ABEONA THERAPEUTICS INC. - Quarter Report: 2012 March (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

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

ITEM 1.

FINANCIAL STATEMENTS

 

 

ITEM 2.

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

 

 

 

●

MuGard™ is our marketed 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 the training of our third-party MuGard representatives on the product, on the oral mucositis condition and on our sales strategy. MuGard prescriptions are growing quarterly and we have placed emphasis on our sampling and marketing efforts to build demand, grow oncologist awareness and increase payer uptake. MuGard has been launched in Germany, Italy, the UK, Greece and the Nordic countries by SpePharm, formerly our commercial partner in the E.U. By mutual agreement, the partner agreement has been terminated with SpePharm. Per terms of the agreement, MuGard will continue to be commercially available for up to six months in Europe through SpePharm. We are actively seeking a new European commercial partner for MuGard. Our China partners have received an acceptance letter from the State Food and Drug Administration of the People’s Republic of China which provides marketing approval in China.

 

●

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. A second combination study was initiated in the fourth quarter of 2011 combining ProLindac with gemcitabine for the treatment of cholangiocarcinoma. Clinical studies of other indications including liver, colorectal and ovarian cancer are under consideration by Jiangsu Aosaikang Pharmaceutical Co., Ltd, our licensee for ProLindac in China. The DACH-platinum incorporated in ProLindac is the same active moiety as that in oxaliplatin (Eloxatin; Sanofi-Aventis), which has had annual 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 a number of peptides and RNAi therapeutics. We have signed agreements with several companies regarding the sponsored development of CobOral drug delivery formulations of proprietary and non-proprietary actives.

 

●

CobaCyte®-mediated 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 certain cells including many cancers. 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 Regulatory   Approval   China
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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

·	decreased clinical development with trials for ProLindac, MuGard and Thiarabine ($176,000);

·	decreased scientific consulting costs ($101,000);

·	decreased external lab costs for studies ($60,000);

·	other net decreases in research spending ($30,000); and

·	increased salary and related costs ($221,000) due to additional staff and stock issuances to employees for bonuses in lieu of cash payments.

 

 

 

·	decreased general business consulting expenses due to less use of outside consultants in 2012 ($240,000) versus the same period  in 2011;

·	decreased net other general and administrative expenses ($20,000);

·	increased salary and related costs ($133,000) due to additional staff and stock issuances to employees for bonuses in lieu of cash payments; and

·	increased directors fees due to stock issuances in lieu of cash payments to directors ($80,000).

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ITEM 1.

LEGAL PROCEEDINGS.

 

 

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

 

 

 

 

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES.

 

 

 

 

ITEM 4.

[REMOVED AND RESERVED.]

 

 

ITEM 5.

OTHER INFORMATION.

 

 

ITEM 6.

EXHIBITS.

 

Exhibits:

 

31.1	Certification of Chief Executive Officer of Access Pharmaceuticals, Inc. filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

31.2	Certification of Chief Financial Officer of Access Pharmaceuticals, Inc. filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

32.1*

Certification of Chief Executive Officer of Access Pharmaceuticals, Inc. filed pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

32.2*

Certification of Chief Financial Officer of Access Pharmaceuticals, Inc. filed pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

101.INS

XBRL Instance Document**

 

101.SCH

XBRL Taxonomy Schema**

 

101.CAL

XBRL Taxonomy Calculation Linkbase Document**

 

101.DEF

XBRL Taxonomy Definition Linkbase Document**

 

101.LAB

XBRL Taxonomy Label Linkbase Document**

 

101.PRE

XBRL Taxonomy Presentation Linkbase Document**

 

 

 

 

 

 

 

 

Date:	May 15, 2012	By:	/s/ Jeffrey B. Davis
			Jeffrey B. Davis
			Chief Executive Officer
			(Principal Executive Officer)
Date:	May 15, 2012	By:	/s/ Stephen B. Thompson
			Stephen B. Thompson
			Vice President and Chief Financial Officer
			(Principal Financial and Accounting Officer)

