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Delaware		3841		83-0221517
(State or jurisdiction of incorporation or organization)		(Primary Standard Industrial Classification Code Number)		(I.R.S. Employer Identification Number)

Jack Concannon, Esq.

Bingham McCutchen LLP

150 Federal Street

Boston, MA 02110

(617) 951-8000

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act, check the following box. þ

 

Title of Each Class of Securities Being Registered	Amount Being Registered	Proposed Maximum Offering Price Per Share	Proposed Maximum Aggregate Offering Price	Amount of Registration Fee
Common Stock, $0.01 par value per share	9,298,170 (1)	$1.18 (2)	$10,971,840	$ 1,173.99 (2)

(1)	86,083 shares and 3,863,634 shares are issuable to selling stockholders upon exercise of warrants for the purchase of shares of the Registrant’s Common Stock and 5,348,453 shares of Common Stock are issuable to selling stockholders upon conversion of notes. All share numbers in this Registration Statement and the accompanying prospectus reflect a one-for-five reverse stock split of the Company’s common Stock which was effected June 5, 2006.
(2)	The registrant previously paid $1,173.99 of the registration fee in connection with the filing of its Form S-1 Registration Statement filed with the Securities and Exchange Commission on July 12, 2006.

 

 

TABLE OF CONTENTS	Page
Prospectus Summary	1
Summary Consolidated Financial Information	5
Risk Factors	6
Forward-Looking Statements	13
Use of Proceeds	14
Determination of Offering Price	14
Selling Security Holders	14
Dilution	16
Plan of Distribution	16
Management’s Discussion and Analysis or Plan of Operations	18
Description of Business	27
Description of Property	38
Changes In and Disagreements with Accountants on Accounting and Financial Disclosure	38
Directors and Executive Officers	38
Executive Compensation	41
Legal Proceedings	46
Security Ownership of Certain Beneficial Owners and Management	46
Securities Authorized for Issuance Under Equity Compensation Plans	47
Certain Relationships and Related Transactions	48
Market for Common Equity and Related Stockholder Matters	49
Description of Securities	50
Transfer Agent	52
Indemnification	53
Experts	53
Legal Matters	53
How to Get More Information	53
Consolidated Financial Statements	F-1
PART II
Item 24.  Indemnification of Directors and Officers	II-1
Item 25.  Other Expenses of Issuance and Distribution	II-1
Item 26.  Recent Sales of Unregistered Securities	II-1
Item 27.  Exhibits	II-1
Item 28.  Undertakings	II-3
Signatures	II-5
Power of Attorney	II-5

 

 

 

 

 

 

Compound			Originator		Technology		Indication		FDA Filing		Clinical Stage (1)
Cancer
MuGard™			Access		Mucoadhesive liquid		Mucositis		510(k)		Marketing clearance
ProLindacTM (Polymer Platinate, AP5346) (2)			Access - U London		Synthetic polymer		Cancer		Clinical Development(3)		Phase II
Oral Insulin			Access		Cobalamin		Diabetes		Research		Pre-Clinical
Oral Delivery System			Access		Cobalamin		Various		Research		Pre-Clinical
Cobalamin-Targeted Therapeutics			Access		Cobalamin		Anti-tumor		Research		Pre-Clinical

 

 

 

 

We have upcoming maturity dates on our convertible notes. The $6 million of Senior Convertible notes are due June 11, 2007 plus accrued interest; and the approximately $4.0 million of convertible notes which are due June 12, 2007 including interest; and capitalized interest of $880,000. We are currently negotiating with the debt holders to convert their debt to equity or to extend the terms of their due dates.

 

On April 19, 2007 we announced we had entered into an agreement to acquire Somanta Pharmaceuticals, Inc. Pursuant to the terms of the merger agreement, upon consummation of the acquisition, Somanta’s preferred and common shareholders would receive an aggregate of 1.5 million shares of Access’ common shares which would represent approximately 13% of the combined company assuming the conversion of Access’ existing convertible debt under existing terms of conversion. The closing of the transaction is subject to numerous conditions including receipt of necessary approvals including approval of the Somanta shareholders. There can be no assurance that the transaction will be consummated or if consummated, that it will be on the terms described herein

 

All shares and per share information reflect a one for five reverse stock split effected June 5, 2006.

 

On October 12, 2005, we sold our oral/topical care business unit to Uluru, Inc, a private Delaware corporation, for up to $18.8 million to focus on our technologies in oncology and oral drug delivery. The products and technologies sold to Uluru included amlexanox 5% paste (marketed under the trade names Aphthasol® and Aptheal®), OraDisc^TM, Zindaclin® and Residerm® and all of our assets related to these products. In addition, we sold to Uluru our nanoparticle hydrogel aggregate technology which could be used for applications such as local drug delivery and tissue filler in dental and soft tissue applications. We received a license from Uluru for certain applications of the technology. The CEO of Uluru is Kerry P. Gray, the former CEO of the Company. In conjunction with the sale transaction, we received a fairness opinion from a nationally recognized investment banking firm.

 

 

 

The following data has been derived from our audited consolidated financial statements and notes thereto appearing elsewhere in this Prospectus and prior audited consolidated financial statements of Access and notes thereto. The data should be read in conjunction with the “Selected Financial Data” and Financial Statements and Notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operations" appearing elsewhere in this Prospectus.

 

			For the Year Ended December 31,
	2006			2005	2004	2003	2002
(in thousands, except per share amounts)
Consolidated Statement of Operations and Comprehensive Loss Data:
Total revenues	$                               -			$             -	$                 -	$                 -	$              89
Operating loss	(5,175)			(9,622)	(6,003)	(5,426)	(5,925)
Interest and miscellaneous income	294			100	226	279	594
Interest and other expense	(7,436)			(2,100)	(1,385)	(1,281)	(1,278)
Unrealized loss	(1,107)			-	-	-	-
Income tax benefit	173			4,067	-	-	-
Loss from continuing operations	(13,251)			(7,555)	(7,162)	(6,428)	(6,520)
Discontinued operations net of taxes $173 in 2006 and $4,067 in 2005	377			5,855	(3,076)	(507)	(2,864)
Net loss	(12,874)			(1,700)	(10,238)	(6,935)	(9,384)
Common Stock Data: (2)
Net loss per basic and diluted common share	$                       (3.65)			$     (0.53)	$         (3.38)	$         (2.61)	$         (3.58)
Weighted average basic and diluted common shares outstanding	3,532			3,237	3,032	2,653	2,621

 

		December 31,
	2006			2005	2004	2003	2002
(in thousands)
Consolidated Balance Sheet Data:
Cash, cash equivalents and short term investments	$                       4,389			$         474	$          2,261	$          2,587	$          9,776
Restricted cash	-			103	1,284	649	468
Total assets	6,426			7,213	11,090	11,811	19,487
Deferred revenue	173			173	1,199	1,184	1,199
Convertible notes, net of discount	8,833			7,636	13,530	13,530	13,530
Total liabilities	16,313			11,450	17,751	17,636	18,998
Total stockholders' equity (deficit)	(9,887)			(4,237)	(6,661)	(5,825)	489

 

(1)

This data has been adjusted for discontinued operations and sales of assets. The discontinued operations relate to the sale of our oral care and dermatology business to Uluru, Inc. and the closing and sale of the our Australian laboratory described more fully in “Management’s Discussion and Analysis or Plan of Operations” appearing elsewhere in this Prospectus.

(2)

All shares and per share information reflect a one for five reverse stock split effected June 5, 2006.

 

We require substantial capital for our development programs and operating expenses, to pursue regulatory clearances and to prosecute and defend our intellectual property rights. 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 for seven months (other than debt and interest obligations including the approximately $6 million of Senior Convertible notes due June 11, 2007 plus accrued interest; and approximately $4.0 million of convertible notes which are required to be repaid June 12, 2007 plus accrued interest; and capitalized interest of $880,000 due September 13, 2007). We will need to raise substantial additional capital to support our ongoing operations and debt obligations.

