrative expenses incurred by MacroChem in the first quarter of 2008 that are no longer ongoing ($819,000);

·	lower professional fees ($82,000);

·	lower salary and other salary related expenses ($45,000);

·	other net decreases in general and administrative expenses ($108,000);

·	offset by expenses related to the termination of MacroChem employees ($169,000);

·	accrual of potential liquidated damages under an investor rights agreement with certain investors ($158,000); and

·	higher patent expenses and license fees ($135,000).

 

 

ITEM 2

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

 

ITEM 6

EXHIBITS

 

---

 

Date:	May 19, 2009	By:	/s/ Jeffrey B. Davis
			Jeffrey B. Davis
			Chief Executive Officer
			(Principal Executive Officer)
Date:	May 19, 2009	By:	/s/ Stephen B. Thompson
			Stephen B. Thompson
			Vice President and Chief Financial Officer
			(Principal Financial and Accounting Officer

 

 

ASSETS	March 31, 2009		December 31, 2008
	(unaudited)		(unaudited) (See Note 4)
Current assets Cash and cash equivalents    Receivables Prepaid expenses and other current assets	$        2,206,000 130,000 124,000		$        2,679,000 147,000            173,000
Total current assets	2,460,000		2,999,000
Property and equipment, net	83,000		95,000
Patents, net	962,000		1,015,000
Other assets	119,000		123,000
Total assets	$        3,624,000		$        4,232,000
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities   Accounts payable   Accrued expenses   Dividends payable   Accrued interest payable   Notes payable   Current portion of deferred revenue	$        3,698,000 910,000 1,371,000 234,000 - 261,000		$        3,967,000 798,000 1,896,000 136,000 825,000 169,000
Total current liabilities	6,474,000		7,791,000
Long-term deferred revenue Long-term debt	3,620,000 5,500,000		2,270,000 5,500,000
Total liabilities	15,594,000		15,561,000
Commitments and contingencies
Stockholders' deficit   Convertible Series A preferred stock - $.01 par value; authorized 2,000,000   shares; 3,242.8617 issued at March 31, 2009 and at   December 31, 2008   Common stock - $.01 par value; authorized 100,000,000 shares;      issued, 11,315,272 at March 31, 2009 and 9,467,474 at      December 31, 2008   Additional paid-in capital   Notes receivable from stockholders   Treasury stock, at cost – 163 shares   Accumulated deficit	-     113,000 227,585,000 (1,045,000) (4,000) (238,619,000)		-     95,000 225,675,000 (1,045,000) (4,000) (236,050,000)
Total stockholders' deficit	(11,970,000)		(11,329,000)
Total liabilities and stockholders' deficit	$        3,624,000		$        4,232,000

 

		Three Months ended March 31,
		2009				2008
		(See Note 4)				(See Note 4)
Revenues
License revenues		$	41,000			$	17,000
Sponsored research and development			-				21,000
Total revenues			41,000				38,000
Expenses
Research and development			687,000				10,157,000
General and administrative			1,247,000				1,839,000
Depreciation and amortization			66,000				88,000
Total expenses			2,000,000				12,084,000
Loss from operations			(1,959,000	)			(12,046,000	)
Interest and miscellaneous income			14,000				101,000
Interest and other expense			(144,000	)			(108,000	)
			(130,000	)			(7,000	)
Net loss			(2,089,000	)			(12,053,000	)
Less preferred stock dividends			480,000				1,833,000
Net loss allocable to common stockholders		$	(2,569,000	)		$	(13,886,000	)
Basic and diluted loss per common share Net loss allocable to common stockholders		$	(0.24	)		$	(1.76	)
Weighted average basic and diluted common shares outstanding			10,497,219				7,880,259

 

 

 

		Three Months ended March 31,
		2009				2008
Cash flows from operating activities:
Net loss		$	(2,089,000	)		$	(12,053,000	)
Adjustments to reconcile net loss to cash used               in operating activities:
Depreciation and amortization			66,000				88,000
Stock option expense			56,000				170,000
Stock and warrants issued for services			157,000				20,000
Acquired in-process research and development			-				8,879,000
Change in operating assets and liabilities:
Receivables			17,000				35,000
Prepaid expenses and other current assets			49,000				(302,000	)
Other assets			4,000				(35,000	)
Accounts payable and accrued expenses			(157,000	)			(1,290,000	)
Dividends payable			(149,000	)			-
Accrued interest payable			132,000				103,000
Deferred revenue			1,442,000				(4,000	)
Net cash used in operating activities			(472,000	)			(4,389,000	)
Cash flows from investing activities:
Capital expenditures			(2,000	)			(22,000	)
Proceeds from sale of asset			1,000				-
Redemption of short-term investments and certificate of deposits			-				599,000
Somanta acquisition, net of cash acquired			-				(65,000	)
Net cash provided by (used in) investing activities			(1,000	)			512,000
Cash flows from financing activities:
Payments of notes payable			-				(64,000	)
Proceeds from preferred stock issuances, net of costs			-				2,444,000
Net cash provided by financing activities			-				2,380,000
Net decrease in cash and cash equivalents			(473,000	)			(1,497,000	)
Cash and cash equivalents at beginning of period			2,679,000				2,583,000
Cash and cash equivalents at end of period		$	2,206,000			$	1,086,000
Supplemental cash flow information:
Cash paid for interest		$	-			$	5,000
Supplemental disclosure of noncash transactions:
Shares issued for payables, notes payable and accrued interest			859,000				1,576,000
Shares issued for dividends on preferred stock			856,000				-
Preferred stock dividends in dividends payable			480,000				525,000
Beneficial conversion feature –      February 2008 preferred stock dividends     November 2007 preferred stock dividends correction			- -				857,000 451,000
Preferred stock issuance costs paid in cash			-				281,000

