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)
|
ACCESS PHARMACEUTICALS, INC. | |||||||||||
INDEX | |||||||||||
Page No.
|
|||||||||||
PART
I - FINANCIAL INFORMATION
|
|||||||||||
Item
1.
|
Financial
Statements:
|
||||||||||
Condensed
Consolidated Balance Sheets at September 30, 2010
|
|||||||||||
(unaudited)
and December 31, 2009
|
15
|
||||||||||
Condensed
Consolidated Statements of Operations (unaudited) for the
|
|||||||||||
three
and nine months ended September 30, 2010 and September 30,
2009
|
16
|
||||||||||
Condensed
Consolidated Statement of Stockholders’ Deficit
(unaudited)
|
|||||||||||
for
the three and nine months ended September 30, 2010
|
17
|
||||||||||
Condensed
Consolidated Statements of Cash Flows (unaudited) for the
|
|||||||||||
nine
months ended September 30, 2010 and September 30, 2009
|
18
|
||||||||||
Notes
to Unaudited Condensed Consolidated Financial Statements
|
19
|
||||||||||
Item
2.
|
Management's
Discussion and Analysis of Financial Condition and
|
||||||||||
Results
of Operations
|
2
|
||||||||||
Item
3.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
10
|
|||||||||
Item
4.
|
Controls
and Procedures
|
10
|
|||||||||
PART
II - OTHER INFORMATION
|
|||||||||||
Item
1.
|
Legal
Proceedings
|
11
|
|||||||||
Item
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
11
|
|||||||||
Item
3.
|
Defaults
Under Senior Securities
|
12
|
|||||||||
Item
4.
|
Removed
and Reserved
|
12
|
|||||||||
Item
5.
|
Other
Information
|
12
|
|||||||||
Item
6.
|
Exhibits
|
12
|
|||||||||
SIGNATURES
|
14
|
||||||||||
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). MuGard has been launched in Germany, Italy, UK,
Greece and the Nordic countries by our European commercial partner,
SpePharm. We launched MuGard in the United States during the third quarter
of 2010. We are working with our partners in Korea and China for
registration and marketing.
|
·
|
Our
lead development candidate for the treatment of cancer is ProLindac™, a
nanopolymer DACH-platinum prodrug. We recently completed a Phase 2
clinical trial on ProLindac in the EU in patients with recurrent ovarian
cancer. The clinical study had positive safety and efficacy results. We
expect to initiate a study of ProLindac combined with Paclitaxel in second
line treatment of platinum pretreated advanced ovarian cancer patients in
the fourth quarter of 2010. This multi-center study of up to 25 evaluable
patients will be conducted in Europe. We are also currently planning a
number of combination trials, looking at combining ProLindac with other
cancer agents in solid tumor indications including colorectal and 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.
|
·
|
Thiarabine,
or 4-thio Ara-C, is a next generation nucleoside analog licensed from
Southern Research Institute. Previously named SR9025 and OSI-7836, the
compound has been in two Phase 1/2 solid tumor human clinical trials and
was shown to have anti-tumor activity. We are working with leukemia and
lymphoma specialists at MD Anderson Cancer Center in Houston and have
initiated additional Phase 2 clinical trials in adult AML, ALL and other
indications.
|
·
|
CobOral™
is our proprietary preclinical nanopolymer oral drug delivery technology
based on the natural vitamin B12 oral uptake mechanism. We are currently
developing a product for the oral delivery of insulin, and have conducted
sponsored development of a product for oral delivery of human growth
hormone. We have signed or are in discussion with several companies
regarding the sponsored development of CobOral™ oral drug delivery
formulations of proprietary and non-proprietary
actives.
|
·
|
CobaCyte-mediated
cancer targeted delivery is a preclinical technology which makes use of
the fact that cell surface receptors for vitamins such as B12 are often
overexpressed by cancer cells. This technology uses nanopolymer constructs
to deliver more anti-cancer drug to tumors while protecting normal
tissues.
|
Compound
|
Originator
|
Technology
|
Indication
|
Clinical
Stage (1)
|
||||
MuGard™
|
Access
|
Mucoadhesive
liquid
|
Mucositis
|
(510k)
Marketing clearance received
|
||||
ProLindacTM
(Polymer
Platinate,
AP5346) (2)
|
Access
/
Univ
of
London
|
Synthetic
polymer
|
Cancer
|
Phase
2
|
||||
Thiarabine
(4-thio Ara-C) (3)
|
Southern
Research
Institute
|
Small
molecule
|
Cancer
|
Phase
1/2
|
||||
Oral
Insulin
|
Access
|
Cobalamin
|
Diabetes
|
Pre-clinical
|
||||
CobOral™
Delivery System
|
Access
|
Cobalamin
|
Various
|
Pre-clinical
|
||||
CobaCyte™-Targeted
Therapeutics
|
Access
|
Cobalamin
|
Anti-tumor
|
Pre-clinical
|
(1)
|
For
more information, see “Government Regulation” for description of clinical
stages.