 

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 sold our only revenue producing assets to Uluru, Inc. in October 2005. We are not expecting any revenues in the short-term from our other assets. 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 approvals to market additional products, we may not generate 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 product sales and 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.

If our cash flow is inadequate to meet these obligations, we will default on the notes. Any default on the notes could allow our note holders to foreclose upon our assets, force us into bankruptcy or our secured note holders could foreclose on the escrow and pledge of our shares and sell the shares on the open market, which is likely to cause a significant drop in the price of our stock. We may be unable to repay or repurchase or restructure the convertible subordinated notes due in April 2007 and September 2010 and be forced into bankruptcy. In the event of a default, the holders of our secured convertible notes have the right to foreclose on substantially all of our assets, which could force us to curtail or cease our business operations.

·

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 may 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.

 

·

A mucoadhesive liquid technology product, MuGard™, has received marketing approval by the FDA.

·

ProLindac™ is currently in a Phase II trial in Europe and a Phase II trial in the US.

·

ProLindac™ has been approved for an additional Phase I trial in the US by the FDA.

·

Cobalamin™ mediated delivery technology is currently in the pre-clinical phase.

 

 

 

 

•   Spectrum Pharmaceuticals and GPC Biotech are developing oral platinum formulations;

•   Poniard Pharmaceuticals is developing both iv and oral platinum formulations;

•   Nanocarrier and Debio are developing micellar nanoparticle platinum formulations; and

 

 

 

 

·

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.

·

Mucoadhesive technology in 2021,

·

ProLindac™ in 2021,

·

Cobalamin mediated technology between 2007 and 2019

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

 

SCO Capital Partners LLC, Larry N. Feinberg (Oracle Partners LP, Oracle Institutional Partners LP and Oracle Investment Management Inc.), and Jeffrey B. Davis each beneficially owned approximately 74.1%, 26.4%, and 14.9%, respectively, of our common stock as of April 30, 2007. 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.

The market price for our common stock could drop as a result of sales of a large number of our presently outstanding shares or shares that we may issue or be obligated to issue in the future. All of the 3,535,358 shares of our common stock that are outstanding as of April 30, 2007, are unrestricted and freely tradable or tradable pursuant to a resale registration statement or under Rule 144 of the Securities Act or are covered by a registration rights agreement.

Selling Security Holder

Shares Beneficially Owned Before Offering

Percentage of Outstanding Shares Beneficially Owned Before Offering

Shares to be Sold in the Offering

Shares Beneficially Owned After Offering

Percentage of Outstanding Shares Beneficially Owned After Offering (1)

SCO Capital Partners, LLC		7,982,584		69.3	%		6,636,362		1,346,222		27.6	%
Beach Capital LLC		795,454		18.4	%		795,454		-0-		-0-	%
Lake End Capital LLC		1,222,728		25.7	%		886,363		336,365		8.7	%
Mark J. Alvino		55,525		1.6	%		45,454		10,071		0.3	%
Jeffrey B. Davis		5,820		0.2	%		-0-		5,820		0.2	%
Howard Fisher		54,545		1.5	%		45,454		9,091		0.3	%
Cornell Capital Partners, LP		86,083		2.4	%		86,083		-0-		-0-	%
Oracle Partners, LP		646,000		15.5	%		504,900		141,100		3.8	%
Oracle Institutional Partners, LP		176,680		4.8	%		139,700		36,980		1.0	%
Oracle Associates LLC		136,824		3.7	%		-0-		136,824		3.7	%
Sam Oracle Fund, Inc.		145,000		3.9	%		132,000		13,000		0.4	%
Oracle Offshore, Ltd.		32,800		0.9	%		26,400		6,400		0.2	%
Larry N. Feinberg		3,660		0.1	%		-0-		3,660		0.1	%
Total:		11,343,703		76.2	%		9,298,170		2,045,533		36.7	%

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 December 31, 2006 of $77,672,000. We expect that our capital resources as of March 31, 2007, together with receivables will be adequate to fund our current level of operations for seven months, excluding any obligation to repay the convertible notes and the debt service on the convertible notes, which at this time we do not have the ability to pay. We cannot assure you that we will ever be able to generate significant product revenue or achieve or sustain profitability. We currently do not have the cash resources to repay our debt obligations due in April and September 2007. Either through conversion of our debt to equity or our financing plan through the sales of equity are expected to provide the resources to repay such notes.

·

a block trade in which the broker-dealer so engaged will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction (including crosses in which the same broker acts as agent for both sides of the transaction);

·

purchases by a broker-dealer as principal and resale by such broker-dealer, including resales for its account, pursuant to this prospectus;

·

ordinary brokerage transactions and transactions in which the broker solicits purchases;

 

·

through options, swaps or derivatives;

·

in privately negotiated transactions;

·

in making short sales or in transactions to cover short sales; and

·

put or call option transactions relating to the shares.

·

the name of each such selling security holder and of the participating broker-dealer(s);

·

the number of shares involved;

·

the initial price at which the shares were sold;

·

the commissions paid or discounts or concessions allowed to the broker-dealer(s), where applicable;

·

that such broker-dealer(s) did not conduct any investigation to verify the information set out or incorporated by reference in this prospectus; and

·

other facts material to the transactions.

 

 

On April 26, 2007, Access Pharmaceuticals, Inc. (“Access”) and SCO Capital Partners LLC and affiliates (“SCO”) agreed to extend the maturity date of an aggregate of $6,000,000 of 7.5% convertible notes to June 11, 2007 from April 27, 2007. On April 24, 2007, Access Pharmaceuticals, Inc. ("Access") and Oracle Partners LP and affiliates agreed to extend the maturity date of an aggregate of $4,015,000 of 7.7% convertaible notes to June 12, 2007 from April 28, 2007.

 

On October 12, 2005, we sold our oral/topical care business unit to Uluru, Inc, a private Delaware corporation, for up to $18.8 million to focus on our technologies in oncology and oral drug delivery. The products and technologies sold to Uluru included amlexanox 5% paste (marketed under the trade names Aphthasol® and Aptheal®), OraDisc^TM, Zindaclin® and Residerm® and all of our assets related to these products. In addition, we sold to Uluru our nanoparticle hydrogel aggregate technology which could be used for applications such as local drug delivery and tissue filler in dental and soft tissue applications. We received a license from Uluru for certain applications of the technology. The CEO of Uluru is Kerry P. Gray, the former CEO of the Company. In conjunction with the sale transaction, we received a fairness opinion from a nationally recognized investment banking firm (see further discussion under “Liquidity and Capital Resources”).

Our product MuGard™, for the management of mucositis, was approved for marketing by the FDA under a 510(k) allowance in December 2006. Our focus will be developing unique polymer linked cytotoxics for use in the treatment of cancer and other diseases states. Our lead development product ProLindac™ is in Phase II clinical testing. The Company also has other advanced drug delivery technologies including Cobalamin-mediated targeted delivery and oral care drug delivery. We do not have any agreements which provide for near term revenues. Our expenses for salaries and rent are reduced from prior years. Our clinical development expenses may be higher than previous years.

 

· Salary expenses due to the separation agreement in 2005 with our former CEO ($909,000);

 

· Professional fees for investment strategies and fairness opinions in 2005 ($397,000);

 

· Legal fees ($313,000);

 

· Patent and license fees ($194,000);

 

· Rent ($113,000);

 

· Compensation paid to Chairman in 2005 ($140,000) and

 

· Other net decreases ($41,000).

 

 

· Salary related costs due to the expensing of stock options ($180,000); and

 

· Investor/public relations fees ($102,000).

