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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)
	2600 Stemmons Frwy, Suite 176, Dallas, TX 75207
	(Address of principal executive offices)

 

 

 

 

 

Large accelerated filer o		Accelerated filer o		Non-accelerated filer o		Smaller reporting company þ
		(Do not check if a smaller reporting company)

 

 

 

Series A Convertible preferred stock , $0.01 par value - 2,938.3617 shares issued and outstanding as of August 14, 2012 and convertible into 20,264,551 shares of common stock

ACCESS PHARMACEUTICALS, INC.

 

 

			Page No.
PART I - FINANCIAL INFORMATION
	Item 1.	Financial Statements:
		Condensed Consolidated Balance Sheets at June 30, 2012
		(unaudited) and December 31, 2011	15
		Condensed Consolidated Statements of Operations (unaudited) for the
		three and six months ended June 30, 2012 and June 30, 2011	16
		Condensed Consolidated Statement of Stockholders’ Deficit (unaudited)
		for the three and six months ended June 30, 2012	17
		Condensed Consolidated Statements of Cash Flows (unaudited) for the
		six months ended June 30, 2012 and June 30, 2011	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	11
PART II - OTHER INFORMATION
	Item 1.	Legal Proceedings	12
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	12
	Item 3.	Defaults Under Senior Securities	12
	Item 4.	Removed and Reserved	12
	Item 5.	Other Information	13
	Item 6.	Exhibits	13
SIGNATURES			14

 

 

 

 

 

ITEM 2.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

 

 

·

MuGard™ is our marketed 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 FDA. We launched MuGard in the United States in the fourth quarter of 2010. We are continuing the training of our third-party MuGard representatives on the product, on the oral mucositis condition and on our sales strategy. MuGard prescriptions are growing quarterly and we have placed emphasis on our sampling and marketing efforts to build demand, grow oncologist awareness and increase payer uptake. MuGard has been launched in Germany, Italy, the UK, Greece and the Nordic countries by SpePharm, formerly our commercial partner in the E.U. By mutual agreement, the partner agreement with SpePharm has been terminated. Per terms of the agreement, MuGard will continue to be commercially available for up to six months in Europe through SpePharm. We are actively seeking a new European commercial partner for MuGard. Our China partners have received an acceptance letter from the State Food and Drug Administration of the People’s Republic of China which provides marketing approval in China.

 

·

Our lead development candidate for the treatment of cancer is ProLindac™, a nanopolymer DACH-platinum prodrug. We initiated 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 is being conducted in France. A second combination study was initiated in the fourth quarter of 2011 combining ProLindac with gemcitabine for the treatment of cholangiocarcinoma. We are currently evaluating data from the trials to decide on how to proceed. Clinical studies of other indications including liver, colorectal and ovarian cancer are under consideration by Jiangsu Aosaikang Pharmaceutical Co., Ltd, our licensee for ProLindac in China. The DACH-platinum incorporated in ProLindac is the same active moiety as that in oxaliplatin (Eloxatin; Sanofi-Aventis), which has had annual 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. We are currently evaluating data from the trials to decide on how to proceed.

 

·

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 a number of peptides and RNAi therapeutics. We have signed agreements with several companies regarding the sponsored development of CobOral drug delivery formulations of proprietary and non-proprietary actives.

 

·

CobaCyte®-mediated 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 certain cells including many cancers. 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		Launched   U.S. and EU Regulatory   Approval   China
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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

·	decreased clinical development with trials for ProLindac, MuGard and Thiarabine ($184,000);

·	decreased stock compensation expense for lower expense of option grants for research and development employees ($60,000);

·	decreased external lab costs for studies ($40,000);

·	decreased scientific consulting costs ($27,000);

·	increased salary and related costs ($42,000); and

·	other net increases in research spending ($20,000).

