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1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
/x/ Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended December 31, 1997
Commission File Number 0-9314
ACCESS PHARMACEUTICALS, INC.
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(Exact name of registrant as specified in its charter)
Delaware 83-0221517
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(State of Incorporation) (I.R.S. Employer I.D. No.)
2600 Stemmons Freeway, Suite 176, Dallas, TX 75207
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code:(214) 905-5100
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, Four Cents ($0.04) Par Value
------------------------------------------
(Title of Class)
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
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of the registrants knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K. / /
The aggregate market value of the outstanding voting stock held by
non-affiliates of the registrant as of March 27, 1998 was approximately
$5,957,000.
As of March 27, 1998 there were 37,442,343 shares of Access
Pharmaceuticals, Inc. Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE: Portions of Registrant's Definitive
Proxy Statement filed with the Commission pursuant to Regulation 14A in
connection with the 1998 Annual Meeting are incorporated herein
by reference into Part III of this report. Other references incorporated
are listed in the exhibit list in Part IV of this report.
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PART I - FINANCIAL INFORMATION
ITEM 1. BUSINESS
Overview of Current Operations
Access Pharmaceuticals, Inc. (together with its
subsidiary, "Access" or the "Company") was founded in
1974 as Chemex Corporation, a Wyoming corporation, and
in 1983 changed its name to Chemex Pharmaceuticals,
Inc. ("Chemex"). Chemex changed its state of
incorporation from Wyoming to Delaware on June 30,
1989. In connection with the merger of Access
Pharmaceuticals, Inc., a Texas corporation ("API"),
with and into the Company on January 25, 1996, (the
"Merger"), the name of the Company was changed to
Access Pharmaceuticals, Inc.
On December 9, 1997, a wholly-owned subsidiary of the
Company merged with Tacora Corporation ("Tacora"), a
privately-held pharmaceutical company based in
Seattle, Washington, whereby Tacora became a wholly-
owned subsidiary of the Company. Under the terms of
the merger agreement, based upon the achievement of
certain milestones enumerated in the merger agreement,
the Company currently may be required to issue up to
approximately 2,750,000 shares of Common Stock to the
former stockholders of Tacora. Such shares of Common
Stock are payable at an escalating value over the
milestone period.
Access's principal executive office is at 2600
Stemmons Freeway, Suite 176, Dallas, Texas 75207; its
telephone number is (214) 905-5100.
Business Summary
Access is a drug delivery company using advanced
polymer technology for application in cancer
treatment, dermatology and imaging. In addition, the
Company has developed a drug to treat canker sores
that was sold to Block Drug Company ("Block") and is
currently being marketed in the United States by Block
subject to a royalty agreement with the Company. The
Company's lead compounds are as follows:
Polymer Platinate (AP 5070) - Platinum compounds are
one of the largest selling categories of
chemotherapeutic agents with annual sales in excess of
$800 million. As is the case with all
chemotherapeutic drugs, the use of Cisplatin is
associated with serious systemic side effects. The
drug delivery goal therefore is to enhance delivery of
the drug to the tumor and minimize the amount of drug
affecting normal organs in the body. The Company's
Polymer Platinate, (as to which the Company has
applied for patents) seeks to achieve this goal by
attaching a large polymer to a small Platinum
molecule, taking advantage of the fact that the cells
lining the walls of blood vessels that feed tumors are
usually leaky or hyperpermeable, allowing the large
Polymer Platinate molecule to enter the tumor in
preference to other tissue, which does not have leaky
or hyperpermeable blood vessels. On the other hand,
the capillary/lymphatic drainage system of tumors is
not well developed and limited, so the drug gets
trapped in the tumor. This effect is called enhanced
permeability and retention (EPR). In addition, the
polymer is designed to shield the Platinate to
minimize interactions with normal cells, thereby
reducing toxicity. The proposed mechanism of drug
uptake by tumor cells bypasses known membrane
associated mechanisms for development of tumor
resistance, which could provide a further significant
clinical advantage in treating drug resistant patients
and avoiding drug resistance.
In animal models, the Company's Polymer Platinate has
delivered up to 63 times the amount of Platinum to
tumors compared with Cisplatin alone at the maximum
tolerated dose, and the Company's Polymer Platinate
was approximately 2.5 times more effective in
inhibiting tumor growth than Cisplatin alone. In
terms of dosing, in animal studies, up to 15 times
more Platinum has been injected using the Company's
Polymer Platinate, which could be clinically
significant as Platinum has a steep dose response
curve. Consequently, clinical outcome could be
greatly improved as a result of the ability to deliver
additional drug to the tumor.
The Company plans to commence human clinical trials
for its Polymer Platinate in the next 12 months, if
the results of additional ongoing activities are
successful.
Zinc Clindamycin - The addition of zinc to a drug has
the effect of enhancing the penetration of the drug
into the skin, yet holding the drug in the skin,
making zinc effective for the delivery of
dermatological drugs. The Company has a broad patent
covering the use of zinc for such purposes.
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The first zinc drug being developed by Access, in
conjunction with its licensing partner, is Zinc
Clindamycin for the treatment of acne. Acne drugs
constitute an approximately $700 million dollar per
year market. Clindamycin is a widely prescribed drug
for the treatment of acne, and Access believes that
the addition of zinc could potentially significantly
increase the effectiveness of the drug through the
reservoir effect of zinc, the activity of zinc and
Clindamycin, the improved stability of the product and
the potential for zinc to overcome certain bacterial
resistance. Clinical trials for Zinc Clindamycin are
planned to commence in the second half of 1998.
