Acer Therapeutics Inc. - Quarter Report: 2008 March (Form 10-Q)
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington, D.C.
20549
FORM
10-Q
(Mark One)
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þ
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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 March 31, 2008
or
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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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(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 May
12, 2008, there were outstanding 10,196,784 shares of the issuer’s Common Stock
outstanding.
OPEXA
THERAPEUTICS, INC.
(A
development stage company)
For
the Quarter Ended March 31, 2008
INDEX
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Page
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OPEXA
THERAPEUTICS, INC.
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|||||||||
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(a
development stage company)
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|||||||||
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March
31,
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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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$ | 6,325,990 | $ | 2,645,482 | |||||
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Other
current assets
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176,381 | 355,266 | |||||||
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Total
current assets
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6,502,371 | 3,000,748 | |||||||
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Property
& equipment, net of accumulated depreciation
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|||||||||
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of $672,357
and $614,079 respectively
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1,321,310 | 1,370,647 | |||||||
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Total
assets
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$ | 7,823,681 | $ | 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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$ | 773,330 | $ | 938,442 | |||||
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Accounts
payable - related parties
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99,433 | 54,091 | |||||||
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Accrued
expenses
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928,479 | 1,022,461 | |||||||
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Current
maturity of loan payable
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61,531 | 60,360 | |||||||
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Total
current liabilities
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1,862,773 | 2,075,354 | |||||||
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Long
term liabilities:
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|||||||||
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Loan
payable
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147,274 | 162,456 | |||||||
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Total
liabilities
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2,010,047 | 2,237,810 | |||||||
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Commitments
and contingencies
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- | - | |||||||
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Stockholders'
equity:
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|||||||||
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Convertible
preferred stock, no par value, 10,000,000 shares
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|||||||||
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authorized,
none issued and outstanding
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- | - | |||||||
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Common
stock, $0.50 par value, 100,000,000 shares authorized,
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|||||||||
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10,196,784
and 6,696,784 shares issued and outstanding, respectively
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5,098,351 | 3,348,351 | |||||||
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Additional
paid in capital
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81,530,133 | 76,498,054 | |||||||
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Deficit
accumulated during the development stage
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(80,814,850 | ) | (77,712,820 | ) | |||||
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Total
stockholders' equity
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5,813,634 | 2,133,585 | |||||||
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Total
liabilities and stockholders' equity
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$ | 7,823,681 | $ | 4,371,395 | |||||
See
accompanying notes to consolidated financial statements
-1-
OPEXA
THERAPEUTICS, INC.
(a
development stage company)
Three
months ended March 31, 2008 and 2007 and the
Period
from January 22, 2003 (Inception) to March 31, 2008
(unaudited)
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Three
Months Ended
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Inception
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|||||||||||
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March
31,
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through
|
|||||||||||
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2008
|
2007
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March
31, 2008
|
||||||||||
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Research
and development
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$ | 2,373,936 | $ | 3,247,466 | $ | 56,131,473 | ||||||
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General
and administrative
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709,517 | 849,786 | 18,334,292 | |||||||||
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Depreciation
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58,277 | 48,831 | 576,487 | |||||||||
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Loss
on disposal of assets
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- | - | 495,501 | |||||||||
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Operating
loss
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(3,141,730 | ) | (4,146,083 | ) | (75,537,753 | ) | ||||||
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Interest
income
|
37,709 | 178,823 | 1,291,535 | |||||||||
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Other
income and expense, net
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8,317 | - | 80,320 | |||||||||
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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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(6,326 | ) | (2,453 | ) | (8,261,392 | ) | ||||||
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Net
loss
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$ | (3,102,030 | ) | $ | (3,969,713 | ) | $ | (80,814,850 | ) | |||
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Basic
and diluted loss per share
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$ | (0.37 | ) | $ | (0.59 | ) | N/A | |||||
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Weighted
average shares outstanding
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8,312,169 | 6,696,784 | N/A | |||||||||
See accompanying notes to consolidated
financial statements
-2-
OPEXA
THERAPEUTICS, INC.
