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

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

FORM 10-Q/A
(Amendment No. 1)

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

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2003


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 by check mark whether the registrant is an accelerated
filer (as defined in Rule 12b-2 of the Exchange Act).

Yes No X
----- -----

The number of shares outstanding of each of the issuer's
classes of common stock, as of November 14, 2003, was
13,351,358 shares of common stock, $0.01 par value per share.

ACCESS PHARMACEUTICALS, INC.

INDEX
-----

Page No.
--------

EXPLANATORY NOTE 2

PART I - FINANCIAL INFORMATION

RISK FACTORS 3

Item 1. Condensed Consolidated Financial Statements:

Condensed Consolidated Balance Sheets at
September 30, 2003 and December 31, 2002 23

Condensed Consolidated Statements of Operations and
Comprehensive Loss for the three and nine months ended
September 30, 2003 and September 30, 2002 24

Condensed Consolidated Statements of Cash Flows for the
nine months ended September 30, 2003 and September 30, 2002 25

Notes to Unaudited Condensed Consolidated Financial Statements 26

Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 14


PART II - OTHER INFORMATION

Item 6. Exhibits and Reports on Form 8-K 20

SIGNATURES 22

EXPLANATORY NOTE

The Registrant is filing this Amendment No. 1 to its Quarterly
Report on Form 10-Q for the period ended September 30, 2003 (i)
to amend the "Other Assets" line item in the Condensed
Consolidated Balance Sheet at September 30, 2003 and the table
in Note 3 to the Condensed Consolidated Financial Statements in
Item 1 of Part I, (ii) to amend Item 2 of Part I in response to
comments we received from the Securities and Exchange
Commission (the "Commission") and (iii) to amend Item 6 of Part
II to filed new certifications pursuant to Sections 302 and 906
of the Sarbanes-Oxley Act of 2002.

Except as noted herein, the Registrant's Quarterly Report on
Form 10-Q for the period ended September 30, 2003 remains as
originally filed with the Commission on November 14, 2003. All
information in this Amendment No. 1 is as of September 30, 2003
and does not reflect any subsequent information or events other
than the changes referred to above.



2
PART I -- FINANCIAL INFORMATION

Risk Factors
- ------------

This Quarterly Report on Form 10-Q/A contains certain
statements that are forward-looking within the meaning of
Section 27a of the Securities Act of 1933 and that involve
risks and uncertainties, including, but not limited to the
uncertainties associated with research and development
activities, clinical trials, our ability to raise capital, the
integration of acquired companies and technologies, the timing
of and our ability to achieve regulatory approvals, dependence
on others to market our licensed products, collaborations,
future cash flow, the timing and receipt of licensing and
milestone revenues, the future success of our marketed products
and products in development, our ability to manufacture
amlexanox products in commercial quantities, our sales
projections, and the sales projections of our licensing
partners, our ability to achieve licensing milestones and other
risks described below as well as those discussed elsewhere in
this Form 10-Q/A, the Annual Report on Form 10-K as of December
31, 2002, documents incorporated by reference, and other
documents and reports that we file periodically with the
Securities and Exchange Commission. Forward-looking statements
contained in this Form 10-Q/A include, but are not limited to
our plan to commence full scale production of Aphthasol(R) in
the fourth quarter of 2003 and our ability to achieve
compliance with American Stock Exchange continued listing requirements.

We have experienced a history of losses and we expect to incur future losses.
- -----------------------------------------------------------------------------

We have recorded minimal revenue to date and we have incurred
a cumulative operating loss of approximately $51.6 million
through September 30, 2003. Losses for the first nine months of
2003 were $4.3 million and for the years ended 2002, 2001 and
2000 were $9.4, $6.0 and $5.4 million, respectively. Our losses
have resulted principally from costs incurred in research and
development activities related to our efforts to develop
clinical candidates and from the associated administrative
costs. We expect to incur significant additional operating
losses over the next several years. We also expect cumulative
losses to increase due to expanded research and development
efforts and preclinical and clinical trials. Our net cash burn
rate for the first nine months of 2003 was $471,000 per month.
We project our net cash burn rate for the next twelve months to
be approximately $500,000 per month. Capital expenditures are
forecasted to be minor for the next twelve months since most of
our new equipment is leased and the lease expense is included
in the calculation of the net cash burn rate.