 

 

 

·	decreased general business consulting expenses due to less use of outside consultants in 2012 ($207,000) versus the same period  in 2011;

·	decreased stock compensation expense for lower expense of option grants for selling, general and administrative employees ($75,000);

·	decreased net other general and administrative expenses ($4,000); and

·	increased MuGard product selling expenses ($288,000).

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

·	decreased clinical development with trials for ProLindac, MuGard and Thiarabine ($329,000);

·	decreased scientific consulting costs ($129,000);

·	decreased stock compensation expense for lower expense of option grants for research and development employees ($104,000);

·	lower external development expenses ($100,000);

·	other net decreases in research spending ($24,000); and

·	increased salary and related costs ($174,000);

 

 

 

·	increased MuGard product selling expenses ($699,000);

·	increased salary and related costs ($239,000);

·	increased professional expenses ($60,000);

·	decreased general business consulting expenses due to the higher use of outside consultants in 2012 ($447,000) versus the same period  in 2011;

·	decreased stock compensation expense due to higher expense of option grants for selling, general and administrative employees and directors ($97,000); and

·	decreased net other general and administrative expenses ($5,000).

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

·

Wholesaler and Specialty and Retail Pharmacy Discounts – we offer contractually determined discounts to certain wholesale distributors and specialty and retail pharmacies that purchase directly from us. These discounts are either taken off the invoice at the time of shipment or paid to the customer on a monthly or quarterly basis.

·	Prompt Pay Discounts – we offer cash discounts to our customers, generally 2% of the sales price, as an incentive for prompt payment. Based on our experience many of the customers comply with the payment terms to earn the cash discount.

·	Patient Discount Programs – we offer discount card programs in which patients receive certain discounts off their prescription.

·	Managed Care Rebates – we offer discounts under contracts with certain managed care providers who do not purchase directly from us.

 

 

 

 

 

 

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

 

 

 

 

 

 

 

 

 

ITEM 6.

EXHIBITS.

 

Exhibits:

 

31.1	Certification of Chief Executive Officer of Access Pharmaceuticals, Inc. filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

31.2	Certification of Chief Financial Officer of Access Pharmaceuticals, Inc. filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

32.1*

Certification of Chief Executive Officer of Access Pharmaceuticals, Inc. filed pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

32.2*

Certification of Chief Financial Officer of Access Pharmaceuticals, Inc. filed pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

101.INS

XBRL Instance Document**

 

101.SCH

XBRL Taxonomy Schema**

 

101.CAL

XBRL Taxonomy Calculation Linkbase Document**

 

101.DEF

XBRL Taxonomy Definition Linkbase Document**

 

101.LAB

XBRL Taxonomy Label Linkbase Document**

 

101.PRE

XBRL Taxonomy Presentation Linkbase Document**

 

 

 

 

 

 

 

 

Date:	August 14, 2012		By:	/s/ Jeffrey B. Davis
				Jeffrey B. Davis
				Chief Executive Officer
				(Principal Executive Officer)
Date:	August 14, 2012		By:	/s/ Stephen B. Thompson
				Stephen B. Thompson
				Vice President and Chief Financial Officer
				(Principal Financial and Accounting Officer)

 

 

 

 

 