(a
development stage company)
Three
months ended March 31, 2008 and 2007 and the
Period
from January 22, 2003 (Inception) to March 31, 2008
(unaudited)
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Three
Months Ended
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Inception
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|||||||||||
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March
31,
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through
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|||||||||||
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2008
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2007
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March
31, 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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$ | (3,102,030 | ) | $ | (3,969,713 | ) | $ | (80,814,850 | ) | |||
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Adjustments
to reconcile net loss to net cash
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||||||||||||
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provided
by (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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- | - | 1,861,400 | |||||||||
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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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58,277 | 48,831 | 576,487 | |||||||||
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Debt
financing costs
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- | - | 365,910 | |||||||||
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Option
and warrant expense
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409,682 | 723,392 | 12,434,605 | |||||||||
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Loss
on disposition of fixed assets
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- | - | 495,501 | |||||||||
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Changes
in:
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- | |||||||||||
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Marketable
securities
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- | 2,926,184 | - | |||||||||
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Prepaid
and other expenses
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178,885 | (309,156 | ) | (593,054 | ) | |||||||
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Accounts
payable
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(119,770 | ) | 236,411 | 423,122 | ||||||||
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Accrued
expenses
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(93,982 | ) | 371,233 | 801,825 | ||||||||
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Net
cash provided by (used in) operating activities
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(2,668,938 | ) | 53,094 | (33,240,190 | ) | |||||||
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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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(8,940 | ) | (61,218 | ) | (1,315,411 | ) | ||||||
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Net
cash used in investing activities
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(8,940 | ) | (61,218 | ) | (1,315,411 | ) | ||||||
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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
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- | - | (325 | ) | ||||||||
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Proceeds
from debt
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- | 49,049 | 8,102,199 | |||||||||
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Repayments
on notes payable
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(14,011 | ) | - | (102,417 | ) | |||||||
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Net
cash provided by financing activities
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6,358,386 | 49,049 | 40,881,591 | |||||||||
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Net
change in cash and cash equivalents
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3,680,508 | 40,925 | 6,325,990 | |||||||||
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Cash
and cash equivalents at beginning of period
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2,645,482 | 12,019,914 | - | |||||||||
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Cash
and cash equivalents at end of period
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$ | 6,325,990 | $ | 12,060,839 | $ | 6,325,990 | ||||||
-3-
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Cash
paid for:
|
||||||||||||
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Income
tax
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$ | - | $ | - | $ | - | ||||||
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Interest
|
- | - | 429 | |||||||||
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NON-CASH
TRANSACTIONS
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||||||||||||
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Issuance
of common stock to Sportan shareholders
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- | - | 147,733 | |||||||||
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Issuance
of common stock for accrued interest
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- | - | 525,513 | |||||||||
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Conversion
of notes payable to common stock
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- | - | 6,407,980 | |||||||||
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Conversion
of accrued liabilities to common stock
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- | - | 197,176 | |||||||||
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Conversion
of accounts payable to note payable
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- | - | 93,364 | |||||||||
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Discount
on convertible notes relating to:
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||||||||||||
|
-
warrants
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- | - | 3,309,790 | |||||||||
|
-
beneficial conversion feature
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- | - | 1,715,973 | |||||||||
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-
stock attached to notes
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- | - | 1,287,440 | |||||||||
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Reclassification
of derivative liabilities
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6,656,677 | - | ||||||||||
See
accompanying notes to consolidated financial statements
-4-
OPEXA
THERAPEUTICS, INC.
(a
development stage company)
(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 $3.1 million for the three months ended
March 31, 2008 and has an accumulated deficit of approximately $80.8
million. The cash balance of $6.3 million as of March 31, 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 March
31, 2008, Opexa invested $6.3 million in a money market account with an average
market yield of 3.3%. Interest income of $37,709 was recognized for the three
months ended March 31, 2008 in the statements of expenses. As of March 31,
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 in the amount of (i) $400,000 for professional fees, (ii) $60,000 for out
of pocket expenses and (iii) $175,000 for investigator grants. The
professional fee advance is applied 1/12th per
month to invoices and replenished once 75% depleted. The out of
pocket advance will be held and applied to the final invoice. In
March 2008 PharmaNet agreed to revise the professional fee advance to $300,000
to be applied 1/6th per
month to invoices and replenished once 75% depleted. Also in March
2008, PharmaNet agreed to waive the $175,000 investigator grant advance and in
return Opexa will pay the invoice in full within 30 days of
receipt. This process will continue until the end of the
study. 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 March 31, 2008, the advance balance to PharmaNet, LLC was
$93,338.
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 March 31,
2008.
-5-
Note
5. Loan Payable
Loan
payable consists of an equipment line of $250,000 with Wells Fargo Bank of which
$208,805 was outstanding as of March 31, 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
On
February 13, 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 on
February 19, 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 and Warrants
During the
first quarter of 2008, there were no options or warrants granted to either
employees or consultants.
Option
expense of $409,682 was recorded during the three months ended March 31, 2008
related to prior period grants.
In
connection with the closing of our February 19, 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.