We do not have significant operating revenue and we may never
attain profitability.
- -------------------------------------------------------------

To date, we have funded our operations primarily through
private sales of common stock and convertible notes. Contract
research payments and licensing fees from corporate alliances
and mergers have also provided funding for our operations. Our
ability to achieve significant revenue or profitability depends
upon our ability to successfully complete the development of
drug candidates, to develop and obtain patent protection and
regulatory approvals for our drug candidates and to manufacture
and commercialize the resulting drugs. We have not received
significant royalties for sales of amlexanox or Zindaclin(R)
products to date and we may not receive significant revenues or
profits from the sale of these products in the future.
Furthermore, we may not be able to ever successfully identify,
develop, commercialize, patent, manufacture, obtain required
regulatory approvals and market any additional products.
Moreover, even if we do identify, develop, commercialize,
patent, manufacture, and obtain required regulatory

3
approvals to market additional products, we may not receive revenues or
royalties from commercial sales of these products for a
significant number of years, if at all. Therefore, our proposed
operations are subject to all the risks inherent in the
establishment of a new business enterprise. In the next few
years, our revenues may be limited to minimal royalties any
amounts that we receive under strategic partnerships and
research or drug development collaborations that we may
establish and, as a result, we may be unable to achieve or
maintain profitability in the future or to achieve significant
revenues in order to fund our operations.

We may not successfully commercialize our drug candidates.
- ----------------------------------------------------------

Our drug candidates are subject to the risks of failure
inherent in the development of pharmaceutical products based on
new technologies and our failure to develop safe, commercially
viable drugs would severely limit our ability to become
profitable or to achieve significant revenues. We may be unable
to successfully commercialize our drug candidates because:

* some or all of our drug candidates may be found to be unsafe
or ineffective or otherwise fail to meet applicable regulatory
standards or receive necessary regulatory clearances;

* our drug candidates, if safe and effective, may be too
difficult to develop into commercially viable drugs;

* it will be difficult to manufacture or market our drug
candidates on a large scale;

* proprietary rights of third parties may preclude us from
marketing our drug candidates; and

* third parties may market superior or equivalent drugs.

The success of our research and development activities, upon
which we primarily focus, is uncertain.
- -------------------------------------------------------------

Our primary focus is on our research and development activities
and the commercialization of compounds covered by proprietary
biopharmaceutical patents and patent applications. Research and
development activities, by their nature, preclude definitive
statements as to the time required and costs involved in
reaching certain objectives. Actual research and development
costs, therefore, could exceed budgeted amounts and estimated
time frames may require extension. Cost overruns, unanticipated
regulatory delays or demands, unexpected adverse side effects
or insufficient therapeutic efficacy will prevent or
substantially slow our research and development effort and our
business could ultimately suffer. We anticipate that we will
remain principally engaged in research and development
activities for an indeterminate, but substantial, period of time.

We may be unable to obtain necessary additional capital to fund
operations in the future.
- ----------------------------------------------------------------

We require substantial capital for our development programs and
operating expenses, to pursue regulatory clearances and to
prosecute and defend our intellectual property rights. Although
we believe that our existing capital resources, interest
income, product sales, royalties and revenue from possible
licensing agreements and collaborative agreements will be
sufficient to fund our currently expected operating expenses
and capital requirements through September 2004, we will need
to raise substantial additional capital during that period to
support our ongoing operations because our actual cash
requirements may vary materially from those now planned and
will depend upon numerous factors, including:

* the results of our research and development programs;

4
* the timing and results of preclinical and clinical trials;

* our ability to maintain existing and establish new
collaborative agreements with other companies to provide
funding to us;

* technological advances; and

* activities of competitors and other factors.

If we do raise additional funds by issuing equity securities,
further dilution to existing stockholders would result and
future investors may be granted rights superior to those of
existing stockholders. If adequate funds are not available to
us through additional equity offerings, we may be required to
delay, reduce the scope of or eliminate one or more of our
research and development programs or to obtain funds by
entering into arrangements with collaborative partners or
others that require us to issue additional equity securities or
to relinquish rights to certain technologies or drug candidates
that we would not otherwise issue or relinquish in order to
continue independent operations.

We may be unable to successfully develop, market, or
commercialize our products or our product candidates without
establishing new relationships and maintaining current relationships.
- ---------------------------------------------------------------------

Our strategy for the research, development and
commercialization of our potential pharmaceutical products may
require us to enter into various arrangements with corporate
and academic collaborators, licensors, licensees and others, in
addition to our existing relationships with other parties.
Specifically, if we successfully develop any commercially
marketable pharmaceutical products, we may seek to enter joint
venture, sublicense or other marketing arrangements with
parties that have an established marketing capability or we may
choose to pursue the commercialization of such products on our
own. We may, however, be unable to establish additional
collaborative arrangements, license agreements, or marketing
agreements as we may deem necessary to develop, commercialize
and market our potential pharmaceutical products on acceptable
terms. Furthermore, if we maintain and establish arrangements
or relationships with third parties, our business may depend
upon the successful performance by these third parties of their
responsibilities under those arrangements and relationships.
For our commercialized products we currently rely upon the
following relationships in the following marketing territories:

* amlexanox 5% paste

o Strakan Ltd. - United Kingdom and Ireland manufacturing and marketing rights

o Zambon Group - France, Germany, Holland, Belgium, Luxembourg, Switzerland,
Brazil, Colombia and Italy manufacturing and marketing rights

o Laboratories Dr. Esteve SA - Spain, Portugal and Greece manufacturing
and marketing rights

o Meda, AB for Scandinavia, the Baltic states and Iceland marketing rights

o Mipharm SpA for Italy manufacturing and marketing rights

o Paladin Labs, Inc. for Canada manufacturing and marketing rights

* Zindaclin(R) and Residerm(R)

o Strakan Ltd. - worldwide manufacturing and marketing rights

5

o Fujisawa GmbH - sublicensed continental Europe marketing rights

o Taro - sublicensed Israel marketing rights

o Various companies for other smaller countries - sublicensed
marketing rights

Our ability to commercialize, and market our products and
product candidates could be limited if any of these existing
relationships were terminated.