 

 

 

	March 31, 2012		December 31, 2011
ASSETS	(unaudited)
Current assets Cash and cash equivalents    Receivables Inventory Restricted cash Prepaid expenses and other current assets	$          1,365,000 934,000 97,000 330,000 43,000		$          2,460,000 333,000 151,000 330,000                39,000
Total current assets	2,769,000		3,313,000
Property and equipment, net	59,000		51,000
Patents, net	313,000		362,000
Other assets	55,000		59,000
Total assets	$          3,196,000		$          3,785,000
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities   Accounts payable   Accrued expenses   Dividends payable   Accrued interest payable   Debt   Current portion of deferred revenue	$          1,878,000 857,000 7,000,000 181,000 2,750,000 239,000		$          1,713,000 857,000 6,487,000 98,000 2,750,000 285,000
Total current liabilities	12,905,000		12,190,000
Derivative liability - warrants Derivative liability - preferred stock Long-term deferred revenue	766,000 6,890,000 2,798,000		1,507,000 4,430,000 3,264,000
Total liabilities	23,359,000		21,391,000
Commitments and contingencies
Stockholders' deficit   Convertible Series A preferred stock - $.01 par value; authorized       2,000,000 shares; 2,938.3617 shares issued at March 31, 2012 and 2,938.3617 shares issued at December 31, 2011   Common stock - $.01 par value; authorized 100,000,000 shares;      issued, 24,145,488 at March 31, 2012 and 23,890,787 at      December 31, 2011   Additional paid-in capital   Treasury stock, at cost – 163 shares   Accumulated deficit	-     241,000 240,373,000 (4,000) (260,773,000)		-     239,000 237,600,000 (4,000) (255,441,000)
Total stockholders' deficit	(20,163,000)		(17,606,000)
Total liabilities and stockholders' deficit	$          3,196,000		$          3,785,000

 

 

 

 

		Three Months ended March 31,
		2012				2011
Revenues
License revenues		$	1,262,000			$	87,000
Product sales			572,000				13,000
Royalties			21,000				20,000
Sponsored research and development			-				30,000
Total revenues			1,855,000				150,000
Expenses
Research and development			974,000				1,120,000
Product costs			537,000				92,000
General and administrative			979,000				1,026,000
Depreciation and amortization			54,000				61,000
Total expenses			2,544,000				2,299,000
Loss from operations			(689,000	)			(2,149,000	)
Interest and miscellaneous income			1,000				5,000
Interest and other expense			(169,000	)			(167,000	)
Warrant extension expense			(2,316,000	)			-
Gain on change in fair value of derivative – warrants			741,000				1,235,000
Loss on change in fair value of derivative – preferred stock			(2,460,000	)			(823,000	)
			(4,203,000	)			250,000
Net income (loss)			(4,892,000	)			(1,899,000	)
Less preferred stock dividends			440,000				438,000
Net income (loss) allocable to common stockholders		$	(5,332,000	)		$	(2,337,000	)
Net income (loss) per share Basic		$	(0.22	)		$	(0.12	)
Diluted		$	(0.22	)		$	(0.12	)
Weighted average number of common shares outstanding Basic			24,145,488				19,241,570
Diluted			24,145,488				19,241,570

 

 

 

 

 

 

 

 

		Common Stock								Preferred Stock
		Shares				Amount				Shares				Amount				Additional paid-in capital				Treasury stock				Accumulated deficit
Balance December 31, 2011			23,891,000			$	239,000				2,938.3617			$	-			$	237,600,000			$	(4,000	)		$	(255,441,000	)
Restricted common   stock issued for services			15,000				-				-				-				21,000				-				-
Common stock issued for   services			6,000				-				-				-				9,000				-				-
Common stock issued to   directors and employees			222,000				2,000				-				-				300,000				-				-
Common stock issued for   preferred dividends			11,000				-				-				-				13,000				-				-
Stock option   compensation expense			-				-				-				-				114,000				-				-
Warrant extension expense			-				-				-				-				2,316,000				-				-
Preferred dividends			-				-				-				-				-				-				(440,000	)
Net loss			-				-				-				-				-				-				(4,892,000	)
Balance at March 31, 2012			24,145,000			$	241,000				2,938.3617			$	-			$	240,373,000			$	(4,000	)		$	(260,773,000	)

