Acer Therapeutics Inc. - Quarter Report: 2008 June (Form 10-Q)
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington, D.C.
20549
FORM
10-Q
(Mark One)
|
þ
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For
the Quarterly Period Ended June 30, 2008
or
|
o
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For
the Transition Period from
to
Commission
File Number: 001-33004
Opexa
Therapeutics, Inc.
(Exact
name of registrant as specified in its charter)
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Texas
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2635 North Crescent Ridge
Drive
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76-0333165
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(State
or other jurisdiction of
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The
Woodlands, Texas 77381
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(I.R.S.
Employer
|
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Incorporation
or organization)
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(Address of
principal executive
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Identification
No.)
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offices
and zip code)
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(281)
272-9331
Registrant’s
telephone number, including area code
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports) and (2) has been subject to such filing requirements for
the past 90 days. Yes þ No o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of “large accelerated filer,”
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.
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Large
accelerated filer o
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Accelerated
filer o
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||
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Non-accelerated
filer o
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(Do
not check if a smaller reporting company)
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Smaller
reporting company þ
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Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes o No
þ
As of
August 11, 2008, there were outstanding 12,263,558 shares of the issuer’s Common
Stock outstanding.
OPEXA
THERAPEUTICS, INC.
(A
development stage company)
For
the Quarter Ended June 30, 2008
INDEX
| PART I – FINANCIAL INFORMATION |
Page
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Item
1.
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Financial
Statements
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1
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2
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3
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5
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Item
2.
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9
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Item
3.
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12
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Item
4.
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12
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PART
II – OTHER INFORMATION
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|||
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Item
1.
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13
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Item
1A.
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13
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Item
2.
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13
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Item
3.
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14
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Item
4.
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14
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Item
5.
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14
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Item
6.
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14
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Signatures
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PART I - FINANCIAL INFORMATION
Item
1. Financial Statements
(a
development stage company)
BALANCE
SHEETS
(unaudited)
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June
30,
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December
31,
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|||||||
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2008
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2007
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|||||||
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Assets
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||||||||
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Current
assets:
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||||||||
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Cash
and cash equivalents
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$ | 3,493,781 | $ | 2,645,482 | ||||
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Other
current assets
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363,533 | 355,266 | ||||||
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Total
current assets
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3,857,314 | 3,000,748 | ||||||
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Property
& equipment, net of accumulated depreciation
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||||||||
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of
$730,940 and $614,079 respectively
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1,284,731 | 1,370,647 | ||||||
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Total
assets
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$ | 5,142,045 | $ | 4,371,395 | ||||
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Liabilities
and Stockholders' Equity
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||||||||
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Current
liabilities:
|
||||||||
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Accounts
payable
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$ | 742,316 | $ | 938,442 | ||||
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Accounts
payable - related parties
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99,221 | 54,091 | ||||||
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Accrued
expenses
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879,915 | 1,022,461 | ||||||
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Current
maturity of loan payable
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62,717 | 60,360 | ||||||
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Total
current liabilities
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1,784,169 | 2,075,354 | ||||||
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Long
term liabilities:
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||||||||
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Loan
payable
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131,847 | 162,456 | ||||||
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Total
liabilities
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1,916,016 | 2,237,810 | ||||||
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Commitments
and contingencies
|
- | - | ||||||
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Stockholders'
equity:
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||||||||
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Preferred
stock, no par value, 10,000,000 shares authorized,
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||||||||
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none
issued and outstanding
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- | - | ||||||
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Common
stock, $0.50 par value, 100,000,000 shares authorized,
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||||||||
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10,259,684
and 6,696,784 shares issued and outstanding
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5,129,801 | 3,348,351 | ||||||