The Secured Convertible Notes include warrants and a conversion feature. Until September 30, 2006 we accounted for the warrants and conversion feature as liabilities and recorded at fair value. From the date of issuance to September 30, 2006, the fair value of these instruments increased resulting in a net unrealized loss of $1.1 million. On October 1, 2006, we adopted the provisions of Financial Accounting Standards Board Staff Position EITF No. 00-19-2, “Accounting for Registration Payment Arrangements” (EITF 00-19-2), which requires that contingent obligations to make future payments under a registration payment arrangement be recognized and measured separately in accordance with SFAS No. 5, “Accounting for Contingencies.” Under previous guidance, the fair value of the warrant was recorded as a current liability in our balance sheet, due to a potential cash payment feature in the warrant. The current liability was marked-to-market at each quarter end, using the Black-Scholes option-pricing model, with the change being recorded to general and administrative expenses. Under the new guidance in EITF 00-19-2, as we believe the likelihood of such a cash payment to not be probable, have not recognized a liability for such obligations. Accordingly, a cumulative-effect adjustment of $1.4 million was made as of October 1, 2006 to accumulated deficit, representing the difference between the initial value of this warrant and its fair value as of this date and recorded to equity.

 

· Expenses due to the separation agreement with our former CEO ($909,000);

 

· Professional fees for investment banking and financing decisions ($397,000);

 

· Higher legal fees due to changes in our convertible debt and legal fees associated with merger candidates ($161,000); and

 

· Royalty license fee ($150,000).

 

 

· Lower investor relations costs ($90,000);

 

· Lower patent expenses ($61,000); and

 

· Lower net other increases ($27,000).

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 December 31, 2006 our cash and cash equivalents and short-term investments were $4,389,000 and our working capital deficit was $5,782,000. Our working capital at December 31, 2006 represented a decrease of $7,127,000 as compared to our working capital as of December 31, 2005 of $1,345,000. Our working capital is negative reflecting $11.0 million of debt that becomes due prior to December 31, 2007 and $0.6 million of accrued interest payments due by September 13, 2007.

On October 12, 2005, we sold our oral/topical care business unit to Uluru, Inc, a private Delaware corporation, for up to $18.6 million to focus on our technologies in oncology and vitamin targeted drug delivery. The products and technologies sold to Uluru include amlexanox 5% paste (marketed under the trade names Aphthasol® and Aptheal®), OraDisc^TM, Zindaclin® and Residerm® and all of our assets related to these products. In addition, we sold to Uluru our nanoparticle hydrogel aggregate technology which could be used for applications such as local drug delivery and tissue filler in dental and soft tissue applications. We received a license from Uluru for certain applications of the technology. The CEO of Uluru is Kerry P. Gray, the former CEO of the Company. In conjunction with the sale transaction, we received a fairness opinion from a nationally recognized investment banking firm.

 

 

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 December 31, 2006 of $77,672,000. We expect that our capital resources as of March 31, 2007, together with receivables will be adequate to fund our current level of operations for seven months, excluding any obligation to repay the convertible notes and the debt service on the convertible notes, which at this time we do not have the ability to pay. We cannot assure you that we will ever be able to generate significant product revenue or achieve or sustain profitability. We currently do not have the cash resources to repay our debt obligations due in April and September 2007. Either through conversion of our debt to equity or our financing plan through the sales of equity are expected to provide the resources to repay such notes.

 

 

·

the successful development and commercialization of ProLindac™, MuGard™ and our other product candidates;

 

·

the ability to convert, repay or restructure our outstanding convertible notes and debentures;

 

·

the ability to merge with Somanta Pharmaceuticals, Inc. and integrate their assets and programs with ours;

 

·

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.

(in thousands)			Twelve Months ended December 31,						Inception To Date (1)
Project			2006			2005
Polymer Platinate (ProLindac™)			$	2,043		$	2,653		$	19,654
Mucoadhesive Liquid Technology (MLT)				10			-			1,490
Others (2)				-			130			5,044
Total			$	2,053		$	2,783		$	26,188

(1)	Cumulative spending from inception of the Company or project through December 31, 2006.

(2)	The following projects are among the ones included in this line item: Vitamin Mediated Targeted Delivery, carbohydrate targeting, amlexanox cream and gel and other related projects.

 

On January 1, 2002, we adopted SFAS 142, “Goodwill and Other Intangible Assets.” Upon adoption, we performed a transitional impairment test on our recorded intangible assets that consisted primarily of acquisition related goodwill and license intangibles. We also performed an annual impairment test in the fourth quarter of 2005. The analysis compared the Company’s market capitalization with net asset value resulting in an impairment charge in 2005 of $1,868,000.

 

 

 

On January 1, 2006, we adopted SFAS No. 123 (revised 2004), “Share-Based Payment,” (“SFAS 123(R)”), which requires the measurement and recognition of all share-based payment awards made to employees and directors including stock options based on estimated fair values. SFAS 123(R) supersedes the Company’s previous accounting under Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”), for periods beginning in fiscal year 2006. In March 2005, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 107 (“SAB 107”) relating to SFAS 123(R). We applied the provisions of SAB 107 in our adoption of SFAS 123(R).

 

 

SFAS 123(R) requires companies to estimate the fair value of share-based payment awards on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service period in the company’s Statement of Operations. Prior to the adoption of SFAS 123(R), we accounted for stock-based awards to employees and directors using the intrinsic value method in accordance with APB No. 25 as allowed under SFAS No. 123, “Accounting for Stock-Based Compensation” (“SFAS 123”). Under the intrinsic value method, no stock-based compensation expense for stock option grants was recognized because the exercise price of our stock options granted to employees and directors equaled the fair market value of the underlying stock at the date of grant. In 2005, we did recognize stock compensation expense for restricted stock awards based on the fair value of the underlying stock on date of grant and this expense was amortized over the requisite service period. There were no restricted stock awards granted in 2006 and therefore no stock compensation expense is recognized in 2006 for these awards.

 

 

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, “Fair Value Measurements” (SFAS 157). SFAS 157 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS 157 is effective for fiscal years beginning after November 15, 2007. We are evaluating the potential impact of the implementation of SFAS 157 on our financial position and results of operations.

In June 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Income Tax Uncertainties” (FIN 48). FIN 48 defines the threshold for recognizing the benefits of tax return positions in the financial statements as “more-likely-than-not” to be sustained by the taxing authority. The recently issued literature also provides guidance on the derecognition, measurement and classification of income tax uncertainties, along with any related interest and penalties. FIN 48 also includes guidance concerning accounting for income tax uncertainties in interim periods and increases the level of disclosures associated with any recorded income tax uncertainties. FIN 48 is effective for Access as of January 1, 2007. Any differences between the amounts recognized in the balance sheets prior to the adoption of FIN 48 and the amounts reported after adoption will be accounted for as a cumulative-effect adjustment recorded to the beginning balance of retained earnings. We are evaluating the potential impact of the implementation of FIN 48 on our financial position and results of operations.

	Payment Due by Period
		Total			Less Than 1 Year			1-4 Years
Long-Term Debt Obligations	$	16,395,000		$	10,895,000		$	5,500,000
Interest		2,422,000			1,151,000			1,271,000
Lease Obligations		135,000			92,000			43,000
Total	$	18,952,000		$	12,138,000		$	6,814,000

 

DESCRIPTION OF BUSINESS

 

 

 

 

 

Compound

Originator

Technology

Indication

FDA Filing

Clinical Stage (1)

Cancer

MuGard™

Access

Mucoadhesive liquid

Mucositis

510(k)

Marketing clearance

ProLindacTM (Polymer Platinate, AP5346) (2)

Access - U London

Synthetic polymer

Cancer

Clinical Development(3)

Phase II

Oral Insulin

Access

Cobalamin

Diabetes

Research

Pre-Clinical

Oral Delivery System

Access

Cobalamin

Various

Research

Pre-Clinical

Cobalamin-Targeted Therapeutics

Access

Cobalamin

Anti-tumor

Research

Pre-Clinical

 

 

 

 

 

 

 

 

 

 

 

 

Currently, platinum compounds are one of the largest selling categories of chemotherapeutic agents, with annual sales in excess of $3.0 billion. As is the case with all chemotherapeutic drugs, the use of such compounds is associated with serious systemic side effects. The drug development goal therefore is to enhance delivery of the active drug to the tumor and minimize the amount of active drug affecting normal organs in the body.