|
(2)
|
Licensed
from the School of Pharmacy, The University of
London.
|
(3)
|
Licensed
from Southern Research Institute of Birmingham,
Alabama.
|
·
|
increased
salary and related costs due to existing employees paid at full salary in
the third quarter of 2010 while employees were paid at a reduced salary in
the third quarter of 2009 plus an additional new employee
($220,000);
|
·
|
increased
development costs ($118,000);
|
·
|
increase
lab costs due to lab activity for CobaCyte, CobOral and MuGard
($112,000);
|
·
|
increased
stock compensation expense due to additional option grants for research
and development employees
($80,000);
|
·
|
increased
clinical development with the planned starts in trials for MuGard,
ProLindac and Thiarabine ($71,000);
and
|
·
|
other
net increases in research spending
($37,000).
|
·
|
lower
general business consulting expenses due to reduction in use of outside
consultants ($2,037,000);
|
·
|
lower
potential liquidated damages under an investor rights agreement with
certain investors ($161,000);
|
·
|
lower
stock compensation expense due to fewer option grants for general and
administrative employees ($81,000);
|
·
|
lower
patent and license fees ($73,000);
and
|
·
|
offset
by other net increases in other general and administrative expenses
($59,000).
|
·
|
increased
stock compensation expense due to additional option grants for research
and development employees
($325,000);
|
·
|
increased
salary and related costs due to existing employees paid at full salary in
2010 while employees were paid at a reduced salary during a portion of
2009 plus an additional new employee
($286,000);
|
·
|
increased
lab costs due to lab activity for CobaCyte, CobOral and MuGard
($207,000);
|
·
|
increased
clinical development with the planned starts in trials for MuGard,
ProLindac and Thiarabine
($115,000);
|
·
|
other
net increases in research spending ($43,000);
and
|
·
|
offset
by lower scientific consulting expenses
($88,000).
|
·
|
lower
general business consulting expenses due to reduction in use of outside
consultants ($2,047,000);
|
·
|
lower
accrual of potential liquidated damages under an investor rights agreement
with certain investors ($478,000);
|
·
|
lower
patent and license fees ($283,000);
|
·
|
lower
stock compensation expense due to fewer option grants for general and
administrative employees ($80,000);
|
·
|
other
net decreases in general and administrative expenses ($193,000);
and
|
·
|
offset
by increased salary and related costs due to existing employees paid at
full salary in 2010 while employees were paid at a reduced salary during a
portion of 2009 plus an additional new employee
($185,000).
|
ITEM
3.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
|
ITEM
2.
|
UNREGISTERED
SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS
|
ITEM
6.
|
EXHIBITS
|
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 10, 2010
|
By:
|
/s/ Jeffrey B. Davis
|
Jeffrey
B. Davis
|
|||
Chief
Executive Officer
|
|||
(Principal
Executive Officer)
|
|||
Date:
|
November 10, 2009
|
By:
|
/s/ Stephen B. Thompson
|
Stephen
B. Thompson
|
|||
Vice
President and Chief Financial Officer
|
|||
(Principal
Financial and Accounting Officer
|
|||
ASSETS
|
September 30,
2010
(unaudited)
|
December 31,
2009
|
|
Current assets
Cash and cash
equivalents
Receivables
Prepaid
expenses and other current assets
|
$ 1,496,000
40,000
29,000
|
$ 607,000
36,000
42,000
|
|
Total current assets |
1,565,000
|
685,000
|
|
Property
and equipment, net
|
38,000
|
50,000
|
|
Patents,
net
|
627,000
|
787,000
|
|
Other
assets
|
49,000
|
61,000
|
|
Total
assets
|
$ 2,279,000
|
$ 1,583,000
|
|
LIABILITIES