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Additional
paid in capital
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82,546,374 | 76,498,054 | ||||||
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Deficit
accumulated during the development stage
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(84,450,146 | ) | (77,712,820 | ) | ||||
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Total
stockholders' equity
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3,226,029 | 2,133,585 | ||||||
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Total
liabilities and stockholders' equity
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$ | 5,142,045 | $ | 4,371,395 | ||||
See
accompanying notes to consolidated financial statements
1
(a
development stage company)
STATEMENTS
OF EXPENSES
Three
and six months ended June 30, 2008 and 2007 and the
Period
from January 22, 2003 (Inception) to June 30, 2008
(unaudited)
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Three
Months
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Three
Months
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Six
Months
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Six
Months
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Inception
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||||||||||||||||
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Ended
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Ended
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Ended
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Ended
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through
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||||||||||||||||
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June
30,
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June
30,
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June
30,
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June
30,
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June
30,
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||||||||||||||||
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2008
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2007
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2008
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2007
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2008
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||||||||||||||||
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Research
and development
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$ | 2,331,592 | $ | 3,712,208 | $ | 4,705,528 | $ | 6,959,674 | $ | 58,463,065 | ||||||||||
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General
and administrative
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1,298,180 | 865,744 | 2,007,697 | 1,715,530 | 19,632,472 | |||||||||||||||
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Depreciation
and amortization
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58,793 | 50,096 | 117,070 | 98,925 | 635,280 | |||||||||||||||
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Loss
on disposal of assets
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116 | 4,034 | 116 | 4,034 | 495,617 | |||||||||||||||
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Operating
loss
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(3,688,681 | ) | (4,632,082 | ) | (6,830,411 | ) | (8,778,163 | ) | (79,226,434 | ) | ||||||||||
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Interest
income
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31,495 | 141,971 | 69,204 | 320,794 | 1,323,030 | |||||||||||||||
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Other
income
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26,584 | - | 34,901 | - | 106,904 | |||||||||||||||
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Gain
on extinguishment of debt
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- | - | - | - | 1,612,440 | |||||||||||||||
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Interest
expense
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(4,694 | ) | (3,691 | ) | (11,020 | ) | (6,144 | ) | (8,266,086 | ) | ||||||||||
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Net
loss
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$ | (3,635,296 | ) | $ | (4,493,802 | ) | $ | (6,737,326 | ) | $ | (8,463,513 | ) | $ | (84,450,146 | ) | |||||
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Basic
and diluted loss per share
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$ | (0.36 | ) | $ | (0.67 | ) | $ | (0.73 | ) | $ | (1.26 | ) | N/A | |||||||
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Weighted
average shares outstanding
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10,235,223 | 6,696,784 | 9,273,485 | 6,696,784 | N/A | |||||||||||||||
See accompanying notes to
consolidated financial statements
2
(a
development stage company)
STATEMENTS
OF CASH FLOWS
Six
months ended June 30, 2008 and 2007 and the
Period
from January 22, 2003 (Inception) to June 30, 2008
(unaudited)
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Six
Months Ended
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Inception
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|||||||||||
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June
30,
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through
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|||||||||||
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2008
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2007
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June
30, 2008
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||||||||||
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Cash
flows from operating activities
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||||||||||||
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Net
loss
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$ | (6,737,326 | ) | $ | (8,463,513 | ) | $ | (84,450,146 | ) | |||
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Adjustments
to reconcile net loss to net cash
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||||||||||||
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used
in operating activities
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||||||||||||
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Stock
payable for acquired research and development
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- | - | 112,440 | |||||||||
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Stock
issued for acquired research and development
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- | - | 26,286,589 | |||||||||
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Stock
issued for services
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68,561 | - | 1,929,961 | |||||||||
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Stock
issued for debt in excess of principal
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- | - | 109,070 | |||||||||
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Amortization
of discount on notes payable due
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||||||||||||
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to
warrants and beneficial conversion feature
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- | - | 6,313,205 | |||||||||
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Realized
gain on marketable securities
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- | 25,912 | - | |||||||||
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Gain
on extinguishment of debt
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- | - | (1,612,440 | ) | ||||||||
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Depreciation
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117,070 | 98,925 | 635,280 | |||||||||
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Debt
financing costs
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- | - | 365,910 | |||||||||
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Option
expense
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1,388,812 | 1,415,113 | 13,413,735 | |||||||||
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Loss
