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

 

(Mark One)
o		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)
		(214) 905-5100
	(Registrant’s telephone number, including area code)

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

This Quarterly Report on Form 10-Q (including the information incorporated by reference) contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that involve risks and uncertainties including, but not limited to, the uncertainties associated with research and development activities, clinical trials, our ability to raise capital, the timing of and our ability to achieve regulatory approvals, dependence on others to market our licensed products, collaborations, future cash flow, the timing and receipt of licensing and milestone revenues, the future success of our marketed products and products in development, our sales projections, and the sales projections of our licensing partners, our ability to achieve licensing milestones and other risks described below as well as those discussed elsewhere in this Quarterly Report on Form 10-Q, documents incorporated by reference and other documents and reports that we file periodically with the Securities and Exchange Commission (“SEC”). These statements include, without limitation, statements relating to our ability to continue as a going concern, anticipated product approvals and timing thereof, product opportunities, clinical trials and U.S. Food and Drug Administration (“FDA”) applications, as well as our drug development strategy, our clinical development organization, expectations regarding our rate of technological developments and competition, our expectations regarding minimizing development risk and developing and introducing technology, the size of our targeted markets, the terms of future licensing arrangements, the adequacy of our capital resources, revenues from sales and license agreements, our expectation that our capital resources, sales revenues and receipts will be adequate to fund our current level of operations into the first quarter of 2014, our expectation that sales of MuGard will begin in China in the third quarter of 2013, our expectation that we will incur losses for the next several years and our ability to secure additional financing for our operations. These statements relate to future events or our future financial performance and are based on current expectations, estimates, forecasts and projections and management’s beliefs and assumptions. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expects,” “plans,” “could,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of such terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors that are difficult to predict and which may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking 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 $1.0 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 the fourth quarter of 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.

 

 

 

 

●

Our candidate for the treatment of cancer is ProLindac™, a nanopolymer Diamino Cyclohexane (“DACH”)-platinum prodrug. ProLindac is in Phase 2 of clinical development and we have completed and evaluated data from several clinical trials with ProLindac. 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
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

---

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

●	decreased salary and related costs ($186,000) from reduced scientific staff;

●	decreased clinical development with trials completed for MuGard, ProLindac, Thiarabine ($159,000);

●	decreased laboratory costs due to the closing of our laboratory ($64,000); and

●	other net decreases in research spending ($48,000).

 

 

 

●	increased legal fees ($335,000);

●	increased stock compensation expense from expense of option grants for selling, general and administrative employees ($166,000);

●	increased general business consulting expenses for MuGard licensing transition costs ($130,000);

●	increased MuGard product selling expenses ($52,000); and

●	increased net other general and administrative expenses ($48,000).

 

 

 

 

 

 

 

 

 

 

 

 

 

 

●	decreased salary and related costs ($451,000) from reduced scientific staff;

●	decreased clinical development with trials for MuGard, ProLindac and Thiarabine ($225,000);

●	decreased laboratory costs due to the closing of our laboratory ($121,000);

 

●	decreased stock compensation expense from lower expense of option grants for research and development employees ($56,000); and

●	other net decreases in research spending ($31,000).

 

 

 

●	increased legal fees ($307,000);

●	increased stock compensation expense from expense of option grants for selling, general and administrative employees ($162,000);

●	increased general business consulting expenses for MuGard licensing transition costs ($130,000);

●	increased MuGard product selling expenses ($147,000);

●	decreased salary and related costs ($209,000) from reduced general and administrative staff;

●	lower patent fees ($73,000) due to no new patents being filed in 2013; and

●	decreased net other general and administrative expenses ($58,000).

 

 

 

 

 

 

 

 

 

 

 

 

 

●

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 (1)				Six months ended June 30, 2013
Gross sales		$	1,255			$	508			$	1,763
Cash discounts			10				36				46
Contract discounts			83				92				175
		$	1,162			$	380			$	1,542
(in thousands)		Three months ended March 31, 2012				Three months ended June 30, 2012				Six months ended June 30, 2012
Gross sales		$	577			$	712			$	1,289
Cash discounts			5				13				18
Contract discounts			18				84				102
		$	554			$	615			$	1,169
(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

 

 

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:

 

3.13	Certificate of Amendment of Certificate of Incorporation, dated July 1, 2013.

 

10.33

License Agreement, dated June 6, 2013, by and between the Company and AMAG Pharmaceuticals, Inc.