The Company believes that its zinc technology could
provide a broad development platform for improved
delivery of many topically applied products. The next
product to be developed is expected to be zinc with
Bethamethazone, for applications in a variety of
inflammatory dermatological conditions. Additional
developments are planned using vitamin D, retanoids
and anti-fungals.
Access had entered into a license agreement with
Strakan Limited ("Strakan") relating to its zinc
technology. Strakan has agreed to fund the
development costs of Zinc Clindamycin and any
additional compounds developed utilizing the zinc
patent, and will share equally all milestones payments
received from the sublicensing of the compound. In
addition, Access will receive a royalty on sales of
products based on this technology.
MRI Imaging Agent - Magnetic resonance imaging (MRI)
is a non-radioactive method of producing imaging for
the diagnosis of a broad range of diseases and
conditions. To date, for the diagnosis of cancer, the
sensitivity of MRI has been insufficient to pick up
very small tumors. The Company is developing an
imaging agent that may greatly enhance the ability of
MRI to detect certain small tumors. Currently,
gadolinium, a rare earth metal, is used as an imaging
agent in MRI, but its use is restricted to imaging
brain tumors and the central nervous system. The
problem is that gadolinium alone defuses much too
rapidly throughout the body and is eliminated very
quickly. The Access imaging agent consists of
gadolinium bound to a chelate and attached to a
polymer that selectively binds to tumors. Animal
studies have indicated that the use of this imaging
agent can result in up to 40% brighter images and the
ability to detect tumors significantly smaller than
currently available techniques. In addition, in
animal studies, the imaging agent has increased the
time period during which images can be taken by factor
of up to four, which would be a major practical
advantage in diagnosing patients.
Access has a collaboration with The Dow Chemical
Company ("Dow Chemical") to develop an improved
compound utilizing Dow Chemical's chelation technology
to bind gadolinium and attach to the polymer. In
prior formulations of the imaging agent, the chelator
was considered insufficiently pure for purposes of
clinical development.
Amlexanox - This is currently the only compound
approved by the FDA for the treatment of canker sores.
Independent market research sponsored by the Company
indicates that more than 7 million patients visit
doctors or dentists per year in the United States with
complaints of canker sores. In 1995, Access sold
amlexanox to Block subject to a retained royalty.
Access is currently in negotiations with Block for the
international rights to the product (except for
Japan). On the closing of such an agreement Access
has agreed to grant Strakan rights to the product for
the United Kingdom and Ireland. Strakan has commenced
the European registration process for the product. It
is anticipated that the product will be registered
throughout Europe in 1999. An international
outlicensing program is ongoing.
Access has commenced work on developing an over-the-
counter version of amlexanox, which could have
significantly higher sales potential than the
prescription drug. In addition, Block has an
Investigational New Drug Application ("IND") to
commence clinical trials to expand the number of
indications for amlexanox. The Company expects that
such trials will initially focus on treatment of
mucositis in chemotherapy patients.
Access owns additional patented advanced technologies
designed to deliver drug in response to specific
diseases or take advantage of biological mechanisms.
This technology includes potential vaccine delivery
and recognition of disease sites, including cancer.
These technologies are designed to provide the
Company's next advanced drug delivery product
development candidates.
Company Profile
Access is a Site-Directed Targeting Company using
biresponsive drug carriers to target and control the
release of therapeutic agents into sites of disease
activity and clear the non-targeted fraction.
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Company Vision
Lead the industry in the Site-Directed Targeting and
Controlled Release of therapeutic agents that take
advantage of the body's biological mechanisms to
enhance the clinical effectiveness and reduce the
toxicity of a broad range of potent drugs.
Drug Development Strategy
Part of Access' integrated drug development strategy
is to form creative alliances with centers of
excellence so drug delivery opportunities can be fully
maximized. Access has signed agreements with The
School of Pharmacy, University of London for platinate
polymer technology, Dow Chemical in chelation
technology for imaging products and
radiopharmaceuticals, Strakan Ltd for the delivery of
topical therapeutic agents which exploit the Access
zinc patent and Duke University for advanced drug
delivery systems.
The Access strategy is to initially focus on utilizing
its technology in combination with approved drug
substances to develop novel patentable formulations of
potential therapeutic and diagnostic products. The
Company believes that this will expedite product
development, both preclinical and clinical, and
ultimately product approval. To reduce financial risk
and equity financing requirements, Access is directing
its resources to the preclinical and early clinical
phase of development and plans to outlicense to, or
co-develop with, marketing partners its current
product candidates during the clinical development
phases.
Access has initiated and will continue to expand its
internal core capabilities of chemistry, formulation,
analytical methods development, initial process scale
up, carbohydrate analysis, drug/diagnostic targeting
screens and project management capability to maximize
product opportunities in a timely manner. The
manufacturing scaleup, preclinical testing and product
production will be contracted to research
organizations, contract manufacturers and strategic
partners. Given the current cost containment and
managed care environment both in the United States and
overseas and the difficulty for a small company to
effectively market its products, Access does not
currently plan to become a fully integrated
pharmaceutical company.
Consequently, Access expects to form strategic
alliances for product development and to outlicense
the commercial rights to development partners. By
forming strategic alliances with major pharmaceutical
and diagnostic companies, it is believed that the
Access technology can be more rapidly developed and
successfully introduced into the marketplace.