 

Utilizing a biocompatible water-soluble polymer HPMA as a drug carrier, Access’ drug candidate ProLindac™, links DACH platinum to a polymer in a manner which permits the selective release of active drug to the tumor by several mechanisms, including taking advantage of the differential pH in tumor tissue compared to healthy tissue. The polymer also capitalizes on the biological differences in the permeability of blood vessels at tumor sites versus normal tissue. In this way, tumor selective delivery and platinum release is achieved. The ability of ProLindac™ to inhibit tumor growth has been evaluated in more than ten preclinical models. Compared with the marketed product oxaliplatin, ProLindac™ showed either marked superiority or superiority in most of these models. Preclinical studies of the delivery of platinum to tumors in an animal model have shown that, compared with oxaliplatin at equitoxic doses, ProLindac™ delivers in excess of 16 times more platinum to the tumor. An analysis of tumor DNA, which is the main target for anti-cancer platinum agents, has shown that ProLindac™ delivers approximately 14 times more platinum to tumor DNA than oxaliplatin. Results from preclinical efficacy studies conducted in the B16 and other tumor models have also shown that ProLindac™ is superior to oxaliplatin in inhibiting the growth of tumors. An extensive preclinical package has been developed supporting the development of ProLindac™.

 

In 2005 we completed a Phase I multi-center clinical study conducted in Europe, which enrolled 26 patients. The study was reported at the AACR-NCI-EORTC conference in Philadelphia in November 2005.  The European trial was designed to identify the maximum tolerated dose, dose limiting toxicities, the pharmacokinetics of the platinum in plasma and the possible anti-tumor activity of ProLindac^TM. The open-label, non-randomized, dose-escalation Phase I study was performed at two European centers. ProLindac^TM was administered as an intravenous infusion over one hour, once a week on days 1, 8 and 15 of each 28-day cycle to patients with solid progressive tumors. We obtained results in 26 patients with a broad cross-section of tumor types, with doses ranging from 80-1,280 mg Pt/m².

 

We have commenced a European Phase II ProLindac™ trial in ovarian cancer patients who have relapsed after first line platinum therapy. The primary aim of the study is to the determine the response rate of ProLindac^TM monotherapy in this patient population. The response rates for other platinum compounds in this indication are well known, and will be used for comparison.

We have provided ProLindac^TM to the Moores Cancer Center at the University of California, San Diego to conduct a Phase II clinical study in patients with head and neck cancer under a physician-sponsored IND. The primary aim of the study is to demonstrate the ability of the tumor-targeting polymer system to deliver more platinum to tumors than can be attained with oxaliplatin, the approved DACH platinum compound.

 

 

 

 

 

 

 

 

 

We expended approximately $2,053,000, $2,783,000 and $2,335,000 on research and development during the years 2006, 2005 and 2004, respectively.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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passive tumor targeting involves transporting anti-cancer agents through the bloodstream to tumor cells using a “carrier” molecule. Many different carrier molecules, which can take a variety of forms (micelles, nanoparticles, liposomes and polymers), are being investigated as each provides advantages such as specificity and protection of the anti-cancer drug from degradation due to their structure, size (molecular weights) and particular interactions with tumor cells. Our polymer platinate program is a passive tumor targeting technology.

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active tumor targeting involves attaching an additional fragment to the anticancer drug and the carrier molecule to create a new “targeted” agent that will actively seek a complementary surface molecule to which it binds (preferentially located on the exterior of the tumor cells). The theory is that the targeting of the anti-cancer agent through active means to the affected cells should allow more of the anti-cancer drug to enter the tumor cell, thus amplifying the response to the treatment and reducing the toxic effect on bystander, normal tissue.

 

 

One U.S. patent has issued and one U.S. patent application and two European patent applications are under review for our mucoadhesive liquid technology. Our patent applications cover a range of products utilizing our mucoadhesive liquid technology for the management of the various phases of mucositis.

We have three patented Cobalamin-mediated targeted therapeutic technologies:

-	folate conjugates of polymer therapeutics, to enhance tumor delivery by targeting folate receptors, which are upregulated in certain tumor types with two U.S. and two European patent applications;

-	the use of vitamin B12 to target the transcobalamin II receptor which is upregulated in numerous diseases including cancer, rheumatoid arthritis, certain neurological and autoimmune disorders with two U.S. patents and three U.S. and four European patent applications; and

-	oral delivery of a wide variety of molecules which cannot otherwise be orally administered, utilizing the active transport mechanism which transports vitamin B12 into the systemic circulation with six U.S. patents and two European patents and one U.S. and one European patent application.

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Mucoadhesive technology in 2021,

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ProLindac™ in 2021,

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Cobalamin mediated technology between 2007 and 2019

 

 

 

We have upcoming maturity dates on our convertible notes. The $6 million of Senior Convertible notes are due June 11, 2007 plus accrued interest; and the approximately $4.0 million of convertible notes which are due June 12, 2007 including interest; and capitalized interest of $880,000. We are currently negotiating with the debt holders to convert their debt to equity or to extend the terms of their due dates.

 

On October 12, 2005, we sold our oral/topical care business unit to Uluru, Inc, a private Delaware corporation, for up to $18.8 million to focus on our technologies in oncology and oral drug delivery. The products and technologies sold to Uluru included amlexanox 5% paste (marketed under the trade names Aphthasol® and Aptheal®), OraDisc^TM, Zindaclin® and Residerm® and all of our assets related to these products. In addition, we sold to Uluru our nanoparticle hydrogel aggregate technology which could be used for applications such as local drug delivery and tissue filler in dental and soft tissue applications. We received a license from Uluru for certain applications of the technology. The CEO of Uluru is Kerry P. Gray, the former CEO of the Company. In conjunction with the sale transaction, we received a fairness opinion from a nationally recognized investment banking firm.

 

Name		Age		Title
Jeffrey B. Davis		44		Chairman of the Board
Stephen R. Seiler		51		President, Chief Executive Officer, Director
Rosemary Mazanet, M.D., Ph.D.		51		Vice Chairman
Esteban Cvitkovic, M.D.		57		Vice Chairman - Europe
Mark J. Ahn, Ph.D.		44		Director
Mark J. Alvino		39		Director
J. Michael Flinn		73		Director
Stephen B. Howell, M.D.		62		Director
David P. Luci		40		Director
Herbert H. McDade, Jr.		80		Director
John J. Meakem, Jr.		70		Director
David P. Nowotnik, Ph.D.		58		Senior Vice President Research & Development
Phillip S. Wise		48		Vice President, Business Development & Strategy
Stephen B. Thompson		53		Vice President, Chief Financial Officer, Treasurer, Secretary

 

Rosemary Mazanet, M.D. serves as Chief Executive Officer of Breakthrough Therapeutics, LLC, a privately held development stage biotechnology company. From May 2005 to January 2007 she served as our Acting Chief Executive Officer. From June 1998 to February 2004, Dr. Mazanet served as Chief Scientific Officer and a General Partner of Oracle Partners, L.P., a healthcare investment firm. Dr. Mazanet also serves as an independent director at GTx, Inc (Nasdaq: GTXI), Aksys, Ltd. and is a trustee at the University of Pennsylvania, School of Medicine. Prior to joining Oracle, Dr. Mazanet was the Director of Clinical Research at Amgen, Inc. She has over 20 years experience in the pharmaceutical industry, and was trained as a Medical Oncologist/Hematologist in the Harvard Medical System, and holds an M.D. and Ph.D. from University of Pennsylvania.

