FENNEC PHARMACEUTICALS INC. - Quarter Report: 2010 March (Form 10-Q)
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-Q
(Mark
One)
x QUARTERLY REPORT PURSUANT TO SECTION
13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For
the quarterly period ended March 31, 2010
OR
¨ TRANSITION REPORT PURSUANT TO SECTION
13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For
the transition period from____ to ____
Commission
File Number: 001-32295
ADHEREX
TECHNOLOGIES INC.
(Exact
Name of Registrant as Specified in Its Charter)
|
Canada
(State
or Other Jurisdiction of
Incorporation
or Organization
|
20-0442384
(I.R.S.
Employer
Identification
No.)
|
|
501
Eastowne Drive, Suite 140
Chapel
Hill, North Carolina
|
|
|
(Address
of Principal Executive Offices)
|
27514
(Zip
Code)
|
Registrant's
Telephone Number, Including Area Code: (919) 636-4530
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 x NO
¨
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.
|
Large
Accelerated Filer ¨
|
Accelerated
Filer ¨
|
|
Non-Accelerated
Filer ¨
(Do not check if smaller reporting company)
|
Smaller
reporting company x
|
Indicated
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). YES ¨ NO
x
As of May
13, 2010, there were 368,293,451 shares of Adherex Technologies Inc. common
stock outstanding.
TABLE
OF CONTENTS
|
Page
|
|
|
PART
I: FINANCIAL INFORMATION
|
|
|
Item
1. Financial Statements (unaudited)
|
3
|
|
Unaudited
Condensed Consolidated Balance Sheets – March 31, 2010 and December 31,
2009
|
3
|
|
Unaudited
Condensed Consolidated Statements of Operations - Three Months Ended March
31, 2010 and 2009
|
4
|
|
Unaudited
Condensed Consolidated Statements of Cash Flows - Three Months Ended March
31, 2010 and 2009
|
5
|
|
Unaudited
Condensed Consolidated Statements of Stockholders' Equity – For the Period
Ended September 3, 1996 to March 31, 2010
|
6
|
|
Notes
to Unaudited Condensed Consolidated Financial Statements
|
9
|
|
Item
2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
|
14
|
|
Item
3. Quantitative and Qualitative Disclosures about Market
Risk
|
20
|
|
Item
4. Controls and Procedures
|
20
|
|
PART
II: OTHER INFORMATION
|
21
|
|
Item
1A. Risk Factors
|
21
|
|
Item
6. Exhibits
|
22
|
|
Signatures
|
23
|
2
PART
1: FINANCIAL INFORMATION
Item
1. Financial Statements
Adherex
Technologies Inc.
(a
development stage company)
Unaudited
Interim Consolidated Balance Sheets
(U.S.
Dollars and shares in thousands, except per share amounts)
|
March 31,
2010
|
December 31,
2009
|
|||||||
|
Assets
|
||||||||
|
Current
assets:
|
||||||||
|
Cash
and cash equivalents
|
$ | 348 | $ | 685 | ||||
|
Cash
pledged as collateral
|
- | - | ||||||
|
Accounts
receivable
|
43 | 69 | ||||||
|
Prepaid
expense
|
75 | 75 | ||||||
|
Other
current Assets
|
4 | 4 | ||||||
|
Total
current assets
|
470 | 833 | ||||||
|
Capital
assets
|
- | - | ||||||
|
Leasehold
inducements
|
- | - | ||||||
|
Total
assets
|
$ | 470 | $ | 833 | ||||
|
Liabilities
and Stockholders' Equity
|
||||||||
|
Current
liabilities:
|
||||||||
|
Accounts
payable
|
$ | 338 | $ | 318 | ||||
|
Accrued
liabilities
|
$ | 53 | 70 | |||||
|
Other
current liabilities
|
32 | 32 | ||||||
|
Total
current liabilities
|
423 | 420 | ||||||
|
Other
long-term liabilities
|
7 | 7 | ||||||
|
Deferred
lease inducement
|
- | - | ||||||
|
Total
liabilities
|
430 | 427 | ||||||
|
Commitments
and contingencies
|
||||||||
|
Stockholders'
equity:
|
||||||||
|
Common
stock, no par value; unlimited shares authorized; 128,227 shares issued
and outstanding
|
64,929 | 64,929 | ||||||
|
Additional
paid-in capital
|
35,225 | 35,225 | ||||||
|
Deficit
accumulated during development stage
|
(101,357 | ) | (100,991 | ) | ||||
|
Accumulated
other comprehensive income
|
1,243 | 1,243 | ||||||
|
Total
stockholders’ equity
|
40 | 406 | ||||||
|
Total
liabilities and stockholders’ equity
|
$ | 470 | $ | 833 | ||||
(The
accompanying notes are an integral part of these interim consolidated financial
statements)
3
Adherex
Technologies Inc.
(a
development stage company)
Unaudited
Condensed Consolidated Statements of Operations
(U.S.
Dollars and shares in thousands, except per share amounts)
|
Three Months Ended
|
Cumulative
From
September 3,
1996 to
|
|||||||||||
|
March 31,
2010
|
March 31,
2009
|
March 31,
2010
|
||||||||||
|
Revenue
|
$ | - | $ | - | $ | - | ||||||
|
Operating
expenses:
|
||||||||||||
|
Research
and development
|
163 | 1,279 | 65,053 | |||||||||
|
Impairment
of Capital Assets
|
386 | |||||||||||
|
Gain
on Deferred lease inducements
|
(497 | ) | ||||||||||
|
Acquired
in-process research and development
|
- | - | 13,094 | |||||||||
|
General
and administrative
|
203 | 673 | 24,913 | |||||||||
|
Total
operating expenses
|
366 | 1,952 | 102,949 | |||||||||
|
Loss
from operations
|
(366 | ) | (1,952 | ) | (102,949 | ) | ||||||
|
Other
income (expense):
|
||||||||||||
|
Settlement
of Cadherin Biomedical Inc. litigation
|
- | - | (1,283 | ) | ||||||||
|
Interest
expense
|
- | - | (19 | ) | ||||||||
|
Loss
on impairment of assets held for sale
|
- | (340 | ) | 255 | ||||||||
|
Interest
income
|
- | 46 | 2,797 | |||||||||
|
Total
other income and expense, net
|
- | (294 | ) | 1,252 | ||||||||
|
Net
loss and comprehensive loss
|
$ | (366 | ) | $ | (2,246 | ) | $ | (101,199 | ) | |||
|
Basic
and diluted net loss per common share
|
$ | (0.00 | ) | $ | (0.02 | ) | ||||||
|
Weighted-average
common shares used in computing basic and diluted net loss per common
share
|
128,227 | 128,227 | ||||||||||
(The
accompanying notes are an integral part of these condensed consolidated
financial statements)
4
Adherex
Technologies Inc.
(a
development stage company)
Unaudited
Condensed Consolidated Statements of Cash Flows
(U.S.