AND STOCKHOLDERS' DEFICIT
|
|||
Current
liabilities
Accounts
payable
Accrued
expenses
Dividends
payable
Accrued
interest payable
Short-term debt
Current
portion of deferred revenue
|
$ 3,383,000
857,000
3,950,000
446,000
5,500,000
347,000
|
$ 4,094,000
857,000
2,773,000
563,000
-
347,000
|
|
Total current liabilities |
14,483,000
|
8,634,000
|
|
Derivative
liability warrants
Derivative
liability preferred stock
Long-term
deferred revenue
Long-term
debt
|
3,324,000
10,455,000
4,470,000
-
|
9,708,000
-
4,730,000
5,500,000
|
|
Total
liabilities
|
32,732,000
|
28,572,000
|
|
Commitments
and contingencies
|
|||
Stockholders'
deficit
Convertible
Series A preferred stock - $.01 par value; authorized
2,000,000
shares; 2,985.3617 shares issued at September 30,
2010 and 2,992.3617 shares
issued at December 31, 2009
Common
stock - $.01 par value; authorized 100,000,000 shares;
issued,
15,899,227 at September 30, 2010 and 13,171,545 at
December
31, 2009
Additional
paid-in capital
Notes
receivable from stockholders
Treasury
stock, at cost – 163 shares
Accumulated
deficit
|
-
159,000
223,424,000
(1,045,000)
(4,000)
(252,987,000)
|
-
132,000
215,735,000
(1,045,000)
(4,000)
(241,807,000)
|
|
Total stockholders' deficit |
(30,453,000)
|
(26,989,000)
|
|
Total
liabilities and stockholders' deficit
|
$ 2,279,000
|
$ 1,583,000
|
Three
months ended
September
30,
|
Nine
months ended
September
30,
|
2010
|
2009
|
2010
|
2009
|
|||||||||||||
Revenues
|
||||||||||||||||
License revenues
|
$ | 107,000 | $ | 124,000 | $ | 281,000 | $ | 228,000 | ||||||||
Royalties
|
20,000 | 20,000 | 53,000 | 20,000 | ||||||||||||
Total revenues
|
127,000 | 144,000 | 334,000 | 248,000 | ||||||||||||
Expenses
|
||||||||||||||||
Research
and development
|
1,199,000 | 561,000 | 2,718,000 | 1,830,000 | ||||||||||||
General
and administrative
|
1,165,000 | 3,458,000 | 3,316,000 | 6,212,000 | ||||||||||||
Depreciation
and amortization
|
59,000 | 65,000 | 179,000 | 197,000 | ||||||||||||
Total expenses
|
2,423,000 | 4,084,000 | 6,213,000 | 8,239,000 | ||||||||||||
Loss
from operations
|
(2,296,000 | ) | (3,940,000 | ) | (5,879,000 | ) | (7,991,000 | ) | ||||||||
Interest and miscellaneous income
|
38,000 | 2,000 | 554,000 | 18,000 | ||||||||||||
Interest and other expense
|
(152,000 | ) | (133,000 | ) | (444,000 | ) | (395,000 | ) | ||||||||
Gain on change in fair value of
derivative warrants
|
146,000 | - | 6,384,000 | - | ||||||||||||
Loss on change in fair value of
derivative preferred stock
|
(10,455,000 | ) | - | (10,455,000 | ) | - | ||||||||||
(10,423,000 | ) | (131,000 | ) | (3,961,000 | ) | (377,000 | ) | |||||||||
Net
loss
|
(12,719,000 | ) | (4,071,000 | ) | (9,840,000 | ) | (8,368,000 | ) | ||||||||
Less
preferred stock dividends
|
452,000 | 471,000 | 1,340,000 | 1,434,000 | ||||||||||||
Net
loss allocable to common stockholders
|
$ | (13,171,000 | ) | $ | (4,542,000 | ) | $ | (11,180,000 | ) | $ | (9,802,000 | ) | ||||
Basic/diluted
net loss per common share
|
||||||||||||||||
Net
loss allocable to common stockholders
|
$ | (0.83 | ) | $ | (0.37 | ) | $ | (0.73 | ) | $ | (0.86 | ) | ||||
Weighted
average basic and diluted
|
15,774,273 | 12,204,696 | 15,337,453 | 11,375,793 | ||||||||||||
common shares outstanding | ||||||||||||||||
Common Stock
|
Preferred Stock
|
Additional
paid-in
capital
|
Notes
receivable from stockholders
|
Treasury
stock
|
Accumulated
deficit
|
|||
Shares
|
Amount
|
Shares
|
Amount
|
Balance
December
31, 2009
|
13,172,000 | $ | 132,000 | 2,992.3617 | $ | - | $ | 215,735,000 | $ | (1,045,000 | ) | $ | (4,000 | ) | $ | (241,807,000 | ) | |||||||||||||||
Restricted
common
stock issued for services