 

 

 

(1)	Interim Financial Statements

 

On February 25, 2009, we closed our acquisition of MacroChem Corporation through the issuance of an aggregate of approximately 2.5 million shares of our common stock. Prior to our acquisition of MacroChem, SCO, an investment company, held a majority of Access’ and MacroChem’s voting stock.  Specifically, SCO owned 53% of the voting stock of Access and 63% of the voting stock of MacroChem. A non-controlling interest of 37% existed at the merger date of MacroChem. In addition, certain members of SCO’s management serve on the board of directors of both Access and MacroChem. Based on these facts, Access and MacroChem were deemed under the common control of SCO. As the entities were deemed under common control, the acquisition was recorded using the pooling-of-interest method and the financial information for all periods presented reflects the financial statements of the combined companies in accordance with Appendix D of Statement of Financial Accounting Standards No. 141R (SFAS 141R), “Business Combinations,” for entities under common control. See also Note 4.

 

	March 31, 2009		December 31, 2008
	Gross carrying value	Accumulated amortization	Gross carrying value	Accumulated Amortization
Amortizable intangible assets   Patents	$         2,624	$      1,662	$     2,624	$          1,609

 

2009	$      159
2010	212
2011	212
2012	82
2013	44
over 5 years	253
Total	$         962

 

 

On February 25, 2009, we closed our acquisition of MacroChem Corporation through the issuance of an aggregate of approximately 2.5 million shares of our common stock. Prior to our acquisition of MacroChem, SCO, an investment company, held a majority of Access’ and MacroChem’s voting stock.  Specifically, SCO owned 53% of the voting stock of Access and 63% of the voting stock of MacroChem. A non-controlling interest of 37% existed at the merger date of MacroChem. In addition, certain members of SCO’s management serve on the board of directors of both Access and MacroChem. Based on these facts, Access and MacroChem were deemed under the common control of SCO. As the entities were deemed under common control, the acquisition was recorded using the pooling-of-interest method and the financial information for all periods presented reflects the financial statements of the combined companies in accordance with Appendix D of Statement of Financial Accounting Standards No. 141R (SFAS 141R), “Business Combinations,” for entities under common control.

 

 

In addition, we issued 95,000 shares of Access common stock to former executives of MacroChem for the settlement of employment agreements. The settlement agreements specify that a portion of the settlement be paid in common stock.

 

	December 31, 2008
	Access Pharmaceuticals	MacroChem Corporation	Combined
Current assets	$3,550,000	$    84,000	$ 2,999,000
Total assets	4,257,000	610,000	4,232,000
Current liabilities	4,906,000	2,060,000	7,791,000
Long-term debt	5,500,000	-	5,500,000
Stockholders’ deficit	(8,394,000)	(2,937,000)	(11,329,000)

Intercompany receivables/payables of $635,000 were eliminated.

 Following is a summary statement of operations for the three months ended March 31, 2009 and March 31, 2008 and for the year ended December 31, 2008:

 

		For the three months ended March 31, 2009												For the year ended December 31, 2008
		Access Pharmaceuticals				MacroChem Corporation				Combined				Access Pharmaceuticals				MacroChem Corporation				Combined
Total revenues		$	40,000			$	1,000			$	41,000			$	291,000			$	4,000			$	295,000
Expenses
Research and development			687,000				-				687,000				12,613,000				10,618,000				23,231,000
General and administrative			1,108,000				139,000				1,247,000				4,340,000				3,506,000				7,846,000
Depreciation and    amortization			52,000				14,000				66,000				253,000				55,000				308,000
Total expenses			1,847,000				153,000				2,000,000				17,206,000				14,179,000				31,385,000
Loss from operations			(1,807,000	)			(152,000	)			(1,959,000	)			(16,915,000	)			(14,175,000	)			(31,090,000	)
Interest and miscellaneous    income			14,000				-				14,000				178,000				33,000				211,000
Interest and other expense			(118,000	)			(26,000	)			(144,000	)			(478,000	)			(237,000	)			(715,000	)
Gain on change in value of    warrant liability			-				-				-				-				4,074,000				4,074,000
			(104,000	)			(26,000	)			(130,000	)			(300,000	)			3,870,000				3,570,000
Loss from operations			(1,911,000	)			(178,000	)			(2,089,000	)			(17,215,000	)			(10,305,000	)			(27,520,000	)
Less preferred stock    dividends			(480,000	)			-				(480,000	)			(3,358,000	)			-				(3,358,000	)
Net loss allocable to    common stockholders		$	(2,391,000	)		$	(178,000	)		$	(2,569,000	)		$	(20,573,000	)		$	(10,305,000	)		$	(30,878,000	)
Basic and diluted loss per    common share
Net loss allocable to      common stockholders			-				-			$	(0.24	)			-				-			$	(3.70	)
Weighted average basic      and diluted common      shares outstanding			-				-				10,497,219				-				-				8,354,031

 

 

 

		Three months ended March 31,
		2009				2008
Research and development (Access)		$	36,000			$	13,000
Research and development (MacroChem)			-				113,000
General and administrative			20,000				44,000
Stock-based compensation expense    included in operating expense		$	56,000			$	170,000