Dollars and shares in thousands, except per share amounts)
|
Three
Months Ended
|
Cumulative
From
September
3,
1996
to
|
|||||||||||
|
March
31,
2010
|
March
31,
2009
|
March
31,
2010
|
||||||||||
|
Cash
flows from (used in):
|
||||||||||||
|
Operating
activities:
|
||||||||||||
|
Net
loss
|
$ | (366 | ) | $ | (2,246 | ) | $ | (101,199 | ) | |||
|
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
||||||||||||
|
Depreciation
and amortization
|
- | - | 1,404 | |||||||||
|
Non-cash
Cadherin Biomedical Inc. litigation expense
|
- | - | 1,187 | |||||||||
|
Unrealized
foreign exchange loss
|
- | - | 9 | |||||||||
|
Amortization
of deferred lease inducements
|
0 | (24 | ) | (412 | ) | |||||||
|
Loss
on impairment of capital assets
|
0 | 340 | 386 | |||||||||
|
Non-cash
severance expense
|
- | - | 168 | |||||||||
|
Stock
options issued to consultants
|
- | 5 | 722 | |||||||||
|
Stock
options issued to employees
|
- | 296 | 7,703 | |||||||||
|
Acquired
in-process research and development
|
- | - | 13,094 | |||||||||
|
Changes
in operating assets and liabilities
|
29 | (673 | ) | (114 | ) | |||||||
|
Net
cash used in operating activities
|
(337 | ) | (2,302 | ) | (77,049 | ) | ||||||
|
Investing
activities:
|
||||||||||||
|
Purchase
of capital assets
|
- | - | (1,440 | ) | ||||||||
|
Disposal
of capital assets
|
- | - | 115 | |||||||||
|
Release
of restricted cash
|
- | - | 190 | |||||||||
|
Restricted
cash
|
- | - | (209 | ) | ||||||||
|
Purchase
of short-term investments
|
- | - | (22,148 | ) | ||||||||
|
Redemption
of short-term investments
|
- | - | 22,791 | |||||||||
|
Investment
in Cadherin Biomedical Inc.
|
- | - | (166 | ) | ||||||||
|
Acquired
intellectual property rights
|
- | - | (640 | ) | ||||||||
|
Net
cash used in investing activities
|
- | - | (1,507 | ) | ||||||||
|
Financing
activities:
|
||||||||||||
|
Conversion
of long-term debt to equity
|
- | - | 68 | |||||||||
|
Long-term
debt repayments
|
- | - | (65 | ) | ||||||||
|
Capital
lease repayments
|
- | - | (8 | ) | ||||||||
|
Issuance
of common stock, net of issue costs
|
- | - | 76,687 | |||||||||
|
Registration
expense
|
- | - | (465 | ) | ||||||||
|
Financing
expenses
|
- | - | (544 | ) | ||||||||
|
Proceeds
from convertible note
|
- | - | 3,017 | |||||||||
|
Other
liability repayments
|
- | - | (87 | ) | ||||||||
|
Security
deposits
|
- | - | 35 | |||||||||
|
Proceeds
from exercise of stock options
|
- | - | 51 | |||||||||
|
Net
cash provided in financing activities
|
- | - | 78,713 | |||||||||
| 368 | ||||||||||||
|
Effect
of exchange rate changes on cash and cash equivalents
|
- | - | - | |||||||||
|
Net
change in cash and cash equivalents
|
(337 | ) | (2,302 | ) | - | |||||||
|
Cash
and cash equivalents - Beginning of period
|
685 | 5,349 | - | |||||||||
|
Cash
and cash equivalents - End of period
|
$ | 348 | $ | 3,047 | $ | 348 | ||||||
(The
accompanying notes are an integral part of these interim consolidated financial
statements)
5
Adherex
Technologies Inc.
(a
development stage company)
Unaudited
Condensed Consolidated Statements of Stockholders' Equity
(U.S.
dollars and shares in thousands, except per share information)
|
Common Stock
|
Non-redeemable
Preferred Stock
|
Additional
Paid-in
|
Accumulated
Other
Comprehensive
|
Deficit
Accumulated
During
Development
|
Total
Shareholders’
|
|||||||||||||||||
|
Number
|
Amount
|
of Subsidiary
|
Capital
|
Income
|
Stage
|
Equity
|
||||||||||||||||
|
Balance
at June 30, 1996
|
- | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | |||||||||
|
Issuance
of common stock
|
1,600 | - | - | - | - | - | - | |||||||||||||||
|
Net
loss
|
- | - | - | - | - | (37 | ) | (37 | ) | |||||||||||||
|
Balance
at June 30, 1997
|
1,600 | - | - | - | - | (37 | ) | (37 | ) | |||||||||||||
|
Net
loss
|
- | - | - | - | - | (398 | ) | (398 | ) | |||||||||||||
|
Balance
at June 30, 1998
|
1,600 | - | - | - | - | (435 | ) | (435 | ) | |||||||||||||
|
Exchange
of Adherex Inc. shares for Adherex Technologies Inc.
shares
|
(1,600 | ) | - | - | - | - | - | - | ||||||||||||||
|
Issuance
of common stock
|
4,311 | 1,615 | - | - | - | - | 1,615 | |||||||||||||||
|
Cumulative
translation adjustment
|
- | - | - | - | 20 | - | 20 | |||||||||||||||
|
Net
loss
|
- | - | - | - | - | (958 | ) | (958 | ) | |||||||||||||
|
Balance
at June 30, 1999
|
4,311 | 1,615 | - | - | 20 | (1,393 | ) | 242 | ||||||||||||||
|
Issuance
of common stock
|
283 | 793 | - | - | - | - | 793 | |||||||||||||||
|
Issuance
of equity rights
|
- | - | - | 171 | - | - | 171 | |||||||||||||||
|
Issuance
of special warrants
|
- | - | - | 255 | - | - | 255 | |||||||||||||||
|
Settlement
of advances:
|
||||||||||||||||||||||
|
Issuance
of common stock
|
280 | 175 | - | - | - | - | 175 | |||||||||||||||
|
Cancellation
of common stock
|
(120 | ) | - | - | - | - | - | - | ||||||||||||||
|
Cumulative
translation adjustment
|
- | - | - | - | 16 | - | 16 | |||||||||||||||
|
Net
loss
|
- | - | - | - | - | (1,605 | ) | (1,605 | ) | |||||||||||||
|
Balance
at June 30, 2000
|
4,754 | 2,583 | - | 426 | 36 | (2,998 | ) | 47 | ||||||||||||||
|
Issuance
of common stock:
|
||||||||||||||||||||||
|
Initial
Public Offering (“IPO”)
|
1,333 | 5,727 | - | - | - | (38 | ) | 5,689 | ||||||||||||||
|
Other
|
88 | 341 | - | - | - | - | 341 | |||||||||||||||
|
Issuance
of special warrants
|
- | - | - | 1,722 | - | - | 1,722 | |||||||||||||||
|
Conversion
of special warrants
|
547 | 1,977 | - | (1,977 | ) | - | - | - | ||||||||||||||
|
Issuance
of Series A special warrants
|
- | - | - | 4,335 | - | - | 4,335 | |||||||||||||||
|
Conversion
of Series A special warrants
|
1,248 | 4,335 | - | (4,335 | ) | - | - | - | ||||||||||||||
|
Conversion
of equity rights
|
62 | 171 | - | (171 | ) | - | - | - | ||||||||||||||
|
Cumulative
translation adjustment
|
- | - | - | - | 182 | - | 182 | |||||||||||||||
|
Net
loss
|
- | - | - | - | - | (2,524 | ) | (2,524 | ) | |||||||||||||
|
Balance
at June 30, 2001
|
8,032 | 15,134 | - | - | 218 | (5,560 | ) | 9,792 | ||||||||||||||
|
Cumulative
translation adjustment
|
- | - | - | - | 11 | - | 11 | |||||||||||||||
|
Net
loss
|
- | - | - | - | (3,732 | ) | (3,732 | ) | ||||||||||||||
|
Balance
at June 30, 2002
|
8,032 | 15,134 | - | - | 229 | (9,292 | ) | 6,071 | ||||||||||||||
(The
accompanying notes are an integral part of these interim consolidated financial
statements)
(continued
on next page)
6
Adherex
Technologies Inc.