Scientific Background
The ultimate criterion of effective drug delivery is
to control and optimize the localized release of drug
at the target site and rapidly clear the non-targeted
fraction. Conventional drug delivery systems such as
controlled release, sustained release, transdermal
systems, etc., are based on a physical erosion process
for enhancing active product into the systemic
circulation with the objective of improving patient
compliance. These systems do not address the
biologically relevant issues such as site targeting,
localized release and clearance of drug. The major
factors that impact the achievement of this ultimate
drug delivery goal are the physical characteristics of
the drug and the biological characteristics of the
disease target sites. The physical characteristics of
the drug affect solubility in biological systems, its
biodistribution throughout the body, and its
interactions with the intended pharmacological target
sites and undesired areas of toxicity. The biological
characteristics of the diseased area impact the
ability of the drug to selectively interact with the
intended target site to allow the drug to express the
desired pharmacological activity. The Access
technology platforms are differentiated from
conventional drug delivery systems in that they seek
to apply a disease specific approach to improve the
drug delivery process with polymer carrier
formulations to significantly enhance the
therapeutic efficacy and reduce toxicity of a broad
spectrum of products. This is achieved by utilizing
Bio~Responsive TM Polymers as novel drug delivery
solutions to match the specific physical properties of
each drug with the biological characteristics of each
disease and targeting sites of disease activity. The
Company believes that the ability to achieve
physiological triggering of drug release at the
desired site of action could enable the Access
Bio~Responsive TM Polymers to potentially have broad
therapeutic applications in the site specific delivery
of chemotherapeutic agents in cancer, infection,
inflammation, drugs for other autoimmune diseases,
proteins, peptides and gene therapy.
Bio~Responsive TM Polymers mimic the natural transport
mechanisms in the body which are involved in the
localized delivery of biological mediators and
cellular trafficking. Access uses a multi-faceted
approach through the use of both natural carbohydrates
and synthetic polymers. Access' central focus is to
use Bio~Responsive TM Polymers systems that
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can respond to normal biochemical or disease-induced signals to
localize drug carrier and release drug in a highly
selective fashion. These polymeric drug carriers can
be applied to a wide range of drug molecules including
proteins and nucleotides and can be engineered to
control pharmacokinetics and body distribution, site-
selectivity, site-release of drug and drug clearance
from non-target sites.
Access Core Technology Platforms
Access' current technology platforms take advantage of
the following biological mechanisms to improve drug
delivery:
* disease specific carbohydrate recognition by
vascular endothelial cells and underlying tissue
* enhanced permeability and retention in tumors
* triggered secretion of biological mediators
Access Carbohydrate Polymer Drug Delivery Technology
The Access carbohydrate polymer drug delivery
technology exploits specific changes in the vascular
endothelium that occur during disease processes. These
carriers mimic disease-specific, carbohydrate
recognition by vascular endothelium cells and
underlying tissue. It has been well established that
white blood cells can recognize, target and permeate
disease sites by means of surface carbohydrates which
bind to cytokine-induced endothelium plus underlying
tissue and cells. A number of receptors on the
endothelium and on underlying tissue are known to bind
sulfated glycosaminoglycans, such as heparin and
dermatan sulfate. Access has developed
glycosaminoglycan carriers to selectively image and
treat diseases involving the neovascular endothelium.
Access believes that its glycosaminoglycan technology
has broad potential in a number of therapeutic
applications including cancer, inflammation and
infection.
Access Synthetic Soluble Polymer Drug Delivery
Technology
In collaboration with The School of Pharmacy,
University of London, Access has developed a number of
synthetic polymers, including hydroxypropylmethacrylamide
co-polymers and polyamidoamines designed to be used to exploit EPR
("enhanced permeability and retention") in tumor cells
and control drug release. Many solid tumor cells
possess vasculature that is hyperpermeable (i.e.,
"leaky") to macromolecules. In addition to this
enhanced permeability, tumors usually lack effective
lymphatic and/or capillary drainage. Consequently they
selectively accumulate circulating macromolecules (up
to 10% of an intravenous dose per gram in mice). This
effect has been termed EPR, and is thought to
constitute the mechanism of action of SMANCS (styrene-
maleic/anhydride-neocarzinostatin), which is in
regular clinical use in Japan for the treatment of
hepatoma. These polymers take advantage of endothelial
permeability with the drug carrying polymers getting
trapped in tumors and then being taken up by tumor
cells. Linkages between the polymer and drug can be
designed to be cleaved extracellularly or
intracellularly. Drug is released inside the tumor
mass while polymer/drug not trapped in tumors is
renally cleared from the body. Data generated in
animal studies have shown that the polymer/drug
complexes are far less toxic than free drug alone and
that greater efficacy can be achieved. Thus, these
polymer complexes have demonstrated significant
improvement in the therapeutic index of anti-cancer
drugs, e.g. cisplatin.
Access Condensed Phase Smart Polymer Drug Delivery
Technology
The Access condensed phase polymer system is based on
the Smart Polymer Matrixes of Secretory Granules from
secretory cells such as the mast cell or goblet cell.
The matrix in the secretory granule of the mouse mast
cell contains a negatively charged, heparin
proteoglycan network which condenses in the presence
of divalent cations, such as calcium and histamine,
and monovalent cations, such as sodium. This matrix
has a number of unique electrical and mechanical
properties in response to biochemical or electrical
signals. The heparin gel expands several-fold when a
secretory granule fuses with a cell membrane, allowing
ions from outside the cell to rush in, causing release
of contents. Thus, nature has evolved a highly
advanced "smart polymer" gel to control the storage
and release of molecules destined for exocytosis.