 

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

 

 

 

 

	June 30, 2013		December 31, 2012
ASSETS	(unaudited)
Current assets   Cash and cash equivalents   Receivables   Inventory   Prepaid expenses and other current assets		$          1,798,000 259,000 - 292,000		$             396,000 840,000 194,000              251,000
Total current assets		2,349,000		1,681,000
Property and equipment, net	6,000		7,000
Other assets		42,000		42,000
Total assets		$          2,397,000		$          1,730,000
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities   Accounts payable   Accrued expenses   Dividends payable   Current portion of deferred revenue		$          1,305,000 857,000 5,032,000 577,000		$          2,039,000 857,000 3,486,000 247,000
Total current liabilities		7,771,000		6,629,000
Derivative liability - warrants Derivative liability - preferred stock Long-term deferred revenue		299,000 1,150,000 5,530,000		271,000 9,200,000 2,706,000
Total liabilities		14,750,000		18,806,000
Commitments and contingencies
Stockholders' deficit   Convertible preferred stock Series A - $.01 par value; authorized       2,000,000 shares; 2,903.3617 shares issued at June 30,  2013 and 2,913.3617 shares issued at December 31, 2012   Convertible preferred stock Series B - $.01 par value; authorized       2,000,000 shares; 1,000 shares issued at June 30,  2013 and 1,000 shares issued at December 31, 2012   Common stock - $.01 par value; authorized 200,000,000 shares;      issued, 25,331,943 at June 30, 2013 and 24,732,312 at      December 31, 2012   Additional paid-in capital   Treasury stock, at cost – 163 shares   Accumulated deficit		-     -     253,000 251,149,000 (4,000) (263,751,000)		-     -     247,000 250,653,000 (4,000) (267,972,000)
Total stockholders' deficit		(12,353,000)		(17,076,000)
Total liabilities and stockholders' deficit		$          2,397,000		$          1,730,000

 

 

 

 

 

		Three months ended June 30,								Six months ended June 30,
		2013				2012				2013				2012
Revenues
Product sales		$	380,000			$	615,000			$	1,542,000			$	1,169,000
License revenues			84,000				60,000				146,000				1,322,000
Royalties			3,000				15,000				3,000				36,000
Total revenues			467,000				690,000				1,691,000				2,527,000
Expenses
Research and development			197,000				654,000				520,000				1,404,000
Product costs			53,000				63,000				118,000				122,000
Selling, general and administrative			2,137,000				1,406,000				3,475,000				3,069,000
Depreciation and amortization			1,000				19,000				2,000				73,000
Total expenses			2,388,000				2,142,000				4,115,000				4,668,000
Loss from operations			(1,921,000	)			(1,452,000	)			(2,424,000	)			(2,141,000	)
Interest and miscellaneous income			75,000				-				169,000				1,000
Interest and other expense			(43,000	)			(169,000	)			(86,000	)			(338,000	)
Warrant extension expense			-				-				-				(2,316,000	)
Gain (loss) on change in fair value of   derivative - warrants			219,000				431,000				(28,000	)			1,172,000
Gain (loss) on change in fair value of   derivative - preferred stock			3,270,000				(9,410,000	)			8,050,000				(11,870,000	)
			3,521,000				(9,148,000	)			8,105,000				(13,351,000	)
Net income (loss)			1,600,000				(10,600,000	)			5,681,000				(15,492,000	)
Less preferred stock dividends			733,000				439,000				1,460,000				879,000
Net income (loss) allocable to common       stockholders		$	867,000			$	(11,039,000	)		$	4,221,000			$	(16,371,000	)
Net income (loss) per common share
Basic		$	0.03			$	(0.46	)		$	0.17			$	(0.68	)
Diluted		$	0.03			$	(0.46	)		$	0.17			$	(0.68	)
Weighted average number of common shares outstanding
Basic			25,111,713				24,160,686				24,957,183				24,116,316
Diluted			25,469,229				24,160,686				25,314,699				24,116,316

 

 

 

 

 

 

 

 

	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 comp-  ensation 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   comp-  ensation  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	)

 

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

 

 

 