on disposition of fixed assets
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116 | 4,034 | 495,617 | |||||||||
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Changes
in:
|
- | |||||||||||
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Marketable
securities
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- | 2,926,184 | - | |||||||||
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Prepaid
and other expenses
|
(8,267 | ) | (245,995 | ) | (780,206 | ) | ||||||
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Accounts
payable
|
(150,996 | ) | 404,906 | 391,896 | ||||||||
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Accrued
expenses
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(142,546 | ) | 707,926 | 753,261 | ||||||||
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Net
cash used in operating activities
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(5,464,576 | ) | (3,126,508 | ) | (36,035,828 | ) | ||||||
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Cash
flows from investing activities
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||||||||||||
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Purchase
of property & equipment
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(31,270 | ) | (112,591 | ) | (1,337,741 | ) | ||||||
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Net
cash used in investing activities
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(31,270 | ) | (112,591 | ) | (1,337,741 | ) | ||||||
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Cash
flows from financing activities
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||||||||||||
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Common
stock sold for cash, net of offering costs
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6,372,397 | - | 32,882,134 | |||||||||
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Common
stock repurchased and canceled
|
- | - | (325 | ) | ||||||||
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Proceeds
from debt
|
- | 137,286 | 8,102,199 | |||||||||
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Repayments
on notes payable
|
(28,252 | ) | - | (116,658 | ) | |||||||
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Net
cash provided by financing activities
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6,344,145 | 137,286 | 40,867,350 | |||||||||
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Net
change in cash and cash equivalents
|
848,299 | (3,101,813 | ) | 3,493,781 | ||||||||
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Cash
and cash equivalents at beginning of period
|
2,645,482 | 12,019,914 | - | |||||||||
|
Cash
and cash equivalents at end of period
|
$ | 3,493,781 | $ | 8,918,101 | $ | 3,493,781 | ||||||
See
accompanying notes to consolidated financial statements
3
|
Cash
paid for:
|
||||||||||||
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Income
tax
|
$ | - | $ | - | $ | - | ||||||
| Interest | - | - | 429 | |||||||||
|
NON-CASH
TRANSACTIONS
|
||||||||||||
|
Issuance
of common stock to Sportan shareholders
|
- | - | 147,733 | |||||||||
|
Issuance
of common stock for accrued interest
|
- | - | 525,513 | |||||||||
|
Conversion
of notes payable to common stock
|
- | - | 6,407,980 | |||||||||
|
Conversion
of accrued liabilities to common stock
|
- | - | 197,176 | |||||||||
|
Conversion
of accounts payable to note payable
|
- | - | 93,364 | |||||||||
|
Discount
on convertible notes relating to:
|
||||||||||||
|
-
warrants
|
- | - | 3,309,790 | |||||||||
|
-
beneficial conversion feature
|
- | - | 1,715,973 | |||||||||
|
-
stock attached to notes
|
- | - | 1,287,440 | |||||||||
|
Reclassification
of derivative liabilities
|
- | 6,656,677 | - | |||||||||
See accompanying notes to
consolidated financial statements
4
(a
development stage company)
NOTES
TO FINANCIAL STATEMENTS
(unaudited)
Note
1. Basis of Presentation
The accompanying unaudited interim
financial statements of Opexa Therapeutics, Inc., a development stage company,
have been prepared in accordance with accounting principles generally accepted
in the United States of America and the rules of the Securities and Exchange
Commission and should be read in conjunction with the audited financial
statements and notes thereto contained in Opexa’s latest Annual Report filed
with the SEC on Form 10-K. In the opinion of management, all adjustments,
consisting of normal recurring adjustments, necessary for a fair presentation of
financial position and the results of operations for the interim periods
presented have been reflected herein. The results of operations for interim
periods are not necessarily indicative of the results to be expected for the
full year. Notes to the financial statements that would substantially
duplicate the disclosure contained in the audited financial statements for the
most recent fiscal year as reported in Form 10-K, have been
omitted.
Note
2. Going Concern
Opexa
incurred a net loss of approximately $6.7 million for the six months ended June
30, 2008 and has an accumulated deficit of approximately $84.4
million. The cash balance of $3.5 million as of June 30, 2008 is not
sufficient to fund our operations for the next twelve months if we are to
execute our operating plan including the completion of our Phase IIb clinical
trial of Tovaxin for the treatment of multiple sclerosis (“MS”) and continue
with the next phase of development. These conditions raise substantial doubt as
to Opexa’s ability to continue as a going concern. Management continues to seek
means to raise additional capital through sales of equity. The
financial statements do not include any adjustments that might be necessary if
Opexa is unable to continue as a going concern.
Note
3. Marketable Securities
Opexa
considers all highly liquid investments with an original maturity of three
months or less, when purchased, to be cash equivalents. Investments with
maturities in excess of three months but less than one year are classified as
short-term investments and are stated at fair market value.
At June
30, 2008, Opexa invested $3.5 million in a money market account with an average
market yield of 2.5%. Interest income of $69,204 was recognized for the six
months ended June 30, 2008 in the statements of expenses. As of June
30, 2008, the Company held no auction rate securities.
Note
4. Commitments and Contingencies
In
September 2006, Opexa entered into an Individual Project Agreement (IPA) with
PharmaNet, LLC (PharmaNet), a contract research organization focused on managing
central nervous system clinical trials. Pursuant to such IPA,
PharmaNet, LLC will provide Opexa with services in connection with its Phase IIb
clinical trial. Under the terms of the IPA, Opexa is required to advance
funds for investigator grants, professional fees and out of pocket expenses. In
March 2008, PharmaNet agreed to waive the investigator grant advance requirement
and in return Opexa will pay the invoice in full within 30 days of
receipt. In June 2008, PharmaNet agreed to revise the professional
fee advance to $233,000 to be applied 1/8th per
month to invoices for the months of May through December
2008. PharmaNet will continue to hold a $60,000 advance for
out-of-pocket expenses. At the conclusion of the program, advance
balances remaining will be applied to outstanding invoices. These
advances are treated as prepaid items and included in the other current assets
section of the balance sheet. As of June 30, 2008, the advance balance to
PharmaNet, LLC was $234,750.
In July
2007, Opexa entered into a seconded amended and restated license agreement with
the University of Chicago that requires Opexa to make milestone payments of up
to $1,350,000 if certain late stage clinical trial and FDA approval milestones
are achieved. Opexa has determined that these payments are not
probable at this time and thus no liability has been recorded as of June 30,
2008.
5
Note
5. Loan Payable
Loan
payable consists of an equipment line of $250,000 with Wells Fargo Bank of which
$194,564 was outstanding as of June 30, 2008. This loan has an interest rate of
7.61% per annum, matures in May 2011 and is secured by Opexa’s furniture and
equipment purchased with the loan proceeds. Payments are due and
payable monthly on the same day of each month until maturity.