These ubiquitous natural mechanisms can be mimicked by
engineering smart polymer matrices to deliver a wide
range of molecules, including proteins and genes, in
response to specific triggering stimuli. This natural
mechanism provides the basis of a novel technology for
releasing drugs on demand, with avoidance of systemic
toxicities. Access has commenced the development of a
system to mimic the secretory granule matrix to meet
the biological requirement of different drugs,
delivery routes and disease processes. In a unique
inventive step, bioengineered, pore-forming proteins,
with triggers and switches that self assemble in
membranes, can be incorporated
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into coated particles to control drug release. This represents a logical
step in the development of the next generation of
Access drug delivery technology platforms towards
commercialization of systems that can trigger the
release of drug, at site, in response to disease-
specific signals. Initial proof of concept will focus
on the triggered release of chemotherapeutic cancer
and anti-inflammatory agents and vaccines.
Access Topical Delivery Technology
Access has granted a license to Strakan, for the
development of compounds that utilize zinc ions to
produce a reservoir of drug in the skin to increase
the efficacy of topically applied products and to
reduce toxicity. There are many localized disease
conditions, which are effectively treated by topical
application of suitable pharmaceutical agents. In
order for such treatments to be maximally effective,
it is necessary that as much of the active agent as
possible be absorbed into the skin where it can make
contact with the disease condition in the dermal
tissue without being lost by rubbing off on clothing
or evaporation. At the same time, the agent must not
penetrate so effectively through the skin that it is
absorbed into the systemic circulation. This latter
factor is especially important after trying to
minimize unwanted side-effects of the
pharmacologically active agent. The ideal vehicle for
topically applied pharmaceuticals is one which can
produce a "reservoir effect" in the skin or mucous
membranes. Such a reservoir effect can be produced by
the complexation of suitable pharmaceutical agents
with zinc ions, by an as yet unknown mechanism. This
"reservoir effect" is defined as an enhancement of the
skin or membrane's ability to both absorb and retain
pharmacological agents, i.e.:
- To increase skin or membrane residence time
- To decrease drug transit time
- To reduce transdermal flux
A number of compounds are known to enhance the ability
of pharmacologically active agents to penetrate the
skin, but have the disadvantage of allowing rapid
systemic dispersion away from the site of disease.
Many topical agents, such as the retinoids used in the
treatment of acne, and methotrexate, used in the
treatment of psoriasis, are systemically toxic. There
is therefore a need for a method of enhancing the
ability of such agents to penetrate the skin so that
a lesser total dosage may be used, while at the same
time retarding their ability to move from the skin to
the systemic circulation.
Under the terms of this agreement Strakan has agreed
to fund the development costs of Zinc Clindamycin and
any additional compounds developed utilizing the zinc
patent, and will share equally in all milestone
payments received from sublicensing of the compound.
In addition, the Company will receive a royalty on
sales of products based on this technology.
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Research Projects, Products and Products in
Development
ACCESS DRUG PORTFOLIO
FDA Clinical
Compound Originator Indication Filing Stage(1)
- -------- -------- -------- -------- --------
Cancer
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AP 4010 Access Anti-tumor Development Pre-Clinical
AP 5070 Access Anti-tumor Development Pre-Clinical
AP 2011 Access MRI Contrast Agent Development Research
Radiopharmaceutical Access Cancer Diagnosis Development Research
Amlexanox(2) Takeda Mucositis IND Phase Phase I
Topical Delivery
- ----------------
Amlexanox(2)
(CHX-3673) Takeda Oral ulcers FDA Approved Completed
Zinc compound(3) Access Enhancing drug Development Pre-Clinical
penetration and
retention in the
skin (acne)
(1) See "Government Regulations" for description of
clinical stages.
(2) Sold to Block. Subject to a Royalty Agreement.
(3) Licensed to Strakan.
Access begins the product development effort by
screening and formulating potential product
candidates, selecting an optimal active and
formulation approach and developing the processes and
analytical methods. Pilot stability, toxicity and
efficacy testing are conducted prior to advancing the
product candidate into formal preclinical development.
Specialized skills are required to produce these
product candidates utilizing the Access technology.
Access has a core internal development capability with
significant experience in these formulations.
Once the product candidate has been successfully
screened in pilot testing, Access' scientists together
with external consultants, assist in designing and
performing the necessary preclinical efficacy,
pharmacokinetic and toxicology studies required for
IND submission. External investigators and scaleup
manufacturing facilities are selected in conjunction
with Company consultants. Access does not plan to have
an extensive clinical development organization as this
is planned to be conducted by a development partner.
With all of Access's product development candidates,
there can be no assurance that the results of the in
vitro or animal studies are or will be indicative of
the results that will be obtained if and when these
product candidates are tested in humans. There can be
no assurance that any of these projects will be
successfully completed or that regulatory approval of
any product will be obtained.
The Company (both Chemex and API) expended
approximately $2,433,000, $1,405,000 and $1,981,000 on
research and development during the years 1997, 1996
and 1995, respectively. Expenditures on research and
development are expected to increase during 1998 and
subsequent years, subject to funding.
Approved Product Amlexanox
Amlexanox is the first and only prescription
medication indicated specifically for the treatment of
canker sores, in
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patients with normal immune systems.
There are numerous OTC products available which will
temporarily relieve the pain associated with canker
sores, however, amlexanox is the only prescription
medication specifically indicated to treat canker
sores. Current estimates indicate approximately 20% of
the U.S. adult population suffers from canker sores,
of which 15 million patients claim their canker sores
recur.