Furthermore, our strategy with respect to our polymer platinate
program is to enter into a licensing agreement with a
pharmaceutical company pursuant to which the further costs of
developing a product would be shared with our licensing
partner. Although we have had discussions with potential
licensing partners with respect to our polymer platinate
program, to date we have not entered into any licensing
arrangement. We may be unable to execute our licensing strategy
for polymer platinate.

We may be unable to successfully manufacture our products and
our product candidates in clinical quantities or for commercial
purposes without the assistance of contract manufacturers,
which may be difficult for us to obtain and maintain.
- ----------------------------------------------------------------

We have no experience in the manufacture of pharmaceutical
products in clinical quantities or for commercial purposes and
we may not be able to manufacture any new pharmaceutical
products that we may develop. As a result, we have established,
and in the future intend to establish arrangements with
contract manufacturers to supply sufficient quantities of
products to conduct clinical trials and for the manufacture,
packaging, labeling and distribution of finished pharmaceutical
products if any of our potential products are approved for
commercialization. If we are unable to contract for a
sufficient supply of our potential pharmaceutical products on
acceptable terms, our preclinical and human clinical testing
schedule may be delayed, resulting in the delay of our
submission of products for regulatory approval and initiation
of new development programs, which could cause our business to
suffer. Delays or difficulties in establishing relationships
with manufacturers to produce, package, label and distribute
our finished pharmaceutical or other medical products, if any,
market introduction and subsequent sales of such products could
cause our business to suffer. Moreover, contract manufacturers
that we may use must adhere to current Good Manufacturing
Practices, as required by the FDA. In this regard, the FDA will
not issue a pre-market approval or product and establishment
licenses, where applicable, to a manufacturing facility for the
products until after the manufacturing facility passes a pre-
approval plant inspection. If we are unable to obtain or retain
third party manufacturing on commercially acceptable terms, we
may not be able to commercialize our products as planned. Our
potential dependence upon third parties for the manufacture of
our products may adversely affect our profit margins and our
ability to develop and deliver such products on a timely and
competitive basis.

Our amlexanox 5% paste is marketed in the US as Aphthasol(R).
Block Drug Company had manufactured the 5% amlexanox paste
since the product was approved by the FDA in 1996 in a facility
certified by the FDA for Good Manufacturing Practices. At such
time we entered into a Supply Agreement whereby Block Drug
Company was to produce Aphthasol(R) for us for a defined period
of time at its Puerto Rico facility. We were subsequently
advised by Block Drug Company that it is unable to comply with
the terms of the Supply Agreement and that it would not be able
to produce Aphthasol(R) for us. Due to Block Drug Company's
production failure, we had sufficient product to supply
wholesalers only through June 2003. We do not anticipate

6
further sales of the product until the first quarter of 2004.
We acquired the rights to amlexanox 5% paste from Block Drug
Company on July 22, 2002. We have selected Contract
Pharmaceuticals Ltd. Canada as our new manufacturer of
amlexanox 5% paste and it has produced initial qualifying
batches of the product. Full scale production is planned to
commence in the fourth quarter of 2003.

Amlexanox 5% paste was approved by regulatory authorities for
sale in the UK and is currently in the approval process in the
remaining EU countries. We licensed manufacturing rights to
Strakan, Zambon, Esteve and Mipharm for specific countries in
Europe. Esteve is currently preparing to manufacture the
product and is obtaining the necessary European approvals.
Esteve has experience in the manufacture of other commercial
pharmaceutical products.

We licensed our patents for worldwide manufacturing and
marketing for Zindaclin(R) and the ResiDerm(R) technology to
Strakan Ltd. for the period of the patents. We receive a
royalty on the sales of the product. Strakan has a contract
manufacturer for Zindaclin(R) in a European Union approved
facility. Zindaclin(R) was approved in the UK and seven
additional European Union countries and is currently under
review for approval in the remaining EU countries.

OraDisc (TM) is manufactured by a third party for our Phase III
clinical trials. Enough product was manufactured to cover the
needs of the clinical trials and testing. We are currently
negotiating with a third party for manufacturing if the product
gains regulatory approval.

AP5280 and AP5346 are manufactured by a third party for our
Phase I clinical trials. Manufacturing is ongoing for the
current clinical trials. Some manufacturing may be completed by
the Company if significant cost savings can be achieved.