Dr. Esteban Cvitkovic became a director in February 2007. Recently, the oncology-focused CRO, Cvitkovic & Associés Consultants (CAC), founded by Dr. Cvitkovic 11 years ago and which he developed from a small oncology consultancy to a full-service CRO, was sold to AAIPharma to become AAIOncology. Dr. Cvitkovic is currently a Senior Medical Consultant to AAIOncology. In addition, he maintains a part-time academic practice including teaching at the hospitals Beaujon and St Louis in Paris. Dr. Cvitkovic is Scientific President of the FNAB, a foundation devoted to the furthering of personalised cancer treatments. Together with a small number of collaborators he has recently co-founded Oncoethix, a biotech company focused on licensing and co-development of anti-cancer molecules. Dr. Cvitkovic has authored more than 200 peer-reviewed articles and 600 abstracts focused on therapeutic oncology development. His international career includes staff and academic appointments at Memorial Sloan Kettering Cancer Center (New York), Columbia Presbyterian (New York), Instituto Mario Negri (Milan), Institut Gustave Roussy (Villejuif), Hôpital Paul Brousse (Villejuif) and Hôpital St. Louis (Paris).

Dr. Mark J. Ahn became a director in September 2006. Dr. Ahn is President and Chief Executive Officer and a member of the board of directors of Hana Biosciences, Inc. since November 2003. Prior to joining Hana, from December 2001 to November 2003, he served as Vice President, Hematology and corporate officer at Genentech, Inc. where he was responsible for commercial and clinical development of the Hematology franchise. From February 1991 to February 1997 and from February 1997 to December 2001, Dr. Ahn was employed by Amgen and Bristol-Myers Squibb Company, respectively, holding a series of positions of increasing responsibility in strategy, general management, sales & marketing, business development, and finance. He has also served as an officer in the U.S. Army. Dr. Ahn is a Henry Crown Fellow at the Aspen Institute, founder of the Center for Non-Profit Leadership, a director of TransMolecular, Inc., a privately held biotechnology company focused on neuroncology, and a member of the Board of Trustees for the MEDUNSA (Medical University of South Africa) Trust. Dr. Ahn received a B.A. in History and an M.B.A. in Finance from Chaminade University. He was a graduate fellow in Economics at Essex University, and has a Ph.D. in Business Administration from the University of South Australia.

Mr. Mark J. Alvino became a director in March 2006 as a designee of SCO Capital Partners LLC. Mr. Alvino currently works as Managing Director for SCO Financial Group LLC. He is currently on the board of directors of MacroChem Corporation. He previously worked at Feinstein Kean Healthcare, an Ogilvy Public Relations Worldwide Company. There he was Senior Vice President, responsible for managing both investor and corporate communications programs for many private and public companies and acted as senior counsel throughout the agency's network of offices. Prior to working at FKH, Mr. Alvino served as Vice President of Investor Relations and managed the New York Office of Allen & Caron, Inc., an investor relations agency. His base of clients included medical devices, biotechnology, and e-healthcare companies. Mr. Alvino also spent several years working with Wall Street brokerages including Ladenburg, Thallman & Co. and Martin Simpson & Co.

Mr. J. Michael Flinn has served as one of our directors since 1983. Mr. Flinn was Chairman of the Board from 2004 until 2006 and was previously a member of the Compensation Committee of the Board. From 1970 to 2000, he was an investment counselor and a consultant to the Operations Group of United Asset Management. He served as a security analyst in the area of healthcare and natural resources. From 1970 to 1995 he was a principal and Chairman with the investment counseling firm of Sirach Capital Management, Inc. He assisted in the management of pension, profit sharing, individual, corporate and foundation accounts totaling over $8.0 billion. He serves as a board member of Lonesome Dove Petroleum. He previously has served on hospital and other healthcare boards.

Stephen B. Howell, M.D. has served as one of our directors since 1996. Dr. Howell is a member of the Compensation Committee of the Board. Dr. Howell is a Professor of Medicine at the University of California, San Diego, and director of the Cancer Pharmacology Program of the UCSD Cancer Center. Dr. Howell is a recipient of the Milken Foundation prize for his contributions to the field of cancer chemotherapy. He has served on the National Research Council of the American Cancer Society and is on the editorial boards of multiple medical journals. Dr. Howell founded DepoTech, Inc. and served as a member of its board of directors from 1989 to 1999. Dr. Howell served on the board of directors of Matrix Pharmaceuticals from 2000 to 2002. Dr. Howell received his A.B. at the University of Chicago and his M.D. from Harvard Medical School.

Mr. David P. Luci has served as one of our directors since January 2007. Mr. Luci is Executive Vice President of Bioenvision, Inc. He has also served as Bioenvision’s chief financial officer, general counsel and corporate secretary since July 2004, after serving as director of finance, general counsel and corporate secretary since July 2002. From September 1994 to July 2002, Mr. Luci served as a corporate associate at Paul, Hastings, Janofsky & Walker LLP (New York office). Prior to that, Mr. Luci served as a senior auditor at Ernst & Young LLP (New York office). Mr. Luci is a certified public accountant. He holds a Bachelor of Science in Business Administration with a concentration in accounting from Bucknell University and a J.D. (cum laude) from Albany Law School of Union University.

 

Mr. Herbert H. McDade, Jr. has served as one of our directors since 1988 and was previously a member of the Compensation Committee of the Board. Mr. McDade was Chairman of the Board until 2004. In February 1989, he was elected Vice-Chairman of the Board and Chief Executive Officer and served in such positions until 1996. In June 1989, he was elected Chairman of the Board and Treasurer in addition to his responsibilities as Chief Executive Officer, and from 1990 to January 1996 he was our President. In addition, he also serves on the board of Discovery Laboratories, Inc. From 1986 to 1987 he served as Chairman of the board of directors and President of Armour Pharmaceutical Co., a wholly-owned subsidiary of Rorer Group, Inc. Prior to 1986 he served for approximately 13 years in various executive positions at Revlon, Inc., including from 1979 to 1986, as President of the International Division of the Revlon Health Care Group. He was also previously associated for twenty years in various executive capacities with The Upjohn Company.

Mr. John J. Meakem, Jr. has been one of our directors since 2001. Mr. Meakem is also a member of the Nominating and Corporate Governance Committee of the Board and a member of the Audit and Finance Committee of the Board. Mr. Meakem is a private investor with portfolio holdings in innovative companies with a particular focus on healthcare. Most recently Mr. Meakem served as Chairman of the Board, President and Chief Executive Officer of Advanced Polymer Systems, Inc. from 1991 to 2000. Prior to 1991, he was Corporate Executive Vice President of Combe, Inc. and President of Combe North America. Prior to 1970, Mr. Meakem was with Vick Chemical Company, a division of Richardson Merrell Drug Corporation, for ten years as Vice President of Marketing, New Products & Acquisitions.

David P. Nowotnik, Ph.D. has been Senior Vice President Research and Development since January 2003 and was Vice President Research and Development from 1998. From 1994 until 1998, Dr. Nowotnik had been with Guilford Pharmaceuticals, Inc. in the position of Senior Director, Product Development and was responsible for a team of scientists developing polymeric controlled-release drug delivery systems. From 1988 to 1994 he was with Bristol-Myers Squibb researching and developing technetium radiopharmaceuticals and MRI contrast agents. From 1977 to 1988 he was with Amersham International leading the project which resulted in the discovery and development of Ceretec.