	Six Months ended June 30,
	2013		2012
Cash flows from operating activities:
Net income (loss)	$     5,681,000		$(15,492,000)
Adjustments to reconcile net income (loss) to cash provided               by (used in) operating activities:
Gain (loss) on change in fair value of derivative - warrants	28,000		(1,172,000)
Gain (loss) on change in fair value of derivative – preferred stock Warrant extension expense	(8,050,000) -		11,870,000 2,316,000
Depreciation and amortization	1,000		73,000
Stock option compensation expense Stock issued to directors and employees	328,000 66,000		222,000 302,000
Stock issued for services	97,000		43,000
Change in operating assets and liabilities:
Receivables	581,000		(455,000)
Inventory	194,000		(130,000)
Prepaid expenses and other current assets	(41,000)		(5,000)
Other assets	-		8,000
Accounts payable and accrued expenses	(734,000)		697,000
Interest payable on dividends	86,000		172,000
Accrued interest payable	-		166,000
Deferred revenue	3,154,000		(472,000)
Net cash provided by (used in) operating activities	1,391,000		(1,857,000)
Cash flows from investing activities:
Capital expenditures	-		(15,000)
Net cash used in investing activities	-		(15,000)
Cash flows from financing activities:
Proceeds from exercise of stock options	11,000		-
Net cash provided by financing activities	11,000		-
Net increase (decrease) in cash and cash equivalents	1,402,000		(1,872,000)
Cash and cash equivalents at beginning of period	396,000		2,460,000
Cash and cash equivalents at end of period	$     1,798,000		$        588,000
Supplemental cash flow information:
Cash paid for interest	$                   -		$                   -
Supplemental disclosure of noncash transactions:
Shares issued for dividends on preferred stock	-		22,000
Preferred stock dividends in dividends payable	$     1,460,000		$        879,000

 

 

 

 

 

(1)	Interim Financial Statements

 

 

 

 

 

 

 

(2)

Liquidity

 

 

(3)	Fair Value of Financial Instruments

 

 

 

 

●	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, 2013				Level 1				Level 2				Level 3				Total Gains (Losses)
Liabilities:   Derivative liability-
warrants		$	299			$	-			$	299			$	-			$	(28	)
preferred stock		$	1,150			$	-			$	-			$	1,150			$	8,050

 

(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	)

 

 

 

 

 

		Three months ended June 30,								Six months ended June 30,
		2013				2012				2013				2012
Research and development		$	10,000			$	33,000			$	19,000			$	74,000
Selling, general and administrative			241,000				75,000				309,000				148,000
Stock-based compensation expense   included in operating expense		$	251,000			$	108,000			$	328,000			$	222,000

 

 

 

Our weighted average Black-Scholes fair value assumptions used to value the grants in the first six months of 2012 are as follows:

 

	6/30/12
Expected life(b)	5.5 yrs
Risk free interest rate	0.6	%
Expected volatility(a)	96	%
Expected dividend yield	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.

 

 

 

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 executives (the “Access Defendants”). With respect to the Access Defendants, the complaint alleges 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 asserts 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 defendants' motions to dismiss and entered judgment in favor of defenddants on all claims.

 

 

 

 

 

 

(in thousands, except share and per share amounts)		Three months ended June 30,								Six months ended June 30,
		2013				2012				2013				2012
Net income (loss)		$	867			$	(11,039	)		$	4,221			$	(16,371	)
Weighted average shares outstanding			25,111,713				24,160,686				24,957,183				24,116,316
Basic net income (loss) per common share		$	0.03			$	(0.46	)		$	0.17			$	(0.68	)
Net income (loss)		$	867			$	(11,039	)		$	4,221			$	(16,371	)
Weighted average shares outstanding			25,111,713				24,160,686				24,957,183				24,116,316
Effect of dilutive options and warrants			357,516				-				357,516				-
Weighted average shares outstanding   assuming dilution			25,469,229				24,160,686				25,314,699				24,116,316
Diluted net income (loss) per common share		$	0.03			$	(0.46	)		$	0.17			$	(0.68	)

 

 

 

		Three months ended June 30,								Six months ended June 30,
		2013				2012				2013				2012
Warrants			35,683,943				15,783,943				35,683,943				15,783,943
Stock options			1,967,284				2,816,284				1,967,284				2,816,284
Preferred stock Series A			58,267,234				20,264,551				58,267,234				20,264,551
Preferred stock Series B			20,000,000				-				20,000,000				-
Total			115,918,461				38,864,778				115,918,461				38,864,778