Our mucoadhesive technology is manufactured by a third party
for our clinical trials.

We are subject to extensive governmental regulation which
increases our cost of doing business and may affect our ability
to commercialize any new products that we may develop.
- ----------------------------------------------------------------

The FDA and comparable agencies in foreign countries impose
substantial requirements upon the introduction of
pharmaceutical products through lengthy and detailed
laboratory, preclinical and clinical testing procedures and
other costly and time-consuming procedures to establish their
safety and efficacy. All of our drug candidates will require
governmental approvals for commercialization, none of which
have been obtained. Preclinical and clinical trials and
manufacturing of our drug candidates will be subject to the
rigorous testing and approval processes of the FDA and
corresponding foreign regulatory authorities. Satisfaction of
these requirements typically takes a significant number of
years and can vary substantially based upon the type,
complexity and novelty of the product. The status of our
principal products is as follows:

* 5% amlexanox paste is an approved product for sale in the US
(Aphthasol(R)); approved in the UK and Canada but not yet sold;
and, in the approval process in the EU.

* Zindaclin(R) is an approved product for sale in the UK and
seven additional European Union countries; in the approval
process in the remaining EU countries; and waiting for
finalized plans and approval to start a Phase III trial in the
US.

7
* OraDisc (TM) has completed a Phase III clinical trial in the US.

* AP5280 is currently in a Phase I/II trial in Europe.

* AP5346 is currently in a Phase I trial in Europe.

* Mucoadhesive liquid technology is planned to start a Phase III
trial in the US in 2003.

* Vitamin mediated delivery technology is currently in the pre-
clinical phase.

* We also have other products in the preclinical phase.

Due to the time consuming and uncertain nature of the drug
candidate development process and the governmental approval
process described above, we cannot assure you when we,
independently or with our collaborative partners, might submit
a New Drug Application, or "NDA", for FDA or other regulatory
review.

Government regulation also affects the manufacturing and
marketing of pharmaceutical products. Government regulations
may delay marketing of our potential drugs for a considerable
or indefinite period of time, impose costly procedural
requirements upon our activities and furnish a competitive
advantage to larger companies or companies more experienced in
regulatory affairs. Delays in obtaining governmental regulatory
approval could adversely affect our marketing as well as our
ability to generate significant revenues from commercial sales.
Our drug candidates may not receive FDA or other regulatory
approvals on a timely basis or at all. Moreover, if regulatory
approval of a drug candidate is granted, such approval may
impose limitations on the indicated use for which such drug may
be marketed. Even if we obtain initial regulatory approvals for
our drug candidates, we, and our drugs and our manufacturing
facilities would be subject to continual review and periodic
inspection, and later discovery of previously unknown problems
with a drug, manufacturer or facility may result in
restrictions on the marketing or manufacture of such drug,
including withdrawal of the drug from the market. The FDA and
other regulatory authorities stringently apply regulatory
standards and failure to comply with regulatory standards can,
among other things, result in fines, denial or withdrawal of
regulatory approvals, product recalls or seizures, operating
restrictions and criminal prosecution.

The uncertainty associated with preclinical and clinical testing
may affect our ability to successfully commercialize new products.
- ------------------------------------------------------------------

Before we can obtain regulatory approvals for the commercial
sale of any of our potential drugs, the drug candidates will be
subject to extensive preclinical and clinical trials to
demonstrate their safety and efficacy in humans. Preclinical
or clinical trials of any of our future drug candidates may not
demonstrate the safety and efficacy of such drug candidates at
all or to the extent necessary to obtain regulatory approvals.
In this regard, for example, adverse side effects can occur
during the clinical testing of a new drug on humans or animals
which may delay ultimate FDA approval or even lead us to
terminate our efforts to develop the drug for commercial use.
Companies in the biotechnology industry have suffered
significant setbacks in advanced clinical trials, even after
demonstrating promising results in earlier trials. In
particular, OraDisc (TM) and AP5280 have taken longer to
progress through clinical trials than originally planned. This
extra time has not been related to concerns of the formulations
but rather due to the lengthy regulatory process. The failure
to adequately demonstrate the safety and efficacy of a drug
candidate under development could delay or prevent regulatory
approval of the drug candidate. A delay or failure to receive
regulatory approval for any of our drug candidates could
prevent us from successfully commercializing such candidates
and we could incur substantial additional expenses in our
attempts to further develop such candidates and obtain future
regulatory approval.

8
We may incur substantial product liability expenses due to the
use or misuse of our products for which we may be unable to
obtain insurance coverage.
- ---------------------------------------------------------------

Our business exposes us to potential liability risks that are
inherent in the testing, manufacturing and marketing of
pharmaceutical products. These risks will expand with respect
to our drug candidates, if any, that receive regulatory
approval for commercial sale and we may face substantial
liability for damages in the event of adverse side effects or
product defects identified with any of our products that are
used in clinical tests or marketed to the public. We generally
procure product liability insurance for drug candidates that
are undergoing human clinical trials. Product liability
insurance for the biotechnology industry is generally
expensive, if available at all, and as a result, we may be
unable able to obtain insurance coverage at acceptable costs or
in a sufficient amount in the future, if at all. We may be
unable to satisfy any claims for which we may be held liable as
a result of the use or misuse of products which we have
developed, manufactured or sold and any such product liability
claim could adversely affect our business, operating results or
financial condition.