(a
development stage company)
Unaudited
Condensed Consolidated Statements of Stockholders' Equity
(Continued)
(U.S.
dollars and shares in thousands, except per share
information)
|
Common Stock
|
Non-redeemable
Preferred Stock
|
Additional
Paid-in
|
Accumulated
Other
Comprehensive
|
Deficit
Accumulated
During
Development
|
Total
Shareholders’
|
|||||||||||||||||
|
Number
|
Amount
|
of Subsidiary
|
Capital
|
Income
|
Stage
|
Equity
|
||||||||||||||||
|
Balance
at June 30, 2002
|
8,032 | 15,134 | - | - | 229 | (9,292 | ) | 6,071 | ||||||||||||||
|
Common
stock issued for Oxiquant acquisition
|
8,032 | 11,077 | - | 543 | - | - | 11,620 | |||||||||||||||
|
Exercise
of stock options
|
5 | 4 | - | - | - | - | 4 | |||||||||||||||
|
Distribution
to shareholders
|
- | - | - | - | - | (158 | ) | (158 | ) | |||||||||||||
|
Stated
capital reduction
|
- | (9,489 | ) | - | 9,489 | - | - | - | ||||||||||||||
|
Stock
options issued to consultants
|
- | - | - | 4 | - | - | 4 | |||||||||||||||
|
Equity
component of June convertible notes
|
- | - | - | 1,058 | - | - | 1,058 | |||||||||||||||
|
Financing
warrants
|
- | - | - | 53 | - | - | 53 | |||||||||||||||
|
Cumulative
translation adjustment
|
- | - | - | - | (159 | ) | - | (159 | ) | |||||||||||||
|
Net
loss
|
- | - | - | - | - | (17,795 | ) | (17,795 | ) | |||||||||||||
|
Balance
at June 30, 2003
|
16,069 | 16,726 | - | 11,147 | 70 | (27,245 | ) | 698 | ||||||||||||||
|
Stock
options issued to consultants
|
- | - | - | 148 | - | - | 148 | |||||||||||||||
|
Repricing
of warrants related to financing
|
- | - | - | 18 | - | - | 18 | |||||||||||||||
|
Equity
component of December convertible notes
|
- | - | - | 1,983 | - | - | 1,983 | |||||||||||||||
|
Financing
warrants
|
- | - | - | 54 | - | - | 54 | |||||||||||||||
|
Conversion
of June convertible notes
|
1,728 | 1,216 | - | (93 | ) | - | - | 1,123 | ||||||||||||||
|
Conversion
of December convertible notes
|
1,085 | 569 | - | (398 | ) | - | - | 171 | ||||||||||||||
|
Non-redeemable
preferred stock
|
- | - | 1,045 | - | - | - | 1,045 | |||||||||||||||
|
December
private placement
|
11,522 | 8,053 | - | 5,777 | - | - | 13,830 | |||||||||||||||
|
May
private placement
|
4,669 | 6,356 | - | 2,118 | - | - | 8,474 | |||||||||||||||
|
Exercise
of stock options
|
18 | 23 | - | - | - | - | 23 | |||||||||||||||
|
Amalgamation
of 2037357 Ontario Inc.
|
800 | 660 | (1,045 | ) | 363 | - | - | (22 | ) | |||||||||||||
|
Cumulative
translation adjustment
|
- | - | - | - | (219 | ) | - | (219 | ) | |||||||||||||
|
Net
loss
|
- | - | - | - | - | (6,872 | ) | (6,872 | ) | |||||||||||||
|
Balance
at June 30, 2004
|
35,891 | 33,603 | - | 21,117 | (149 | ) | (34,117 | ) | 20,454 | |||||||||||||
|
Stock
options issued to consultants
|
- | - | - | 39 | - | - | 39 | |||||||||||||||
|
Stock
options issued to employees
|
- | - | - | 604 | - | - | 604 | |||||||||||||||
|
Cost
related to SEC registration
|
- | (493 | ) | - | - | - | - | (493 | ) | |||||||||||||
|
Acquisition
of Cadherin Biomedical Inc.
|
644 | 1,252 | - | - | - | - | 1,252 | |||||||||||||||
|
Cumulative
translation adjustment
|
- | - | - | - | 1,392 | - | 1,392 | |||||||||||||||
|
Net
loss – six months ended December 31, 2004
|
- | - | - | - | - | (6,594 | ) | (6,594 | ) | |||||||||||||
|
Balance
at December 31, 2004
|
36,535 | 34,362 | - | 21,760 | 1,243 | (40,711 | ) | 16,654 | ||||||||||||||
(The
accompanying notes are part of these interim consolidated financial
statements)
(continued
on next page)
7
Adherex
Technologies Inc.
(a
development stage company)
Unaudited
Interim Consolidated Statements of Stockholders' Equity (Continued)
(U.S.