|
73,000 | 1,000 | - | - | 17,000 | - | - | - | ||||||||||||||||||||||||
Warrants
issued for
services
|
- | - | - | - | 19,000 | - | - | - | ||||||||||||||||||||||||
Preferred
stock converted into common stock
|
23,000 | - | (7.0000 | ) | - | - | - | - | - | |||||||||||||||||||||||
Stock
option
compensation
expense
|
- | - | - | - | 114,000 | - | - | - | ||||||||||||||||||||||||
Common
stock issued
for
cash exercise of
options
|
10,000 | - | - | - | 14,000 | - | - | - | ||||||||||||||||||||||||
Common
stock issued
for
cashless warrant
exercise
|
20,000 | - | - | - | - | - | - | - | ||||||||||||||||||||||||
Common
stock issued
$3.00
share, net of costs
|
2,083,000 | 21,000 | - | - | 5,827,000 | - | - | - | ||||||||||||||||||||||||
Preferred
dividends
|
- | - | - | - | - | - | - | (442,000 | ) | |||||||||||||||||||||||
Net
income
|
- | - | - | - | - | - | - | 1,089,000 | ||||||||||||||||||||||||
Balance
at
March 31, 2010
|
15,381,000 | 154,000 | 2,985.3617 | - | 221,726,000 | (1,045,000 | ) | (4,000 | ) | (241,160,000 | ) | |||||||||||||||||||||
Restricted
common
stock
issued for services
|
106,000 | 1,000 | - | - | 248,000 | - | - | - | ||||||||||||||||||||||||
Stock
option
compensation
expense
|
- | - | - | - | 440,000 | - | - | - | ||||||||||||||||||||||||
Common
stock issued
for
cash exercise of
options
|
105,000 | 1,000 | - | - | 125,000 | - | - | - | ||||||||||||||||||||||||
Common
stock issued
for
preferred dividends
|
80,000 | 1,000 | - | - | 190,000 | - | - | - | ||||||||||||||||||||||||
Preferred
dividends
|
- | - | - | - | - | - | - | (446,000 | ) | |||||||||||||||||||||||
Net
income
|
- | - | - | - | - | - | - | 1,790,000 | ||||||||||||||||||||||||
Balance
at
June 30, 2010
|
15,672,000 | 157,000 | 2,985.3617 | - | 222,729,000 | (1,045,000 | ) | (4,000 | ) | (239,816,000 | ) | |||||||||||||||||||||
Restricted
common
stock
issued for services
|
133,000 | 1,000 | - | - | 269,000 | - | - | - | ||||||||||||||||||||||||
Stock
option
compensation
expense
|
- | - | - | - | 284,000 | - | - | - | ||||||||||||||||||||||||
Common
stock issued
for
cash exercise of
options
|
38,000 | - | - | - | 52,000 | - | - | - | ||||||||||||||||||||||||
Common
stock issued
for
preferred dividends
|
56,000 | 1,000 | 90,000 | - | - | - | ||||||||||||||||||||||||||
Preferred
dividends
|
- | - | - | - | - | - | - | (452,000 | ) | |||||||||||||||||||||||
Net
loss
|
- | - | - | - | - | - | - | (12,719,000 | ) | |||||||||||||||||||||||
Balance
at
September 30, 2010
|
15,899,000 | $ | 159,000 | 2985.3617 | $ | - | $ | 223,424,000 | $ | (1,045,000 | ) | $ | (4,000 | ) | $ | (252,987,000 | ) |
Nine
Months ended September 30,
|
||||||||
2010
|
2009
|
|||||||
Cash
flows from operating activities:
|
||||||||
Net
loss
|
$ | (9,840,000 | ) | $ | (8,368,000 | ) | ||
Adjustments to
reconcile net loss to cash used
in
operating activities:
|
||||||||
Gain on change in fair value of
derivative warrants
|
(6,384,000 | ) | - | |||||
Loss on change in fair value of
derivative preferred stock
|
10,455,000 | - | ||||||
Gain on negotiated accounts
payable
|
(509,000 | ) | - | |||||
Depreciation and
amortization
|
179,000 | 197,000 | ||||||
Stock option compensation
expense
|
838,000 | 593,000 | ||||||
Stock and warrants issued for
services
|
556,000 | 2,852,000 | ||||||
Change in operating assets and
liabilities:
|
||||||||
Receivables
|
(4,000 | ) | 124,000 | |||||
Prepaid
expenses and other current assets
|
13,000 | 130,000 | ||||||
Other assets
|
12,000 | 12,000 | ||||||
Accounts payable and accrued
expenses
|
(202,000 | ) | 318,000 | |||||
Dividends
payable
|
119,000 | (109,000 | ) | |||||
Accrued interest
payable
|
