ABEONA THERAPEUTICS INC. - Quarter Report: 2010 June (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). MuGard has been launched in Germany, Italy, UK, Greece and the Nordic countries by our European commercial partner, SpePharm. Our manufacturing of MuGard is underway as we expect to launch MuGard in the United States during the third quarter of 2010. We are also working with our partners in Korea and China for marketing.

·

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 European Union (EU), in patients with recurrent ovarian cancer. The clinical study had positive safety and efficacy results. On January 7, 2010, we announced that we are initiating a study of ProLindac combined with Paclitaxel in second line treatment of platinum pretreated advanced ovarian cancer patients. This multi-center study of up to 25 evaluable patients will be conducted in Europe. We are also currently planning a number of combination trials, looking at combining ProLindac with other cancer agents in solid tumor indications including colorectal and ovarian cancer. 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.

·

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 have conducted sponsored development of a product for oral delivery of human growth hormone. We are in discussion with several companies regarding the sponsored development of Cobalamin oral drug delivery formulations of proprietary and non-proprietary actives.

·

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. This technology uses nanopolymer constructs to deliver more anti-cancer drug to tumors while protecting normal tissues.

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) (3)		Southern Research Institute		Small molecule		Cancer		Phase 1/2
Oral Insulin		Access		Cobalamin		Diabetes		Pre-clinical
Oral Delivery System		Access		Cobalamin		Various		Pre-clinical
Cobalamin™-Targeted Therapeutics		Access		Cobalamin		Anti-tumor		Pre-clinical

 

(1)	For more information, see “Government Regulation” in our Annual Report on Form 10-K for description of clinical stages.

(2)	Licensed from the School of Pharmacy, The University of London.

(3)	Licensed from Southern Research Institute of Birmingham, Alabama.

·	increased stock compensation expense due to the calculated expense of options grants ($193,000);

·	increased salary and related costs due to employees at full salary in the second quarter of 2010 while employees were paid at a reduced salary in June 2009 ($31,000);

·	other net increases in research spending ($50,000);

·	offset by lower costs for product manufacturing for ProLindac which were higher in 2009 ($51,000);

·	offset also by lower costs for clinical development ($36,000); and

·	offset by lower scientific consulting expenses ($36,000).

·	lower general business consulting expenses due to reduction in use of outside consultants ($295,000);

·	lower license fees due to the termination of a license that was previously accrued ($200,000);

·	lower potential liquidated damages under an investor rights agreement with certain investors ($159,000);

·	lower general and administrative expenses incurred by MacroChem in 2010  ($57,000);

·	other net decreases in other general and administrative expenses ($51,000);

·	offset by higher investor relations expenses ($374,000); and

·	offset by higher salary and related costs due to the addition of two new employees and due to existing employees at full salary in the second quarter of 2010 while employees were paid at a reduced salary in June 2009 ($134,000).

·	increased stock compensation expense due to the calculated expense of options grants ($230,000);

·	increased salary and related costs ($65,000);

·	increased costs for our internal lab costs for various projects ($54,000);

·	increased costs for our external lab costs for various projects ($41,000);

 

·	increased costs for clinical development as we prepared to start our new ProLindac combination therapy clinical trial  ($44,000);

·	other net increases in research spending ($32,000);

·	offset by lower costs for product manufacturing for ProLindac which were higher in 2009 ($116,000); and

·	offset by lower scientific consulting expenses ($100,000).

·	lower general business consulting expenses due to reduction in use of outside consultants ($405,000);

·	lower potential liquidated damages under an investor rights agreement with certain investors ($317,000);

·	lower license fees due to the termination of a license that was previously accrued ($200,000);

·	lower general and administrative expenses incurred by MacroChem in 2010  ($196,000);

·	net decreases in other general and administrative expenses ($26,000);

·	offset by higher investor relations expenses ($395,000); and

·	offset by higher salary and related costs due to the addition of two new employees ($146,000).

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

31.1	Certification of Chief Executive Officer of Access Pharmaceuticals, Inc. pursuant to Rule 13a-14(a)/15d-14(a)

31.2	Certification of Chief Financial Officer of Access Pharmaceuticals, Inc. pursuant to Rule 13a-14(a)/15d-14(a)

32.1*

Certification of Chief Executive Officer of Access Pharmaceuticals, Inc. pursuant to 18 U.S.C. Section 1350

32.2*

Certification of Chief Financial Officer of Access Pharmaceuticals, Inc. pursuant to 18 U.S.C. Section 1350

Date:	August 16, 2010		By:	/s/ Jeffrey B. Davis
				Jeffrey B. Davis
				Chief Executive Officer
				(Principal Executive Officer)
Date:	August 16, 2009		By:	/s/ Stephen B. Thompson
				Stephen B. Thompson
				Vice President and Chief Financial Officer
				(Principal Financial and Accounting Officer

 