	June 30, 2012		December 31, 2011
ASSETS	(unaudited)
Current assets Cash and cash equivalents    Receivables Inventory Restricted cash Prepaid expenses and other current assets	$             588,000 788,000 281,000 330,000 44,000		$          2,460,000 333,000 151,000 330,000                39,000
Total current assets	2,031,000		3,313,000
Property and equipment, net	53,000		51,000
Patents, net	302,000		362,000
Other assets	51,000		59,000
Total assets	$          2,437,000		$          3,785,000
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities   Accounts payable   Accrued expenses   Dividends payable   Accrued interest payable   Debt   Current portion of deferred revenue	$          2,410,000 857,000 7,517,000 264,000 2,750,000 248,000		$          1,713,000 857,000 6,487,000 98,000 2,750,000 285,000
Total current liabilities	14,046,000		12,190,000
Derivative liability - warrants Derivative liability - preferred stock Long-term deferred revenue	335,000 16,300,000 2,829,000		1,507,000 4,430,000 3,264,000
Total liabilities	33,510,000		21,391,000
Commitments and contingencies
Stockholders' deficit   Convertible Series A preferred stock - $.01 par value; authorized       2,000,000 shares; 2,938.3617 shares issued at June 30, 2012 and 2,938.3617 shares issued at December 31, 2011   Common stock - $.01 par value; authorized 130,000,000 shares;      issued, 24,163,918 at June 30, 2012 and 23,890,787 at      December 31, 2011   Additional paid-in capital   Treasury stock, at cost – 163 shares   Accumulated deficit	-     242,000 240,501,000 (4,000) (271,812,000)		-     239,000 237,600,000 (4,000) (255,441,000)
Total stockholders' deficit	(31,073,000)		(17,606,000)
Total liabilities and stockholders' deficit	$          2,437,000		$          3,785,000

 

 

 

 

 

 

 

		Three months ended June 30,								Six months ended June 30,
		2012				2011				2012				2011
Revenues
License revenues		$	60,000			$	87,000			$	1,322,000			$	174,000
Product sales			615,000				42,000				1,169,000				55,000
Royalties			15,000				21,000				36,000				41,000
Sponsored research and development			-				-				-				30,000
Total revenues			690,000				150,000				2,527,000				300,000
Expenses
Research and development			654,000				903,000				1,404,000				1,916,000
Product costs			63,000				37,000				122,000				46,000
Selling, general and administrative			1,406,000				1,404,000				3,069,000				2,620,000
Depreciation and amortization			19,000				59,000				73,000				120,000
Total expenses			2,142,000				2,403,000				4,668,000				4,702,000
Loss from operations			(1,452,000	)			(2,253,000	)			(2,141,000	)			(4,402,000	)
Interest and miscellaneous income			-				3,000				1,000				8,000
Interest and other expense Warrant extension expense			(169,000 -	)			(356,000 -	)			(338,000 (2,316,000	) )			(523,000 -	)
Gain on change in fair value of   derivative - warrants			431,000				939,000				1,172,000				2,174,000
Gain (loss) on change in fair value of   derivative - preferred stock			(9,410,000	)			403,000				(11,870,000	)			(420,000	)
			(9,148,000	)			989,000				(13,351,000	)			1,239,000
Net loss			(10,600,000	)			(1,264,000	)			(15,492,000	)			(3,163,000	)
Less preferred stock dividends			439,000				442,000				879,000				880,000
Net loss allocable to common  stockholders		$	(11,039,000	)		$	(1,706,000	)		$	(16,371,000	)		$	(4,043,000	)
Basic/diluted net loss per common share
Net loss allocable to common stockholders		$	(0.46	)		$	(0.09	)		$	(0.68	)		$	(0.21	)
Weighted average basic and diluted    common shares outstanding			24,160,686				19,387,906				24,116,316				19,315,142

 

 

 

 

 

		Common Stock								Preferred Stock
		Shares				Amount				Shares				Amount				Additional paid-in capital				Treasury  stock				Accumulated deficit
Balance December 31, 2011			23,891,000			$	239,000				2,938.3617			$	-			$	237,600,000			$	(4,000	)		$	(255,441,000	)
Restricted common   stock issued for services			15,000				-				-				-				21,000				-				-
Common stock issued for   services			6,000				-				-				-				9,000				-				-
Common stock issued to   directors and employees			222,000				2,000				-				-				300,000				-				-
Common stock issued for   preferred dividends			11,000				-				-				-				13,000				-				-
Stock option   compensation expense Warrant extension expense			- -				- -				- -				- -				114,000  2,316,000				-				-
Preferred dividends			-				-				-				-				-				-				(440,000	)
Net loss			-				-				-				-				-				-				(4,892,000	)
Balance at March 31, 2012			24,145,000			$	241,000				2,938.3617			$	-			$	240,373,000			$	(4,000	)		$	(260,773,000	)
Restricted common   stock issued for services			5,000				-				-				-				6,000				-				-
Common stock issued for   services			7,000				-				-				-				6,000				-				-
Common stock issued for   preferred dividends			7,000				1,000				-				-				8,000				-				-
Stock option   compensation expense Preferred dividends			- -				-  -				- -				-  -				108,000  -				- -				- (439,000	)
Net loss			-				-				-				-				-				-				(10,600,000	)
Balance at June 30, 2012			24,164,000			$	242,000				2,938.3617			$	-			$	240,501,000			$	(4,000	)		$	(271,812,000	)