(117,000 | ) | 334,000 | |||||
Deferred
revenue
|
(260,000 | ) | 2,755,000 | |||||
Net cash used in operating
activities
|
(5,144,000 | ) | (1,162,000 | ) | ||||
Cash
flows from investing activities:
|
||||||||
Capital
expenditures
|
(7,000 | ) | (2,000 | ) | ||||
Proceeds from sale of
asset
|
- | 1,000 | ||||||
Net cash used in investing
activities
|
(7,000 | ) | (1,000 | ) | ||||
Cash
flows from financing activities:
|
||||||||
Proceeds from exercise of
stock options
|
192,000 | 158,000 | ||||||
Proceeds
from common stock issuances, net of costs
|
5,848,000 | - | ||||||
Net cash provided by financing
activities
|
6,040,000 | 158,000 | ||||||
Net
increase (decrease) in cash and cash equivalents
|
889,000 | (1,005,000 | ) | |||||
Cash
and cash equivalents at beginning of period
|
607,000 | 2,677,000 | ||||||
Cash
and cash equivalents at end of period
|
$ | 1,496,000 | $ | 1,672,000 | ||||
Supplemental
cash flow information:
|
||||||||
Cash
paid for interest
|
$ | 440,000 | $ | - | ||||
Supplemental
disclosure of noncash transactions:
|
||||||||
Shares issued for payables,
notes payable and accrued interest
|
- | 859,000 | ||||||
Shares issued for dividends on
preferred stock
|
282,000 | 927,000 | ||||||
Preferred
stock dividends in dividends payable
|
1,340,000 | 1,434,000 |
(1)
|
Interim
Financial Statements
|
(2)
|
Intangible
Assets
|
September
30, 2010
|
December
31, 2009
|
|||
Gross
carrying
value
|
Accumulated
amortization
|
Gross
carrying
value
|
Accumulated
Amortization
|
|
Amortizable
intangible assets
Patents
|
$ 2,624
|
$ 1,997
|
$ 2,624
|
$ 1,837
|
2010 | $ 53 | |
2011 | 212 | |
2012 | 82 | |
2013 | 44 | |
2014 | 44 | |
over 5 years | 192 | |
Total
|
$
627
|
·
|
Level
1 – Quoted prices in active markets for identical assets or
liabilities.
|
·
|
Level
2 – Observable inputs other than quoted prices included in Level 1, such
as quoted prices for similar assets and liabilities in active markets;
quoted prices for identical or similar assets and liabilities in markets
that are not active; or other inputs that are observable or can be
corroborated by observable market
data.
|
·
|
Level
3 – Unobservable inputs that are supported by little or no market activity
and that are significant to the fair value of the assets and liabilities.
This includes certain pricing models, discounted cash flow methodologies
and similar valuation techniques that use significant unobservable
inputs.
|
(in
thousands)
|
September
30, 2010
|
December
31, 2009
|
||||
Level
1
|
Level
2
|
Total
|
Level
1
|
Level
2
|
Total
|
Assets:
|
||||||||||||||||||||||||
Cash
|
$ | 1,496 | $ | - | $ | 1,496 | $ | 607 | $ | - | $ | 607 | ||||||||||||
Liabilities:
|
||||||||||||||||||||||||
Derivative
liability
warrants
|
$ | - | $ | 3,324 | $ | 3,324 | $ | - | $ | 9,708 | $ | 9,708 | ||||||||||||
Derivative
liability
preferred
stock
|
$ | - | $ | 10,455 | $ | 10,455 | $ | - | $ | - | $ | - |
Three
months ended
September 30,
|
Nine
months ended
September 30,
|
||||||
2010
|
2009
|
2010
|
2009
|
||||
Research
and development
|
$ 210,000
|
$ 130,000
|
$ 575,000
|
$ 250,000
|
|||
General
and administrative
|
74,000
|
155,000
|
263,000
|
343,000
|
|||
Stock-based
compensation expense
included
in operating expense
|
$ 284,000
|
$ 285,000
|
$ 838,000
|
$ 593,000
|
9/30/10 | 9/30/09 | ||||||
Expected
life(b)
|
5.7
yrs
|
5.5
yrs
|
|||||
Risk
free interest rate
|
2.3
|
%
|
2.4
|
%
|
|||
Expected
volatility(a)
|
123
|
%
|
114
|
%
|
|||
Expected
dividend yield
|
0.0
|
%
|
0.0
|
%
|
(a)
|
Reflects
movements in our stock price over the most recent historical period
equivalent to the expected life.
|
(b)
|
Based
on the simplified method.
|