Block has the worldwide rights to the product and have
launched the product in the United States in December
1997. Access is currently in negotiations with Block
with respect to the international rights to the
product (expect Japan). On the closing of such an
agreement, Access has agreed to grant Strakan rights
to the product for the United Kingdom and Ireland.
Strakan has commenced the European registration
process for the product. It is anticipated that the
product will be registered throughout Europe in 1999.
An international outlicensing program is ongoing.
Development Program Topical Delivery
Access has a patent for enhancing drug penetration and
retention in the skin utilizing zinc ions, which is
licensed to Strakan. A wide range of agents are
potentially suitable for complexing with zinc ions,
with examples from all of the major dermatological
product groups including, anti-bacterials, anti-
fungals, steroids, anti-histamins, analgesics, anti-
inflammatories and anti-psoriasis agents.
Zinc clindamycin - the most advanced development
(scheduled for clinical testing commencing in the
second half of 1998) is a combination of zinc and
clindamycin in the treatment of acne. The market for
acne treatments exceeds $700 million in Europe and the
USA. The potential product advantage of this
development is anticipated to be improved efficacy
and/or reduced dosing.
Zinc steroid - formulation development has commenced
on incorporating a steroid in a zinc complex. It is
anticipated that preclinical development will be
concluded in 1998, with clinical testing commencing in
early 1999. Due to the serious side effects of
corticosteroids, potent steroids are used only when a
condition is unresponsive to milder treatment. A
broader usage of more potent steroids could be
achieved utilizing zinc ions to reduce uptake in
circulatory systems and consequently significantly
reduce side effects.
Development Programs Cancer
Approximately one-fourth of all deaths in the United
States are due to malignant tumors. More than 85% of
these are solid tumors, and approximately half of the
patients with these tumors die of their disease. The
cause of death is usually metastatic disease distant
from the original tumor, although uncontrolled primary
tumors can also be fatal. The distant metastases are
treated systematically with anti-cancer drugs and
biological agents, but these attempts are often
unsuccessful. The cost of treating these patients is
enormous, and in 1995 the estimated bill was $50
billion or 5% of the nation's total medical bill. As
the population ages and new sophisticated diagnostic
tests are launched, incidence of detected cancer
continues to rise.
Chemotherapy, surgery and radiation are the major
components in the clinical management of cancer
patients. Chemotherapy is usually the primary
treatment of hematologic malignancies, which cannot be
excised by surgery, and is increasingly used as an
adjunct to radiation and surgery, to improve efficacy,
and is used as the primary therapy for some solid
tumors and metastases. The current optimal strategy
for chemotherapy involves exposing patients to the
most intensive cytotoxic regimens they can tolerate.
Clinicians attempt to design a combination of drugs,
dosing schedule and method of administration to
increase the probability that cancerous cells will be
destroyed while minimizing the harm to healthy cells.
For chemotherapeutic agents to be effective in
treating cancer patients, the agent must reach the
target cells in effective quantities with minimal
toxicity in normal tissues.
Most current drugs have significant limitations.
Certain cancers are inherently unresponsive to
chemotherapeutic agents, other cancers initially
respond but subgroups of cancer cells acquire
resistance to the drug during the course of therapy,
with the resistant cells surviving and resulting in
relapse. Another limitation of current anti-cancer
drugs is that serious toxicity, including bone marrow
suppression or irreversible cardiotoxicity, can
prevent their administration in curative doses.
The Access anti-cancer program is designed to overcome
the physiological barriers to penetration of drugs
into tumor tissue by targeting potent drugs into sites
of disease activity and clearing the non-targeted
fraction.
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Polymer Platinate, AP-5070 - Access, in conjunction
with The School of Pharmacy, University of London, is
developing a soluble, synthetic polymer conjugate
formulation of cisplatin for the first line treatment
of solid tumors in indications where cisplatin is
currently approved. Preliminary animal studies
indicate:
* improved efficacy over standard cisplatin at
maximum tolerated dose
* reduced toxicity over standard cisplatin
* enhanced tumor uptake and retention of polymer
The Company has applied to the EORTC (the European
Organization for Research and Treatment of Cancer) to
enter into human trials. It is anticipated that Phase
I trials will commence in the next twelve months.
Glycopolymer Doxorubicin, AP-4010 - Access has
developed a glycopolymer formulation of doxorubicin
for the potential use in first line treatment of solid
tumors in tumor types where increased amounts of
standard doxorubicin without rate limiting toxicity
would be clinically beneficial. Preliminary animal
studies indicate:
* improved efficacy over standard doxorubicin at
equal dosing levels
* enhanced tumor permeation as indicated by
histological evidence
* reduced toxicity over standard doxorubicin
Due to resource limitations and the need to focus on
a limited number of opportunities this project is
currently on hold and subject to funding. It is not
anticipated that this product will advance to clinical
development until 1999 at the earliest.
Amlexanox Mucositis - Mucositis is often a significant
complication of chemotherapy and can be severe enough
to limit therapy. In addition to causing debilitating
pain, which adversely affects the patients' ability to
eat and speak, the mucositis may promote portals of
entry for harmful microorganisms in patients whose
immune systems can often be compromised. Any treatment
that would accelerate their healing and/or diminish
their rate of appearance would have a significant
beneficial impact on the quality of life of these
patients and may allow for more aggressive
chemotherapy. Mucositis appears to have many clinical
similarities to oral aphthous ulcers and since
amlexanox has been proven to accelerate their healing,
the Company believes it could also have clinical
benefit in chemotherapy-induced mucositis. Therefore,
amlexanox is now in Phase I clinical studies for this
indication with a newer, more suitable formulation.