Note
6. Equity
In
February, 2008, Opexa entered into an Underwriting Agreement with MDB Capital
Group LLC, for itself and as representative of several underwriters, relating to
the public offering of 3,500,000 shares of Opexa’s common stock and 3,500,000
Series E warrants, each warrant to purchase one share of common stock at an
exercise price of $2.00 per share. Pursuant to the Underwriting Agreement, Opexa
granted the underwriters a 30-day option to purchase up to an additional 525,000
shares of common stock and 525,000 warrants to cover over-allotments. The
closing for the sale of shares of common stock and warrants took place in
February 2008. The underwriters exercised their over-allotment option as to the
warrants only, and Opexa sold an aggregate of 3,500,000 shares and 4,025,000
warrants.
The public
offering price for each share was $2.00, and the public offering price for each
warrant was $0.15. Each share and each warrant was sold to the underwriters at
the public offering price of each security less an underwriting discount of 10%.
The Company received approximately $7.6 million in gross proceeds from the
offering. The Company also paid the underwriters 1% of the gross
proceeds of the offering (excluding the over-allotment option) as an expense
allowance. The net proceeds to Opexa, after underwriter discounts,
commissions and other expenses, was approximately $6.4 million. As
additional compensation, the Company issued warrants to the underwriter to
purchase 350,000 shares of common stock at a price of $2.40 per share and an
option to acquire 350,000 Series E warrants at a price of $0.18 per Series E
warrant.
Note
7. Options
Share-based
Compensation:
The
June 2004 Compensatory Stock Option Plan authorizes the issuance of various
forms of stock-based awards, including incentive and non-statutory stock
options, stock purchase rights, stock appreciation rights, and restricted and
unrestricted stock awards. A total of 1,200,000 shares were
authorized to be issued under the Plan through June, 2014. At June
30, 2008, 1,200,000 shares were issued and an additional 431,240 shares are
subject to an increase in shares authorized in the Plan which will be voted upon
at the 2008 Annual Shareholder Meeting.
The
Company accounts for share-based compensation, including options and nonvested
shares, according to the provisions of SFAS No. 123R, "Share Based
Payment". During the three and six-month periods ended June 30, 2008, the
Company recognized share-based compensation expense of approximately $1.0
million and $1.4 million respectively. Activity in options and restricted
stock during the six-month period ended June 30, 2008 and related balances
outstanding as of that date are reflected below. During the first quarter of
2008, there were no options granted. The weighted average fair value per share
of options granted to employees for the six-month period ended June 30,
2008 was approximately $1.08.
A
summary of share-based compensation activity for the six-month period ended
June 30, 2008 is presented below:
6
|
Number
of
Options
|
Weighted
Average Exercise Price
|
Weighted
Average Remaining
Contract
Term
|
Intrinsic
Value
|
|||||||||||||
|
Outstanding
at January 1, 2008
|
1,039,525 | $ | 9.31 | |||||||||||||
|
Granted
|
651,300 | 1.08 | ||||||||||||||
|
Exercised
|
- | - | ||||||||||||||
|
Forfeited
or canceled
|
(59,585 | ) | 8.18 | |||||||||||||
|
Outstanding
at June 30, 20081
|
1,631,240 | $ | 6.06 | 7.25 | - | |||||||||||
|
Exercisable
at June 30, 2008
|
927,910 | $ | 8.81 | 6.34 | - | |||||||||||
1 Of the
options issued 431,240 shares are subject to an increase in shares authorized in
the Plan which will be voted upon at the 2008 Annual Shareholder
Meeting.
Stock
Option Activity:
Stock
option awards issued by the Company have a ten year life and have various
vesting dates that range from partial vesting upon date of grant to full vesting
on a specified date, quarterly vesting on the anniversary date of hire and
quarterly vesting on the anniversary date of grant. The Company estimates the
fair value of stock options using the Black-Scholes option-pricing model and
records the compensation expense ratably over the service period.
The fair
value of stock options granted during the quarter was estimated using the
following assumptions:
|
Six
Months Ended
June
30, 2008
|
Six
Months Ended
June
30, 2007
|
|||
|
Expected
Volatility
|
115.28%
|
95.88%
- 103.91%
|
||
|
Expected
term (in years)
|
5.5
- 6
|
6
|
||
|
Risk
free rate
|
3.15%
- 3.73%
|
4.52%
- 5.07%
|
||
|
Expected
dividends
|
0.00%
|
0.00%
|
Restricted
Stock:
The
Company grants restricted stock to employees and directors that entitle the
holders to receive shares of the Company’s common stock upon the fulfillment of
certain service and/or performance conditions. The fair value of
restricted stock is based on the market price of the Company’s stock on the date
of grant and is recorded as compensation expense ratably over the service
period.
A summary
of restricted stock activity for the six months ended June 30, 2008
follows:
|
Restricted
Stock
|
Number
of
Shares
|
|||
|
Nonvested
at January 1, 2008
|
- | |||
|
Granted
|
62,900 | |||
|
Vested
|
(25,700 | ) | ||
|
Forfeited
|
- | |||
|
Nonvested
at June 30, 2008
|
37,200 | |||
7
Note
8. Warrants
In
connection with the closing of our February 2008 public offering of common
shares, the investors were issued five-year warrants to purchase up to an
aggregate of 4,025,000 shares of our common stock, at an initial exercise
price of $2.00 per share and a market price of $0.15 per warrant was used to
assign fair value of the warrants for a total fair value of
$603,750.