-6-
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 March 31,
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 (or Baylor) to an
individualized T-cell therapeutic vaccine, TovaxinÒ, 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 (CNS). 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 (MBP), proteolipid protein (PLP) and myelin oligodendrocyte glycoprotein
(MOG)). 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 November 2006, we enrolled the first
patient in a double blind, placebo controlled, 150 patient Phase IIb clinical
trial. We completed enrollment of all 150 patients in May 2007.
In a
one-year, 8-subject extension clinical trial of relapsing remitting (RRMS) and
secondary progressive multiple sclerosis (SPMS) subjects, the
“per-protocol” analysis of Tovaxin therapy achieved a 92% (p=0.0078) reduction
in annualized relapse rate (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.
-7-
Preclinical
Development
Our
Rheumatoid Arthritis (RA) T-cell vaccination (TCV) technology is conceptually
similar to Tovaxin. RA is an autoimmune T-cell-mediated disease in which
pathogenic T-cells trigger an inflammatory autoimmune response of the synovial
joints of the wrists, shoulders, knees, ankles and feet which causes pain,
stiffness, and swelling around the joints and erosion into cartilage and bone.
Our RA TCV technology allows the isolation of these pathogenic T-cells from
synovial fluid drawn from a patient. We can expand and attenuate these T-cells
in our laboratory. The attenuated T-cells can then be injected subcutaneously
into patients with the goal of inducing an immune response directed at the
Pathogenic T-cells in the patient’s body. We believe this immune response could
reduce the level of pathogenic T-cells and potentially allow the reduction of
joint swelling in RA patients.
Stem
Cell Therapy
We have
developed a proprietary adult stem cell technology to produce monocyte-derived
stem cells (MDSC) from blood. These MDSC 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 (MDCS) 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 March 31, 2008 Compared with the Three Months Ended March 31,
2007
Net Sales. We
recorded no sales for the three months ended March 31, 2008 and
2007.
Research and Development Expenses.
Research and development expense was $2,373,936 for the three months
ended March 31, 2008, compared to $3,247,466 for the three months ended March
31, 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. 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.
-8-
General and Administrative Expenses.
Our general and administrative expense was $709,517 for the three months
ended March 31, 2008, as compared to $849,786 for the three months ended March
31, 2007. The decrease in expenses is primarily due to a decrease in
stock compensation expense, professional service fees and overhead expenses. We
anticipate increases in general and administrative expenses as we continue to
develop and expand our product platforms.
Interest
Expense. Interest expense was $6,326 for the three months
ended March 31, 2008, compared to $2,453 for the three months ended March 31,
2007. The increase in interest expense was primarily due to a loan payable
consisting of an equipment line of up to $250,000 with Wells Fargo of which
$208,805 was outstanding as of March 31, 2008.
Interest
Income. Interest income was $37,709 for the three months ended
March 31, 2008 compared to $178,823 for the three months ended March 31,
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 March 31, 2008, of $3,102,030, or $0.37 per share
(basic and diluted), compared with a net loss of $3,969,713 or $0.59 per share
(basic and diluted), for the three months ended March 31, 2007. The decrease in
net loss is 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 resulting from some existing stock options being fully
expensed in 2007 and no new options issued in the current period.
Liquidity
and Capital Resources
Changes in cash
flow. Cash used in operations for the three month period ended
March 31, 2008 was $2,668,938, as compared to cash provided by operations of
$53,094 for the three months ended March 31, 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 three month
period ended March 31, 2008 was $8,940, as compared to $61,218 for the three
months ended March 31, 2007. The decrease was due to a decrease in
equipment purchases. Cash provided from financing activities for the three month
period ended March 31, 2008 was $6,358,386, as compared to $49,049 for the three
months ended March 31, 2007. The increase was due to the proceeds from the
February 19, 2008 public offering.
Liquidity. Historically,
the Company has financed its operations primarily from the sale of its debt and
equity securities. As of March 31, 2008, the Company had cash, cash
equivalents and marketable securities of approximately $6.3
million.
Our
financing activities generated $6.4 million for the three months ended
March 31, 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 March 31, 2008, will support our operations at current levels
through the third quarter of 2008. With the proceeds of the February
2008 offering, we will still need to raise additional capital in fiscal year
2008 to fund our business plan and support our operations beyond early fourth
quarter of 2008. 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 March 31, 2008, we had no
off-balance sheet arrangements.
Recent
Accounting Pronouncements
For the
period ended March 31, 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.
-9-
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 March 31, 2008, pursuant to
Rule 13a-15(b) under the Securities Exchange Act. Based upon that
evaluation, our Certifying Officers concluded that, as of March 31, 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.
