ABEONA THERAPEUTICS INC. - Quarter Report: 2011 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)
2600 Stemmons Frwy, Suite 176, Dallas, TX 75207
(Address of principal executive offices)

 

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 FDA. We launched MuGard in the United States in the fourth quarter of 2010. We are continuing training of our third-party MuGard representatives on the product, on the oral mucositis condition and on our sales strategy. MuGard prescriptions are growing weekly and we have placed emphasis on our sampling and marketing efforts to build demand, grow oncologist awareness and increase payer uptake. MuGard has also been launched in Germany, Italy, UK, Greece and the Nordic countries by our European commercial partner, SpePharm. Our China partners have received the acceptance letter from the State Food and Drug Administration of China. We anticipate marketing approval in China in the second half of 2011.

·

Our lead development candidate for the treatment of cancer is ProLindac™, a nanopolymer DACH-platinum prodrug. We initiated a study of ProLindac combined with Paclitaxel in second line treatment of platinum pretreated advanced ovarian cancer patients in the fourth quarter of 2010. This multi-center study of up to 25 evaluable patients is being conducted in France. 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 have initiated additional Phase 2 clinical trials in adult AML, ALL and other indications.

·

CobOral™ 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 have signed or are in discussion with several companies regarding the sponsored development of CobOral drug delivery formulations of proprietary and non-proprietary actives.

·

CobaCyte™-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		Launched U.S. and EU
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
CobOral™ Delivery System		Access		Cobalamin		Various		Pre-clinical
CobaCyte™-Targeted Therapeutics		Access		Cobalamin		Anti-tumor		Pre-clinical

On June 27, 2011, we announced that RHEI Pharmaceuticals, our MuGard partner in China, has received the acceptance letter from the State Food and Drug Administration (SFDA) of China acknowledging all necessary documentation for MuGard has been submitted and accepted. Together with its marketing partner Jian An, RHEI Pharmaceuticals completed the required process required to satisfy all requirements to receive marketing approval in China and its other South East Asian territories. RHEI has advised Access of the next steps the SFDA will take to grant approval in its territories and anticipates receiving marketing approval in the second half of this year.

 

·	increased clinical development with trials for ProLindac, MuGard and Thiarabine ($304,000);

·	increased scientific consulting expense ($155,000) to help with clinical trials;

·	increased external lab costs ($46,000);

·	increased net other research and development costs ($4,000); and

·	decreased stock compensation expense due to lower expense of option grants for research and development employees ($182,000).

 

·	decreased general business consulting expenses due to the use of outside consultants in 2010 ($393,000);

·	decreased salary and related costs ($36,000);

·	decreased net other general and administrative expenses ($9,000);

·	increased patent and license fees ($162,000) due to a credit in 2010 license expenses; and

·	increased rent expenses ($42,000) due to additional office space.

·	increased clinical development with trials for ProLindac, MuGard and Thiarabine ($533,000);

·	increased salary and related costs due to new employees ($206,000);

·	increased external lab costs ($89,000);

·	increased scientific consulting expense ($57,000) to help with clinical trials;

·	decreased stock compensation expense for lower expense of option grants for research and development employees ($153,000); and

·	other net decreases in research spending ($71,000).

·	decreased general business consulting expenses due to the use of outside consultants in 2010 ($244,000);

·	decreased legal fees ($44,000);

·	increased patent and license fees ($111,000) due to a credit in 2010 license expenses;

·	increased rent expenses ($59,000) due to additional office space; and

·	increased net other general and administrative expenses ($12,000).

 

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

 

ITEM 4.

CONTROLS AND PROCEDURES

 

 

ITEM 1.

LEGAL PROCEEDINGS.

 

 

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

 

 

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES.

ITEM 6.

EXHIBITS

Exhibits:

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

 

 

 

 

 

                      ACCESS PHARMACEUTICALS, INC.

 

Date:	August 15, 2011	By:	/s/ Jeffrey B. Davis
			Jeffrey B. Davis
			Chief Executive Officer
			(Principal Executive Officer)
Date:	August 15, 2011	By:	/s/ Stephen B. Thompson
			Stephen B. Thompson
			Vice President and Chief Financial Officer
			(Principal Financial and Accounting Officer)

 

		Three months ended June 30,								Six months ended June 30,
		2011				2010				2011				2010
Revenues
License revenues		$	87,000			$	87,000			$	174,000			$	174,000
Sponsored research and development			-				-				30,000				-
Royalties			21,000				18,000				41,000				33,000
Product sales			43,000				-				56,000				-
Total revenues			151,000				105,000				301,000				207,000
Expenses
Research and development			1,060,000				733,000				2,180,000				1,519,000
Product costs			266,000				-				358,000				-
General and administrative			1,019,000				1,253,000				2,045,000				2,151,000
Depreciation and amortization			59,000				59,000				120,000				120,000
Total expenses			2,404,000				2,045,000				4,703,000				3,790,000
Loss from operations			(2,253,000	)			(1,940,000	)			(4,402,000	)			(3,583,000	)
Interest and miscellaneous income			3,000				512,000				8,000				516,000
Interest and other expense			(356,000	)			(143,000	)			(523,000	)			(292,000	)
Gain on change in fair value of   derivative - warrants			939,000				3,361,000				2,174,000				6,238,000
Gain (loss) on change in fair value of   derivative - preferred stock			403,000				-				(420,000	)			-
			989,000				3,730,000				1,239,000				6,462,000
Net income (loss)			(1,264,000	)			1,790,000				(3,163,000	)			2,879,000
Less preferred stock dividends			442,000				446,000				880,000				888,000
Net income (loss) allocable to common       stockholders		$	(1,706,000	)		$	1,344,000			$	(4,043,000	)		$	1,991,000
Net income (loss) per share
Basic		$	(0.09	)		$	0.09			$	(0.21	)		$	0.13
Diluted		$	(0.09	)		$	0.07			$	(0.21	)		$	0.11
Weighted average basic and diluted common shares outstanding
Basic			19,387,906				15,460,072				19,315,142				15,115,424
Diluted			19,387,906				27,937,880				19,315,142				27,824,943