As
additional compensation, the Company issued warrants to the underwriter to
purchase 350,000 shares of common stock at a price of $2.40 per share and an
option to acquire 350,000 Series E warrants at a price of $0.18 per Series E
warrant. The estimated fair value of the underwriter warrants was
$319,436 and was calculated using the Black-Scholes valuation model. The
following assumptions were used: (i) no expected dividends, (ii) risk
free interest rate of 2.93%, (iii) expected volatility of 97.67%, and (iv)
expected life of 3 years.
The fair
value of warrants granted in the first quarter of 2008 was included in
additional paid-in capital along with the proceeds from issuance of common
stock.
Note
9. Subsequent Event
Private
Placement Offering
On August 11, 2008, Opexa closed a
financing transaction in which Opexa issued 2,003,874 shares of its
common stock and warrants to purchase 2,003,874 shares of Opexa’s common stock
(the “Unit”) for gross proceeds of approximately $3.0 million to
certain institutional and accredited investors (the
“Transaction”). The purchase price paid by non-affiliate
investors was $1.48 for each Unit and with regard to the Affiliate Investors was
$1.655 for each Unit. The warrants expire in four years, are first exercisable
after six months of the closing of the Transaction and are exercisable at $1.78
per share. The shares are exercisable on a cashless basis. If Opexa fails
to register, achieve effectiveness of registration or maintain effectiveness of
registration of shares underlying the warrants and shares, they are required to
make certain liquidated damage payments of 1% of the offering per month for
every month in default with a maximum of 6%. 2,003,874 warrants were issued to
investors in connection with the Transaction.
No
commissions or fees to placement agents were paid in connection with the
Transaction.
8
The
following discussion of our financial condition and results of operations should
be read in conjunction with the accompanying financial statements and the
related footnotes thereto.
Forward-Looking
Statements
Some of
the statements contained in this report discuss future expectations, contain
projections of results of operations or financial condition, or state other
"forward-looking" information. The words "believe," "intend," "plan," "expect,"
"anticipate," "estimate," "project," "goal" and similar expressions identify
such statement was made. These statements are subject to known and unknown
risks, uncertainties, and other factors that could cause the actual results to
differ materially from those contemplated by the statements. The forward-looking
information is based on various factors and is derived using numerous
assumptions. Factors that might cause or contribute to such a discrepancy
include, but are not limited to the risks discussed in this and our other SEC
filings. We do not promise to update forward-looking information to reflect
actual results or changes in assumptions or other factors that could affect
those statements. Future events and actual results could differ materially from
those expressed in, contemplated by, or underlying such forward-looking
statements.
The
following discussion and analysis of our financial condition is as of June 30,
2008. Our results of operations and cash flows should be read in
conjunction with our unaudited financial statements and notes thereto included
elsewhere in this report and the audited financial statements and the notes
thereto included in our Form 10-K for the year ended December 31,
2007.
Business
Overview
Unless
otherwise indicated, we use “Opexa,” “the Company,” “we,” “our” and “us” in this
annual report to refer to the businesses of Opexa Therapeutics,
Inc.
We are a
biopharmaceutical company developing autologous cellular therapies to treat
several major illnesses, including multiple sclerosis (MS), rheumatoid arthritis
(RA), and diabetes. These therapies are based on our proprietary T-cell and
adult stem cell technologies. The information discussed related to
our product candidates is preliminary and investigative. Our product
candidates are not approved by the Food and Drug Administration
(FDA).
T-Cell
Therapy
We have an
exclusive worldwide license from Baylor College of Medicine to an individualized
T-cell therapeutic vaccine, Tovaxin®, which is in a
United States (U.S.) FDA Phase IIb human clinical trial to evaluate its safety
and effectiveness in treating MS.
MS is the
result of a person’s own T-cells attacking the myelin sheath that coats the
nerve cells of the central nervous system. Tovaxin consists of attenuated
patient-specific myelin reactive T-cells (MRTCs) against peptides from one or
more of the primary proteins on the surface of the myelin sheath (myelin basic
protein, proteolipid protein, and myelin oligodendrocyte glycoprotein).
Patient-specific MRTCs are expanded in culture with specific peptides identified
by our proprietary test of the patient’s peripheral blood. The cells are then
attenuated by gamma irradiation, and returned to the patient as a subcutaneous
injection. Although further testing is necessary, results from our initial human
trials appear to indicate that these attenuated T-cells cause an immune response
directed at the autoreactive T-cells in the patient’s body, resulting in a
reduction in the level of harmful T-cells.
