10-Q: Quarterly report pursuant to Section 13 or 15(d)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

/x/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000


Commission File Number 0-9314


ACCESS PHARMACEUTICALS, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)


Delaware 83-0221517
- ------------------------ --------------------------
(State of Incorporation) (I.R.S. Employer I.D. No.)

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


Telephone Number (214) 905-5100

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 May 12, 2000 11,467,338 shares, $0.01 par value
------------ ----------

Total No. of Pages 10

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

OVERVIEW

Access Pharmaceuticals, Inc. (together with its subsidiaries)
is a Delaware corporation in the development stage. We are an
emerging pharmaceutical company focused on developing both
novel low development risk product candidates and technologies
with longer-term major product opportunities. We have
proprietary patents or rights to five technology platforms:
synthetic polymers, bioerodible hydrogels, Residerm TM,
carbohydrate targeting technology and agents for the prevention
and treatment of viral disease, including HIV. In addition,
Access' partner Block Drug Company, or Block, is marketing in
the United States, Aphthasol RTM, the first FDA approved
product for the treatment of canker sores. We are developing
new formulations and delivery forms to evaluate this produce in
additional clinical indications. We have licensed the rights to
amlexanox for the treatment of canker sores from Block for
certain countries excluding the U. S. and the worldwide rights
for certain additional indications including mucositis and oral diseases.

Except for the historical information contained herein, the
following discussions and certain statements in this Form 10-Q
are forward-looking statements that involve risks and
uncertainties. In addition to the risks and uncertainties set
forth in this Form 10-Q, other factors could cause actual
results to differ materially, including but not limited to our
research and development focus, uncertainties associated with
research and development activities, uncertainty associated
with preclinical and clinical testing, future capital
requirements, anticipated option and licensing revenues,
dependence on others, ability to raise capital, and other risks
detailed in our reports filed under the Securities Exchange
Act, including but not limited to our Annual Report on Form 10-K
for the year ended December 31, 1999.

Since our inception, we have devoted our resources primarily to
fund our research and development programs. We have been
unprofitable since inception and to date have received limited
revenues from the sale of products. No assurance can be given
that we will be able to generate sufficient product revenues to
attain profitability on a sustained basis or at all. We expect
to incur losses for the next several years as we continue to
invest in product research and development, preclinical
studies, clinical trials and regulatory compliance. As of March
31, 2000, our accumulated deficit was $27,533,000 of which
$8,894,000 was the result of the write-off of purchased
research.

RECENT DEVELOPMENTS

On March 28, 2000, our application for listing on the American
Stock Exchange, or AMEX was approved and we began trading on
AMEX on March 30, 2000 under the symbol AKC.

On March 1, 2000, with the assistance of an investment bank, we
completed the closing of an offering, at a per share price of $2.50,
receiving gross proceeds of $12.0 million from the private

2
placement of 4.8 million shares of common stock. The
placement agent for the offering received warrants to purchase
382,315 shares of common stock at $2.50 per share, in
accordance with the offering terms and elected to purchase
520,905 shares of common stock in lieu of certain sales
commissions.

On February 25, 2000 we signed licensing agreements granting
Mipharm S.p.A. marketing and manufacturing rights for amlexanox
for numerous indications including the prevention and treatment
of canker sores and mucositis, oral lichen planus and atopic
dermatitis. These agreements cover Italy, Switzerland, Turkey
and Lebanon.

The licensing agreements relate to the 5% paste formulation,
approved in the United States for the treatment of canker
sores, which is in the regulatory process in Europe; the
OraDisc TM formulation which is in Phase III clinical development
for the prevention and treatment of canker sores; OraRinse TM
which has commenced Phase II clinical evaluation for the
prevention and treatment of mucositis; the 5% amlexanox cream
formulation which is scheduled to commence Phase II studies mid
year for the treatment for atopic dermatitis; and a 5%
amlexanox gel for the treatment of oral lichen planus, which is
planned to commence Phase II clinical studies in the second
half of this year. Additionally, we granted manufacturing
rights for Europe to Mipharm for the products covered by the
agreements.

Under the terms of the agreements, Mipharm will make an equity
investment in Access, pay upfront licensing fees, make
milestone payments and Access will receive a percentage of the
product sales made in the territory. Mipharm has the option to
license in the territory other Access product developments in
the fields of Dermatology and Gynecology.


Liquidity and Capital Resources

As of March 31, 2000, our principal source of liquidity was
$14,379,000 of cash and cash equivalents, short term
investments and certificates of deposits. Working capital as of
March 31, 2000 was $10,267,000, representing an increase in
working capital of $10,179,000 as compared to the working
capital as of December 31, 1999 of $88,000. The increase in
working capital was due to the funds received from the March 1,
2000 private placement and the receipt of funds for a private
placement scheduled to close in the second quarter.

Since inception, our expenses have significantly exceeded our
revenues, resulting in an accumulated deficit as of March 31,
2000 of $27,533,000. We have funded our operations primarily
through private sales of common stock, contract research
payments from corporate alliances and mergers.