Mr. Phillip S. Wise has been our Vice President Business Development since June 2006. Mr. Wise was Vice President of Commercial and Business Development for Enhance Pharmaceuticals, Inc. and Ardent Pharmaceuticals, Inc. from 2000 until 2006. Prior to that time he was with Glaxo Wellcome, from 1990 to 2000 in various capacities.

Mr. Stephen B. Thompson has been Vice President since 2000 and our Chief Financial Officer since 1996. From 1990 to 1996, he was Controller and Administration Manager of Access Pharmaceuticals, Inc., a private Texas corporation. Previously, from 1989 to 1990, Mr. Thompson was Controller of Robert E. Woolley, Inc., a hotel real estate company where he was responsible for accounting, finances and investor relations. From 1985 to 1989, he was Controller of OKC Limited Partnership, an oil and gas company, where he was responsible for accounting, finances and SEC reporting. Between 1975 and 1985 he held various accounting and finance positions with Santa Fe International Corporation.

 

											Stock				Option		All Other
Name and Principal Position (7)			Year		Salary ($)				Bonus		Awards ($)				Awards ($)			Compensation					Total ($)
					(1)				($)			(2)			(3)			(4)
Rosemary Mazanet(5) Acting CEO			2006    2005		$	357,385  217,500		$	100,000 30,000		$	- -		$	81,464 168,468		$	2,594 1,297				$	541,443 248,797
Kerry P. Gray(6) Former President and CEO			2005		$	133,332		$	-		$	-		$	-		$	3,505				$	136,837
David P. Nowotnik, Ph.D. Senior Vice President Research and Development			2006 2005		$	253,620 250,710		$	20,000 25,408		$	- 24,154		$	40,732 67,619		$	7,152 7,094				$	321,504 374,985
Phillip S. Wise(7) Vice President, Business Development			2006		$	116,667		$	25,000		$	-		$	40,732		$	358				$	182,757
Stephen B. Thompson Vice President, Chief Financial Officer			2006 2005		$	154,080 152,310		$	20,000 15,435		$	- 14,704		$	40,732 42,262		$	4,508 4,455				$	219,320 229,166

(1)	Includes amounts deferred under our 401(k) Plan.

(2)	There were no stock awards grants in 2006 and no restricted stock outstanding at December 31, 2006.

(3)

The value listed in the above table represents the fair value of the options granted in prior years that was recognized in 2006 under FAS 123R. Fair value is calculated as of the grant date using a Black-Sholes option-pricing model. The determination of the fair value of share-based payment awards made on the date of grant is affected by our stock price as well as assumptions regarding a number of complex and subjective variables. Our assumptions in determining fair value are described in note 10 to our audited financial statements for the year ended December 31, 2006, included in our Annual Report on Form 10-KSB.

(4)

Amounts reported for fiscal years 2006 and 2005 consist of: (i) amounts we contributed to our 401(k) Plan with respect to each named individual, (ii) amounts we paid for group term life insurance for each named individual, and (iii) for Mr. Gray, premiums paid by us each year for life insurance for Mr. Gray.

(5)	Amounts listed in 2006 and 2005 for Dr. Mazanet indicate compensation paid to her in connection with her services as our Acting CEO commencing on May 11, 2005.

(6)

Amounts listed in 2005 for Mr. Gray indicate compensation paid to him in connection with his services as our President and CEO through May 10, 2005. In addition to such amounts listed in the table above, Mr. Gray also received a total of $333,333 and $488,335 per the terms of his Separation Agreement in 2006 and 2005, respectively.

(7)	Phillip S. Wise became our Vice President Business Development June 1, 2006.

(8)	Stephen R. Seiler became our President and Chief Executive Officer effective January 1, 2007 and is not included in this table.

 

We were party to an employment arrangement with Stephen R. Seiler, who was named by the Board as the Company's President and Chief Executive Officer and director, effective as of January 4, 2007 (the "Effective Date"). Mr. Seiler is paid an annual salary of $350,000 and was granted stock options to purchase 500,000 shares of Common Stock with an exercise price equal to the closing price of Common Stock on the day preceding the Effective Date. Mr. Seiler's options vest 25% on January 4, 2008 and monthly thereafter over a 36 month period. The stock options are granted under the Company's 2005 Equity Incentive Plan and the 2007 Special Stock Option Plan. Mr. Seiler is entitled to similar employee benefits as the Company's other executive officers. Under certain circumstances relating to a change of control of the Company, Mr. Seiler may be entitled to receive a payment equal to his annual salary, acceleration of options and extension of health care benefits.

We were party to an employment arrangement with Rosemary Mazanet, our former Acting Chief Executive Officer. Dr. Mazanet reported directly to, and was subject to the direction of, the Board. Dr. Mazanet salary was set at $25,000 monthly. Dr. Mazanet was granted a non-qualified stock option of 6,000 shares of Common Stock, vesting over a six month period. In November 2005, Dr. Mazanet was also granted 50,000 options under the Company’s 2005 Equity Incentive Plan. 14,000 options vested on grant, the rest vest upon attainment of preset milestones. Dr. Mazanet also received similar employee benefits as the Company's other executive officers, D&O insurance coverage and received a signing bonus of $30,000. The Board granted Dr. Mazanet an additional 200,000 options in 2006.

We are party to an employment agreement with David P. Nowotnik, Ph.D., our Senior Vice President, Research and Development, which renews automatically for successive one-year periods, with the current term extending until November 16, 2007. Under this agreement, Dr. Nowotnik is currently entitled to receive an annual base salary of $253,620, subject to adjustment by the Board. Dr. Nowotnik is eligible to participate in all of our employee benefit programs available to executives. Dr. Nowotnik is also eligible to receive:

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a bonus payable in cash and Common Stock related to the attainment of reasonable performance goals specified by the Board;

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stock options at the discretion of the Board;

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long-term disability insurance to provide compensation equal to at least $60,000 annually; and

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term life insurance coverage of $254,000.

Dr. Nowotnik is entitled to certain severance benefits in the event that we terminate his employment without cause or if Dr. Nowotnik terminates his employment following a change of control. In the event that we terminate the employment agreement for any reason, other than for cause, Dr. Nowotnik will receive his salary for six months. We will also continue benefits for such period. In the event that Dr. Nowotnik's employment is terminated within six months following a change in control or by Dr. Nowotnik upon the occurrence of certain events following a change in control, Dr. Nowotnik will receive twelve months salary and his stock options will become immediately exercisable. We will also continue payment of benefits for such period.

We are party to an employment agreement with Stephen B. Thompson, our Vice President and Chief Financial Officer, which renews automatically for successive one-year periods. Mr. Thompson is entitled to an annual base salary of $154,080, subject to adjustment by the Board. The employment agreement also grants Mr. Thompson similar employee benefits as the Company's other executive officers. Mr. Thompson is also eligible to receive:

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a bonus payable in cash and Common Stock related to the attainment of reasonable performance goals specified by the Board;

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stock options at the discretion of the Board;

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long-term disability insurance to provide compensation equal to at least $90,000 annually; and

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term life insurance coverage of $155,000.

Mr. Thompson is entitled to certain severance benefits in the event that we terminate his employment without cause or if Mr. Thompson terminates his employment following a change of control. In the event that we terminate the employment agreement for any reason, other than cause, Mr. Thompson will receive salary for six months. We will also continue benefits for such period. In the event that Mr. Thompson's employment is terminated within six months following a change of control or by Mr. Thompson upon the occurrence of certain events following a change in control, Mr. Thompson will receive twelve months salary and his stock options will become immediately exercisable. We will also continue payment of benefits for such period.

Purpose. The purpose of the Plan is to attract and retain the best available personnel for positions of substantial responsibility and to provide additional incentive to employees and directors of and advisers and consultants to the Company. The purpose of the proposed amendment is to provide the Company with additional capacity to award stock options to existing personnel and to attract qualified new employees, directors, advisers and consultants through grants of stock options.