dollars and shares in thousands, except per share information)
|
Common Stock
|
Non-redeemable
Preferred Stock
|
Additional
Paid-in
|
Accumulated
Other
Comprehensive
|
Deficit
Accumulated
During
Development
|
Total
Shareholders’
|
|||||||||||||||||
|
Number
|
Amount
|
of Subsidiary
|
Capital
|
Income
|
Stage
|
Equity
|
||||||||||||||||
|
Balance
at December 31, 2004
|
36,535 | 34,362 | - | 21,760 | 1,243 | (40,711 | ) | 16,654 | ||||||||||||||
|
Financing
costs
|
- | (141 | ) | - | - | - | - | (141 | ) | |||||||||||||
|
Exercise
of stock options
|
15 | 25 | - | - | - | - | 25 | |||||||||||||||
|
Stock
options issued to consultants
|
- | - | - | 276 | - | - | 276 | |||||||||||||||
|
July
private placement
|
6,079 | 7,060 | - | 1,074 | - | - | 8,134 | |||||||||||||||
|
Net
loss
|
- | - | - | - | - | (13,871 | ) | (13,871 | ) | |||||||||||||
|
Balance
at December 31, 2005
|
42,629 | 41,306 | - | 23,110 | 1,243 | (54,582 | ) | 11,077 | ||||||||||||||
|
Stock
options issued to consultants
|
- | - | - | 100 | - | - | 100 | |||||||||||||||
|
Stock
options issued to employees
|
- | - | - | 491 | - | - | 491 | |||||||||||||||
|
May
private placement
|
7,753 | 5,218 | - | 822 | - | - | 6,040 | |||||||||||||||
|
Net
loss
|
- | - | - | - | - | (16,440 | ) | (16,440 | ) | |||||||||||||
|
Balance
at December 31, 2006
|
50,382 | 46,524 | - | 24,523 | 1,243 | (71,022 | ) | 1,268 | ||||||||||||||
|
Stock
options issued to consultants
|
- | - | - | 59 | - | - | 59 | |||||||||||||||
|
Stock
options issued to employees
|
- | - | - | 2,263 | - | - | 2,263 | |||||||||||||||
|
February
financing
|
75,759 | 17,842 | - | 5,379 | - | - | 23,221 | |||||||||||||||
|
Exercise
of warrants
|
2,086 | 563 | - | 131 | - | - | 694 | |||||||||||||||
|
Net
loss
|
- | - | - | - | - | (13,357 | ) | (13,357 | ) | |||||||||||||
|
Balance
at December 31, 2007
|
128,227 | 64,929 | - | 32,355 | 1,243 | (84,379 | ) | 14,148 | ||||||||||||||
|
Stock
options issued to consultants
|
- | - | - | 88 | - | - | 88 | |||||||||||||||
|
Stock
options issued to employees
|
- | - | - | 2,417 | - | - | 2,417 | |||||||||||||||
|
Net
loss
|
- | - | - | - | - | (13,600 | ) | (13,600 | ) | |||||||||||||
|
Balance
at December 31, 2008
|
128,227 | 64,929 | - | 34,860 | 1,243 | (97,979 | ) | 3,053 | ||||||||||||||
|
Stock
options issued to consultants
|
- | - | - | 10 | - | - | 10 | |||||||||||||||
|
Stock
options issued to employees
|
- | - | - | 355 | - | - | 355 | |||||||||||||||
|
Net
loss for quarter
|
- | - | - | - | - | (3,012 | ) | (3,012 | ) | |||||||||||||
|
Balance
at December 31, 2009
|
128,227 | 64,929 | - | 35,225 | 1,243 | (100,991 | ) | 407 | ||||||||||||||
|
Stock
options issued to consultants
|
- | - | - | - | - | - | - | |||||||||||||||
|
Stock
options issued to employees
|
- | - | - | - | - | - | - | |||||||||||||||
|
Net
loss for quarter
|
- | - | - | - | - | (366 | ) | (366 | ) | |||||||||||||
|
Balance
at March 31, 2010
|
128,227 | $ | 64,929 | $ | - | $ | 35,225 | $ | 1,243 | $ | (101,357 | ) | $ | 40 | ||||||||
(The
accompanying notes are an integral part of these interim consolidated financial
statements)
8
Adherex
Technologies Inc.
(a
development stage company)
Notes
to Unaudited Interim Consolidated Financial Statements (Continued)
(U.S.
dollars and shares in thousands, except per share information)
|
1.
|
Going
Concern
|
Adherex
Technologies Inc. (“Adherex”), together with its wholly owned subsidiaries
Oxiquant, Inc. (“Oxiquant”) and Adherex, Inc., both Delaware corporations, and
Cadherin Biomedical Inc. (“CBI”), a Canadian corporation, collectively referred
to herein as the “Company,” is a development stage biopharmaceutical company
focused on cancer therapeutics.
These
unaudited interim consolidated financial statements have been prepared using
generally accepted accounting principles (“GAAP”) in the United States (“U.S.”)
of America that are applicable to a going concern which contemplates that
Adherex will continue in operation for the foreseeable future and will be able
to realize its assets and discharge its liabilities in the normal course of
business.
The
Company is a development stage company and during the three months ended March
31, 2010, incurred a net loss of $366. At March 31, 2010, it had an
accumulated deficit of $101,357 and had experienced negative cash flows from
operations since inception in the amount of $77,049. As further
described in Note 5 Subsequent Events, on April 30, 2010, the Company announced
the first closing of a $7.2 million funding into the Company.
These
financial statements do not reflect the potentially material adjustments in the
carrying values of assets and liabilities, the reported expenses, and the
balance sheet classifications used, that would be necessary if the going concern
assumption were not appropriate.
|
2.
|
Significant
Accounting Policies
|
Basis
of presentation
The
accompanying unaudited interim consolidated financial statements have been
prepared in accordance with U.S. GAAP and are the responsibility of the
Company’s management. The Company’s independent auditor has not
performed a review of these financial statements. These financial
statements do not include all of the information and notes required by U.S. GAAP
for complete financial statements. Accordingly, these unaudited
interim condensed consolidated financial statements should be read in
conjunction with the Company's audited financial statements and notes filed with
the Securities and Exchange Commission (“SEC”) in the Company's Annual Report on
Form 10-K for the year ended December 31, 2009. Except as set out
below, the Company's accounting policies are consistent with those presented in
the audited financial statements included in our Annual Report on Form 10-K for
the year ended December 31, 2009. These unaudited interim
consolidated financial statements have been prepared in U.S.
dollars.
9
Adherex
Technologies Inc.
(a
development stage company)
Notes
to Unaudited Interim Consolidated Financial Statements (Continued)
(U.S.
dollars and shares in thousands, except per share information)
Use
of estimates
The
preparation of financial statements in conformity with GAAP requires management
to make judgments, assumptions and estimates that affect the amounts reported in
these interim condensed consolidated financial statements. Actual
results could differ from these estimates. In the opinion of
management, these unaudited interim consolidated financial statements include
all normal and recurring adjustments, considered necessary for the fair
presentation of the Company’s financial position at March 31, 2010, and to state
fairly the results for the periods presented.
Cash
and cash equivalents
Cash and
cash equivalents consist of highly liquid investments with original maturities
at the date of purchase of three months or less.
The
Company places its cash and cash equivalents in investments held by financial
institutions in accordance with its investment policy designed to protect the
principal investment. At March 31, 2010, the Company had $3 in money
market investments, which typically have minimal risk, and $345 in
cash. The financial markets have been volatile resulting in concerns
regarding the recoverability of money market investments. The Company
did not experience any loss or write down of its money market investments for
the three-month period ended March 31, 2010 and 2009, respectively.
3. Recent
Accounting Pronouncements
In
January 2010, an update was made to the Fair Value Measurements and Disclosures
topic of the FASB codification that requires new disclosures for fair value
measurements and provides clarification for existing disclosure requirements.
More specifically, this update will require (a) an entity to disclose separately
the amounts of significant transfers into and out of Level 1 and 2 fair value
measurements and to describe the reasons for the transfers; and (b) information
about purchases, sales, issuances, and settlements to be presented separately on
a gross basis in the reconciliation of Level 3 fair value measurements. This
update is effective for fiscal years beginning after December 15, 2009 except
for Level 3 reconciliation disclosures which are effective for fiscal years
beginning after December 15, 2010. The Company does not expect the adoption of
the guidance to have an impact on the Company’s consolidated financial position
and results of operations.
10
Adherex
Technologies Inc.
(a
development stage company)
Notes
to Unaudited Interim Consolidated Financial Statements (Continued)
(U.S.
dollars and shares in thousands, except per share information)
4. Stockholders'
Equity
Warrants
to purchase common stock
At March
31, 2010, the Company had the following warrants outstanding to purchase common
stock priced in U.S. dollars with a weighted average exercise price of $0.44 and
a weighted average remaining life of 0.7 years:
|
Warrant Description
|
Number
Outstanding at
March 31
2010
|
Exercise Price
In U.S. Dollars
|
Expiration Date
|
||||||
|
Investor
warrants
|
2,326 | $ | 0.97 |
May
7, 2010
|
|||||
| 2,326 | |||||||||
The 2,326
warrants with an exercise price of $0.97 expired on May 7,
2010. Please read Note 5 – Subsequent Events for further details of
additional warrants outstanding as of April 30, 2010.
