Business Context and Reporting Period
Company: Access Pharmaceuticals, Inc. (Note: Request metadata listed "Abeona Therapeutics," but the filing text identifies the registrant as Access Pharmaceuticals, Inc.)
Filing Type: Form 10-Q
Period Ended: June 30, 2008
Filing Date: August 14, 2008
Access Pharmaceuticals is an emerging biopharmaceutical company focused on nanopolymer chemistry technologies. The company has one FDA-approved product (MuGard for oral mucositis), two products in Phase 2 clinical trials (ProLindac and Phenylbutyrate), and several candidates in pre-clinical development. The reporting period includes the impact of the acquisition of Somanta Pharmaceuticals, Inc., which closed on January 4, 2008.
Key Financial Metrics
| Metric | Six Months Ended June 30, 2008 | Six Months Ended June 30, 2007 |
|---|---|---|
| Total Revenues | $170,000 | $0 |
| Net Loss | $(12,838,000) | $(6,236,000) |
| Net Loss Allocable to Common Stockholders | $(15,188,000) | $(6,236,000) |
| Loss Per Share (Basic & Diluted) | $(2.76) | $(1.76) |
| Research & Development Expenses | $10,824,000 | $936,000 |
| General & Administrative Expenses | $1,933,000 | $2,252,000 |
| Cash and Cash Equivalents (June 30, 2008) | $96,000 | N/A |
| Total Cash, Equivalents & Short-Term Investments (Aug 13, 2008) | $5,401,000 | N/A |
| Working Capital (June 30, 2008) | $2,569,000 | $6,239,000 (Dec 31, 2007) |
| Long-Term Debt | $5,500,000 | $5,500,000 |
| Accumulated Deficit | $(129,512,000) | $(114,324,000) |
Liquidity: The company reported a net cash burn rate of approximately $556,000 per month for the six months ended June 30, 2008. Management estimates capital resources are adequate to fund operations into the fourth quarter of 2009.
Material Changes vs. Prior Period
- Revenue: The company generated $170,000 in revenue for the six months ended June 30, 2008, compared to $0 in the prior year. This consists of $39,000 in licensing revenue and $131,000 from a sponsored research agreement.
- R&D Expenses: R&D spending surged to $10.8 million from $0.9 million in the prior year. This increase is primarily driven by a one-time non-cash charge of $8.9 million for in-process research and development (IPR&D) related to the Somanta acquisition, plus $0.8 million for ProLindac clinical trial manufacturing.
- Net Loss: Net loss increased by $8.9 million year-over-year, largely due to the non-cash IPR&D charge and increased operating costs associated with the Somanta acquisition and new clinical trials.
- Interest Expense: Interest and other expense decreased significantly to $225,000 from $2.96 million in 2007. This reduction is attributed to the exchange of $9 million in convertible notes for preferred stock in November 2007.
- Preferred Stock Dividends: The company accrued $1.042 million in preferred stock dividends for the six months ended June 30, 2008, compared to none in 2007. This includes a $857,000 charge related to a beneficial conversion feature.
Guidance, Outlook, Risks, and Unusual Items
Outlook and Guidance: Management expects to incur losses for the next several years. Capital resources are projected to be sufficient through the fourth quarter of 2009, after which additional financing will be required. The company anticipates receiving milestone payments and royalties from licensing partners (SpePharm, RHEI, and ASK).
Recent Developments:
- Merger Agreement: On July 10, 2008, the company signed a definitive agreement to acquire MacroChem Corporation. The transaction is subject to conditions and closing is not assured.
- Licensing: On June 4, 2008, a licensing agreement was signed with Jiangsu Aosaikang Pharmaceutical Co., Ltd. (ASK) for the Greater China Region regarding ProLindac.
Risks and Contingencies:
- Going Concern: The company has a history of losses and an accumulated deficit of $129.5 million. The auditor's report for the prior year expressed significant doubt about the company's ability to continue as a going concern.
- Internal Controls: Management identified a material weakness in internal controls over financial reporting due to a lack of segregation of duties, as all financial reporting is performed by the Chief Financial Officer.
- Liquidated Damages: The company is accruing liquidated damages (1% per month) because a registration statement required for the conversion of Series A Preferred Stock has not yet been declared effective by the SEC. As of June 30, 2008, $50,000 in damages had been accrued.
- Dividend Arrears: The company has accrued $1.276 million in unpaid preferred stock dividends as of June 30, 2008.
Investor Verification Checklist
- Cash Runway: Verify the current cash balance and burn rate to confirm the ability to fund operations through Q4 2009 as stated.
- MacroChem Merger: Monitor the status of the proposed acquisition of MacroChem Corporation, as closing is subject to numerous conditions.
- Registration Statement: Confirm the status of the registration statement for Series A Preferred Stock conversion to assess potential future liquidated damages.
- Internal Controls: Review the company's progress in remedying the material weakness in internal controls over financial reporting.
- Preferred Stock Dividends: Track the payment status of the $1.276 million in accrued preferred dividends and the potential for dilution if paid in stock.
- ProLindac Progress: Monitor the initiation and results of the Phase 2 clinical trials for ProLindac, which are critical for future revenue milestones.