þ
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
o
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
Delaware
|
83-0221517
|
|
(State or
other jurisdiction of
|
(I.R.S. Employer
I.D. No.)
|
|
incorporation or organization) |
Large
accelerated filer o
|
Accelerated
filer o
|
Non-accelerated
filer o
|
Smaller
reporting company þ
|
|||
(Do
not check if a smaller reporting
company)
|
PART I - FINANCIAL INFORMATION |
Page
No.
|
||
Item 1. | Financial Statements: | ||
Condensed Consolidated Balance Sheets at September 30, 2008 | |||
(unaudited) and December 31, 2007 (audited) |
14
|
||
Condensed Consolidated Statements of Operations (unaudited) for the | |||
three and nine months ended September 30, 2008 and September 30, 2007 |
15
|
||
Condensed Consolidated Statements of Cash Flows (unaudited) for the | |||
nine months ended September 30, 2008 and September 30, 2007 |
16
|
||
Notes to Unaudited Condensed Consolidated Financial Statements |
17
|
||
Item 2. | Management's Discussion and Analysis of Financial Condition and | ||
Results of Operations |
3
|
||
Item 3. | Qualitative and Quantitative Disclosures About Market Risk |
8
|
|
Item 4T. | Controls and Procedures |
8
|
|
PART II - OTHER INFORMATION | |||
Item 1 | Legal Proceedings |
10
|
|
Item 1A | Risk Factors |
10
|
|
Item 2 | Unregistered Sales of Equity Securities and Use of Proceeds |
11
|
|
Item 3 | Defaults Under Senior Securities |
11
|
|
Item 4 | Submission of Matters to a Vote of Security Holders |
11
|
|
Item 5 | Other Information |
11
|
|
Item 6. | Exhibits |
12
|
|
SIGNATURES |
13
|
||
CERTIFICATIONS |
ITEM
2
|
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
·
|
MuGard™
is our approved product for the management of oral mucositis, a frequent
side-effect of cancer therapy for which there is no established treatment.
The market for mucositis treatment is estimated to be in excess of $1
billion world-wide. MuGard, a proprietary nanopolymer formulation, has
received marketing allowance in the U.S. from the Food & Drug
Administration (“FDA”).
|
·
|
Our
lead development candidate for the treatment of cancer is ProLindac™, a
nanopolymer DACH-platinum prodrug. ProLindac is currently in a Phase 2
clinical trial being conducted in the EU in patients with ovarian cancer.
The DACH-platinum incorporated in ProLindac is the same active moiety as
that in oxaliplatin (Eloxatin; Sanofi-Aventis), which has sales in excess
of $2.0 billion.
|
·
|
Pre-clinical
development of Cobalamin™, our proprietary nanopolymer oral drug delivery
technology which is based on the natural vitamin B12 uptake mechanism. We
are currently developing a product for the oral delivery of
insulin.
|
·
|
Pre-clinical
development of Angiolix®, a humanized monoclonal antibody which acts as an
anti-angiogenesis factor and is targeted to cancer cells, notably breast,
ovarian and colorectal cancers.
|
·
|
Pre-clinical
development of Prodrax®, a non-toxic prodrug which is activated in the
hypoxic zones of solid tumors to kill cancer
cells.
|
·
|
Pre-clinical
development of Alchemix®, a chemotherapeutic agent that combines multiple
modes of action to overcome drug
resistance.
|
·
|
Pre-clinical
development of Cobalamin-mediated targeted
delivery.
|
·
|
Phenylbutyrate
(“PB”), an HDAC inhibitor and a differentiating agent, is currently
contemplated as a Phase 2 clinical candidate in collaboration with
MacroChem Corporation.
|
Compound
|
Originator
|
Technology
|
Indication
|
Clinical
Stage (1)
|
||||
MuGard™
|
Access
|
Mucoadhesive
liquid
|
Mucositis
|
Marketing
clearance received
|
||||
ProLindacTM
(Polymer
Platinate,
AP5346) (2)
|
Access
Univ.
of London
|
Synthetic
polymer
|
Cancer
|
Phase
2
|
||||
Phenylbutyrate
(PB)
|
National
Institute
of
Health
|
Small
molecule
|
Cancer
|
Phase
2
|
||||
Oral
Insulin
|
Access
|
Cobalamin
|
Diabetes
|
Pre-clinical
|
||||
Oral
Delivery System
|
Access
|
Cobalamin
|
Various
|
Pre-clinical
|
||||
Angiolix®
|
Immunodex,
Inc.