Stock
option plan
The
Compensation Committee of the Board of Directors administers the Company's stock
option plan. The Compensation Committee designates eligible
participants to be included under the plan and approves the number of options to
be granted from time to time under the plan.
A maximum
of 20,000 options (not including 700 options previously issued to the former
Chief Executive Officer and specifically approved by the stockholders outside
the plan) are authorized for issuance under the plan. The option
exercise price for all options issued under the plan is based on the fair value
of the underlying shares on the date of grant. The stock option plan,
as amended, allows the issuance of U.S. and Canadian dollar denominated
grants.
During
the three-month periods ended March 31, 2010 and 2009, the Company recognized
total stock-based compensation expense of $0 and $301,
respectively.
Valuation
assumptions
There
were no options granted in the three month period ended March 31, 2010 and the
options granted in the three-month periods ended March 31, 2009 were estimated
using the Black-Scholes option-pricing model, using the following weighted
average assumptions: expected dividend 0%, risk-free interest rate of 3.15%,
expected volatility 85% and a 7 year expected life.
11
Adherex
Technologies Inc.
(a
development stage company)
Notes
to Unaudited Interim Consolidated Financial Statements (Continued)
(U.S.
dollars and shares in thousands, except per share information)
Stock
option activity
The
following is a summary of option activity for the three-month period ended March
31, 2010 for stock options denominated in Canadian dollars:
|
Number of
Options
|
Weighted-
average
Exercise
Price
|
|||||||
|
Outstanding
at December 31, 2009
|
2,623 | CAD$ | 2.19 | |||||
|
Granted
|
- | - | ||||||
|
Exercised
|
- | - | ||||||
|
Forfeited/cancelled/expired
|
- | CAD$ | 2.19 | |||||
|
Outstanding
at March 31, 2010
|
2,623 | CAD$ | 2.19 | |||||
The
following is a summary of option activity for the three-month period ended March
31, 2010 for stock options denominated in U.S. dollars:
|
Number of
Options
|
Weighted-
average
Exercise
Price
|
|||||||
|
Outstanding
at December 31, 2009
|
13,201 | $ | 0.55 | |||||
|
Granted
|
- | - | ||||||
|
Exercised
|
- | - | ||||||
|
Forfeited/cancelled/expired
|
- | - | ||||||
|
Outstanding
at March 31, 2010
|
13,201 | $ | 0.55 | |||||
|
5.
|
Subsequent
Event
|
On April
30, 2010, Adherex Technologies Inc. (TSX:AHX), announced that it has completed a
first closing of a non-brokered private placement (“Private
Placement”) of 240,066,664 units, at a price of $0.03 per unit for gross
proceeds of CDN$7,202,000. Adherex intends to raise up to an additional
CDN$1,800,000 by way of a non-brokered private placement which will occur in one
or more closings and up to an additional CDN$12,750,000 by way of a rights
offering.
The
equity financings will consist of:
|
|
·
|
a
non-brokered private placement by Adherex of between 240,000,000 and
300,000,000 units, at a price of $0.03 per unit for gross proceeds of
between CDN$7,200,000 and CDN$9,000,000;
and
|
|
|
·
|
a
rights offering to its shareholders for the distribution of rights to
subscribe for 425,000,000 units at a price of $0.03 per unit, for gross
proceeds of up to $12,750,000.
|
Purchasers
of units in the private placement that are existing shareholders of Adherex have
agreed not to participate in the rights offering.
Each unit
shall consist of one common share and one common share purchase warrant (a
“Warrant”). Each Warrant will entitle the holder thereof to purchase
one common share of the Company at a purchase price of CDN$0.08 per share for a
period of five years from the issue date. The subscription price for
the equity financings represents a 40% discount to the 5 day volume weighted
average price of the Company’s common shares on the TSX at the date of receipt
of the term sheet from Southpoint.
12
Adherex
Technologies Inc.
(a
development stage company)
Notes
to Unaudited Interim Consolidated Financial Statements (Continued)
(U.S.
dollars and shares in thousands, except per share information)
Subject
to receiving the required regulatory approvals and as soon as possible after the
completion of the first closing of the private placement, it is anticipated that
Adherex will file a preliminary short-form prospectus for the rights offering
with the securities regulatory authorities in Canada to qualify the distribution
of the rights in Canada and a Form S-1 registration statement with the
Securities and Exchange Commission to register the transaction in the United
States. The commencement of the rights offering will occur promptly
following the receipt for the final prospectus in Canada and the effectiveness
of the registration statement in the United States. Adherex intends to complete
the rights offering as soon as possible thereafter. Adherex intends to announce
additional information regarding the rights offering at the time it files the
prospectus and registration statement.
Adherex
plans to use of proceeds of the sale of the Units will be to (i) conduct and
monitor a Phase II Eniluracil study, (ii) satisfy corporate overhead and related
expenses, and (iii) pay financing related expenses.
13
Item 2. Management's
Discussion and Analysis of Financial Condition and Results of
Operations
CAUTIONARY
STATEMENT
The discussion below contains
forward-looking statements regarding our financial condition and our results of
operations that are based upon our unaudited interim consolidated financial
statements, which have been prepared in accordance with generally accepted
accounting principles, or GAAP in the United States (“U.S.”) and have been
prepared by and are the responsibility of the Company’s
management. The Company’s independent auditor has not performed a
review of these financial statements. The preparation of these
financial statements requires our management to make estimates and judgments
that affect the reported amounts of assets, liabilities, income and expenses,
and related disclosure of contingent assets and liabilities. We
evaluate our estimates on an ongoing basis. Our estimates are based
on historical experience and on various other assumptions that we believe to be
reasonable.
We
operate in a highly competitive environment that involves significant risks and
uncertainties, some of which are beyond our control. Our actual
results, performance or achievements may be materially different from any
results, performance or achievements expressed or implied by such
forward-looking statements. Words such as “may,” “will,” “expect,”
“might”, “believe,” “anticipate,” “intend,” “could,” “estimate,” “project,”
“plan,” and other similar words are one way to identify such forward-looking
statements. Forward-looking statements in this report include, but
are not limited to, statements with respect to (1) our anticipated sources and
uses of cash and cash equivalents; (2) our anticipated commencement dates,
completion dates and results of clinical trials; (3) our efforts to pursue
collaborations with the government, industry groups or other companies; (4) our
anticipated progress and costs of our clinical and preclinical research and
development programs; (5) our corporate and development strategies; (6) our
expected results of operations; (7) our anticipated levels of expenditures; (8)
our ability to protect our intellectual property; (9) the anticipated
applications and efficacy of our drug candidates; (10) our ability to attract
and retain key employees; and (11) the nature and scope of potential markets for
our drug candidates. All statements, other than statements of
historical fact, included in this report that address activities, events or
developments that we expect or anticipate will or may occur in the future are
forward-looking statements. We include forward-looking statements
because we believe it is important to communicate our expectations to our
investors. However, all forward-looking statements are based on
management’s current expectations of future events and are subject to a number
of risks and uncertainties, including our need to raise money in the very near
term and others as discussed in this report. Although we believe the
expectations reflected in the forward-looking statements are based upon
reasonable assumptions, we can give no assurance that our expectations will be
attained, and we caution you not to place undue reliance on such
statements.