These studies are being conducted by our partner Block
Drug Company.
Development Programs MRI Imaging Agents
Preoperative diagnostic imaging technologies are used
to determine the existence and the extent of disease.
The principal diagnostic imaging technologies are CT
Scanning and Magnetic Resonance Imaging ("MRI"). Both
methods produce images that show anatomic boundaries
between the tissue suspected of being malignant and
the surrounding tissue, to reveal potential disease.
Neither method gives information allowing a clear
distinction of malignant from nonmalignant tissue. A
more recently developed technology,
immunoscintigraphy, uses a gamma ray detection camera
externally to identify internally localized
radiolabeled antibodies potentially specific to
certain cancers. Although immunoscintigraphy with
certain radiolabeled antibodies appears capable of
distinguishing malignant tumors from nonmalignant
lesions and surrounding tissues, none of the external
imaging technologies, including immunoscintigraphy, is
effective in consistently identifying primary tumors
smaller than one centimeter, in precisely locating the
site or margins of the tumor, in consistently
identifying all metastatic tumor nodules, or in
distinguishing pre-invasive from functionally invasive
tumor behaviors.
The currently available contrast agents for MRI are
nonselective gadolinium based extracellular agents
predominantly used in imaging the central nervous
system.
Access is focused on expanding the utility of MRI
imaging to include body imaging by developing a
site-selective intravenous contrast agent with
improved localization and performance outside as well
as within the central nervous system. Access believes
that improved site selectivity, longer site contrast
with rapid blood clearance, the ability to clearly
delineate tumor boundaries and metastases and the
opportunity to obtain additional valuable information
on prognosis, function, therapeutic response
monitoring and anatomy at high resolution, could be
major competitive advantages of the technology.
10
Access has formulated a site selective, MRI Contrast
Agent for the detection, staging and monitoring of
tumors. Access entered a collaboration with the Dow
Chemical Company for the development of products
incorporating Dow's chelation technology and Access'
Bio~Responsive TM Polymers. The collaboration is focused
on the development of MRI contrast agents and
radiopharmaceutical diagnostic and therapeutics. The
agreement provides Access with extensive chelation
technology, chelation chemistry and assistance over a
broad range of research and development activities.
Dow Chemical is actively participating in the
development of the product candidates.
Patents
Access believes that the value of technology both to
Access and to potential corporate partners is
established and enhanced by its broad intellectual
property positions. Consequently, Access already has
issued and seeks to obtain additional U.S. and foreign
patent protection for products under development and
for new discoveries. Patent applications are filed
with the U.S. Patent and Trademark Office and, when
appropriate, with the Paris Convention's Patent
Cooperation Treaty (PCT) Countries (most major
countries in Western Europe and the Far East) for its
inventions and prospective products.
A United States patent has issued and two European
patents are pending for the use of zinc as a
pharmaceutical vehicle for enhancing the penetration
and retention of drug in the skin. The patent covers
the method of inducing a reservoir effect in skin and
mucous membranes to enhance penetration and retention
of topically applied therapeutic and cosmetic
pharmacologically active agents. The patent also
relates to topical treatment methods including such
reservoir effect enhancers and to pharmaceutical
compositions containing them.
Access acquired the license to two provisional patent
applications for polymer platinum compounds. These two
provisional patent applications are the result of a
collaboration between the Company and the School of
Pharmacy, University of London, from whom the
technology has been licensed. The patents include a
number of synthetic polymers, including
hydroxypropylmethacrylamide and polyamidoamines, that
can be used to exploit enhanced permeability and
retention and control drug release. The provisional
patent application includes a pharmaceutical
composition for use in tumor treatment comprising
polymer-platinum compound through linkages which are
designed to be cleaved under selected conditions to
yield a platinum which accumulates at a tumor site.
The patent applications also include methods for
improving the pharmaceutical properties of platinum
compounds.
Access has recently acquired one U.S. patent and three
patent applications (two U.S. and one European) in
condensed-phase microparticles. These patents are
licensed from the Mayo Clinic and were acquired by
Access through the merger with Tacora in December
1997. This technology is based on the Smart Polymer
Matrices of Secretory Granules from secretory cells
such as the mast cell or goblet cell. The technology
has the following properties to control the storage
and release of molecules within the body: 1)
encapsulation of high concentration of small
molecules, nucleotides and proteins; 2) highly stable
storage medium for a variety of naturally occurring
biological molecules; and 3) release of stored
products in response to environments, external or
internal signals to ensure correct location, timing
and concentration of secreted products in the body.
Access holds U.S. and European patents with broad
composition of matter claims encompassing
glycosaminoglycan, acidic saccharide, carbohydrate and
other endothelial binding and targeting carriers in
combination with drugs and diagnostic agents
formulated by both physical and chemical covalent
means. Nine patents have issued commencing in 1990
(eight U.S. and one European) and an additional five
patent applications are pending (two U.S. and three
European).
These patents and applications relate to the in vivo
medical uses of drugs and diagnostic carrier
formulations which bind and cross endothelial and
epithelial barriers at sites of disease, including but
not limited to treatment and medical imaging of tumor,
infarct, infection and inflammation. They further
disclose the body's induction of endothelial,
epithelial, tissue and blood adhesins, selectins,
integrins, chemotaxins and cytotaxins at sites of
disease as a mechanism for selective targeting, and
they claim recognized usable carrier substances which
selectively bind to these induced target
determinants.
