SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 1O-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended Commission File
- ----------------- ---------------
SEPTEMBER 30, 1995 NUMBER 0-9314
CHEMEX PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 83-0221517
- ------------------------ ---------------------------
(State of Incorporation) (I.R.S. Employer I.D. No.)
660 WHITE PLAINS RD., SUITE 400, TARRYTOWN, NY 10591
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(Address of principal executive offices)
Telephone Number (914) 332-8633
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 requirement for the past 90 days.
Yes X No
---- ----
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Common stock outstanding as
of November 3, 1995 8,737,788 shares, $0.04 par value
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Total No. of Pages 12
--
PART I -- FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
The response to this Item is submitted as a separate section of this report.
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
In June 1991, the Company entered into a Joint Venture agreement with
the Block Drug Company, Inc. ("Block") for the development, manufacture
and marketing of certain dermatological products. Effective December 31,
1994, Block and Chemex mutually agreed to dissolve the Joint Venture in its
then current form. Block and Chemex had concluded several agreements as
part of the Joint Venture dissolution: (1) Asset Distribution Agreement ("ADA")
which specified the distribution of assets of the Joint Venture; (2)
Product Development Agreement ("PDA") and Manufacturing, Marketing and
Distribution Agreement ("MMS") which established the joint ownership of
Amlexanox (a drug developed by Block and Chemex for the treatment of
canker sores) and the responsibilities of each party; and (3) a separate
agreement (the "Chemex Option") giving Chemex an option to transfer its
share of the ownership rights to Amlexanox to Block for a non-refundable
upfront payment plus future royalties on sales of the drug. On May 30,
1995, Chemex exercised its right under the Chemex Option and entered into
an Asset Purchase and Royalty Agreement (the "APR") for the sale of
Ainlexanox rights to Block on June 7, 1995. Chemex received consent from the
licensor, Takeda Chemicals, and pursuant to a condition in the APR, received
shareholder approval on September 14, 1995 for the sale of its rights to
Amlexanox to Block.
The effect of these transactions was to return the ownership of the dermatology
drug development portfolio to Chemex with the exception of Amlexanox, which
remained jointly owned by Block and Chemex until the sale of Amlexanox
rights by Chemex to Block which was effected in September 1995.
However, the balance of the dermatology drug development portfolio (with
the exception of Chemex's share of its rights to Penederm's retinoid
acid product which was returned to Block) was returned to Chemex and
accordingly, the Company became solely responsible to fund any research and
development expenses for these products. As a result, the Company's cash
"burn rate" increased as of January 1, 1995 (see Liquidity and Capital
Resources section on page 3).
RECENT DEVELOPMENTS
Due to financial constraints, the Company has stopped all drug development of
its drug portfolio. On October 4, 1995, Chemex announced the signing of a
definitive agreement to merge the Company with Access Pharmaceuticals, Inc.
("Access"). Under the terms of the agreement, Access will be merged into Chemex
which will be the surviving legal entity. All of the outstanding shares of
Access will be exchanged for approximately 13,750,000 shares of registered
common stock of Chemex. The Chemex name will be changed to Access
Pharmaceuticals, Inc. and the operations of the consolidated company will be
based in Dallas, Texas. The board of directors of both companies have approved
the transaction and the closing of the merger is subject to shareholder
approval by both companies shareholders by January 30, 1996.
Pursuant to the terms of the Merger Agreement, Chemex is obligated to loan, at
any time prior to the closing of the transaction, an aggregate amount of up to
$250,000 to Access, upon request of Access. On October 4, 1995, Chemex made a
loan to Access of $100,000 which is evidenced by a convertible promissory note,
convertible at Chemex's option upon a default under the note into shares of
Series A Convertible Preferred Stock of Access.
Effective as of November 2, 1995, Chemex terminated its lease agreement with
DAL Associates for its principal office space located in Fort Lee, New Jersey,
pursuant to a settlement agreement (the "Settlement Agreement"). Pursuant to
the Settlement Agreement, Chemex paid DAL Associates approximately $79,000 in
consideration of termination of the lease. Pending the consummation of the
Merger, Chemex has leased limited office space on a temporary basis at 660
White Plains Road, Suite 400, Tarrytown, New York 10591. The settlement for the
termination of the lease of $79,000 has been reflected in the financial
statements for the period ended September 30, 1995.