|
Humanized
monoclonal
antibody
|
Cancer
|
Pre-clinical
|
||||
Prodrax®
(2)
|
Univ
London
|
Small
molecule
|
Cancer
|
Pre-clinical
|
||||
Alchemix®
|
DeMontford
Univ
|
Small
molecule
|
Cancer
|
Pre-clinical
|
||||
Cobalamin-Targeted
Therapeutics
|
Access
|
Cobalamin
|
Anti-tumor
|
Pre-clinical
|
||||
(1)
|
For
more information, see “Government Regulation” in our Form 10-K for the
fiscal year ended December 31, 2007, for a description of clinical
stages.
|
(2)
|
Licensed
from the School of Pharmacy, The University of London. Subject to a 1%
royalty and milestone payments on
sales.
|
·
|
costs
for product manufacturing for a new ProLindac clinical trial expected to
start in early 2009 ($259,000);
|
·
|
higher
salary and related cost due to the hiring of additional scientific staff
($113,000);
|
·
|
costs
for studies with contract laboratories and universities
($96,000);
|
·
|
higher
scientific consulting expenses ($152,000);
and
|
·
|
other
net increases in research spending
($68,000).
|
·
|
possible
liquidated damages that may be due under the agreement with investors
($366,000);
|
·
|
higher
patent expenses and license fees
($243,000);
|
·
|
lower
salary related expenses due to stock option expenses ($126,000);
and
|
·
|
other
net decreases in general and administrative expenses
($44,000).
|
·
|
the
Somanta acquisition resulted in a one-time non-cash in-process research
and development expense in the first quarter of 2008
($8,879,000);
|
·
|
costs
for product manufacturing for a new ProLindac clinical trial
expected to start in early 2009
($1,047,000);
|
·
|
higher
scientific consulting expenses
($306,000);
|
·
|
higher
salary and related cost due to the hiring of additional scientific staff
($219,000); and
|
·
|
other
net increases in research spending
($125,000).
|
·
|
accrual
of liquidated damages that may be due under an investor rights agreement
with certain investors ($415,000);
|
·
|
higher
patent expenses and license fees
($391,000);
|
·
|
higher
general business consulting expenses
($69,000);
|
·
|
lower
salary related expenses due to stock option expenses
($467,000);
|
·
|
lower
salary and other salary related expenses ($213,000);
and
|
·
|
other
net decreases in general and administrative expenses
($75,000).
|
ITEM 3.
|
QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK |
ITEM 4T. | CONTROLS AND PROCEDURES |
ITEM 1 | LEGAL PROCEEDINGS |
ITEM 1A. | RISK FACTORS |
ITEM
2
|
UNREGISTERED
SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS
|
ITEM 3 | DEFAULTS UPON SENIOR SECURITIES |
ITEM 4 | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS |
ITEM 5 | OTHER MATTERS |
ITEM
6
|
EXHIBITS
|
2.2
|
Agreement
and Plan of Merger, by and among Access Pharmaceuticals, Inc., Somanta
Acquisition Corporation, Somanta Pharmaceuticals, Inc., Somanta
Incorporated and Somanta Limited, dated April 18, 2007. (Incorporated by
reference to Exhibit 2.1 to our Form 8-K dated April 18,
2007)
|
2.3
|
Agreement
and Plan of Merger, by and among Access Pharmaceuticals, Inc., MACM
Acquisition Corporation and MacroChem Corporation, dated July 9,
2008.
|
3.0
|
Articles
of incorporation and bylaws:
|
3.1
|
Certificate
of Incorporation (Incorporated by Reference to Exhibit 3(a) of our Form
8-B dated July 12, 1989, Commission File Number
9-9134)
|
3.2
|
Certificate
of Amendment of Certificate of Incorporation filed August 21,
1992
|
3.3
|
Certificate
of Merger filed January 25, 1996. (Incorporated by reference to Exhibit E
of our Registration Statement on Form S-4 dated December 21, 1995,
Commission File No. 33-64031)
|
3.4
|
Certificate
of Amendment of Certificate of Incorporation filed January 25, 1996.
(Incorporated by reference to Exhibit E of our Registration Statement on
Form S-4 dated December 21, 1995, Commission File No.
33-64031)
|
3.5
|
Certificate
of Amendment of Certificate of Incorporation filed July 18, 1996.
(Incorporated by reference to Exhibit 3.8 of our Form 10-K for the year
ended December 31, 1996)
|
3.6
|
Certificate
of Amendment of Certificate of Incorporation filed June 18, 1998.