Overview
On July
7, 2009, we announced that we intended to focus our remaining financial
resources on the development of oral eniluracil. We will focus our
resources on the development of a redesigned study combining oral eniluracil,
5-fluorouracil, or 5-FU, and leucovorin targeting anti-cancer
indications. After a careful evaluation of the data from the
prior GlaxoSmithKline, or GSK, studies and data from our own and other studies
using eniluracil, we believe we can begin patient enrollment in a Phase II study
with eniluracil, 5-FU and leucovorin within the next nine
months. Additionally, throughout the remainder of 2009, we conducted
a strategic review of ADH-1 and STS. Our evaluation of ADH-1 resulted
in the termination of our license agreement with McGill
University. We continue to hold various ADH-1 and small molecule
patents that are property of Adherex. We are also supporting an
investigator led Phase I study that will combine ADH-1 with
gemcitabine. With regards to STS, we continue patient enrollment of
our Phase III studies for both the International Childhood Liver Tumour Strategy
Group, known as SIOPEL, and the Children's Oncology Group, or COG.
As
discussed in Note 5 - Subsequent Events, we recently completed a funding into
the Company which will allow for our planned clinical development of eniluracil
as well as the support of our remaining programs. We currently have four
employees and members of the Board of Directors have agreed to continue to serve
for the benefit of the shareholders without further cash
compensation.
We are a
biopharmaceutical company focused on cancer therapeutics. We have the
following products in the clinical stage of
development: (1) Eniluracil, an oral dihydropyrimidine
dehydrogenase, or DPD, inhibitor, which may improve the tolerability and
effectiveness of 5-fluorouracil (5-FU), one of the most widely used oncology
drugs in the world; and (2) STS, a chemoprotectant being developed to reduce or
prevent hearing loss that may result from treatment with platinum-based
chemotherapy drugs and (3) ADH-1, a peptide molecule that selectively
targets N-cadherin, a protein present on the blood vessels of solid
tumors.
14
We are evaluating a study design for
a Phase II study in which we will dose patients with eniluracil, 5-FU and
leucovorin. Our prior eniluracil studies have shown that the dose of
eniluracil was too low and consequently provided inadequate inactivation of
DPD. We plan to increase the dose of eniluracil and also include
leucovorin in our planned clinical trial. Leucovorin potentiates the
anticancer activity of 5-FU and has been shown to be well tolerated in patients
treated with both eniluracil and 5FU. Leucovorin is uniquely
appropriate to eniluracil regimens because it greatly reduces the variability of
5-FU dosing. We are evaluating cancer disease targets for our planned
Phase II trial and are currently considering colorectal and breast cancer, where
Xeloda is indicated. The combination of eniluracil and 5-FU has been shown to be
active and well tolerated against these diseases. However, the
previous studies used eniluracil in a ten to one ratio to
5-FU. Because such high ratios of eniluracil to 5-FU were found to
decrease the antitumor activity in laboratory animals, our planned study will
use a strategy that adequately inactivates DPD and does not have high levels of
eniluracil present when 5-FU is administered. We expect to
design and commence these studies within the next nine months. We
will solicit the assistance of certain key opinion leaders for the design of
these studies.
We
continue to enroll patients in our Phase III trials of STS with the
International Childhood Liver Tumour Strategy Group, known as SIOPEL and the
Children's Oncology Group, or COG. The SIOPEL trial is expected to
enroll approximately 100 pediatric patients with liver (hepatoblastoma) cancer
at participating SIOPEL centers worldwide and the COG study is expected to
enroll up to 120 pediatric patients worldwide in five different disease
indications.
We have
terminated our license agreement with McGill University related to
ADH-1. However, Adherex continues to hold various ADH-1 and small
molecule patents that are our property. We are also supporting an
investigator led Phase I study that will combine ADH-1 with
gemcitabine.
Our
current prioritization initiative focuses primarily on our clinical activities
with eniluracil, as well as logistical and product support of ongoing clinical
programs.
In
addition to our current development efforts, we continue to pursue
collaborations with other pharmaceutical and biotechnology companies,
governmental agencies, academic or other corporate collaborators with respect to
these molecules. Some of these preclinical molecules are currently
being tested under agreements with third parties that may help to advance these
products into future clinical development, either by us or under
investigator-initiated studies.
The
trading of our common stock in the U.S. must now be conducted in the
over-the-counter markets, on the pink sheets. Our common stock
continues to trade on the Toronto Stock Exchange, or TSX. The TSX
also has continued listing standards, including minimum market capitalization
and other requirements, that we might not meet in the future, particularly if
the price of our common stock does not increase or we are unable to raise
capital to continue our operations. On April 22, 2010, the TSX issued
an official delisting review of our common stock. The Company has
been granted 120 days in which to regain compliance with these
requirements.
We have
not received and do not expect to have significant revenues from our product
candidates until we are either able to sell our product candidates after
obtaining applicable regulatory approvals or we establish collaborations that
provide us with up-front payments, licensing fees, milestone payments, royalties
or other revenue. We experienced net losses of approximately $366 for the three months
ended March 31, 2010 and $2.2 million for the three months ended March
31, 2009. As of March 31,
2010, our deficit accumulated during development stage was approximately $101.4
million.
Our
operating expenses will depend on many factors, including the progress of our
drug development efforts and the implementation of further cost reduction
measures. Our research and development expenses, which include
expenses associated with our clinical trials, drug manufacturing to support
clinical programs, salaries for research and development personnel, stock-based
compensation, consulting fees, sponsored research costs, toxicology studies,
license fees, milestone payments, and other fees and costs related to the
development of product candidates, will depend on the availability of financial
resources, the results of our clinical trials and any directives from regulatory
agencies, which are difficult to predict. Our general and
administration expenses include expenses associated with the compensation of
employees, stock-based compensation, professional fees, consulting fees,
insurance and other administrative matters associated with our facilities in
Chapel Hill, North Carolina in support of our drug development
programs.
15
Results
of Operations
Three
months ended March 31, 2010 versus three months ended March 31,
2009:
|
In thousands of U.S. Dollars
|
Three Months
Ended
March 31,
2010
|
%
|
Three Months
Ended
March 31,
2009
|
%
|
Change
|
|||||||||||||||
|
Revenue
|
$ | - | $ | - | $ | - | ||||||||||||||
|
Operating
expenses:
|
||||||||||||||||||||
|
Research
and development
|
163 | 45 | % | 1,279 | 86 | % | (1,116 | ) | ||||||||||||
|
General
and administration
|
203 | 55 | % | 673 | 14 | % | (470 | ) | ||||||||||||
|
Total
operating expenses
|
366 | 100 | % | 1,952 | 100 | % | (1,586 | ) | ||||||||||||
|
Loss
from operations
|
366 | (1,952 | ) | (1,586 | ) | |||||||||||||||
|
Loss
on impairment of assets held for sale
and leasehold inducements
|
- | (340 | ) | (340 | ) | |||||||||||||||
|
Other
income
|
- | - | - | |||||||||||||||||
|
Interest
income
|
- | 46 | 46 | |||||||||||||||||
|
Net
loss and total comprehensive loss
|
$ | (366 | ) | $ | (2,246 | ) | $ | (3,295 | ) | |||||||||||
|
|
·
|
Total
operating expense decreased significantly in the three months ended March
31, 2010, as compared to the same period in 2009 primarily due to a
significant decrease in our overall clinical development studies and
reduction in our employee headcount effective April 2009 and continuing
through March 31, 2010.