We believe
that our initial human trials suggest that Tovaxin safely induces the depletion
and regulation of MRTCs, possibly stabilizing the disease, reducing the
annualized relapse rate, and potentially improving the disability scores of
patients. Patients treated in a 10-subject, open-label Phase I/II dose
escalation clinical trial with Tovaxin have experienced minimal side effects and
the “per protocol” analysis of patients treated with Tovaxin achieved a 90%
reduction (p=0.0039) in annualized relapse rate (ARR). The group treated with
the mid dose (30-45 x 106
attenuated T-cells) achieved a 100% reduction in ARR. The Phase IIb trial is
being conducted with the mid dose.
In a
one-year, 8-subject extension clinical trial of relapsing remitting and
secondary progressive multiple sclerosis subjects, the
“per-protocol” analysis of Tovaxin therapy achieved a 92% (p=0.0078) reduction
ARR in subjects who received two treatment doses of 30-45 x 106
attenuated T-cells eight weeks apart and were monitored for an additional 44
weeks. Subjects in the extension study had previously been treated an average of
approximately 5 years earlier at Baylor College of Medicine under the direction
of the inventor of Tovaxin Jingwu Zhang, M.D., Ph.D with an early version of the
T-cell vaccine.
9
An
analysis of the second year open-label clinical retreatment studies
of the “intent to treat” population of 22 patients who participated in the Phase
I/II studies showed that, as a group, 73% remained relapse free after
two years and 86% demonstrated no worsening of disease (27% of these showed
sustained improvement). Additionally, there was an overall decrease in the ARR
of 82% (from 1.38 to 0.21 relapses/patient/year). Each of these endpoints was
compared to the patient’s own baseline reading, taken prior to enrolment in the
trials.
The
company is currently completing a larger Phase IIb study in 150 patients in a
multi-center, randomized, double blind, and placebo-controlled study in patients
with relapsing remitting multiple sclerosis or clinically isolated syndrome. The
company expects to announce top line results in September 2008.
Stem
Cell Therapy
We have
developed a proprietary adult stem cell technology to produce monocyte-derived
stem cells (MDSCs) from blood. These MDSCs can be derived from a patient’s
monocytes, expanded in our laboratories, and then administered to the same
patient. We believe that because this is an autologous therapy, there should be
no immunological problems. Normally, allogenic cells trigger host immune
responses and require the use of anti-rejection drugs.
Our
multi-potent stem cell is derived from peripheral blood monocytes which when
cultured under defined conditions are able to further differentiate into several
cellular lineages. Molecular biology and cellular analysis studies have shown
that these MDSCs have specific markers that distinguish them from other stem
cells. In addition these studies have also shown a time-dependence for the
expression of these markers during the growth and differentiation of MDSCs.
In vitro experiments
with MDSCs have shown their capacity to differentiate as hematopoietic,
epithelial, endothelial, endocrine and neuronal cells. Our main focus is the
further development of this monocyte-derived stem cell technology as a platform
for the in vitro
generation of highly specialized cells for potential application in autologous
cell therapy for patients with diseases such diabetes mellitus and
cardiovascular disease.
Other
Opportunities
We may
conduct basic research to determine the potential use of stem cells and
differentiated cells in other indications, such as macular degeneration, stroke,
myocardial infarction, wound healing and Parkinson’s disease. We will attempt to
partner or sublicense some of these indications if they are not pursued for
internal development. For those indications where we believe we can participate
commercially, we also desire to partner in key commercial markets outside of the
U.S.
Critical
Accounting Policies
General
Our
discussion and analysis of our financial condition and results of operations is
based on our consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the U.S. The
preparation of these consolidated financial statements requires us to make
estimates and judgments that affect the reported amounts of assets, liabilities
and expenses. We base our estimates on historical experience and on various
other assumptions that we believe to be reasonable under the circumstances, the
results of which form the basis for making judgments about the carrying values
of assets and liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates under different assumptions or
conditions. The Company’s significant accounting policies are disclosed in the
Company’s Annual Report on Form 10-K for the year ended December 31,
2007. The Company has not materially changed its significant
accounting policies.
Results
of Operations and Financial Condition
Three
Months Ended June 30, 2008 Compared with the Three Months Ended June 30,
2007
Net Sales. We
recorded no sales for the three months ended June 30, 2008 and
2007.
10
Research and Development Expenses.
Research and development expense was approximately $2.3 million for the
three months ended June 30, 2008, compared to approximately $3.7 million for the
three months ended June 30, 2007. The decrease in expenses was primarily due to
the initial enrollment and start-up costs of the Phase IIb clinical trial for
Tovaxin recorded in 2007. We have made and expect to continue to make
substantial investments in research and development in order to develop and
market our technology. We expense research and development
costs as incurred. Acquired research and development that has no alternative
future use is expensed when acquired. Property, plant and equipment for research
and development that has an alternative future use is capitalized and the
related depreciation is expensed. We expect our research and development expense
to increase as we continue to invest in the development of our
technology.
General and Administrative Expenses.
Our general and administrative expense was approximately $1.3 million for
the three months ended June 30, 2008, as compared to approximately $0.9 million,
for the three months ended June 30, 2007. The increase in expenses is
primarily due to an increase in stock compensation expense in the current
period. We anticipate increases in general and administrative expenses as we
continue to develop and expand our product platforms.