 

The accompanying notes are an integral part of these consolidated statements.

 

		Six Months ended June 30,
		2011				2010
Cash flows from operating activities:
Net income (loss)		$	(3,163,000	)		$	2,879,000
Adjustments to reconcile net income (loss) to cash used               in operating activities:
Gain on change in fair value of derivative - warrants			(2,174,000	)			(6,238,000	)
Loss on change in fair value of derivative - preferred stock			420,000				-
Gain on negotiated accounts payable			-				(509,000	)
Depreciation and amortization			120,000				120,000
Stock option compensation expense			423,000				554,000
Stock and warrants issued for services			475,000				286,000
Change in operating assets and liabilities:
Receivables			967,000				(2,000	)
Prepaid expenses and other current assets			(5,000	)			(10,000	)
Other assets			(24,000	)			9,000
Accounts payable and accrued expenses			(37,000	)			(597,000	)
Dividends payable			124,000				78,000
Accrued interest payable			399,000				(225,000	)
Deferred revenue			(173,000	)			(174,000	)
Net cash used in operating activities			(2,648,000	)			(3,829,000	)
Cash flows from investing activities:
Capital expenditures			(39,000	)			(8,000	)
Net cash used in investing activities			(39,000	)			(8,000	)
Cash flows from financing activities:
Proceeds from exercise of stock options			-				140,000
Proceeds from common stock issuances, net of costs			-				5,848,000
Net cash provided by financing activities			-				5,988,000
Net increase (decrease) in cash and cash equivalents			(2,687,000	)			2,151,000
Cash and cash equivalents at beginning of period			7,033,000				607,000
Cash and cash equivalents at end of period		$	4,346,000			$	2,758,000
Supplemental cash flow information:
Cash paid for interest		$	-			$	440,000
Supplemental disclosure of noncash transactions:
Shares issued for dividends on preferred stock			1,000				191,000
Preferred stock dividends in dividends payable		$	880,000			$	888,000

(1)	Interim Financial Statements

 

		June 30, 2011								December 31, 2010
		Gross carrying value				Accumulated amortization				Gross carrying value				Accumulated Amortization
Amortizable intangible assets   Patents		$	2,624			$	2,156			$	2,624			$	2,050

 

 

2011		$	106
2012			82
2013			44
2014			44
2015			44
over 5 years			148
Total		$	468

 

·	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)
Description		As of June 30, 2011				Level 1				Level 2				Level 3				Total Gains (Losses)
Liabilities:   Derivative liability-
warrants		$	2,913			$	-			$	2,913			$	-			$	2,174
preferred stock		$	6,260			$	-			$	-			$	6,260			$	(420	)

(in thousands)
Description		As of December 31, 2010				Level 1				Level 2				Level 3				Total Gains (Losses)
Liabilities:   Derivative liability-
warrants		$	5,087			$	-			$	5,087			$	-			$	4,621
preferred stock		$	5,840			$	-			$	-			$	5,840			$	(5,840	)

		Three months ended June 30,								Six months ended June 30,
		2011				2010				2011				2010
Research and development		$	110,000			$	291,000			$	212,000			$	365,000
General and administrative			132,000				149,000				211,000				189,000
Stock-based compensation expense    included in operating expense		$	242,000			$	440,000			$	423,000			$	554,000

 

	6/30/11		6/30/10
Expected life(b)	6.04 yrs		5.7 yrs
Risk free interest rate	2.0	%	2.3	%
Expected volatility(a)	119	%	123	%
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,
		2011				2010				2011				2010
Net income (loss) allocable to   common shareholders		$	(1,706	)		$	1,344			$	(4,043	)		$	1,991
Weighted average shares outstanding			19,388				15,460				19,315				15,115
Basic net income (loss) per common share		$	(0.09	)		$	0.09			$	(0.21	)		$	0.13
Net income (loss) allocable to   common shareholders		$	(1,706	)		$	1,344			$	(4,043	)		$	1,991
Effect of dilutive securities
Preferred stock dividends			-				446				-				888
Interest related to dividends			-				37				-				77
Diluted net income		$	(1,706	)		$	1,827			$	(4,043	)		$	2,956
Weighted average shares outstanding			19,388				15,460				19,315				15,115
Effect of dilutive options, warrants and   preferred stock			-				12,478				-				12,710
Weighted average shares outstanding assuming   dilution			19,388				27,938				19,315				27,825
Diluted net income (loss) per common share		$	(0.09	)		$	0.07			$	(0.21	)		$	0.11