|
|
|
·
|
The
Company recorded a loss on impairment of assets related to the write-down
of certain assets value held for sale and leasehold improvements during
the three months ended March 31,
2010.
|
|
|
·
|
The
decrease in interest income in the three months ended March 31, 2010, as
compared to the same period in 2009, is due to less cash on hand due to
funding our operations during the three months ended March 31, 2010, as
compared to the same period in
2009.
|
Quarterly
Information
The
following table presents selected consolidated financial data for each of the
last eight quarters through March 31, 2010, as prepared under U.S. GAAP (U.S.
dollars in thousands, except per share information):
|
Period
|
Net Loss for
the Period
|
Basic and Diluted
Net Loss per
Common Share
|
||||||
|
September
30, 2007
|
$ | (3,202 | ) | $ | (0.02 | ) | ||
|
December
31, 2007
|
$ | (3,008 | ) | $ | (0.02 | ) | ||
|
March
31, 2008
|
$ | (4,304 | ) | $ | (0.03 | ) | ||
|
June
30, 2008
|
$ | (3,442 | ) | $ | (0.03 | ) | ||
|
September
30, 2008
|
$ | (3,244 | ) | $ | (0.03 | ) | ||
|
December
31, 2008
|
$ | (2,610 | ) | $ | (0.02 | ) | ||
|
March
31, 2009
|
$ | (2,246 | ) | $ | (0.02 | ) | ||
|
June
30, 2009
|
$ | (761 | ) | $ | (0.01 | ) | ||
|
September
30, 2009
|
$ | (35 | ) | $ | (0.00 | ) | ||
|
December
31, 2009
|
$ | 30 | $ | 0.00 | ||||
|
March
31, 2010
|
$ | (366 | ) | $ | (0.00 | ) | ||
16
Liquidity
and Capital Resources
|
March
31,
|
December
31,
|
|||||||
|
In
thousands of U.S. dollars
|
2010
|
2009
|
||||||
|
Selected
Asset and Liability Data:
|
||||||||
|
Cash
and cash equivalents
|
$ | 348 | $ | 685 | ||||
|
Working
capital
|
47 | 412 | ||||||
|
Selected
Stockholders’ Equity Data:
|
||||||||
|
Common
stock
|
$ | 64,929 | $ | 64,929 | ||||
|
Deficit
accumulated during the development stage
|
(101,357 | ) | (100,991 | ) | ||||
|
Total
stockholders’ equity
|
40 | 406 | ||||||
We have
financed our operations since inception on September 3, 1996 through the sale of
equity and debt securities and have raised gross proceeds totaling approximately
$93.0 million through April 30, 2010. We have incurred net losses and
negative cash flow from operations each year, and we had an accumulated deficit
of approximately $101.4 million at March 31, 2010. We have not
generated any revenues to date through the sale of products. We do
not expect to have significant revenues or income, other than interest income,
until we are able to sell our product candidates after obtaining applicable
regulatory approvals or we establish collaborations that provide us with
up-front payments, licensing fees, milestone payments, royalties or other
payments.
The net
cash flow used in operating activities for the three months ended March 31, 2010
was approximately $337, as compared to $2.3 million during the same period in
2009. This decrease is due to a decrease in our overall clinical
activities and lower headcount during the three months ended March 31, 2010, as
compared to the same period in 2009.
At March
31, 2010, our working capital decreased by approximately $366 from December
31, 2009 primarily due to funding research and development activities and
general corporate operations.
Our projections of further capital
requirements are subject to substantial uncertainty. Our working
capital requirements may fluctuate in future periods depending upon numerous
factors, including: our ability to obtain additional financial resources; our
ability to enter into collaborations that provide us with up-front payments,
milestones or other payments; results of our research and development
activities; progress or lack of progress in our preclinical studies or clinical
trials; unfavorable toxicology in our clinical programs, our drug substance
requirements to support clinical programs; change in the focus, direction, or
costs of our research and development programs; headcount expense; the costs
involved in preparing, filing, prosecuting, maintaining, defending and enforcing
our patent claims; competitive and technological advances; the potential need to
develop, acquire or license new technologies and products; our business
development activities; new regulatory requirements implemented by regulatory
authorities; the timing and outcome of any regulatory review process; and
commercialization activities, if any.
17
Outstanding
Share Information
The
outstanding share data for our company as of March 31, 2010 (in
thousands):
|
March 31,
2010
|
||||
|
Common
shares
|
128,227 | |||
|
Warrants
|
2,326 | |||
|
Stock
options
|
15,823 | |||
|
Total
|
146,376 | |||
As described in Note 5 - Subsequent
Events, the Company closed a $7.2 million funding on April 30, 2010 which
consists of 240,066,664 units. Each unit represents one common shares and one
warrants.
Financial
Instruments
We invest
excess cash and cash equivalents in high credit quality investments held by
financial institutions in accordance with our investment policy designed to
protect the principal investment. At March 31, 2010, we had $0.3
million in cash accounts. We have not experienced any loss or write
down of our money market investments for the three months ended March 31, 2010
and 2009, respectively.
Our
investment policy is to manage investments to achieve, in the order of
importance, the financial objectives of preservation of principal, liquidity and
return on investment. Investments may be made in U.S. or Canadian
obligations and bank securities, commercial paper of U.S. or Canadian industrial
companies, utilities, financial institutions and consumer loan companies, and
securities of foreign banks provided the obligations are guaranteed or carry
ratings appropriate to the policy. Securities must have a minimum Dun
& Bradstreet rating of A for bonds or R1 low for commercial
paper. The policy also provides for investment limits on
concentrations of securities by issuer and maximum-weighted average time to
maturity of twelve months. This policy applies to all of our
financial resources.
The
policy risks are primarily the opportunity cost of the conservative nature of
the allowable investments. As our main purpose is research and
development, we have chosen to avoid investments of a trading or speculative
nature.
Off-Balance
Sheet Arrangements
Since our
inception, we have not had any material off-balance sheet
arrangements. In addition, we do not engage in trading activities
involving non-exchange traded contracts. As such, we are not
materially exposed to any financing, liquidity, market or credit risk that could
arise if we had engaged in such activities.
18
Contractual
Obligations and Commitments
Since our
inception, inflation has not had a material impact on our
operations. We had no material commitments for capital expenses as of
March 31, 2010.
The
following table represents our contractual obligations and commitments at March
31, 2010 (in thousands of U.S. dollars):
|
Less than 1 year
|
1-3
years
|
3-5
years
|
More than 5
years
|
Total
|
||||||||||||||||
|
Englert
Lease (1)
|
$ | 50 | $ | - | $ | - | $ | - | $ | 50 | ||||||||||
|
Eastowne
Lease (2)
|
18 | - | - | - | 18 | |||||||||||||||
|
Drug
purchase commitments (3)
|
- | 25 | - | - | 25 | |||||||||||||||
|
Total
|
$ | 68 | $ | 25 | $ | - | $ | - | $ | 93 | ||||||||||
|
(1)
|
In
April 2004, we entered into a lease for facilities in Durham, North
Carolina. Amounts shown assume the maximum amounts due under
the lease. In July 2008, we entered into an agreement with
another company to sublease this facility until September 2010; however,
in the event of their default, we would become responsible for the
obligation. We are contractually obligated under the lease
until September 2010.
|
|
(2)
|
In
December 2009, we entered into a lease for new office facilities in Chapel
Hill, North Carolina. Amounts shown assume the maximum amounts
due under the lease.
|
|
(3)
|
Commitments
to our third party manufacturing vendors that supply drug substance
primarily for our clinical studies.
|
Research
and Development
Our
research and development efforts have been focused on the development of cancer
and currently include eniluracil, STS, ADH-1 and various cadherin-based
preclinical programs.