We may incur significant liabilities if we fail to comply with
stringent environmental regulations or if we did not comply
with these regulations in the past.
- ---------------------------------------------------------------

Our research and development processes involve the controlled
use of hazardous materials. We are subject to a variety of
federal, state and local governmental laws and regulations
related to the use, manufacture, storage, handling and disposal
of such material and certain waste products. Although we
believe that our activities and our safety procedures for
storing, using, handling and disposing of such materials comply
with the standards prescribed by such laws and regulations, the
risk of accidental contamination or injury from these materials
cannot be completely eliminated. In the event of such accident,
we could be held liable for any damages that result and any
such liability could exceed our resources.

Intense competition may limit our ability to successfully
develop and market commercial products.
- ----------------------------------------------------------

The biotechnology and pharmaceutical industries are intensely
competitive and subject to rapid and significant technological
change. Our competitors in the United States and elsewhere are
numerous and include, among others, major multinational
pharmaceutical and chemical companies, specialized
biotechnology firms and universities and other research
institutions.

The following products may compete with polymer platinum
(AP5280) and DACH platinum (AP5346):

* Cisplatin, marketed by Bristol-Myers-Squibb, the originator
of the drug, and several generic manufacturers;

* Carboplatin, marketed exclusively by Bristol-Myers-Squibb; and

* Oxaliplatin, marketed exclusively by Sanofi-Synthelabo.

The following companies are working on therapies and
formulations that may be competitive with our polymer platinum
(AP5280) and DACH platinum (AP5346):

* Antigenics is developing liposomal formulations; and

* Cell Therapeutics, Daiichi, Enzon, Inhale and Pharmacia are
developing alternate drugs in

9

combination with polymers.

The following products may compete with our Residerm(R) products:

* Benzamycin, marketed by a subsidiary of Aventis;

* Cleocin-T and a generic topical clindamycin, marketed by Pharmacia;

* Benzac, marketed by a subsidiary of L'Oreal; and

* Triaz, marketed by Medicis Pharmaceutical Corp.

Technology and prescription steroids such as Kenalog in
OraBase, developed by Bristol-Myers Squibb, may compete with
our commercialized Aphthasol(R) product. OTC products including
Orajel - Del Laboratories and Anbesol - Wyeth Consumer
Healthcare also compete in the aphthous ulcer market.

Companies working on therapies and formulations that may be
competitive with our vitamin mediated drug delivery system are
Bristol-Myers-Squibb, Centocor (acquired by Johnson & Johnson),
GlaxoSmithKline, Imclone and Xoma who are developing targeted
monoclonal antibody therapy.

RxKinetics, Human Genome Sciences, Endo Pharmaceuticals and
Amgen are developing products to treat mucositis that may
compete with the mucoadhesive liquid technology.

Emisphere Technologies, Inc., Biovail Corporation, CMA Labs,
Inc. and Flamel Technologies are developing products which
compete with our oral drug delivery system.

Many of these competitors have and employ greater financial and
other resources, including larger research and development
staffs and more effective marketing and manufacturing
organizations, than us or our collaborative partners. As a
result, our competitors may successfully develop technologies
and drugs that are more effective or less costly than any that
we are developing or which would render our technology and
future products obsolete and noncompetitive.

In addition, some of our competitors have greater experience
than we do in conducting preclinical and clinical trials and
obtaining FDA and other regulatory approvals. Accordingly, our
competitors may succeed in obtaining FDA or other regulatory
approvals for drug candidates more rapidly than we do.
Companies that complete clinical trials, obtain required
regulatory agency approvals and commence commercial sale of
their drugs before their competitors may achieve a significant
competitive advantage. Drugs resulting from our research and
development efforts or from our joint efforts with
collaborative partners therefore may not be commercially
competitive with our competitors' existing products or
products under development.

Our ability to successfully develop and commercialize our drug
candidates will substantially depend upon the availability of
reimbursement funds for the costs of the resulting drugs and
related treatments.
- ---------------------------------------------------------------

The successful commercialization of, and the interest of
potential collaborative partners to invest in, the development
of our drug candidates will depend substantially upon
reimbursement of the costs of the resulting drugs and related
treatments at acceptable levels from government authorities,
private health insurers and other organizations, including
health maintenance

10
organizations, or HMOs. To date, the costs
of our marketed products Aphthasol(R) and Zindaclin(R) generally
have been reimbursed at acceptable levels, however, the amount
of such reimbursement in the United States or elsewhere may be
decreased in the future or may be unavailable for any drugs
that we may develop in the future. Limited reimbursement for
the cost of any drugs that we develop may reduce the demand
for, or price of such drugs, which would hamper our ability to
obtain collaborative partners to commercialize our drugs, or
to obtain a sufficient financial return on our own manufacture
and commercialization of any future drugs.