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 March 31, 2008, we had cash and cash
equivalents of approximately $6.3 million. In February 2008 we completed a
public financing of common stock and warrants of which the net proceeds to Opexa
was approximately $6.4 million. Our current burn rate is approximately $900,000
per month. We will need to raise additional capital to fund our working capital
needs beyond early fourth quarter of 2008. 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.
-10-
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.
As a
result of his announced intended retirement, David McWilliams entered into an
amended employment agreement on May 9, 2008, effective as of April 1, 2008.
Pursuant to the amendment, Mr. McWilliams will continue to serve as the chief
executive officer of the Company at an annual salary of $288,750. The term of
employment is through March 31, 2009; however, the employment agreement may be
terminated at any time voluntarily by him or without cause by the Board. If
employment is terminated by the Board without cause, Mr. McWilliams will receive
one month base salary, and any and all stock options granted to Mr. McWilliams
prior to termination will be accelerated to become vested as of the termination
date. Mr. McWilliams shall have one year from the date he ceases to serve as a
director to exercise any vested stock options. In the event of a change of
control, any and all stock options granted to Mr. McWilliams prior to such
change of control will be accelerated to become vested and Mr. McWilliams shall
have one year from the date he ceases to serve as a director to exercise any
vested stock options.
Lynne
Hohlfeld entered into an employment agreement on May 9, 2008, effective April 1,
2008, pursuant to which Ms. Hohlfeld serves as the chief financial officer of
the Company at an annual salary of $192,937. The term of employment is through
March 31, 2009; however, the employment agreement may be terminated at any time
voluntarily by her or without cause by the Board. If employment is terminated by
the Board without cause, Ms. Hohlfeld will receive six months base salary and
any and all stock options granted to Ms. Hohlfeld prior to termination will be
accelerated for a twelve month period. Ms. Hohlfeld shall have one year to
exercise any vested stock options. In the event of a change of control, any and
all stock options granted to Ms. Hohlfeld prior to such change of control will
be accelerated to become vested and Ms. Hohlfeld shall have one year to exercise
any vested stock options.
Jim C.
Williams entered into an employment agreement on May 9, 2008, effective April 1,
2008, pursuant to which Dr. Williams serves as the chief operating officer of
the Company at an annual salary of $248,890. The term of employment is through
March 31, 2009; however, the employment agreement may be terminated at any time
voluntarily by him or without cause by the Board. If employment is terminated by
the Board without cause, Dr. Williams will receive six months base salary and
any and all stock options granted to Dr. Williams prior to termination will be
accelerated for a twelve month period. Dr. Williams shall have one year to
exercise any vested stock options. In the event of a change of control, any and
all stock options granted to Dr. Williams prior to such change of control will
be accelerated to become vested and Dr. Williams shall have one year to exercise
any vested stock options.
Donna Rill
entered into an employment agreement on May 9, 2008, effective April 1, 2008,
pursuant to which Ms. Rill serves as vice-president of operations of the Company
at an annual salary of $151,114. The term of employment is through March 31,
2009; however, the employment agreement may be terminated at any time
voluntarily by her or without cause by the Board. If employment is terminated by
the Board without cause, Ms. Rill will receive six months base salary and any
and all stock options granted to Ms. Rill prior to termination will be
accelerated for a twelve month period. Ms. Rill shall have one year to exercise
any vested stock options. In the event of a change of control, any and all stock
options granted to Ms. Rill prior to such change of control will be accelerated
to become vested and Ms. Rill shall have one year to exercise any vested stock
options.
|
Exhibit 10.1*
|
Amendment
to Employment Agreement dated May 9, 2008, between the Company and David
McWilliams
|
|
Exhibit 10.2*
|
Employment
Agreement dated May 9, 2008, between the Company and Lynne
Hohlfeld
|
|
Exhibit 10.3*
|
Employment
Agreement dated May 9, 2008, between the Company and Jim C. Williams,
Ph.D
|
|
Exhibit 10.4*
|
Employment
Agreement dated May 9, 2008, between the Company and Donna R.
Rill
|
-11-
|
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
|
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: May
13, 2008
|
By:
/s/ DAVID
B. MCWILLIAMS
|
|
David
B. McWilliams
|
|
|
President
and Chief Executive Officer
|
|
|
Date:
May 13, 2008
|
By:
/s/ LYNNE
HOHLFELD
|
|
Lynne
Hohlfeld
|
|
|
Chief
Financial Officer and Principal Accounting
Officer
|
-12-