(Incorporated by reference to Exhibit 3.8 of our Form 10-Q for the quarter
ended June 30, 1998)
|
3.7
|
Certificate
of Amendment of Certificate of Incorporation filed July 31, 2000.
(Incorporated by reference to Exhibit 3.8 of our Form 10-Q for the quarter
ended March 31, 2001)
|
3.8
|
Certificate
of Designations of Series A Junior Participating Preferred Stock filed
November 7, 2001 (Incorporated by reference to Exhibit 4.1.h of our
Registration Statement on Form S-8, dated December 14, 2001, Commission
File No. 333-75136)
|
3.9
|
Amended
and Restated Bylaws (Incorporated by reference to Exhibit 3.1 of our Form
10-Q for the quarter ended June 30,
1996)
|
3.10
|
Certificate
of Designations, Rights and Preferences of Series A Cumulative Convertible
Preferred Stock (Incorporated by reference to Exhibit 3.10 to our Form
10-K for the year ended December 31,
2007)
|
3.11
|
Certificate
of Amendment to Certificate of Designations, Rights and Preferences of
Series A Cumulative Convertible Preferred Stock filed June 11, 2008 (Incorporated
by reference to Exhibit 3.11 of our Form 10-Q for the quarter ended June
30, 2008)
|
31.1
|
Certification
of Chief Executive Officer of Access Pharmaceuticals, Inc. pursuant to
Rule 13a-14(a)/15d-14(a)
|
31.2
|
Certification
of Chief Financial Officer of Access Pharmaceuticals, Inc. pursuant to
Rule 13a-14(a)/15d-14(a)
|
32.1*
|
Certification
of Chief Executive Officer of Access Pharmaceuticals, Inc. pursuant to 18
U.S.C. Section 1350
|
32.2*
|
Certification
of Chief Financial Officer of Access Pharmaceuticals, Inc. pursuant to 18
U.S.C. Section 1350
|
Date:
|
November 14, 2008
|
By:
|
/s/ Jeffrey B. Davis
|
Jeffrey
B. Davis
|
|||
Chief
Executive Officer
|
|||
(Principal
Executive Officer)
|
|||
Date:
|
November 14, 2008
|
By:
|
/s/ Stephen B. Thompson
|
Stephen
B. Thompson
|
|||
Vice
President and Chief Financial Officer
|
|||
(Principal
Financial and Accounting Officer)
|
|||
ASSETS
|
September 30, 2008
(unaudited)
|
December 31,
2007
(audited)
|
|
Current
assets
Cash and cash
equivalents
Short
term investments, at cost
Receivables
Receivables due from Somanta
Pharmaceuticals
Prepaid
expenses and other current assets
|
$ 201,000
4,417,000
330,000
-
110,000
|
$ 159,000
6,762,000
35,000
931,000
410,000
|
|
Total
current assets
|
5,058,000
|
8,297,000
|
Property
and equipment, net
|
100,000
|
130,000
|
|
Patents,
net
|
584,000
|
710,000
|
|
Other
assets
|
12,000
|
12,000
|
|
Total
assets
|
$ 5,754,000
|
$ 9,149,000
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY (DEFICIT)
|
|||
Current
liabilities
Accounts
payable and accrued expenses
Dividends
payable
Accrued
interest payable
Current
portion of deferred revenue
Current
portion of long-term debt
|
$ 2,571,000
1,799,000
445,000
164,000
-
|
$ 1,537,000
259,000
130,000
68,000
64,000
|
|
Total
current liabilities
|
4,979,000
|
2,058,000
|
|
Long-term
deferred revenue
Long-term
debt
|
2,286,000
5,500,000
|
910,000
5,500,000
|
|
Total
liabilities
|
12,765,000
|
8,468,000
|
|
Commitments
and contingencies
|
|||
Stockholders'
equity (deficit)
Preferred
stock - $.01 par value; authorized 2,000,000 shares;
3,251.8617 issued at September
30, 2008; 3,227.3617 issued
at December 31,
2007
Common
stock - $.01 par value; authorized 100,000,000 shares;
issued,
6,485,791 at September 30, 2008 and 3,585,458 at
December
31, 2007
Additional
paid-in capital
Notes
receivable from stockholders
Treasury
stock, at cost – 163 shares
Accumulated
deficit
|
-
65,000
126,814,000
(1,045,000)
(4,000)
(132,841,000)
|
-
36,000
116,018,000
(1,045,000)
(4,000)
(114,324,000)
