ABEONA THERAPEUTICS INC. - Quarter Report: 2013 September (Form 10-Q)

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(Mark One)
þ		QUARTERLY 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 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 $1.0 billion world-wide. MuGard, a proprietary nanopolymer formulation, has received marketing allowance in the U.S. from the FDA. We launched MuGard in the U.S. in 2010. On June 6, 2013 we entered into an exclusive license agreement with AMAG Pharmaceuticals, Inc. (“AMAG”) related to the commercialization of MuGard in the U.S. and its territories. Under the terms of the licensing agreement we received an upfront licensing fee of $3.3 million and a tiered, double-digit royalty on net sales of MuGard in the licensed territories. We receive quarterly royalty payments from AMAG.

·	We are working on additional products using our proprietary mucoadhesive hydrogels as the delivery vehicle.

·

Our candidate for the treatment of cancer is ProLindac™, a nanopolymer Diamino Cyclohexane (“DACH”)-platinum prodrug. No additional trials are planned and none have been initiated this year in the U.S. or in Europe. We are working with our partners in China towards the initiation of clinical trials of ProLindac in China. 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 (e.g. Eloxatin; Sanofi-Aventis), which has had annual sales in excess of $2.0 billion. ProLindac is available for partnering.

·

CobOral® is our proprietary preclinical nanopolymer oral drug delivery technology based on the natural vitamin B12 oral uptake mechanism. We have developed products based upon the CobOral delivery technology, and have conducted sponsored development of a product for oral delivery of a number of peptides and RNAi therapeutics. The CobOral platform technology is available for partnering.

 

 

 

 

·

CobaCyte®-mediated targeted delivery is a preclinical technology that 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. The CobaCyte platform technology is available for partnering.

Compound		Originator		Technology		Indication		Clinical Stage (1)
MuGard™		Access		Mucoadhesive liquid		Mucositis		Launched   U.S. Licensed to  AMAG Pharmaceuticals Regulatory Approval   China Licensed to   RHEI Pharmaceuticals
Mucoadhesive hydrogel technology		Access		Mucoadhesive hydrogel technology		Various		Pre-clinical
ProLindacTM (Polymer Platinate, AP5346)		Access		Synthetic polymer		Cancer		Phase 2
CobOral® Delivery System		Access		Cobalamin		Various		Pre-clinical
CobaCyte®-Targeted Therapeutics		Access		Cobalamin		Anti-tumor		Pre-clinical

 

 

 

 

·	decreased salary and related costs ($27,000) from reduced scientific staff;

·	decreased clinical development with trials completed for MuGard, ProLindac and Thiarabine ($10,000);

·	decreased laboratory costs due to the closing of our laboratory ($38,000); and

·	other net increases in research spending ($3,000).

·	decreased MuGard product selling expenses ($748,000);

·	decreased stock compensation expense from expense of option grants for selling, general and administrative employees ($60,000);

·	decreased salary and related costs ($59,000) from reduced general and administrative salaries and staff;

·	increased legal fees ($73,000); and

·	increased net other general and administrative expenses ($14,000).

 

 

 

·	decreased salary and related costs ($478,000) from reduced scientific staff;

·	decreased clinical development with trials for MuGard, ProLindac and Thiarabine ($235,000);

·	decreased laboratory costs due to the closing of our laboratory ($159,000);

·	decreased stock compensation expense from lower expense of option grants for research and development employees ($55,000); and

·	other net decreases in research spending ($29,000).

 

 

 

·	decreased MuGard product selling expenses ($602,000);

·	decreased salary and related costs ($268,000) from reduced general and administrative salaries and staff;

·	lower patent fees ($65,000) due to no new patents being filed in 2013;

·	increased legal fees ($380,000);

·	increased general business consulting expenses for MuGard licensing and transition costs ($132,000);

·	increased stock compensation expense from expense of option grants for selling, general and administrative employees ($102,000); and

·	decreased net other general and administrative expenses ($53,000).

·

Wholesaler and Specialty and Retail Pharmacy Discounts – we offer contractually determined discounts to certain wholesale distributors and specialty and retail pharmacies that purchase directly from us. These discounts are either taken off the invoice at the time of shipment or paid to the customer on a monthly or quarterly basis.

·	Prompt Pay Discounts – we offer cash discounts to our customers, generally 2% of the sales price, as an incentive for prompt payment. Based on our experience many of the customers comply with the payment terms to earn the cash discount.

·	Patient Discount Programs – we offer discount programs in which patients receive certain discounts off their prescription.

·	Managed Care Rebates – we offer discounts under contracts with certain managed care providers who do not purchase directly from us.