Interest
Expense. Interest expense was $4,694 for the three months
ended June 30, 2008, compared to $3,691 for the three months ended June 30,
2007
Interest
Income. Interest income was $31,495 for the three months ended
June 30, 2008 compared to $141,971 for the three months ended June 30,
2007. The decrease was due to the reduction in cash balances that
were available for investment in cash equivalent investments and a reduction in
interest rates.
Net loss. We had a net loss
for the three months ended June 30, 2008, of approximately $3.6 million, or
$0.36 per share (basic and diluted), compared with a net loss of approximately
$4.5 million or $0.67 per share (basic and diluted), for the three months ended
June 30, 2007.
Six
Months Ended June 30, 2008 Compared with the Six Months Ended June 30,
2007
Net Sales. We
recorded no sales for the three months ended June 30, 2008 and
2007.
Research and Development Expenses.
Research and development expense was approximately $4.7 million for the
six months ended June 30, 2008, compared to approximately $7 million for the six
months ended June 30, 2007. The decrease in expenses was primarily due to the
initial enrollment and start-up costs of the Phase IIb clinical trial for
Tovaxin recorded in 2007 and a reduction in stock compensation expense recorded
in 2008.
General and Administrative Expenses.
Our general and administrative expense was approximately $2 million for
the six months ended June 30, 2008, as compared to approximately $1.7 million
for the six months ended June 30, 2007. The increase in expenses is
primarily due to an increase in stock compensation expense during the current
period.
Interest
Expense. Interest expense was $11,020 for the six months ended
June 30, 2008, compared to $6,144 for the six months ended June 30,
2007
Interest
Income. Interest income was $69,204 for the six months ended
June 30, 2008 compared to $320,794 for the six months ended June 30,
2007. The decrease was due to the reduction in cash balances that
were available for investment in cash equivalent investments and a reduction in
interest rates.
Net loss. We had a net loss
for the six months ended June 30, 2008, of approximately $6.7 million or $0.73
per share (basic and diluted), compared with a net loss of approximately $8.5
million or $1.26 per share (basic and diluted), for the six months ended June
30, 2007.
Liquidity
and Capital Resources
Changes in cash
flow. Cash used in operations for the six month period ended
June 30, 2008 was approximately $5.5 million as compared to cash used by
operations of approximately $3.1 million for the six months ended June 30, 2007.
The increase in cash used in operations is primarily due to the maturity of
approximately $2.9 million in marketable securities in 2007 and its
reclassification to cash and cash equivalents. Cash used in investing
activities for the six month period ended June 30, 2008 was approximately
$31,000, as compared to approximately $100,000 for the six months ended June 30,
2007. The decrease was due to a decrease in equipment purchases. Cash
provided from financing activities for the six month period ended June 30, 2008
was approximately $6.3 million,, as compared to approximately $100,000 for the
six months ended June 30, 2007. The increase was due to the proceeds from the
February 2008 public offering.
11
Liquidity. Historically,
the Company has financed its operations primarily from the sale of its debt and
equity securities. As of June 30, 2008, the Company had cash and cash
equivalents of approximately $3.5 million.
Our
financing activities generated $6.4 million for the six months ended June 30,
2008 and resulted from the a public offering in February 2008 of 3,500,000
shares of common stock at a price to the public of $2.00 per share and 4,025,000
Series E warrants to purchase shares of common stock exercisable at $2.00 per
share at a price of $0.15 per warrant.
Our
current burn rate is approximately $900,000 per month. Our capital
resources at June 30, 2008, will support our operations at current levels
through the third quarter of 2008. With the $3 million proceeds of
the August 11, 2008 transaction, we will need to raise additional capital to
fund our business plan and support our operations beyond early first quarter of
2009. As our prospects for funding, if any, develop during the fiscal
year, we will assess our business plan and make adjustments accordingly.
Although we have successfully funded our operations to date by attracting
additional investors in our equity, there is no assurance that our capital
raising efforts will be able to attract additional necessary capital for our
operations. If we are unable to obtain additional funding for operations at any
time now or in the future, we may not be able to continue operations as
proposed, requiring us to modify our business plan, curtail various aspects of
our operations or cease operations.
Off-Balance
Sheet Arrangements
As of June 30, 2008, we had no
off-balance sheet arrangements.
Recent
Accounting Pronouncements
For the
period ended June 30, 2008, there were no other changes to our critical
accounting policies as identified in our annual report of Form 10-K for the year
ended December 31, 2007.
Not Applicable.
Disclosure
Controls and Procedures.