The market may not accept any pharmaceutical products that we
successfully develop.
- --------------------------------------------------------------

The drugs that we are attempting to develop may compete with a
number of well-established drugs manufactured and marketed by
major pharmaceutical companies. The degree of market acceptance
of any drugs developed by us will depend on a number of
factors, including the establishment and demonstration of the
clinical efficacy and safety of our drug candidates, the
potential advantage of our drug candidates over existing
therapies and the reimbursement policies of government and
third-party payers. Physicians, patients or the medical
community in general may not accept or use any drugs that we
may develop independently or with our collaborative partners
and if they do not, our business could suffer.

In 1996, the 5% amlexanox paste product was approved for sale
in the United States. To date, the product is not widely
accepted in the marketplace and its sales have not been
significant. On July 22, 2002, we acquired the rights to it
from Block Drug Company and we intend to re-launch it in the
first quarter of 2004. The product has been approved in the UK
and Canada but has not been launched in any markets other than
the United States.

Trends toward managed health care and downward price pressures
on medical products and services may limit our ability to
profitably sell any drugs that we may develop.
- ---------------------------------------------------------------

Lower prices for pharmaceutical products may result from:

* third-party payers' increasing challenges to the prices
charged for medical products and services;

* the trend toward managed health care in the United States and
the concurrent growth of HMOs and similar organizations that
can control or significantly influence the purchase of
healthcare services and products; and

* legislative proposals to reform healthcare or reduce
government insurance programs.

The cost containment measures that healthcare providers are
instituting, including practice protocols and guidelines and
clinical pathways, and the effect of any health care reform,
could limit our ability to profitably sell any drugs that we
may successfully develop. Moreover, any future legislation or
regulation, if any, relating to the healthcare industry or
third-party coverage and reimbursement, may cause our business
to suffer.

We may not be successful in protecting our intellectual
property and proprietary rights.
- ----------------------------------------------------------

Our success depends, in part, on our ability to obtain U.S. and
foreign patent protection for our drug candidates and
processes, preserve our trade secrets and operate our business without

11
infringing the proprietary rights of third parties.
Legal standards relating to the validity of patents covering
pharmaceutical and biotechnological inventions and the scope of
claims made under such patents are still developing and there
is no consistent policy regarding the breadth of claims allowed
in biotechnology patents. The patent position of a
biotechnology firm is highly uncertain and involves complex
legal and factual questions. We cannot assure you that any
existing or future patents issued to, or licensed by, us will
not subsequently be challenged, infringed upon, invalidated or
circumvented by others. As a result, although we, together with
our subsidiaries, are either the owner or licensee of
technology to 23 U.S. patents and to 18 U.S. patent
applications now pending, and 6 European and 15 European patent
applications, we cannot assure you that any additional patents
will issue from any of the patent applications owned by, or
licensed to, us. Furthermore, any rights that we may have under
issued patents may not provide us with significant protection
against competitive products or otherwise be commercially viable.

Our patents for the following technologies expire in the years
and during the date ranges indicated below:

* 5% amlexanox paste in 2011
* Zindaclin(R) and Residerm(R) between 2007 and 2011
* OraDisc (TM) in 2020
* AP5280 in 2016
* AP5346 in 2016
* Mucoadhesive technology, patents are pending
* Vitamin mediated technology between 2003 and 2019

In addition, patents may have been granted to third parties or
may be granted covering products or processes that are
necessary or useful to the development of our drug candidates.
If our drug candidates or processes are found to infringe upon
the patents or otherwise impermissibly utilize the intellectual
property of others, our development, manufacture and sale of
such drug candidates could be severely restricted or
prohibited. In such event, we may be required to obtain
licenses from third parties to utilize the patents or
proprietary rights of others. We cannot assure you that we will
be able to obtain such licenses on acceptable terms, if at all.
If we become involved in litigation regarding our intellectual
property rights or the intellectual property rights of others,
the potential cost of such litigation, regardless of the
strength of our legal position, and the potential damages that
we could be required to pay could be substantial.