LIQUIDITY AND CAPITAL RESOURCES
Working capital as of September 30, 1995 was $2,246,000 an increase of $989,000
as compared to the working capital as of December 31, 1994 of $1,257,000. The
increase in working capital was principally due to the sale of Amlexanox rights
to Block for $2,500,000 less the operating losses incurred to date. The Company
received the $2,500,000 less advances previously made by Block of $250,000,
upon receiving Chemex shareholder approval of the sale of Amlexanox in
September 1995. The Company has ceased all research spending and intends to
conserve cash in anticipation of the merger with Access which will transfer the
operations to Dallas, Texas. If the Company does not receive shareholder
approval for the Merger, it will consider liquidating its assets and
dissolving the Company. The Company's common stock has traded on the
Over-the-Counter ("OTC") Bulletin Board under the stock symbol "CHMX" since
April 27, 1995.
THIRD QUARTER 1995
COMPARED TO
THIRD QUARTER 1994
Third quarter revenues were $2,543,000 as compared to $442,000 in 1994,
an increase of $2,101,000. The increase in revenues for the third quarter of
1995 as compared to the comparable 1994 period was entirely due to the
sale of Amlexanox rights to Block for a one-time upfront prepaid royalty
of $2,500,000. The proceeds of $2,500,000 represented a prepaid
non-refundable royalty of 10% on the first $25 million of sales of
Amlexanox oral products. Proceeds from research project revenues that had
been shared 50150 with Block decreased from $412,000 in 1994 to $38,000 in
1995. The decrease principally reflected the termination of the Joint Venture
with Block as of December 31, 1994 for all projects other than Amlexanox.
Total research spending was $206,000 as compared to $728,000 for the same
period in 1994, a decrease of $522,000. The decrease in spending was
principally due to the lack of funding for development spending due to the
lack of cash, and a winding up of all research projects during the third
quarter of 1995. During the third quarter of 1995, all development
projects were terminated.
Total general and administrative expenses were $340,000 for the current
quarter of 1995, an increase of $41,000 as compared to the same period
in 1994. The increase in spending was due to the following: settlement of
the New Jersey lease termination- $79,000; higher legal fees
associated with the completion of the Amlexanox sale agreement with
Block and the associated proxy for a special shareholder meeting to approve
the transaction- $54,000; partially offset by compensation due to reduction
in staff- $41,000; elimination of litigation fees from 1994- $24,000; reduced
Board of Directors' fees- $13,000; the elimination of product liability
insurance- $12,000; and other general expense reductions- $16,000.
There were no professional fees paid to related parties during the third
quarter of 1995 as compared to $4,000 paid in the comparable period in 1994.
Accordingly, total expenses were $546,000, a reduction of $485,000 from the
same period in 1994.
Third quarter net profit was $1,997,000, or $.23 per share as compared to a
net loss of $589,000, or $.07 per share for the third quarter of 1994.
NINE MONTHS ENDED SEPTEMBER 30. 1995
COMPARED TO
NINE MONTHS ENDED SEPTEMBER 30, 1994
Net revenues for the nine months ended September 30, 1995 were $2,885,000,
$16,000 lower than the 1994 comparable period. The change in revenues
from year to year is explained as follows: the one-time non-refundable
receipt of upfront royalties for the sale of Amlexanox rights by Chemex to
Block of $2,500,000; offset by the one time sale of 10% of a Joint Venture
between Chemex and Block in the amount of $1,700,000 in June 1994; and the
reduction of joint venture project research revenues of $775,000 principally
due to the termination of the Chemex/Block Joint Venture in December 1994
which effectively reduced research reimbursement (of 50%) of a majority of
Chemex development projects (with the exception of Amlexanox which was funded
50/50 until the sale of Amlexanox rights by Chemex to Block in September 1995).