	June 30, 2010		December 31, 2009
ASSETS	(unaudited)
Current assets Cash and cash equivalents    Receivables Prepaid expenses and other current assets	$          2,758,000 38,000 52,000		$             607,000 36,000                42,000
Total current assets	2,848,000		685,000
Property and equipment, net	44,000		50,000
Patents, net	681,000		787,000
Other assets	52,000		61,000
Total assets	$          3,625,000		$          1,583,000
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities   Accounts payable   Accrued expenses   Dividends payable   Accrued interest payable   Current portion of deferred revenue	$          2,988,000 857,000 3,548,000 338,000 347,000		$          4,094,000 857,000 2,773,000 563,000 347,000
Total current liabilities	8,078,000		8,634,000
Derivative liability Long-term deferred revenue Long-term debt	3,470,000 4,556,000 5,500,000		9,708,000 4,730,000 5,500,000
Total liabilities	21,604,000		28,572,000
Commitments and contingencies
Stockholders' deficit   Convertible Series A preferred stock - $.01 par value; authorized       2,000,000 shares; 2,985.3617 shares issued at June 30, 2010       and 2,992.3617 shares issued at December 31, 2009   Common stock - $.01 par value; authorized 100,000,000 shares;      issued, 15,672,284 at June 30, 2010 and 13,171,545 at      December 31, 2009   Additional paid-in capital   Notes receivable from stockholders   Treasury stock, at cost – 163 shares   Accumulated deficit	-     157,000 222,729,000 (1,045,000) (4,000) (239,816,000)		-     132,000 215,735,000 (1,045,000) (4,000) (241,807,000)
Total stockholders' deficit	(17,979,000)		(26,989,000)
Total liabilities and stockholders' deficit	$          3,625,000		$          1,583,000

		Three months ended June 30,								Six months ended June 30,
		2010				2009				2010				2009
Revenues
License revenues		$	87,000			$	63,000			$	174,000			$	104,000
Royalties			18,000				-				33,000				-
Total revenues			105,000				63,000				207,000				104,000
Expenses
Research and development			733,000				582,000				1,519,000				1,269,000
General and administrative			1,253,000				1,507,000				2,151,000				2,754,000
Depreciation and amortization			59,000				66,000				120,000				132,000
Total expenses			2,045,000				2,155,000				3,790,000				4,155,000
Loss from operations			(1,940,000	)			(2,092,000	)			(3,583,000	)			(4,051,000	)
Interest and miscellaneous income			512,000				2,000				516,000				16,000
Interest and other expense			(143,000	)			(118,000	)			(292,000	)			(262,000	)
Gain on change in fair value of derivative			3,361,000				-				6,238,000				-
			3,730,000				(116,000	)			6,462,000				(246,000	)
Net income (loss)			1,790,000				(2,208,000	)			2,879,000				(4,297,000	)
Less preferred stock dividends			446,000				483,000				888,000				963,000
Net income (loss) allocable to common stockholders		$	1,344,000			$	(2,691,000	)		$	1,991,000			$	(5,260,000	)
Net income (loss) per share
Basic		$	0.09			$	(0.24	)		$	0.13			$	(0.48	)
Diluted		$	0.07			$	(0.24	)		$	0.11			$	(0.48	)
Weighted average basic and diluted common shares outstanding
Basic			15,460,072				11,406,700				15,115,424				10,954,472
Diluted			27,937,880				11,406,700				27,824,943				10,954,472

		Common Stock								Preferred Stock
		Shares				Amount				Shares				Amount				Additional paid-in capital				Notes receivable from stockholders				Treasury stock				Accumulated deficit
Balance    December 31, 2009			13,172,000			$	132,000				2,992.3617			$	-			$	215,735,000			$	(1,045,000	)		$	(4,000	)		$	(241,807,000	)
Restricted common stock issued for services			73,000				1,000				-				-				17,000				-				-				-
Warrants issued for   services			-				-				-				-				19,000				-				-				-
Preferred stock converted into common stock			23,000				-				(7.0000	)			-				-				-				-				-
Stock option   compensation expense			-				-				-				-				114,000				-				-				-
Common stock issued   for cash exercise of   options			10,000				-				-				-				14,000				-				-				-
Common stock issued   for cashless warrant   exercise			20,000				-				-				-				-				-				-				-
Common stock issued  $3.00 share, net of costs			2,083,000				21,000				-				-				5,827,000				-				-				-
Preferred dividends			-				-				-				-				-				-				-				(442,000	)
Net income			-				-				-				-				-				-				-				1,089,000
Balance at March 31,    2010			15,381,000				154,000				2,985.3617				-				221,726,000				(1,045,000	)			(4,000	)			(241,160,000	)
Restricted common stock issued for services			106,000				1,000				-				-				248,000				-				-				-
Stock option   compensation expense			-				-				-				-				440,000				-				-				-
Common stock issued   for cash exercise of   options			105,000				1,000				-				-				125,000				-				-				-
Common stock issued   for preferred dividends			80,000				1,000				-				-				190,000				-				-				-
Preferred dividends			-				-				-				-				-				-				-				(446,000	)
Net income			-				-				-				-				-				-				-				1,790,000
Balance at June 30,    2010			15,672,000			$	157,000				2,985.3617			$	-			$	222,729,000			$	(1,045,000	)		$	(4,000	)		$	(239,816,000	)

