Business Context and Reporting Period
Company: Access Pharmaceuticals, Inc. (Note: Metadata listed "Abeona Therapeutics," but the filing text identifies the registrant as Access Pharmaceuticals, Inc.)
Filing Type: Form 10-Q
Period Ended: September 30, 2008
Filing Date: November 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 company is a smaller reporting company and has been unprofitable since inception.
Key Financial Metrics
| Metric | Three Months Ended Sept 30, 2008 | Nine Months Ended Sept 30, 2008 |
|---|---|---|
| Total Revenue | $47,000 | $217,000 |
| Net Loss | $(2,806,000) | $(15,644,000) |
| Net Loss Allocable to Common Stockholders | $(3,329,000) | $(18,517,000) |
| Loss Per Share (Basic & Diluted) | $(0.57) | $(3.30) |
| Cash and Cash Equivalents | $201,000 (as of Sept 30, 2008) | |
| Working Capital | $79,000 (as of Sept 30, 2008) | |
| Accumulated Deficit | $(132,841,000) | |
| Long-Term Debt | $5,500,000 (Convertible note due Sept 2011) | |
| Preferred Stock Dividends Accrued | $1,799,000 (Payable in cash or stock) |
Cash Flow: Net cash used in operating activities for the nine months ended September 30, 2008, was $4,605,000. The net cash burn rate for the period was approximately $506,000 per month.
Material Changes vs. Prior Period
- Revenue Increase: Total revenue increased from $6,000 in the prior year quarter to $47,000 in Q3 2008, driven by licensing revenues ($38,000 vs. $6,000) and new sponsored research revenue ($9,000 vs. $0).
- Expense Surge: Total operating expenses increased by $1,132,000 to $2,789,000 in Q3 2008 compared to Q3 2007.
- R&D Expenses: Increased by $688,000 to $1,284,000, primarily due to manufacturing costs for the ProLindac trial ($259,000) and increased scientific consulting.
- G&A Expenses: Increased by $439,000 to $1,439,000, largely due to an accrual of $366,000 for potential liquidated damages related to investor rights agreements.
- Acquisition Impact: The nine-month period included a one-time non-cash expense of $8,879,000 for in-process research and development (IPR&D) related to the acquisition of Somanta Pharmaceuticals, Inc. in January 2008.
- Interest Expense Reduction: Interest and other expense decreased significantly ($192,000 in Q3) due to the exchange of $9,015,000 in convertible notes for preferred stock in November 2007.
Outlook, Risks, and Management Commentary
- Liquidity and Going Concern: Management states capital resources are adequate to fund operations into the fourth quarter of 2009. However, the company explicitly states it does not have enough capital to achieve long-term goals and will be required to seek additional financing within the next twelve months. The independent auditor previously expressed significant doubt about the company's ability to continue as a going concern.
- Internal Controls: The company identified a material weakness in internal controls over financial reporting due to inadequate resources and a lack of segregation of duties (all financial reporting is performed by the CFO). Disclosure controls and procedures were deemed ineffective as of September 30, 2008.
- Liquidated Damages Risk: The company accrued $415,000 in liquidated damages as of September 30, 2008, because it failed to maintain an effective registration statement for securities issuable upon conversion of Series A Preferred Stock. A registration statement was declared effective on November 13, 2008.
- Strategic Developments:
- Retained Piper Jaffray to pursue partnerships for ProLindac, Angiolix, and Cobalamin programs.
- Entered a definitive merger agreement to acquire MacroChem Corporation (subject to conditions).
- Loaned $225,000 to MacroChem to maintain their licenses.
Investor Verification Checklist
- Cash Runway: Verify the current cash balance and burn rate to confirm the ability to operate through Q4 2009 as stated.
- Financing Needs: Assess the likelihood and terms of the required additional financing within the next 12 months, noting the risk of dilution.
- Registration Statement Status: Confirm the effectiveness of the registration statement filed on November 13, 2008, to determine if further liquidated damages will accrue.
- MacroChem Merger: Review the conditions precedent for the MacroChem acquisition and the status of the $225,000 loan provided to them.
- Internal Controls: Evaluate the company's plan to remediate the material weakness in internal controls and the potential impact on future financial reporting reliability.
- Preferred Stock Dividends: Monitor the payment of the $1.8 million in accrued dividends, noting they may be paid in stock, which would increase dilution.