Research and development expenses were $1,131,000 for the nine months
ended September 30, 1995 as compared to $2,077,000 for the same period
in 1994. The reduction of overall research and development spending in 1995
from 1994 of $946,000 was principally due to the completion of Phase III
clinical trials in the third quarter of 1994 for Amlexanox which was
the most expensive phase in the development of the drug. The Company
has terminated all other research and development during the third quarter
of 1995 due to the lack of financial resources and the decision to merge the
Company with Access Pharmaceuticals, Inc.
General and administrative expenses were $885,000 in 1995, a reduction of
$172,000 as compared to the prior year. The reduction in spending may be
summarized as follows: the elimination of litigation fees which were
incurred in 1994- $131,000; (2) lower compensation expenses due to a voluntary
salary reduction of the CEO/Chairman and elimination of positions-
$94,000; the elimination of investment banking fees incurred in 1994-
$92,000; the elimination of product liability insurance in 1995- $15,000;
partially offset by higher legal fees due to the termination agreement for
the Joint Venture and the agreement to sale the rights to Amlexanox to
Block- $102,000; and the settlement as to the termination of the New Jersey
lease- $79,000.
Related party expenses were $6,000 for the nine months ended September 30,
1995, a reduction of $5,000 from the prior year.
Accordingly, total expenses were $2,022,000 for year to date 1995, a reduction
of $1,123,000 from 1994.
Net profit was $863,000, or $.10 per share as compared to a loss of $244,000,
or $.03 per share in 1994.
PART II - OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
None
ITEM 2 CHANGES IN SECURITIES
None
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
A special meeting of stockholders was held on September 14, 1995 for
the purpose of approving the sale of the Company's interest in
Amlexanox, a drug for the treatment of aphthous ulcers or cankers
sores to Block Drug.
The vote for the approval of the above transaction was as
follows:
For: 5,606,770
Against: 177,056
Abstain: 44,876
ITEM 5 OTHER INFORMATION
As of October 3, 1995, the Company entered into an Agreement of Merger
and Plan of Reorganization (as amended and restated as of October 31, 1995)
whereby Access Pharmaceuticals, Inc. will be merged with an into Chemex and the
Access common stock will be converted into approximately 13,750,000 shares of
common stock of Chemex (subject to certain adjustments described in the Merger
Agreement). The Merger is expected to be closed on or before January 30, 1996
and such closing is subject to certain conditions as set forth in the Merger
Agreement.
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
Exhibits
2.1 Agreement of Merger and Plan of Reorganization between
Chemex Pharmaceuticals, Inc. and Access Pharmaceuticals, Inc. dated
as of October 3, 1995 and amended and restated as of October 31,
1995, incorporated by reference of the Company's Registration
Statement on Form S-4 filed on November 7, 1995 (No.
33-64031).
Reports on Form 8-K: None.
SIGNATURES
Pursuant to the 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.
CHEMEX PHARMACEUTICALS, INC.
Date: November 10, 1995 By: /s/ Herbert H. McDade, Jr.
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Herbert H. McDade, Jr.
(Chairman and Chief Executive Officer)
CHEMEX PHARMACEUTICALS, INC.
Notes to Financial Statements
Nine Months Ended September 30, 1995 and 1994
(1) INTERIM FINANCIAL STATEMENTS
The balance sheet as of September 30, 1995 and the statements of
operations for the three and nine months ended September 30, 1995 and
1994, and cash flows for the nine months ended September 30, 1995 and
1994 were prepared by Chemex Pharmaceuticals, Inc. (the "Company")
without audit. In the opinion of management, all adjustments, including
only normal recurring adjustments necessary for the fair presentation of
the financial position, results of operations, and cash flows for such
periods, have been made.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. It is suggested
that these financial statements be read in conjunction with the
financial statements and notes thereto included in the Company's Annual
Report to the Securities and Exchange Commission on Form 10-K for the
year ended December 31, 1994. The results of operations for the period
ended September 30, 1995 are not necessarily indicative of the
operating results which may be expected for a full year. The balance
sheet as of December 31, 1994 contains financial information taken
from the audited financial statements as of that date.