 

 

 

(in thousands)		Three months ended March 31, 2013				Three months ended June 30, 2013				Three months ended September 30, 2013			Nine months ended September 30, 2013
Gross sales		$	1,255			$	508			$	-			1,763
Cash discounts			10				36				-			46
Contract discounts			83				92				-			175
		$	1,162			$	380			$	-		$	1,542
		Three months ended March 31, 2012				Three months ended June 30, 2012				Three months ended September 30, 2012			Nine months ended September 30, 2012
Gross sales		$	577			$	712			$	877		$	2,166
Cash discounts			5				13				7			25
Contract discounts			18				84				89			191
		$	554			$	615			$	781		$	1,950
1) Sales are thru June 6, 2013, the date of the license of MuGard to AMAG Pharmaceuticals.

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Alan Schmidt, a former shareholder of Genaera Corporation (“Genaera”), and a former unitholder of the Genaera Liquidating Trust (the “Trust”), filed a purported class action in the United States District Court for the Eastern District of Pennsylvania in June 2012. The lawsuit named thirty defendants, including the Company, MacroChem Corporation, which was acquired by the Company in February 2009, Jeffrey Davis, the CEO and a director of the Company, and Steven H. Rouhandeh and Mark Alvino, both of whom are Company directors (the “Access Defendants”). With respect to the Access Defendants, the complaint alleged direct and derivative claims asserting that directors of Genaera and the Trustee of the Trust breached their fiduciary duties to Genaera, Genaera’s shareholders and the Trust’s unitholders in connection with the licensing and disposition of certain assets, aided and abetted by numerous defendants including the Access Defendants. Schmidt seeks money damages, disgorgement of any distributions received from the Trust, rescission of sales made by the Trust, attorneys’ and expert fees, and costs. On December 19, 2012, Schmidt filed an amended complaint which asserted substantially the same allegations with respect to the Access Defendants. On February 4, 2013, the Access Defendants moved to dismiss all claims asserted against them. On August 12, 2013 the court granted the Access Defendants’ motions to dismiss and entered judgment in favor of the Access Defendants on all claims. On August 26, 2013, Schmidt filed a motion for reconsideration. On September 10, 2013 Schmidt filed a Notice of Appeal with the District Court. On September 17, 2013, Schmidt filed his appeal with the U.S. Third Circuit Court of Appeals. On September 25, 2013, the District Court denied Schmidt’s motion for reconsideration. On October 17, 2013, Schmidt amended his appeal to include the District court’s denial of his motion for reconsideration. The Company intends to contest the claims vigorously.

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

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:	November 14, 2013	By:	/s/ Jeffrey B. Davis
			Jeffrey B. Davis
			Chief Executive Officer
			(Principal Executive Officer)
Date:	November 14, 2013	By:	/s/ Stephen B. Thompson
			Stephen B. Thompson
			Vice President and Chief Financial Officer
			(Principal Financial and Accounting Officer)

 

		Three months ended September 30,								Nine months ended September 30,
		2013				2012				2013			2012
Revenues
Product sales		$	-			$	781,000			$	1,542,000		$	1,950,000
License revenues			144,000				62,000				290,000			1,384,000
Royalties			45,000				28,000				48,000			64,000
Total revenues			189,000				871,000				1,880,000			3,398,000
Expenses
Research and development			236,000				308,000				756,000			1,712,000
Product costs			7,000				79,000				125,000			201,000
Selling, general and administrative			642,000				1,422,000				4,117,000			4,491,000
Depreciation and amortization			-				18,000				2,000			91,000
Total expenses			885,000				1,827,000				5,000,000			6,495,000
Loss from operations			(696,000	)			(956,000	)			(3,120,000			(3,097,000	)
Interest and miscellaneous income			46,000				111,000				215,000			112,000
Interest and other expense Warrant extension expense			(96,000 -	)			(186,000 -	)			(182,000 -	)		(524,000 (2,316,000	) )
Gain on change in fair value of   derivative - warrants			168,000				64,000				140,000			1,236,000
Gain (loss) on change in fair value of   derivative - preferred stock			421,000				(13,900,000	)			8,471,000			(25,770,000	)
			539,000				(13,911,000	)			8,644,000			(27,262,000	)
Net income (loss)			(157,000	)			(14,867,000	)			5,524,000			(30,359,000	)
Less preferred stock dividends			742,000				444,000				2,202,000			1,323,000
Net income (loss) allocable to common       stockholders		$	(899,000	)		$	(15,311,000	)		$	3,322,000		$	(31,682,000	)
Net income (loss) per common share
Basic Diluted		$ $	(0.04 (0.04	) )		$ $	(0.63 (0.63	) )		$ $	0.13 0.13		$ $	(1.31 (1.31	) )
Weighted average number of common shares outstanding
Basic Diluted			25,432,750 25,432,750				24,173,705 24,173,705				25,117,447 25,356,636			24,135,585 24,135,585

 