Administration. The Plan is administered by the Compensation Committee. During 2006, the Compensation Committee was composed of four directors, Jeffrey B. Davis, Herbert H. McDade, Jr., J. Michael Flinn and Max Link. The Compensation Committee presently is composed of Jeffrey B. Davis and Stephen B. Howell, MD. Subject to the provisions of the Plan, the Compensation Committee has discretion to determine when awards are made, which employees are granted awards, the number of shares subject to each award and all other relevant terms of the awards. The Compensation Committee also has broad discretion to construe and interpret the Plan and adopt rules and regulations thereunder. The Compensation Committee approved the 2007 Special Stock Option Plan and the grant of 450,000 options to our new President and Chief Executive Officer in January 2007.

Eligibility. Awards may be granted to persons who are employees of the Company whether or not officers or members of the Board and directors of or advisers or consultants to the Company or of any of the Company’s subsidiaries. No election by any such person is required to participate in the Plan.

Shares Subject to the Plan. The shares issued or to be issued under the Plan are shares of Common Stock, which may be newly issued shares or shares held in the treasury or acquired in the open market. Previously, no more than 1,000,000 shares could be issued under the Plan. The foregoing limit is subject to adjustment for stock dividends, stock splits or other changes in the Company’s capitalization.

Stock Options. The Compensation Committee in its discretion may issue stock options which qualify as incentive stock options under the Internal Revenue Code or non-qualified stock options. The Compensation Committee will determine the time or times when each stock option becomes exercisable, the period within which it remains exercisable and the price per share at which it is exercisable, provided that no incentive stock option shall be exercised more than 10 years after it is granted and no other options shall be exercised more than 10 years and one day after it is granted, and further provided that the exercise price of any incentive stock option shall not be less than the fair market value of the Common Stock on the date of grant. The closing price of the Common Stock on the OTC Bulletin Board on March 30, 2007 was $6.45 per share.

Payment for shares purchased upon exercise of an option must be made in full in cash or check, by payment through a broker in accordance with Regulation T of the Federal Reserve Board or by such other mode of payment as the Committee may approve, including payment in whole or in part in shares of the Common Stock, when the option is exercised. No option is transferable except by will or the laws of descent and distribution or pursuant to a qualified domestic relations order, as defined by the Code or in Title I of the Employee Retirement Income Security Act of 1974, as amended.

Tax Considerations. The following is a brief and general discussion of the federal income tax rules applicable to awards under the Plan. With respect to an incentive stock option, an employee will generally not be taxed at the time of grant or exercise, although exercise of an incentive option will give rise to an item of tax preference that may result in an alternative minimum tax. If the employee holds the shares acquired upon exercise of an incentive stock option until at least one year after issuance and two years after the option grant, he or she will have long-term capital gain (or loss) based on the difference between the amount realized on the sale or disposition and his or her option price. If these holding periods are not satisfied, then upon disposition of the shares the employee will recognize ordinary income equal, in general, to the excess of the fair market value of the shares at time of exercise over the option price, plus capital gain in respect of any additional appreciation. With respect to a non-qualified option, an employee will not be taxed at the time of grant; upon exercise, he or she will generally realize compensation income to the extent the then fair market value of the stock exceeds the option price. The Company will generally have a tax deduction to the extent that, and at the time that, an employee realizes compensation income with respect to an award.

For purposes of this summary, we have assumed that no award will be considered “deferred compensation” as that term is defined for purposes of the federal tax rules governing nonqualified deferred compensation arrangements, Section 409A of the Code, or, if any award were considered to any extent to constitute deferred compensation, its terms would comply with the requirements of that legislation (in general, by limiting any flexibility in the time of payment). For example, the award of a non-qualified stock option with an exercise price which is less than the market value of the stock covered by the option would constitute deferred compensation. If an award includes deferred compensation, and its terms do not comply with the requirements of these tax rules, then any deferred compensation component of the award will be taxable when it is earned and vested (even if not then payable) and the recipient will be subject to a 20% additional tax.

 

Name	Number of Securities Underlying Unexcersised Options (#) Exercisable	Number of Securities Underlying Unexcersised Options (#) Unexercisable	Equity Incentive  Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#)	Option Exercise Price ($)			Option Exercise Date
Rosemary Mazanet(2)	50,000 39,796 6,000	150,000 10,204	-	0.63 5.45 12.50			08/17/06 11/02/05 05/11/05
Kerry P. Gray(3)	20,000 28,000 32,000 32,000 20,000 100,000 32,000 32,000	-	-	29.25 11.50 18.65 34.38 27.50 12.50 10.00 15.00			01/23/04 05/19/03 03/22/02 11/20/00 10/12/00 03/01/00 07/20/99 06/18/98
David P. Nowotnik, Ph.D.	25,000 3,167 3,646 6,854 10,000 10,000 10,000 10,000	75,000 4,833 1,354 146	-	0.63 11.60 29.25 10.10 18.65 12.50 10.00 15.00			08/17/06 05/23/05 01/23/04 01/30/03 03/22/02 03/01/00 07/20/99 11/16/98

 

Phillip S. Wise	25,000	75,000	-	0.63			08/17/06
Stephen B. Thompson	25,000 1,979 2,187 3,917 6,000 9,000 4,000 4,000	75,000 3,021 813 83	-	0.63 11.60 29.25 10.10 18.65 12.50 10.00 15.00			08/17/06 05/23/05 01/23/04 01/30/03 03/22/02 03/01/00 07/20/99 06/18/98

 

(1)	On December 31, 2006, the closing price of our Common Stock as quoted on the OTC Bulletin Board was $0.52.

 

(2)	Options listed for Dr. Mazanet include options paid to her in connection with her services as our Acting CEO commencing on May 11, 2005.

 

(3)	Options listed for Mr. Gray include options paid to him in connection with his services as our President and CEO through May 10, 2005.

The Audit and Finance Committee is currently comprised of David P. Luci (chairman) and John J. Meakem, Jr. During 2006, the Audit and Finance Committee was composed of four directors, Max Link, Ph.D., Stuart M. Duty, John J. Meakem, Jr., and Jeffrey B. Davis. All of the current members of the Audit and Finance Committee are independent under applicable SEC and AMEX rules and regulations. During 2006 Dr. Link, Mr. Duty and Mr. Meakem were independent under applicable SEC and AMEX rules and regulations. The Board has determined that Mr. Luci, the chairman of the Audit and Finance Committee, is an “audit committee financial expert,” under applicable SEC rules and regulations. The Audit and Finance Committee’s responsibilities and duties are among other things to engage the independent auditors, review the audit fees, supervise matters relating to audit functions and review and set internal policies and procedure regarding audits, accounting and other financial controls.

The Compensation Committee is currently comprised of Jeffrey B. Davis (chairman) and Dr. Stephen B. Howell. During 2006, the Compensation Committee was composed of Herbert H. McDade, Jr., Jeffrey B. Davis, J. Michael Flinn and Stephen B. Howell, MD. Dr. Howell, Mr. Flinn and Mr. McDade are independent under applicable AMEX rules and regulations and are non-employee directors under applicable SEC rules and “outside” directors under Internal Revenue Code Section 162(m).

The Nominating and Corporate Governance Committee is currently comprised of John J. Meakem, Jr. (chairman) and Mark J. Alvino. During 2006 Stuart M. Duty was also a member of the committee. All members of the Nominating and Corporate Governance Committee are independent under applicable AMEX rules and regulations. The Nominating and Corporate Governance Committee is responsible for, among other things, considering potential Board members, making recommendations to the full Board as to nominees for election to the Board, assessing the effectiveness of the Board and implementing the Company's corporate governance guidelines. 