(2) On June 7, 1995, the Company entered into an agreement with Block
Drug Company, Inc. to sell its rights to Amlexanox (the "Sale") for a
non-refundable upfront payment of $2,500,000 plus future royalties, if
any, which was approved by the Chemex shareholders on
September 14, 1995. Block had advanced the Company a total of $250,000
in the months of June and July 1995 while Chemex waited for
shareholder approval. Accordingly, the net cash proceeds at the
closing of this transaction to Chemex was $2,250,000.
(3) THE COMPANY
The Company has incurred losses in all fiscal years with the
exception of 1992, the year it received FDA approval for ACTINEX
(a drug developed by Chemex and sold to the Block Drug Company,
Inc. ("Block") in 1990 for an upfront payment and future milestones
and royalties) which triggered milestone payments from Block of $6
million. In view of these losses even with the sale of its
rights to Amlexanox to Block, the Company could not continue
operations for an extended period of time.
CHEMEX PHARMACEUTICALS, INC.
Notes to Financial Statements
(continued)
Nine Months Ended September 30, 1995 and 1994
(4) SUBSEQUENT EVENTS
On October 3, 1995, the Company signed a definitive agreement to merge
the Company with Access Pharmaceuticals, Inc. ("Access"). Under the terms
of the agreement, Access will be merged into Chemex which will be the
surviving legal entity. All of the outstanding shares of Access will be
exchanged for approximately 13,750,000 shares of registered common stock
of Chemex. The Chemex name will be changed to Access Pharmaceuticals,
Inc. and the operations of the consolidated company will be based in
Dallas, Texas. The board of directors of both companies have approved the
transaction and the closing of the merger is subject to shareholder
approval by shareholders of both companies by January 30, 1996, subject to
extension under certain circumstances. The Company filed with the
Securities and Exchange Commission a preliminary Registration Statement
relating to the issurance of Chemex Common Stock pursuant to the terms of
the Agreement of Merger and Plan of Reorganization on Form S-4 on November
7, 1995.
Pursuant to the terms of the Merger Agreement, Chemex is obligated to
loan, at any time prior to the closing of the transaction, an aggregate
amount of up to $250,000 to Access, upon request of Access. On October
4, 1995, Chemex made a loan to Access of $100,000 which is evidenced
by a convertible promissory note, convertible at Chemex's option upon
a default under the note into shares of Series A Convertible
Preferred Stock of Access.
Effective as of November 2, 1995, Chemex terminated its lease
agreement with DAL Associates for its principal office space located in
Fort Lee, New Jersey, pursuant to a settlement agreement (the "Settlement
Agreement"). Pursuant to the Settlement Agreement, Chemex paid DAL
Associates approximately $79,000 in consideration of termination of
the lease. Pending the consummation of the Merger, Chemex has leased
limited office space on a temporary basis at 660 White Plains Road,
Suite 400, Tarrytown, New York 10591. The settlement for the
termination of the lease of $79,000 has been reflected in the financial
statements for the period ended September 30,1995.
CHEMEX PHARMACEUTICALS, INC.
Balance Sheets
Unaudited
Sept. 30, December 31,
Assets 1995 1994
--------------------------------------------- ------------- ------------
Current Assets:
Cash and cash equivalents $ 2,348,000 $ 1,335,000
Accounts receivable 12,000 136,000
Prepaid expenses and other assets 25,000 151,000
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Total current assets 2,385,000 1,622,000
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Furniture, Equipment and Leasehold
Improvements, at cost 95,000 123,000
Less accumulated depreciation
and amortization (64,000) (61,000)
------------ ------------
31,000 62,000
Other Assets 1,000 20,000
------------ ------------
Total Assets $ 2,417,000 $ 1,704,000
============ ============
Liabilities and Stockholders' Equity
---------------------------------------------
Current Liabilities:
Accounts payable $ 126,000 $ 190,000
Lease termination obligation 60,000 -
Financed insurance Premium - 90,000
Accrued liabilities 13,000 85,000
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Total current liabilities 199,000 365,000
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Other long-term liabilities 10,000 12,000
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Total liabilities 209,000 377,000
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Stockholders' Equity
Preferred stock, $.01 par value.