 

		Six Months ended June 30,
		2010				2009
Cash flows from operating activities:
Net income (loss)		$	2,879,000			$	(4,297,000	)
Adjustments to reconcile net income (loss) to cash used               in operating activities:
Gain on change in fair value of derivative			(6,238,000	)			-
Gain on negotiated accounts payable			(509,000	)			-
Depreciation and amortization			120,000				132,000
Stock option compensation expense			554,000				308,000
Stock and warrants issued for services			286,000				564,000
Change in operating assets and liabilities:
Receivables			(2,000	)			132,000
Prepaid expenses and other current assets			(10,000	)			117,000
Other assets			9,000				53,000
Accounts payable and accrued expenses			(597,000	)			60,000
Dividends payable			78,000				(137,000	)
Accrued interest payable			(225,000	)			229,000
Deferred revenue			(174,000	)			1,380,000
Net cash used in operating activities			(3,829,000	)			(1,459,000	)
Cash flows from investing activities:
Capital expenditures			(8,000	)			(2,000	)
Proceeds from sale of asset			-				1,000
Net cash used in investing activities			(8,000	)			(1,000	)
Cash flows from financing activities:
Proceeds from exercise of stock options			140,000				14,000
Proceeds from common stock issuances, net of costs			5,848,000				-
Net cash provided by financing activities			5,988,000				14,000
Net decrease in cash and cash equivalents			(2,151,000	)			(1,446,000	)
Cash and cash equivalents at beginning of period			607,000				2,677,000
Cash and cash equivalents at end of period		$	2,758,000			$	1,231,000
Supplemental cash flow information:
Cash paid for interest		$	440,000			$	-
Supplemental disclosure of noncash transactions:
Shares issued for payables, notes payable and accrued interest			-				859,000
Shares issued for dividends on preferred stock			191,000				856,000
Preferred stock dividends in dividends payable			888,000				963,000

		June 30, 2010								December 31, 2009
		Gross carrying value				Accumulated amortization				Gross carrying value				Accumulated Amortization
Amortizable intangible assets   Patents		$	2,624			$	1,943			$	2,624			$	1,837

·	Level 1 – Quoted prices in active markets for identical assets or liabilities.

·

Level 2 – Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

·

Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities. This includes certain pricing models, discounted cash flow methodologies and similar valuation techniques that use significant unobservable inputs.

(in thousands)		June 30, 2010												December 31, 2009
		Level 1				Level 2				Total				Level 1				Level 2				Total
Assets:
Cash		$	2,758			$	-			$	2,758			$	607			$	-			$	607
Liabilities:
Derivative     liability		$	-			$	3,470			$	3,470			$	-			$	9,708			$	9,708

		Three months ended June 30,								Six months ended June 30,
		2010				2009				2010				2009
Research and development		$	291,000			$	99,000			$	365,000			$	135,000
General and administrative			149,000				153,000				189,000				173,000
Stock-based compensation expense    included in operating expense		$	440,000			$	252,000			$	554,000			$	308,000

 

	6/30/10		6/30/09
Expected life (b)	5.7 yrs		5.5 yrs
Risk free interest rate	2.4	%	2.4	%
Expected volatility(a)	123	%	114	%
Expected dividend yield	0.0	%	0.0	%

 

(a)	Reflects movements in our stock price over the most recent historical period equivalent to the expected life.
(b)	Based on the simplified method.

(in thousands, except per share amounts)		Three months ended June 30,								Six months ended June 30,
		2010				2009				2010				2009
Basic net income (loss) allocable to common shareholders		$	1,344			$	(2,691	)		$	1,991			$	(5,260	)
Weighted average shares outstanding			15,460				11,407				15,115				10,954
Basic net income (loss) per common share		$	0.09			$	(0.24	)		$	0.13			$	(0.48	)
Basic net income (loss) allocable to common shareholders		$	1,344			$	(2,691	)		$	1,991			$	(5,260	)
Effect of dilutive securities
Preferred stock dividends			446				-				888				-
Interest related to dividends			37				-				77				-
Diluted net income		$	1,827			$	(2,691	)		$	2,956			$	(5,260	)
Weighted average shares outstanding			15,460				11,407				15,115				10,954
Effect of dilutive options, warrants and preferred stock			12,478				-				12,710				-
Weighted average shares outstanding assuming dilution			27,938				11,407				27,825				10,954
Diluted net income (loss) per common share		$	0.07			$	(0.24	)		$	0.11			$	(0.48	)

(in thousands, except per share amounts)		Three months ended June 30,								Six months ended June 30,
		2010				2009				2010				2009
Warrants			6,175				9,564				6,150				9,564
Stock options			1,168				1,805				1,027				1,805
Convertible note			200				200				200				200
Preferred stock			-				10,693				-				10,693
Total			7,543				22,262				7,377				22,262