|
|
Total
stockholders' equity (deficit)
|
(7,011,000)
|
681,000
|
|
Total
liabilities and stockholders' equity (deficit)
|
$ 5,754,000
|
$ 9,149,000
|
Three
months ended
September
30,
|
Nine
months ended
September
30,
|
|||||||||||||||
2008
|
2007
|
2008
|
2007
|
|||||||||||||
Revenues
|
||||||||||||||||
License
revenues
|
$ | 38,000 | $ | 6,000 | $ | 77,000 | $ | 6,000 | ||||||||
Sponsored research and
development
|
9,000 | - | 140,000 | - | ||||||||||||
Total revenues
|
47,000 | 6,000 | 217,000 | 6,000 | ||||||||||||
Expenses
|
||||||||||||||||
Research and
development
|
1,284,000 | 596,000 | 12,108,000 | 1,532,000 | ||||||||||||
General and
administrative
|
1,439,000 | 1,000,000 | 3,372,000 | 3,252,000 | ||||||||||||
Depreciation and
amortization
|
66,000 | 61,000 | 197,000 | 210,000 | ||||||||||||
Total expenses
|
2,789,000 | 1,657,000 | 15,677,000 | 4,994,000 | ||||||||||||
Loss
from operations
|
(2,742,000 | ) | (1,651,000 | ) | (15,460,000 | ) | (4,988,000 | ) | ||||||||
Interest
and miscellaneous income
|
62,000 | 12,000 | 167,000 | 72,000 | ||||||||||||
Interest
and other expense
|
(126,000 | ) | (318,000 | ) | (351,000 | ) | (3,277,000 | ) | ||||||||
(64,000 | ) | (306,000 | ) | (184,000 | ) | (3,205,000 | ) | |||||||||
Net
loss
|
(2,806,000 | ) | (1,957,000 | ) | (15,644,000 | ) | (8,193,000 | ) | ||||||||
Less
preferred stock dividends
|
523,000 | - | 2,873,000 | - | ||||||||||||
Net
loss allocable to common stockholders
|
$ | (3,329,000 | ) | $ | (1,957,000 | ) | $ | (18,517,000 | ) | $ | (8,193,000 | ) | ||||
Basic
and diluted loss per common share
Net
loss allocable to common shareholders
|
$ | (0.57 | ) | $ | (0.55 | ) | $ | (3.30 | ) | $ | (2.31 | ) | ||||
Weighted
average basic and diluted
common shares
outstanding
|
5,803,457 | 3,575,114 | 5,607,247 | 3,544,181 | ||||||||||||
Nine
Months ended September 30,
|
||||||||
2008
|
2007
|
|||||||
Cash
flows from operating activities:
|
||||||||
Net
loss
|
$ | (15,644,000 | ) | $ | (8,193,000 | ) | ||
Adjustments to
reconcile net loss to cash used
in
operating activities:
|
||||||||
Depreciation and
amortization
|
197,000 | 210,000 | ||||||
Stock option
expense
|
244,000 | 810,000 | ||||||
Stock issued for
services
|
307,000 | 44,000 | ||||||
Acquired in-process research
and development
|
8,879,000 | - | ||||||
Amortization of debt costs and
discounts
|
- | 2,316,000 | ||||||
Loss on sale of
asset
|
- | 2,000 | ||||||
Changes in operating assets and
liabilities:
|
||||||||
Receivables
|
(295,000 | ) | (502,000 | ) | ||||
Prepaid
expenses and other current assets
|
(85,000 | ) | (247,000 | ) | ||||
Other assets
|
- | 1,000 | ||||||
Accounts payable and accrued
expenses
|
30,000 | 369,000 | ||||||
Dividends
payable
|
(25,000 | ) | - | |||||
Accrued interest
payable
|
315,000 | 953,000 | ||||||
Deferred
revenue
|
1,472,000 | 994,000 | ||||||
Net cash used in operating
activities
|
(4,605,000 | ) | (3,243,000 | ) | ||||
Cash
flows from investing activities:
|
||||||||
Capital
expenditures
|
(28,000 | ) | (18,000 | ) | ||||
Somanta acquisition, net
of cash acquired
|
(65,000 | ) | - | |||||
Proceeds from sale of
asset
|
- | 13,000 | ||||||
Redemptions of short term
investments and
certificates of
deposit
|
2,345,000 | 2,680,000 | ||||||
Net cash provided by investing
activities
|
2,252,000 | 2,675,000 | ||||||
Cash
flows from financing activities:
|
||||||||
Payments
of notes payable
|
(64,000 | ) | - | |||||
Proceeds
from preferred stock issuances, net of costs
|
2,444,000 | - | ||||||
Proceeds
from exercise of common stock options
|
15,000 | 35,000 | ||||||