5,000,000 shares; none outstanding -- --
Common stock, $.04 par value.
22,000,000 shares; outstanding
and 8,524,076 shares 350,000 347,000
Additional paid-in capital 40,367,000 40,352,000
Treasury stock, 1,677 shares (5,000) (5,000)
Deficit (38,504,000) (39,367,000)
------------ ------------
Total Stockholders' Equity 2,208,000 1,327,000
------------ ------------
Total Liabilities and Stockholders' Equity $ 2,417,000 $ 1,704,000
============ ============
See accompanying notes to financial statements.
8
CHEMEX PHARMACEUTICALS, INC.
Statements of Operations
(Unaudited)
Quarter Ended September 30, Nine months ended September 30,
--------------------------- ----------------------------
1995 1994 1995 1994
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Revenues:
Joint Venture project revenue - $ 412,000 $ 10,000 $1,127,000
Sale of partial Joint Venture interest - - - 1,700,000
Sale of Amlexanox rights $2,500,000 - 2,500,000 -
Amlexanox project revenue 38,000 - 342,000 -
Actinex royalty - 10,000 7,000 25,000
Interest and dividend income 5,000 20,000 26,000 49,000
---------- ---------- ---------- ----------
2,543,000 442,000 2,885,000 2,901,000
---------- ---------- ---------- ----------
Expenses:
Research and Development:
Amlexanox/Joint Venture 81,000 688,000 578,000 1,932,000
Chemex proprietary 125,000 40,000 553,000 145,000
General and Administrative and Other:
Operating expenses 340,000 299,000 885,000 1,057,000
Professional fees-related parties - 4,000 6,000 11,000
Amortization of stock awards - -
---------- ---------- ---------- ----------
546,000 1,031,000 2,022,000 3,145,000
---------- ---------- ---------- ----------
Income (loss) before income taxes 1,997,000 (589,000) 863,000 (244,000)
Provision for income taxes - - - -
---------- ---------- ---------- ----------
Net income (loss) $1,997,000 $ (589,000) $ 863,000 $ (244,000)
========== ========== ========== ==========
Net income (loss) per common share $0.23 $(0.07) $0.10 $(0.03)
========== ========== ========== ==========
Average number of common and equivalent
common shares outstanding 8,713,000 8,547,000 8,713,000 8,542,000
========== ========== ========== ==========
See accompanying notes to financial statements
9
CHEMEX PHARMACEUTICALS, INC.
Statement of Cash Flows
(Unaudited)
Nine months ending September 30,
--------------------------------
1995 1994
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Cash Flows from Operating Activities:
Net profit (Loss) $ 863,000 $ (244,000)
Adjustments to reconcile net income/(loss)
to cash used by operating activities:
Depreciation and amortization 19,000 19,000
Common stock contributed to
Employee Stock Ownership Plan 20,000 32,000
Stock amortization reclassified to PIC (2,000) -
Stock amortization expense - 61,000
Change in assets and liabilities:
Decrease in receivables 124,000 75,000
Decrease in prepaid
expenses and other current assets 126,000 141,000
Decrease in other assets 19,000 -
Increase (decrease) in accounts payable (64,000) (103,000)
Increase in lease termination 60,000 -
Decrease in litigation settlement - (475,000)
Increase (decrease) in other liabilities (162,000) (165,000)
---------- ----------
Net cash provided by (used by)
operating activities 1,003,000 (659,000)
---------- ----------
Cash Flows from Investing Activities:
Capital expenditures - -
---------- ----------
Net cash used by
investing activities - -
---------- ----------
Cash Flows from Financing Activities:
Proceeds from sale of fixed assets 12,000 -
Principal payments on leases (2,000) (2,000)
---------- ----------
Net cash provided by
financing activities 10,000 (2,000)
---------- ----------
Net increase (decrease) in cash and cash
equivalents $1,013,000 $ (661,000)
---------- ----------
Cash and cash equivalents at beginning of period $1,335,000 $2,362,000
---------- ----------
Cash and cash equivalents at end of period $2,348,000 $1,701,000
========== ==========
See accompanying notes to financial statements