 

 

 

 

 

 

		Three Months ended March 31,
		2012				2011
Cash flows from operating activities:
Net loss		$	(4,892,000	)		$	(1,899,000	)
Adjustments to reconcile net loss to cash used               in operating activities:
Gain on change in fair value of derivative - warrants			(741,000	)			(1,235,000	)
Loss on change in fair value of derivative - preferred stock			2,460,000				823,000
Warrant extension expense			2,316,000				-
Depreciation and amortization			54,000				61,000
Stock option compensation expense			114,000				181,000
Stock issued to directors and employees			302,000				-
Stock issued for services			30,000				246,000
Change in operating assets and liabilities:
Receivables			(601,000	)			972,000
Inventory			54,000				-
Prepaid expenses and other current assets			(4,000	)			21,000
Other assets			4,000				4,000
Accounts payable and accrued expenses			165,000				(92,000	)
Dividends payable			86,000				61,000
Accrued interest payable			83,000				106,000
Deferred revenue			(512,000	)			(86,000	)
Net cash used in operating activities			(1,082,000	)			(837,000	)
Cash flows from investing activities:
Capital expenditures			(13,000	)			(22,000	)
Net cash used in investing activities			(13,000	)			(22,000	)
Net increase (decrease) in cash and cash equivalents			(1,095,000	)			(859,000	)
Cash and cash equivalents at beginning of period			2,460,000				7,033,000
Cash and cash equivalents at end of period		$	1,365,000			$	6,174,000
Supplemental cash flow information:
Cash paid for interest		$	-			$	-
Supplemental disclosure of noncash transactions:
Shares issued for dividends on preferred stock			13,000				1,000
Preferred stock dividends in dividends payable		$	440,000			$	438,000

 

 

 

 

Access Pharmaceuticals, Inc. (together with our subsidiaries, “We”, “Access” or the “Company”) is a Delaware corporation. We are an emerging biopharmaceutical company focused on developing a range of pharmaceutical and medical device products primarily based upon our nanopolymer chemistry technologies and other drug delivery technologies.

 

(1)	Interim Financial Statements

 

 

 

 

 

 

		March 31, 2012								December 31, 2011
		Gross carrying value				Accumulated amortization				Gross carrying value				Accumulated Amortization
Amortizable intangible assets           Patents		$	2,624			$	2,311			$	2,624			$	2,262

 

 

2012		$	33
2013			44
2014			44
2015			44
2016			44
over 5 years			104
Total		$	313

 

 

 

 

 

 

 

Effective January 1, 2008, we adopted fair value measurement guidance issued by the FASB related to financial assets and liabilities which define fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. This guidance establishes a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:

 

●	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 March 31, 2012				Level 1				Level 2				Level 3				Total Gains (Losses)
Liabilities:   Derivative liability-
warrants		$	766			$	-			$	766			$	-			$	741
preferred stock		$	6,890			$	-			$	-			$	6,890			$	(2,460	)

 

(in thousands)
Description		As of December 31, 2011				Level 1				Level 2				Level 3				Total Gains (Losses)
Liabilities:   Derivative liability-
warrants		$	1,507			$	-			$	1,507			$	-			$	3,580
preferred stock		$	4,430			$	-			$	-			$	4,430			$	1,410

 

 

 

 

 

		Three months ended March 31,
		2012				2011
Research and development		$	73,000			$	103,000
General and administrative			41,000				78,000
Stock-based compensation expense    included in operating expense		$	114,000			$	181,000

 

 

 

		3/31/12				3/31/11
Expected life(b)		0 yrs				6.25 yrs
Risk free interest rate			0.0	%			1.1	%
Expected volatility(a)			0.0	%			112	%
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.