Net cash provided by financing
activities
|
2,395,000 | 35,000 | ||||||
Net
increase (decrease) in cash and cash equivalents
|
42,000 | (533,000 | ) | |||||
Cash
and cash equivalents at beginning of period
|
159,000 | 1,194,000 | ||||||
Cash
and cash equivalents at end of period
|
$ | 201,000 | $ | 661,000 | ||||
Supplemental
cash flow information:
|
||||||||
Cash
paid for interest
|
$ | 9,000 | $ | 5,000 | ||||
Supplemental
disclosure of noncash transactions:
|
||||||||
Shares issued for
payables
|
1,576,000 | - | ||||||
Preferred
stock dividends in dividends payable
|
1,799,000 | - | ||||||
Accrued
interest capitalized
|
- | 511,000 | ||||||
Beneficial
conversion feature –
February
2008 preferred stock dividends
November
2007 preferred stock dividends correction
|
857,000 451,000 | - - | ||||||
Preferred
stock issuance costs paid in cash
|
281,000 | - |
(1)
|
Interim
Financial Statements
|
September
30, 2008
|
December
31, 2007
|
|||
Gross
carrying
value
|
Accumulated
amortization
|
Gross
carrying
value
|
Accumulated
Amortization
|
|
Amortizable
intangible assets
Patents
|
$ 1,680
|
$ 1,096
|
$ 1,680
|
$ 970
|
2008
|
$ 42
|
||
2009 |
168
|
||
2010 |
168
|
||
2011 |
168
|
||
2012 |
38
|
||
Total |
$ 584
|
·
|
Approximately
1.5 million shares of Access common stock were issued to the common and
preferred shareholders of Somanta as consideration having a value of
approximately $4,650,000 (the value was calculated using Access’ stock
price on January 4, 2008, times the number of shares
issued);
|
·
|
exchange
of all outstanding warrants for Somanta common stock for warrants to
purchase 191,991 shares of Access common stock at exercise prices ranging
between $18.55 and $69.57 per share. The warrants were valued at
approximately $281,000. All of the warrants are exercisable immediately
and expire approximately four years from date of issue. The weighted
average fair value of the warrants was $1.46 per share on the date of the
grant using the Black-Scholes pricing model with the following
assumptions: expected dividend yield 0.0%, risk-free interest rate 3.26%,
expected volatility 114% and an expected term of approximately 4
years;
|
·
|
paid
an aggregate of $475,000 in direct transaction costs;
and
|
·
|
cancelled
receivable from Somanta of
$931,000.
|
Cash | $ | 1 | ||
Prepaid expenses | 25 | |||
Office equipment | 14 | |||
Accounts payable | (2,582 | ) | ||
In-process research & development | 8,879 | |||
$ | 6,337 |
Three
months ended
September 30,
|
Nine
months ended
September 30,
|
|||||||||||||||
2008
|
2007
|
2008
|
2007
|
|||||||||||||
Net
loss
|
$ | (3,329 | ) | $ | (2,454 | ) | $ | (18,517 | ) | $ | (14,627 | ) | ||||
Net
loss per common shares (basic and diluted)
|
$ | (0.57 | ) | $ | (0.48 | ) | $ | (3.30 | ) | $ | (2.90 | ) | ||||
Weighted
average common shares outstanding
(basic
and diluted)
|
5,803 | 5,075 | 5,607 | 5,044 |
Three months
ended
September 30,
|
Nine months ended
September 30,
|
|||||||||||||||
2008
|
2007
|
2008
|
2007
|
|||||||||||||
Research
and development
|
$ | 39,000 | $ | 190,000 | $ | 78,000 | $ | 761,000 | ||||||||
General
and administrative
|
65,000 | 17,000 | 166,000 | 49,000 | ||||||||||||
Stock-based
compensation expense
|
104,000
|
|
207,000
|
244,000 | 810,000 | |||||||||||
included in operating expense |
9/30/08
|
||||
Expected
life
|
6.2
|
yrs | ||
Risk
free interest rate
|
3.0
|
%
|
||
Expected volatility(a) |
133
|
%
|
||
Expected
dividend yield
|
0.0
|
%
|
||
(a)
|
Reflects
movements in our stock price over the most recent historical period
equivalent to the expected life.
|