Business context and reporting period
This is Access Pharmaceuticals, Inc.’s Form 10-K for the fiscal year ended December 31, 2013, filed March 26, 2014. The request identifies Abeona Therapeutics, but the supplied filing is for Access Pharmaceuticals; the filing does not identify Abeona as the registrant. The annual results below compare 2013 with 2012, rather than reporting standalone fourth-quarter results.
Access was an emerging biopharmaceutical company with one marketed product, MuGard, for oral mucositis, and preclinical drug-delivery platforms CobOral and CobaCyte. MuGard’s U.S. commercialization was licensed to AMAG in June 2013; partners held rights in China and other territories. The company was seeking additional licensing and development partners.
Financial performance and condition
| Metric | 2013 | 2012 |
|---|---|---|
| Total revenue | $2.042 million | $4.404 million |
| Operating expenses | $5.846 million | $8.720 million |
| Loss from operations | $3.804 million | $4.316 million |
| Net income (loss) | $4.449 million | $(10.532) million |
| Net income (loss) allocable to common stockholders | $1.551 million | $(12.531) million |
| Cash and cash equivalents at year-end | $424,000 | $396,000 |
- Revenue fell 54%, mainly as U.S. MuGard product sales shifted to royalties after the AMAG license and prior-year European termination revenue did not recur. U.S. MuGard product sales were $1.529 million, down from $2.865 million; licensing revenue was $435,000, down from $1.446 million; royalties were $78,000, versus $93,000.
- Operating expenses declined 33%, including lower R&D ($884,000 versus $2.010 million) and SG&A ($4.834 million versus $6.024 million). The company cited reduced staffing, completed trials, laboratory closure, and lower MuGard selling costs.
- 2013 net income included an $8.010 million non-cash gain from remeasurement of the preferred-stock derivative liability, compared with a $4.770 million loss in 2012. The resulting reported profit did not reflect operating profitability: the company had a $3.804 million operating loss.
- Preferred dividends accrued were $2.898 million, up from $1.999 million. The financial statements report basic and diluted earnings per share of $0.06; a note reports basic EPS of $0.05 and diluted EPS of $0.06.
- Reported cash flow from operations was approximately $1,000 in 2013, compared with cash used of $3.955 million in 2012. Management separately reported net cash expenditures of about $289,000 per month for 2013.
- Working capital deficit was $8.386 million, versus $4.948 million a year earlier. Total liabilities were $15.392 million and total assets $613,000. No debt was reported at year-end; the $2.75 million secured note had been repaid in November 2012.
Material changes, outlook, risks and unusual items
- AMAG paid a $3.3 million upfront U.S. MuGard license fee, recognized as deferred revenue over the ten-year license term, and purchased existing inventory. Access is entitled to tiered double-digit royalties on net sales. In March 2014, Access also announced a South Korea license with Hanmi, including an upfront fee and double-digit royalties.
- The independent auditor cited substantial doubt about Access’s ability to continue as a going concern, based on recurring operating losses, negative operating cash flows, accumulated deficit of $266.421 million, and liquidity. Management said current resources, royalties, and expected license receipts should fund its current operating level for twelve months, but also said additional financing would be required to support ongoing and planned operations. No assurance of financing was provided.
- Management expected continued losses for several years. It estimated next-twelve-month operating cash disbursements of approximately $126,000 per month, excluding offsetting royalties, and forecast minor capital expenditures. It stated that longer-term goals required additional capital.
- Access reported a material weakness in financial reporting controls, principally inadequate monitoring and review of work by finance personnel and insufficient segregation of duties. Management concluded internal control over financial reporting and disclosure controls were not effective at December 31, 2013. The auditor did not provide an internal-control attestation.
- Potential dilution is substantial: Series A and B preferred stock were convertible into approximately 58.1 million and 20 million common shares, respectively, as of March 2014; 31.9 million warrants were outstanding at year-end. The preferred shares carry dividend, anti-dilution, and liquidation rights superior to common stock. Series A and B dividend rates are 6% and 12% annually.
- Access had accrued $857,000 in potential registration-related liquidated damages, though it noted payment might not be required if shares were freely saleable under Rule 144. A plaintiff’s appeal remained pending after claims against Access defendants were dismissed in 2013. The company said it would contest the matter.
- After year-end, Access announced publication of results from a 120-patient MuGard post-marketing study and development of ProctiGard for radiation proctitis; it was seeking partners for ProctiGard. These announcements do not establish future commercial success. Access also completed work on its Synthetic Polymer Targeted Drug Delivery Technology and returned the license.
- Other risks include dependence on licensing partners and contract manufacturers, clinical and regulatory uncertainty, competition, patent and reimbursement risks, and limited staffing. The filing reported six full-time employees as of March 2014.
Most important facts for investors to verify
- How much cash and committed funding Access actually had after year-end, and whether the stated twelve-month runway assumptions—including expected royalties and license receipts—were realized.
- The composition and sustainability of 2013 reported income, especially the $8.010 million preferred-stock derivative gain, and the EPS difference between the statements and notes.
- MuGard sales and royalty performance under AMAG and territorial licenses, including the economics and payment terms of the Hanmi agreement.
- The full potential dilution, dividend burden, registration-damage exposure, and control implications of preferred stock and outstanding warrants.
- Whether the material weakness in internal controls was remediated, and the status and financial exposure of the pending appeal and other contingencies.
- Whether clinical evidence, regulatory requirements, and partner interest support ProctiGard and the company’s preclinical platforms.