We have incurred negative cash flows from operations since
inception, and have expended, and expect to continue to expend
in the future, substantial funds to complete our planned
product development efforts. We expect that our existing
capital resources will be adequate to fund our current level of
operations through the year 2002. We are dependent on raising
additional capital to fund further development of our technology
and to implement our business plan. Such dependence will
continue at least until we begin marketing products resulting
from our development activities.

We will require substantial funds to conduct research and
development programs, preclinical studies and clinical trials
of potential products, including research and development with respect

3
to the newly acquired technology from the acquisition
of Virologix. Our future capital requirements and adequacy of
available funds will depend on many factors, including:

* the successful commercialization of amlexanox;

* the ability to establish and maintain collaborative
arrangements with corporate partners for the research,
development and commercialization of products;

* continued scientific progress in our research and
development programs;

* the magnitude, scope and results of preclinical testing and
clinical trials;

* the costs involved in filing, prosecuting and enforcing
patent claims;

* competing technological developments;

* the cost of manufacturing and scale-up; and

* the ability to establish and maintain effective
commercialization arrangements and activities.


First Quarter 2000
Compared to
First Quarter 1999

Total research spending for the first quarter of 2000 was
$603,000, as compared to $377,000 for the same period in 1999,
an increase of $226,000. The increase in expenses was the
result of:

* clinical development costs for amlexanox product
development projects for OraRinse TM ($128,000) and OraDisc TM
($72,000);

* external development costs for the polymer platinate
project ($63,000);

* moving expenses for scientific personal ($48,000); and

* other projects ($18,000).

The increase was partially offset by:

* lower scientific consulting expenses ($69,000);

* lower salary and related expenses ($15,000); and

* other net decreases ($19,000).

Research spending is expected to increase in future quarters as
we intend to hire additional scientific and clinical staff and
will commence additional clinical trials to develop our product
candidates.

Total general and administrative expenses were $386,000 for the
first quarter of 2000, an increase of $3,000 as compared to
the same period in 1999. The increase in spending was due
primarily to the following:

* higher travel and entertainment costs ($14,000);

* higher salary expenses ($11,000); and

* higher patent costs ($10,000).


4
The increases were partially offset by:

* lower shareholder expenses ($17,000);

* lower professional fees ($11,000); and

* other net decreases ($4,000).

Depreciation and amortization was $111,000 for the first
quarter 2000 as compared to $47,000 for the same period in 1999
reflecting an increase of $64,000. The increase in amortization
is due to:

* amortization of goodwill of $61,000 recorded as a result of
the purchase of Virologix Corporation;

* amortization of licenses totaling $26,000; offset by,

* lower depreciation reflecting that some major assets have
been fully depreciated.

Interest and miscellaneous income was $65,000 for the first
quarter of 2000 as compared to $13,000 for the same period in
1999, an increase of $52,000. The increase in interest income
was due to higher cash balances in 2000.

Net loss in the first quarter of 2000 was $1,080,000 or a $0.14
basic and diluted loss per common share compared with a loss of
$799,000, or a $0.23 basic and diluted loss per common share
for the same period in 1999.

PART II -- OTHER INFORMATION

ITEM 1 LEGAL PROCEEDINGS

The Company is not a party to any material legal proceedings.

ITEM 2 CHANGES IN SECURITIES

On March 1, 2000, with the assistance of an investment bank, we
completed the closing of a private offering to individual
accredited investors, at a per share price of $2.50, receiving
gross proceeds of $12.0 million from the private
placement of 4.8 million shares of common stock. The placement
agent for the offering received warrants to purchase 382,315
shares of common stock at $2.50 per share, in accordance with
the offering terms and elected to purchase 520,905 shares of
common stock in lieu of certain sales commissions.
The shares issued in the Private Placement have not been
registered; however, a registration statement for the resale of
such shares is required to be filed within 90 days after the
final closing of the Private Placement. The Company relied on
Section 4(2) and/or 3(b) of the 1933 Securities Act and the
provisions of Regulation D as exemptions from the registration
thereunder. The proceeds of the offering will be used to fund
research and development, working capital, acquisitions of
complementary companies or technologies and general corporate
purposes.

ITEM 3 DEFAULTS UPON SENIOR SECURITIES

None


5
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None

ITEM 5 OTHER INFORMATION

None

ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K

Exhibits: 10.22 Sales Agency Agreement
10.23 Registration Rights Agreement
27.1 Financial Data Schedule

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.


ACCESS PHARMACEUTICALS, INC.


Date: May 15, 2000 By: /s/ Kerry P. Gray
-------------------------
Kerry P. Gray
President and Chief Executive Officer
(Principal Executive Officer)


Date: May 15, 2000 By: /s/ Stephen B. Thompson
-------------------------
Stephen B. Thompson
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)



6
Access Pharmaceuticals, Inc. and Subsidiaries
(a development stage company)

Condensed Consolidated Balance Sheets