 

 

 

 

		Six Months ended June 30,
		2012				2011
Cash flows from operating activities:
Net loss		$	(15,492,000	)		$	(3,163,000	)
Adjustments to reconcile net loss to cash used               in operating activities:
Gain on change in fair value of derivative - warrants			(1,172,000	)			(2,174,000	)
Loss on change in fair value of derivative - preferred stock Warrant extension expense			11,870,000 2,316,000				420,000 -
Depreciation and amortization			73,000				120,000
Stock option compensation expense Stock issued to directors and employees			222,000 302,000				423,000 -
Stock issued for services			43,000				475,000
Change in operating assets and liabilities:
Receivables			(455,000	)			967,000
Inventory			(130,000	)			-
Prepaid expenses and other current assets			(5,000	)			(5,000	)
Other assets			8,000				(24,000	)
Accounts payable and accrued expenses			697,000				(37,000	)
Dividends payable			172,000				124,000
Accrued interest payable			166,000				399,000
Deferred revenue			(472,000	)			(173,000	)
Net cash used in operating activities			(1,857,000	)			(2,648,000	)
Cash flows from investing activities:
Capital expenditures			(15,000	)			(39,000	)
Net cash used in investing activities			(15,000	)			(39,000	)
Net decrease in cash and cash equivalents			(1,872,000	)			(2,687,000	)
Cash and cash equivalents at beginning of period			2,460,000				7,033,000
Cash and cash equivalents at end of period		$	588,000			$	4,346,000
Supplemental cash flow information:
Cash paid for interest		$	-			$	-
Supplemental disclosure of noncash transactions:
Shares issued for dividends on preferred stock			22,000				1,000
Preferred stock dividends in dividends payable		$	879,000			$	880,000

 

 

 

 

 

 

 

(1)	Interim Financial Statements

 

 

 

 

 

 

(2)	Intangible Assets

 

 

	June 30, 2012		December 31, 2011
	Gross carrying value	Accumulated amortization	Gross carrying value	Accumulated Amortization
Amortizable intangible assets   Patents	$          2,624	$        2,322	$      2,624	$      2,262

 

 

 

 

 

 

 

 

 

 

·	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)
Description		As of June 30, 2012				Level 1				Level 2				Level 3				Total Gains (Losses)
Liabilities:   Derivative liability-
warrants		$	335			$	-			$	355			$	-			$	1,172
preferred stock		$	16,300			$	-			$	-			$	16,300			$	(11,870	)

 

(in thousands)
Description		As of December 31, 2011				Level 1				Level 2				Level 3				Total Gains (Losses)
Liabilities:   Derivative liability-
warrants		$	1,507			$	-			$	1,507			$	-			$	3,580
preferred stock		$	4,430			$	-			$	-			$	4,430			$	1,410

 

 

 

 

 

		Three months ended June 30,								Six months ended June 30,
		2012				2011				2012				2011
Research and development		$	33,000			$	92,000			$	74,000			$	179,000
Selling, general and administrative			75,000				150,000				148,000				244,000
Stock-based compensation expense    included in operating expense		$	108,000			$	242,000			$	222,000			$	423,000

 

 

		6/30/12				6/30/11
Expected life(b)		5.5 yrs				6.04 yrs
Risk free interest rate			0.6	%			2.0	%
Expected volatility(a)			96	%			119	%
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.