Our business could suffer if we lose the services of, or fail
to attract, key personnel.
- -------------------------------------------------------------

We are highly dependent upon the efforts of our senior
management and scientific team, including our President and
Chief Executive Officer, Kerry Gray. The loss of the services
of one or more of these individuals could delay or prevent the
achievement of our research, development, marketing, or product
commercialization objectives. While we have employment
agreements with Mr. Gray and David Nowotnik our Senior Vice
President Research and Development, their employment may be
terminated by them or us at any time. Mr. Gray's and Dr.
Nowotnik's agreements expire within one year and are extendable
each year on the anniversary date. We do not have employment
contracts with our other key personnel. We do not maintain any
"key-man" insurance policies on any of our key employees and we
do not intend to obtain such insurance. In addition, due to the
specialized scientific nature of our business, we are highly
dependent upon our ability to attract and retain qualified
scientific and technical personnel. In view of the stage of our
development and our research and development programs,

12
we have restricted our hiring to research scientists and a small
administrative staff and we have made no investment in
manufacturing, production, marketing, product sales or
regulatory compliance resources. If we develop pharmaceutical
products that we will commercialize ourselves, however, we will
need to hire additional personnel skilled in the clinical
testing and regulatory compliance process and in marketing and
product sales. There is intense competition among major
pharmaceutical and chemical companies, specialized
biotechnology firms and universities and other research
institutions for qualified personnel in the areas of our
activities, however, and we may be unsuccessful in attracting
and retaining these personnel.

Ownership of our shares is concentrated, to some extent, in the
hands of a few investors which could limit the ability of our
other stockholders to influence the direction of the company.
- ----------------------------------------------------------------

Heartland Advisors, Inc. and Larry N. Feinberg (Oracle Partners
LP, Oracle Institutional Partners LP and Oracle Investment
Management Inc.) each currently beneficially own approximately
13.9% of our common stock as of November 14, 2003. Accordingly,
they collectively may have the ability to significantly
influence or determine the election of all of our directors or
the outcome of most corporate actions requiring stockholder
approval. They may exercise this ability in a manner that
advances their best interests and not necessarily those of our
other stockholders.

Provisions of our charter documents could discourage an
acquisition of our company that would benefit our stockholders
and may have the effect of entrenching, and making it difficult
to remove, management.
- ---------------------------------------------------------------

Provisions of our Certificate of Incorporation, By-laws and
Stockholders Rights Plan may make it more difficult for a third
party to acquire control of our company, even if a change in
control would benefit our stockholders. In particular, shares
of our preferred stock may be issued in the future without
further stockholder approval and upon such terms and
conditions, and having such rights, privileges and preferences,
as our Board of Directors may determine, including, for
example, rights to convert into our common stock. The rights of
the holders of our common stock will be subject to, and may be
adversely affected by, the rights of the holders of any of our
preferred stock that may be issued in the future. The issuance
of our preferred stock, while providing desirable flexibility
in connection with possible acquisitions and other corporate
purposes, could have the effect of making it more difficult for
a third party to acquire control of us. This could limit the
price that certain investors might be willing to pay in the
future for shares of our common stock and discourage these
investors from acquiring a majority of our common stock.
Further, the existence of these corporate governance provisions
could have the effect of entrenching management and making it
more difficult to change our management.

Substantial sales of our common stock could lower our stock price.
- ------------------------------------------------------------------

The market price for our common stock could drop as a result of
sales of a large number of our presently outstanding shares.
All of the 13,351,358 shares of our common stock that are
outstanding as of November 14, 2003 are unrestricted and freely
tradable or tradable pursuant to a resale registration
statement or under Rule 144 of the Securities Act.

We are not currently in compliance with AMEX continued listing
requirements and may not be able to maintain our AMEX listing.
- --------------------------------------------------------------

Our common stock is presently listed on the American Stock
Exchange under the symbol

13
"AKC". All companies listed on AMEX
are required to comply with certain continued listing
standards, including maintaining stockholders' equity at
required levels. We are not in compliance with this
stockholders' equity standard as of September 30, 2003.
However, we have until November 2004 to become compliant with
such equity standard. If we are unable to remedy any listing
standard noncompliance with AMEX under its regulations, or
otherwise regain compliance, we cannot assure you that our
common stock will continue to remain eligible for listing on
AMEX. In the event that our common stock is delisted from AMEX
its market value and liquidity could be materially adversely
affected.


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

This Quarterly Report on Form 10-Q/A contains certain
statements that are forward-looking within the meaning of
Section 27a of the Securities Act of 1933 and that involve
risks and uncertainties, including, but not limited to the
uncertainties associated with research and development
activities, clinical trials, our ability to raise capital, the
integration of acquired companies and technologies, the timing
of and our ability to achieve regulatory approvals, dependence
on others to market our licensed products, collaborations,
future cash flow, the timing and receipt of licensing and
milestone revenues, the future success of our marketed products
and products in development, our ability to manufacture
amlexanox products in commercial quantities, our sales
projections, and the sales projections of our licensing
partners, our ability to achieve licensing milestones and other
risks described below as well as those discussed elsewhere in
this Form 10-Q/A, the Annual Report on Form 10-K as of December
31, 2002 and documents incorporated by reference and other
documents and other documents and reports that we file
periodically with the Securities and Exchange Commission.
Forward-looking statements contained in this Form 10-Q/A
include, but are not limited to our plan to commence full scale
production of Aphthasol(R) in the first quarter of 2004.

OVERVIEW

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
are a Delaware corporation.