Access has a strategy of maintaining an ongoing line
of continuation applications for each major category
of patentable carrier and delivery technology. By this
approach, Access is extending the intellectual
property protection of its basic targeting technology
and initial agents to cover additional specific
carriers and agents, some of which are anticipated to
carry the priority dates of the original applications.
11
The intellectual property around which API was founded
was originally licensed by way of a License Agreement
from the inventor and principal shareholder Dr. David
Ranney. A Patent Purchase Agreement dated April 5,
1994, (the "Patent Purchase Agreement") terminated the
License Agreement and provided for assignment of the
rights to the original patents to Access. The terms of
the Patent Purchase Agreement were amended effective
January 23, 1996 reducing the minimum royalty payments
due to Dr. Ranney. Additional patents covering the
technology were purchased from the University of Texas
system on October 31, 1990 and applied for directly by
Access. The technology was developed by Dr. Ranney
during his tenure at the University of Texas
Southwestern Medical School which retains a royalty
free non-exclusive right to use the patent rights for
its own research, teaching and other
educationally-related purposes.
Dr. Ranney has signed an Assignment of Intellectual
Property Agreement whereby all rights, title and
interest in and to all subsequent inventions and
confidential information will become the sole and
exclusive property of Access at the earlier of the
date of conception or development, or May 31, 1998.
Under the terms of the Patent Purchase Agreement as
amended, Dr. Ranney has retained certain rights and
interests in the intellectual property, including a
non-exclusive right to use the inventions and
technology covered by or relating to the patents for
his own research, teaching or other academic related
purposes, and for research and development of uses or
implementations of the inventions and technology
improvements. Access maintains the first right to
negotiate the acquisition of any new inventions or
technology improvements developed by Dr. Ranney
relating to the technology. Beginning in 1994, Access
has agreed to pay Dr. Ranney a royalty of three-
quarters of one percent (0.75%) of Access' gross
revenues derived from products covered by the patents
and to pay certain minimum payments.
In addition, the Patent Purchase Agreement, as
amended, establishes certain additional rights of Dr.
Ranney. The patent assignment will terminate in the
event Access fails to pay the amounts due to Dr.
Ranney pursuant to the Agreement, files a petition in
bankruptcy, fails to commercially develop the patents
or creates a security interest in the patents without
Dr. Ranney's approval. Also, in the event that parts
of the Access technology are not being developed prior
to January 2000, Dr. Ranney has the right of first
refusal to license or acquire at fair market value
development rights to such parts of the Access
technology.
Government Regulations
Access is subject to extensive regulation by the
federal government, principally by the FDA, and, to a
lesser extent, by other federal and state agencies as
well as comparable agencies in foreign countries where
registration of products will be pursued. Although a
number of Access' formulations incorporate extensively
tested drug substances, because the resulting
formulations make claims of enhanced efficacy and/or
improved side effect profiles they are expected to be
classified as new drugs by the FDA.
The Federal Food, Drug and Cosmetic Act and other
federal, state and foreign statutes and regulations
govern the testing, manufacturing, safety, labeling,
storage, shipping and record keeping of Access'
products. The FDA has the authority to approve or not
approve new drug applications and inspect research and
manufacturing records and facilities.
Among the requirements for drug approval and testing
is that the prospective manufacturer's facilities and
methods conform to the FDA's Code of Good
Manufacturing Practices ("GMP") regulations which
establish the minimum requirements for methods to be
used in, and the facilities or controls to be used
during the production process and the facilities are
subject to ongoing FDA inspection to insure
compliance.
The steps required before a pharmaceutical product may
be produced and marketed in the U.S. include
preclinical tests, the filing of an IND with the FDA,
which must become effective pursuant to FDA
regulations before human clinical trials may commence,
and the FDA approval of an NDA prior to commercial
sale.
Preclinical tests are conducted in the laboratory,
usually involving animals, to evaluate the safety and
efficacy of the potential product. The results of
preclinical tests are submitted as part of the IND
application and are fully reviewed by the FDA prior to
granting the sponsor permission to commence clinical
trials in humans. Clinical trials typically involve a
three-phase process. Phase I, the initial clinical
evaluations, consists of administering the drug and
testing for safety and tolerated dosages as well as
preliminary evidence of efficacy in humans. Phase II
involves a study to evaluate the effectiveness of the
drug for a particular indication and to determine
optimal dosage and dose interval
12
and to identify possible adverse side effects and risks in a larger
patient group. When a product is found effective in
Phase II, it is then evaluated in Phase III clinical
trials. Phase III trials consist of expanded
multi-location testing for efficacy and safety to
evaluate the overall benefit or risk index of the
investigational drug in relationship to the disease
treated. The results of preclinical and human clinical
testing are submitted to the FDA in the form of an NDA
for approval to commence commercial sales.
The process of doing the requisite testing, data
collection, analysis and compilation of an IND and an
NDA is labor intensive and costly and may take a
protracted time period. In some cases tests may have
to be redone or new tests instituted to comply with
FDA requests. Review by the FDA may also take a
considerable time period and there is no guarantee an
NDA will be approved. Hence, Access cannot with any
certainty estimate how long the approval cycle may
take.
Access is also governed by other federal, state and
local laws of general applicability, such as laws
regulating working conditions, employment practices,
as well as environmental protection.
Competition
The pharmaceutical and biotechnology industry is
highly competitive. Most pharmaceutical and
biotechnology companies have considerably greater
research and development, financial, technical and
marketing resources than Access. Although Access'
proposed products utilize a novel drug delivery
system, they will be competing with established
pharmaceutical companies' existing and planned new
product introductions and alternate delivery forms of
the active substance being formulated by Access.