 

Common Stock Beneficially Owned
Name of Beneficial Owner	Number of Shares(1)		% of Class
Jeffery B. Davis (2	30,820		*
Rosemary Mazanet (3)	147,256		4.0%
Mark Ahn (4)	25,000		*
Mark J. Alvino (5)	80,525		2.2%
J. Michael Flinn (6)	84,880		2.4%
Stephen B. Howell, M.D. (7)	53,839		1.5%
Herbert H. McDade, Jr. (8)	46,151		1.3%
John J. Meakem, Jr. (9)	53,536		1.5%
David P. Nowotnik, Ph.D. (10)	122,682		3.4%
Phillip S. Wise (11)	50,000		1.4%
Stephen B. Thompson (12)	91,521		2.5%
Larry N. Feinberg (13)	1,142,964		26.4%
Kerry P. Gray (14)	355,136		9.3%
SCO Capital Partners LLC (15)	4,682,040		57.0%
All Directors and Executive Officers as a group (consisting of 12 persons) (16)	786,211		18.5%

(1)

Includes our outstanding shares of Common Stock held plus all shares of Common Stock issuable upon exercise of options, warrants and other rights exercisable within 60 days of April 30, 2007.

(2)

Mr. Davis is President of SCO Securities LLC. His address is c/o SCO Capital Partners LLC, 1285 Avenue of the Americas, 35th Floor, New York, NY 10019. SCO Securities LLC and affiliates (SCO Capital Partners LLC, Beach Capital LLC, Lake End Capital LLC, Howard Fischer, Mr. Davis and Mark J. Alvino) are known to beneficially own warrants to purchase an aggregate of 4,682,040 of our Common Stock and 5,454,544 shares of Common Stock issuable to them upon conversion of notes. Mr. Davis disclaims beneficial ownership of all such shares except to the extent of his pecuniary interest therein. Does not include any such shares other than 5,280 shares underlying warrants held directly by Mr. Davis. Includes presently exercisable options for the purchase of 25,000 shares of our Common Stock pursuant to the 2005 Equity Incentive Plan.

(3)

Includes presently exercisable options for the purchase of 141,256 shares of our Common Stock pursuant to the 2005 Equity Incentive Plan and 6,000 shares of our Common Stock pursuant to the 1995 Stock Option Plan.

 

(4)

Includes presently exercisable options for the purchase of 25,000 shares of our Common Stock pursuant to the 2005 Equity Incentive Plan.

(5)

Includes 55,525 shares of Common Stock underlying warrants held by Mr. Alvino. Mr. Alvino is Managing Director of SCO Securities LLC. His address is c/o SCO Capital Partners LLC, 1285 Avenue of the Americas, 35th Floor, New York, NY 10019. SCO Securities LLC and affiliates (SCO Capital Partners LLC, Beach Capital LLC, Lake End Capital LLC, Howard Fischer, Jeffrey B. Davis and Mr. Alvino) are known to beneficially own warrants to purchase an aggregate of 4,682,040 of our Common Stock and 5,454,544 shares of Common Stock issuable to them upon conversion of notes. Mr. Alvino disclaims beneficial ownership of all such shares except to the extent of his pecuniary interest therein. Does not include any such shares other than 55,525 shares underlying warrants held directly by Mr. Alvino. Includes presently exercisable options for the purchase of 25,000 shares of our Common Stock pursuant to the 2005 Equity Incentive Plan.

(6)

Includes presently exercisable options for the purchase of 46,200 shares of our Common Stock pursuant to the 2005 Equity Incentive Plan and 16,500 shares of our Common Stock pursuant to the 1995 Stock Option Plan.

(7)

Includes presently exercisable options for the purchase of 26,200 shares of our Common Stock pursuant to the 2005 Equity Incentive Plan, 12,917 shares of our Common Stock pursuant to the 1995 Stock Option Plan, a warrant to purchase 3,000 shares of our Common Stock at an exercise price of $15.00 per share, and a warrant to purchase 2,000 shares of our Common Stock at an exercise price of $24.80 per share.

(8)

Includes presently exercisable options for the purchase of 26,200 shares of our Common Stock pursuant to the 2005 Equity Incentive Plan and 12,500 shares of our Common Stock pursuant to the 1995 Stock Option Plan.

(9)

Includes presently exercisable options for the purchase of 31,036 shares of our Common Stock pursuant to the 2005 Equity Incentive Plan and 13,500 shares of our Common Stock pursuant to the 1995 Stock Option Plan.

(10)

Includes presently exercisable options for the purchase of 50,000 shares of our Common Stock pursuant to the 2005 Equity Incentive Plan and 55,167 shares of our Common Stock pursuant to the 1995 Stock Option Plan.

(11)

Includes presently exercisable options for the purchase of 50,000 shares of our Common Stock pursuant to the 2005 Equity Incentive Plan.

(12)

Includes presently exercisable options for the purchase of 50,000 shares of our Common Stock pursuant to the 2005 Equity Incentive Plan and 32,000 shares of our Common Stock pursuant to the 1995 Stock Option Plan.

(13)

Larry N. Feinberg is a partner in Oracle Partners, L.P. His address is c/o Oracle Partners, L.P., 200 Greenwich Avenue, 3rd Floor, Greenwich, CT 06830. Oracle Partners, L.P. and affiliates (Oracle Institutional Partners, L.P., Oracle Investment Management, Inc., Sam Oracle Fund, Inc. and Mr. Feinberg) are known to beneficially own an aggregate of 339,964 shares of our Common Stock and convertible notes which may convert into an aggregate of 803,000 shares of our Common Stock.

(14)

Mr. Gray's address is 4939 Stony Ford Dr., Dallas, Texas 75287. Includes presently exercisable options for the purchase of 296,000 shares of our Common Stock pursuant to the 1995 Stock Option Plan and the 2000 Special Stock Option Plan.

(15)

SCO Capital Partners LLC's address is 1285 Avenue of the Americas, 35th Floor, New York, NY 10019. SCO Capital Partners LLC and affiliates (Beach Capital LLC, Lake End Capital LLC, Howard Fisher, Jeffrey B. Davis and Mark J. Alvino) are known to beneficially own warrants to purchase an aggregate of 4,682,040 shares of our Common Stock and 5,454,544 shares of Common Stock issuable to them upon conversion of notes. Each of Mr. Davis and Mr. Alvino, our directors and executives with SCO Capital Partners LLC, disclaims beneficial ownership of such shares except to the extent of his pecuniary interest therein.

(16)

Does not include shares held by SCO Securities LLC and affiliates (other than shares underlying warrants held directly by Messrs. Davis and Alvino).

 

 

Plan Category		Number of securities to be issued upon exercise of outstanding options, warrants and rights		Weighted-average exercise price of outstanding options, warrants and rights		Number of securities remaining available for future issuance under equity compensation  plans (excluding  securities reflected in column (a))
		(a)		(b)		(c)
Equity compensation plans approved by security holders 2005 Equity Incentive Plan 1995 Stock Awards Plan 2001 Restricted Stock Plan		802,672 360,917 -		$ 1.04 $18.03 -		197,328 - 52,818
Equity compensation plans not approved by security holders 2000 Special Stock Option Plan		100,000		$12.50		-
Total		1,263,589		$ 6.80		250,146

 

			Common Stock
			High			Low
Quarter Ended
First quarter March 31, 2007		$	10.66		$	2.50
Second quarter April 30, 2007			6.75			4.75

 

Fiscal Year Ended December 31, 2006
First quarter		$	2.65		$	0.80
Second quarter			1.50			0.10
Third quarter			1.30			0.45
Fourth quarter			3.00			1.05
Fiscal Year Ended December 31, 2005
First quarter		$	18.30		$	11.00
Second quarter			15.05			8.80
Third quarter			9.95			2.80
Fourth quarter			8.65			2.60