We have
established relationships with contract research organizations, universities and
other institutions, which we utilize to perform many of the day-to-day
activities associated with our drug development. Where possible, we
have sought to include leading scientific investigators and advisors to enhance
our internal capabilities. Research and development issues are reviewed
internally and major development issues are presented to the members of our
Scientific and Clinical Advisory Board for discussion and review.
Research
and development expenses totaled $163 and $1.3 million for the three months
ended March 31, 2010 and 2009, respectively.
Our
product candidates are in various stages of development and still require
significant, time-consuming and costly research and development, testing and
regulatory clearances. In developing our product candidates, we are
subject to risks of failure that are inherent in the development of products
based on innovative technologies. For example, it is possible that
any or all of these products will be ineffective or toxic, or will otherwise
fail to receive the necessary regulatory clearances. There is a risk that our
product candidates will be uneconomical to manufacture or market or will not
achieve market acceptance. There is also a risk that third parties may hold
proprietary rights that preclude us from marketing our product candidates or
that others will market a superior or equivalent product. As a result
of these factors, we are unable to accurately estimate the nature, timing and
future costs necessary to complete the development of these product candidates.
In addition, we are unable to reasonably estimate the period when material net
cash inflows could commence from the sale, licensing or commercialization of
such product candidates, if ever.
Critical
Accounting Policies and Estimates
The
preparation of financial statements in conformity with U.S. GAAP requires
management to make estimates that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities as of the date
of the financial statements and the reported amounts of revenue and expense
during the reporting period. These estimates are based on assumptions
and judgments that may be affected by commercial, economic and other
factors. Actual results could differ from these
estimates.
19
Our
accounting policies are consistent with those presented in our annual
consolidated financial statements included in our Annual Report on Form 10-K for
the year ended December 31, 2009.
Item
3. Quantitative and Qualitative Disclosures about Market
Risk
Money
Market Investments
We are
subject to increased risk associated with our cash and cash equivalents due to
the recent bank and financial institution failures in the U.S. We
maintain an investment portfolio consisting of U.S. or Canadian obligations and
bank securities and money market investments in compliance with our investment
policy. We do not hold any mortgaged-backed investments in our
investment portfolio. Securities must have a minimum Dun &
Bradstreet rating of A for bonds or R1 low for commercial paper. The
policy also provides for investment limits on concentrations of securities by
issuer and maximum-weighted average time to maturity of twelve
months. This policy applies to all of our financial
resources.
At March 31, 2010, we had $3 in money
market investments which typically have minimal risk. The financial
markets have been volatile resulting in concerns regarding the recoverability of
money market investments. We have not experienced any loss or write
down of our money market investments for the three months ended March 31, 2010
and 2009.
Our
investment policy is to manage investments to achieve, in the order of
importance, the financial objectives of preservation of principal, liquidity and
return on investment. Our risk associated with fluctuating
interest rates on our investments is minimal and not significant to the results
of operations. We currently do not use interest rate derivative
instruments to manage exposure to interest rate changes. As the main
purpose is research and development, we have chosen to avoid investments of a
trade or speculative nature.
Foreign
Currency Exposure
We are
subject to foreign currency risks as we conduct certain clinical development
activities in Canada, the United Kingdom, Europe and the Pacific
Rim. To date, we have not employed the use of derivative instruments;
however, we do hold Canadian dollars which we use to pay certain clinical
development activities conducted in Canada and research, and other corporate
obligations. At March 31, 2010 we held approximately $0.1 million in
Canadian dollars.
Item 4. Controls and
Procedures
Our
management, with the participation of our principal executive officer and
principal financial officer, has evaluated the effectiveness of the design and
operation of our disclosure controls and procedures (as defined in Rules
13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended or
the Exchange Act) as of March 31, 2010. Based on this evaluation, our
principal executive officer and principal financial officer concluded that these
disclosure controls and procedures are effective and designed to ensure that the
information required to be disclosed in our reports filed or submitted under the
Exchange Act is recorded, processed, summarized and reported within the
requisite time periods.
There was
no change in our internal control over financial reporting (as defined in Rules
13a-15(f) and 15d-15(f) under the Exchange Act) identified in connection with
the evaluation of our internal control over financial reporting that occurred
during the three month period covered by this Quarterly Report that has
materially affected, or is reasonably likely to materially affect, our internal
control over financial reporting.
20
PART II: OTHER
INFORMATION
Item 1A. Risk
Factors.
The risk
factors set forth in our Form 10-K for the fiscal year December 31, 2009 (the
“2009 10-K) include risk relating to the Company’s ability raise substantial
additional funds in the very near future to continue our operations. As
described in Note 5 - Subsequent Events, the Company closed on April 30, 2010 a
$7.2 million financing. The Company’s disclosure of the need to raise
additional capital to continue operations beyond the second quarter of 2010 is
no longer applicable.
We
may be unable to effectively deploy the proceeds from the April 30, 2010
financing for the development of eniluracil.
In
April 2010, we announced the closing of a $7.2 million
financing. This financing requires effective management and
deployment of our current employees and consultants. Any inability on
our part to manage effectively the deployment of this capital could limit our
ability to successfully develop eniluracil.
21
Item 6. Exhibits
|
Registrant’s
|
Exhibit
|
Filed
|
||||||||
|
Exhibit No.
|
Description of Exhibit
|
Form
|
Dated
|
Number
|
Herewith
|
|||||
|
31.1
|
Certification
of Chief Executive Officer of the Company in accordance with Section 302
of the Sarbanes-Oxley Act of 2002
|
X
|
||||||||
|
31.2
|
Certification
of Chief Financial Officer of the Company in accordance with Section 302
of the Sarbanes-Oxley Act of 2002
|
X
|
||||||||
|
32.1
|
Certification
of Chief Executive Officer and Chief Financial Officer of the Company in
accordance with Section 906 of the Sarbanes-Oxley Act of
2002
|
X
|
||||||||
|
10.27
|
Eastowne
Lease Agreement
|
X
|
||||||||
|
10.28
|
Employment
Agreement – Rostislav Raykov
|
X
|
||||||||
|
10.29
|
Employment
Agreement – Robert Andrade
|
X
|
||||||||
|
10.30
|
Employment
Agreement – Dr. Thomas Spector
|
X
|
||||||||
|
10.31
|
Independent
Board Member Agreement – Breen, Bussandri, Porter
|
X
|
22
SIGNATURES
Pursuant
to requirements of the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.
|
Adherex
Technologies Inc.
|
||
|
Date:
May 13, 2010
|
By:
|
/s/ Rostislav Raykov
|
|
Rostislav
Raykov
|
||
|
Chief
Executive Officer
|
||
|
(principal
executive officer)
|
||
|
Date:
May 13, 2010
|
By:
|
/s/ Robert Andrade
|
|
Robert
Andrade
|
||
|
Chief
Financial Officer
|
||
|
(principal
financial and chief accounting
officer)
|
||
23