Together with our subsidiaries, we have proprietary patents or
rights to eight drug delivery technology platforms:

* synthetic polymer targeted delivery,
* vitamin mediated targeted delivery,
* vitamin mediated oral delivery,
* bioerodible hydrogel technology,
* erodible mucoadhesive oral film technology,
* hydrogel particle aggregate technology,

14
* Residerm(R) topical delivery and
* carbohydrate targeting technology.

In addition, we are marketing Aphthasol(R) in the United
States, which is the first FDA approved product for the
treatment of canker sores. We are developing new formulations
and delivery forms of amlexanox, including mucoadhesive disc
delivery.

Also, Strakan Limited, our United Kingdom partner, has used our
patented Residerm(R) technology to develop zinc clindamycin for
the treatment of acne. Strakan began marketing zinc
clindamycin in the United Kingdom under the trade name
Zindaclin(R) in March 2002. The process to achieve marketing
authorization for Zindaclin(R) throughout Europe has been
initiated, with approvals in eight European Union countries to
date and activities ongoing to expand approval throughout the
European Union.

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. We cannot assure you 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
September 30, 2003, our accumulated deficit was $51,593,000, of
which $8,894,000 was the result of the write-off of excess
purchase price.

On July 22, 2002 we entered into a Supply Agreement whereby
Block Drug Company (Block) was required to produce Aphthasol(R)
for us for a defined period of time at its Puerto Rico
facility. Subsequently we were advised by Block that it was
unable to produce Aphthasol(R) for us pursuant to the Supply
Agreement. In May 2003, we reached a settlement with Block
relating to this matter whereby Block made a one-time cash
payment to us and Block was relieved of its obligations under
the Supply Agreement and the Asset Sale Agreement, pursuant to
which we had purchased certain assets relating to amlexanox and
Aphthasol(R) from Block, and we were relieved from certain future
obligations under the Asset Sale Agreement. We have selected
Contract Pharmaceuticals Ltd. Canada as an alternative supplier
for Aphthasol(R) and it has produced initial qualifying batches
of the product. Full scale production is planned to commence in
the first quarter of 2004 but there has been an interruption of
supply to our wholesaler until Contract Pharmaceuticals Ltd.
Canada is able to commercially produce the product and FDA
approval is received for this alternate manufacturing site.
Until these product supply issues are resolved our planned
marketing relaunch of Aphthasol(R) will be delayed.

LIQUIDITY AND CAPITAL RESOURCES

We have funded our operations primarily through private sales
of common stock and convertible notes and our principal source
of liquidity is cash and cash equivalents. Contract research
payments, licensing fees and milestone payments from corporate
alliances and mergers have also provided funding for
operations. As of September 30, 2003 our cash and cash
equivalents were $4,361,000 and our working capital was $3,406,000.
Our working capital at September 30, 2003
represented a decrease of $4,188,000 as compared to our working
capital as of December 31, 2002 of $7,594,000. The decrease in
working capital was due to the loss from operations for the
nine months ended September 30, 2003 offset by the
miscellaneous income received in the second quarter of 2003.

15
We have generally 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. Since inception, our expenses have
significantly exceeded revenues, resulting in an accumulated
deficit as of September 30, 2003 of $51,593,000. We expect that
our existing capital resources will be adequate to fund our
current level of operations through September 2004. We cannot
assure you that we will ever be able to generate significant
product revenue or achieve or sustain profitability.

We will expend substantial funds to conduct research and
development programs, preclinical studies and clinical trials
of potential products, including research and development with
respect to our acquired and developed technology. Our future
capital requirements and adequacy of available funds will
depend on many factors, including:

* the successful commercialization of amlexanox and Zindaclin(R);

* 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;

* the costs involved in conducting clinical trials;

* competing technological developments;

* the cost of manufacturing and scale-up;

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

* successful regulatory filings.

We have issued an aggregate of $13,530,000 of
convertible notes, which are due in two parts,
$8,030,000 is due on September 13, 2005 and
$5,500,000 is due on September 13, 2007. The notes
bear interest at a rate of 7.7% per annum with
$1,041,000 of interest due annually on each
September 13 and, under certain circumstances,
convert to Common Stock at a conversion price of
$5.50 per share. Should the holders of the notes not
elect to convert them to common stock, or if we are
not able to force the conversion of the notes by
their terms, we must repay the amounts on the dates
described herein. We currently do not have the funds
available to repay the convertible notes. We may
need to seek to restructure the terms of the notes
as we near the due date for repayment. There can be
no assurance that the holders of the notes will
agree to any restructuring. Any such restructuring
could have a significant impact on our capital
structure and liquidity and could cause significant
dilution to holders of our common stock.

RESEARCH PROJECT SPENDING

We have devoted substantially all of our efforts and
resources to research and development
conducted on our own behalf. The following table summarizes
research and development spending by project
category (in thousands), which spending includes,
but is not limited to, payroll and personnel
expense, lab supplies, preclinical expense,
development cost, clinical trial expense, outside
manufacturing expense and consulting expense:

16