		Common Stock								Preferred Stock – A								Preferred Stock – B
		Shares				Amount				Shares				Amount				Shares				Amount				Additional paid-in capital				Treasury stock				Accumulated deficit
Balance   December 31,   2012			24,732,312			$	247,000				2,913.3617			$	-				1,000.0			$	-			$	250,653,000			$	(4,000	)		$	(267,972,000	)
Common stock   issued for   services			28,043				-				-				-				-				-				10,000				-				-
Common stock   issued to   employees			73,500				1,000				-				-				-				-				28,000				-				-
Stock option   compensation   expense			-				-				-				-				-				-				77,000				-				-
Preferred  dividends			-				-				-				-				-				-				-				-				(727,000	)
Net income			-				-			- _ -					-				-				-				-				-				4,081,000
Balance  March 31, 2013			24,833,855			$	248,000				2,913.3617			$	-				1,000.0			$	-			$	250,768,000			$	(4,000	)		$	(264,618,000	)
Common stock   issued for  services			174,588				2,000				-				-				-				-				85,000				-				-
Common stock  issued to  employees			73,500				1,000				-				-				-				-				36,000				-				-
Common stock  issued for cash  exercise of  options			50,000				-				-				-				-				-				11,000				-				-
Preferred stock  converted into  common stock			200,000				2,000				(10.0000	)			-				-				-				(2,000	)			-				-
Stock option   compensation   expense			-				-				-				-				-				-				251,000				-				-
Preferred  dividends			-				-				-				-				-				-				-				-				(733,000	)
Net income			-				-				-				-				-				-				-				-				1,600,000
Balance  June 30, 2013			25,331,943			$	253,000				2,903.3617			$	-				1,000.0			$	-			$	251,149,000			$	(4,000	)		$	(263,751,000	)

		Common Stock								Preferred Stock – A								Preferred Stock – B
		Shares				Amount				Shares				Amount				Shares				Amount				Additional paid-in capital				Treasury stock				Accumulated deficit
Balance   June 30,   2013			25,331,943			$	253,000				2,903.3617			$	-				1,000.0			$	-			$	251,149,000			$	(4,000	)		$	(263,751,000	)
Common stock   issued for   services			30,000				-				-				-				-				-				11,000				-				-
Common stock   issued to   employees			73,500				1,000				-				-				-				-				32,000				-				-
Common stock  issued for cash  exercise of  options			75,000				1,000				-				-				-				-				17,000				-				-
Stock option   compensation   expense			-				-				-				-				-				-				26,000				-				-
Preferred  dividends			-				-				-				-				-				-				-				-				(742,000	)
Net income			-				-			- _ -					-				-				-				-				-				(157,000	)
Balance  September 30,  2013			25,510,443			$	255,000				2,903.3617			$	-				1,000.0			$	-			$	251,235,000			$	(4,000	)		$	(264,650,000	)

		Nine Months ended September 30,
		2013				2012
Cash flows from operating activities:
Net income (loss)		$	5,524,000			$	(30,359,000	)
Adjustments to reconcile net income (loss) to cash provided               by (used in) operating activities:
(Gain) on change in fair value of derivative - warrants			(140,000	)			(1,236,000	)
(Gain) loss on change in fair value of derivative – preferred stock Warrant extension expense			(8,471,000	) -			25,770,000 2,316,000
Depreciation and amortization			2,000				91,000
Stock option compensation expense Stock issued to directors and employees			354,000 99,000				307,000 302,000
Stock issued for services			108,000				53,000
Change in operating assets and liabilities:
Receivables			784,000				(148,000	)
Inventory			194,000				(85,000	)
Prepaid expenses and other current assets			162,000				11,000
Restricted cash			-				330,000
Other assets			-				13,000
Accounts payable and accrued expenses			(1,333,000	)			634,000
Interest payable on dividends			182,000				274,000
Accrued interest payable			-				(79,000	)
Deferred revenue			3,010,000				(533,000	)
Net cash provided by (used in) operating activities			475,000				(2,339,000	)
Cash flows from investing activities:
Capital expenditures			(1,000	)			(15,000	)
Net cash used in investing activities			(1,000	)			(15,000	)
Cash flows from financing activities:
Proceeds from exercise of stock options			29,000				-
Net cash provided by financing activities			29,000				-
Net increase (decrease) in cash and cash equivalents			503,000				(2,354,000	)
Cash and cash equivalents at beginning of period			396,000				2,460,000
Cash and cash equivalents at end of period		$	899,000			$	106,000
Supplemental cash flow information:
Cash paid for interest		$	-			$	330,000
Supplemental disclosure of noncash transactions:
Shares issued for dividends on preferred stock			-				22,000
Preferred stock dividends in dividends payable		$	2,202,000			$	1,323,000

(1)	Interim Financial Statements

·	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 September 30, 2013				Level 1				Level 2				Level 3				Total Gains
Liabilities:   Derivative liability-
warrants		$	131			$	-			$	131			$	-			$	140
preferred stock		$	729			$	-			$	-			$	729			$	8,471

(in thousands)
Description		As of December 31, 2012				Level 1				Level 2				Level 3				Total Gains (Losses)
Liabilities:   Derivative liability-
warrants		$	271			$	-			$	271			$	-			$	1,236
preferred stock		$	9,200			$	-			$	-			$	9,200			$	(4,770	)