We
maintain disclosure controls and procedures that are designed to ensure that
information required to be disclosed by us in the reports that we file or submit
to the Securities and Exchange Commission under the Securities Exchange Act of
1934, as amended, is recorded, processed, summarized, and reported within the
time periods specified by the Securities and Exchange Commission’s rules and
forms, and that information is accumulated and communicated to our management,
including our principal executive and principal financial officers (whom we
refer to in this periodic report as our Certifying Officers), as appropriate to
allow timely decisions regarding required disclosure. Our management evaluated,
with the participation of our Certifying Officers, the effectiveness of our
disclosure controls and procedures as of June 30, 2008, pursuant to
Rule 13a-15(b) under the Securities Exchange Act. Based upon that
evaluation, our Certifying Officers concluded that, as of June 30, 2008, our
disclosure controls and procedures were effective.
Changes
in Internal Control Over Financial Reporting.
There were
no changes in our internal control over financial reporting that occurred during
our most recently completed fiscal quarter that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting. We will continue to evaluate the effectiveness of internal
controls and procedures on an on-going basis.
12
PART
II
OTHER
INFORMATION
None.
This Item
1A should be read in conjunction with “Item 1A. Risk Factors” in our Annual
Report on Form 10-K for the fiscal year ended December 31, 2007.
We
will need additional capital to conduct our operations and develop our products
and our ability to obtain the necessary funding is uncertain.
We need to
obtain significant amounts of additional capital to develop our products and
continue our business. The capital may come from many sources,
including equity and/or debt financings, license arrangements, grants and/or
collaborative research arrangements. As of June 30, 2008, we had cash and cash
equivalents of approximately $3.5 million. Our current burn rate is
approximately $900,000 per month. With the $3 million proceeds of the August 11,
2008 transaction, we will need to raise additional capital to fund our working
capital needs beyond early first quarter of 2009. We must rely upon third-party
debt or equity funding and we can provide no assurance that we will be
successful in any funding effort. The failure to raise such funds will
necessitate the curtailment or ceasing of operations and impact the completion
of our clinical trials.
We do not
have any committed sources of capital, although we have issued and outstanding
warrants that, if exercised, would result in an equity capital raising
transaction. Additional financing through strategic collaborations, public or
private equity financings, capital lease transactions or other financing sources
may not be available on acceptable terms, or at all. Additional equity
financings could result in significant dilution to our stockholders. Further, if
additional funds are obtained through arrangements with collaborative partners,
these arrangements may require us to relinquish rights to some of our
technologies, product candidates or products that we would otherwise seek to
develop and commercialize ourselves. If sufficient capital is not available, we
may be required to delay, reduce the scope of or eliminate one or more of our
programs, any of which could have a material adverse effect on our financial
condition or business prospects.
We
have a “going-concern qualification” which may make capital raising more
difficult and may require us to scale back or cease operations.
The report
of our independent auditors in respect of the 2007 fiscal year includes a going
concern qualification which indicates an absence of obvious or reasonably
assured sources of future funding that will be required by us to maintain
ongoing operations. Although we have successfully funded Opexa, to
date, by attracting additional investors in our equity, there is no assurance
that our capital raising efforts will be able to attract the additional capital
needed to sustain our operations. The going concern qualification from our
auditors may make it more difficult for us to raise funds. If
we are unable to obtain additional funding for operations, we may not be able to
continue operations as proposed, requiring us to modify our business plan,
curtail various aspects of our operations or cease operations. In
such event, investors may lose a portion or all of their
investment.
On August
11, 2008, Opexa closed a financing transaction in which Opexa issued
2,003,874 shares of its common stock and warrants to purchase 2,003,874 shares
of Opexa’s common stock for gross proceeds of approximately $3.0 million
(the”Unit”) to certain institutional and accredited investors (the
“Transaction”). The purchase price paid by non-affiliate
investors was $1.48 for each Unit and with regard to the Affiliate Investors was
$1.655 for each Unit. The warrants expire in four years, are first exercisable
after six months of the closing of the Transaction and are exercisable at $1.78
per share. The shares are exercisable on a cashless basis. If Opexa fails
to register, achieve effectiveness of registration or maintain effectiveness of
registration of shares underlying the warrants and shares, they are required to
make certain liquidated damage payments of 1% of the offering per month for
every month in default with a maximum of 6%.
13
None.
None.
None.
|
Exhibit
31.1*
|
Chief
Executive Officer Certification Pursuant to Section 13a-14 of the
Securities Exchange Act
|
|
Exhibit
31.2*
|
Chief
Financial Officer Certification Pursuant to Section 13a-14 of the
Securities Exchange Act
|
|
Exhibit
32.1*
|
Certification
Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of
the Sarbanes-
Oxley Act of 2002
|
|
Exhibit
32.2*
|
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes- Oxley Act of 2002 |
|
*
|
Filed
herewith
|
SIGNATURES
In
accordance with Section 13 or 15(d) of the Exchange Act, the registrant has
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
|
OPEXA
THERAPEUTICS, INC.
|
|
|
Date:
August 13, 2008
|
By:
/s/ NEIL
K. WARMA
|
|
Neil
K. Warma
|
|
|
President
and Chief Executive Officer
|
|
|
Date:
August 13, 2008
|
By:
/s/ LYNNE
HOHLFELD
|
|
Lynne
Hohlfeld
|
|
|
Chief
Financial Officer and Principal Accounting Officer
|
|
14