A number of companies are developing or may, in the
future, engage in the development of products
competitive with the Access delivery system.
Currently, in the therapeutic area, liposomal
formulations being developed by Nexstar, Inc., The
Liposome Company, Inc. and Sequus Pharmaceuticals,
Inc. are the major competitive intravenous drug
delivery formulations which utilize similar drug
substances. A number of companies are developing or
evaluating enhanced drug delivery systems. Access
expects that technological developments will occur at
a rapid rate and that competition is likely to
intensify as various alternative delivery system
technologies achieve certain if not identical
advantages.
The principal current competitors to Access' polymer
targeting technology fall into two categories:
monoclonal antibodies and liposomes. Access believes
its technology potentially represents a significant
advance over these older technologies because its
technology provides a system with a favorable
pharmacokinetic profile which has been shown to
effectively bind and cross neovascular barriers and to
penetrate the major classes of deep tissue and organ
disease, which remain partially inaccessible to other
technologies.
Even if Access' products are fully developed and
receive required regulatory approval, of which there
is no assurance, Access believes that its products can
only compete successfully if marketed by a company
having expertise and a strong presence in the
therapeutic area. Consequently, Access does not
currently plan to establish an internal marketing
organization. By forming strategic alliances with
major pharmaceutical and diagnostic medical imaging
companies, management believes that Access'
development risks should be minimized and the
technology will potentially be more rapidly developed
and successfully introduced into the marketplace.
Employees
As of January 1, 1998 Access has 18 full time employees, ten of
whom have advanced scientific degrees. Access believes
that it maintains good relations with its personnel.
In addition, to complement its internal expertise,
Access contracts with scientific consultants, contract
research organizations and university research
laboratories that specialize in various aspects of
drug development including toxicology, sterility
testing and preclinical testing to complement its
internal expertise.
Operations Prior to January 1996
Access operated as Chemex prior to the Merger, on
January 25, 1996. On September 14, 1995, at a Special
Meeting of Stockholders, the Chemex Stockholders
approved the sale of its rights to amlexanox to Block,
retaining the right to receive royalties from future
sales of amlexanox. As a consideration for the sale of
the Company's share of amlexanox, Block (a) made a
nonrefundable up-front royalty payment of $2.5
million; (b) is obligated to pay
13
Access $1.5 million as a prepaid royalty at the end of the calendar month
during which Block together with any sublicensee has
achieved cumulative worldwide sales of amlexanox oral
products of $25 million; and (c) after the payment of
such $1.5 million royalty, is obligated to pay
royalties to Access for all sales in excess of
cumulative worldwide sales of amlexanox oral products
of $45 million, as defined.
The Company announced on December 19, 1996 that Block
has received approval from the U.S. Food and Drug
Administration for amlexanox. Amlexanox is marketed
under the name Apthasol TM.
Risk Factors
Certain of the statements contained in this Annual
Report on Form 10-K are forward looking statements
within the meaning of Section 27a of the Securities
Act of 1933, as amended, that involves risks and
uncertainties including but not limited to the risk
factors set forth below:
History of Losses and Expectation of Future Losses;
Uncertainty of Future Profitability The Company has
incurred a cumulative operating loss of approximately
$19.7 million through December 31, 1997. Losses have
resulted principally from costs incurred in research
and development activities related to the Company's
efforts to develop target candidates and from the
associated administrative costs. The Company expects
to incur significant additional operating losses over
the next several years and expects cumulative losses
to increase substantially due to expanded research and
development efforts, pre-clinical and clinical trials
and development of manufacturing capabilities. In the
next few years, the Company's revenues may be limited
to any amounts received under research or drug
development collaborations that the Company will
establish. There can be no assurance, however, that
the Company will be able to establish any
collaborative relationships on terms acceptable to the
Company. The Company's ability to achieve significant
revenue or profitability is dependent on its ability
to successfully complete the development of drug
candidates, to develop and obtain patent protection
and regulatory approvals for the drug candidates and
to manufacture and commercialize the resulting drugs.
The Company will not receive revenues or royalties
from commercial sales for a significant number of
years, if at all. Failure to receive significant
revenues or achieve profitable operations would impair
the Company's ability to sustain operations. There can
be no assurance that the Company will ever
successfully identify, develop, commercialize, patent,
manufacture and market any products, obtain required
regulatory approvals or achieve profitability.
Research and Development Focus Access' focus is on
commercializing proprietary biopharmaceutical patents.
Although Access may in the future have some royalty
income, it is still in the development stage, and its
proposed operations are subject to all the risks
inherent in the establishment of a new business
enterprise, including the need for substantial
capital. Access has recorded minimal revenue to date.
It is anticipated that Access will remain principally
engaged in research and development activities for an
indeterminate, but substantial, period of time. As a
non-revenue producing company, normal credit
arrangements are unavailable to Access and, therefore,
it is likely that Access would be forced to accept
unfavorable terms if it should attempt to raise
additional needed funds through borrowing. There can
be no assurance that any such credit arrangements
would be available. Further, it is anticipated that
additional losses will be incurred in the future, and
there can be no assurances that Access will ever
achieve significant revenues.
Uncertainties Associated with Research and Development
Activities 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 due
to unanticipated regulatory delays or demands,
unexpected adverse side effects or insufficient
therapeutic efficacy will prevent or substantially
slow the research and development effort and
ultimately could have a material adverse effect on
Access.
Absence of Operating Revenue Royalties received by
Access for sales of Actinex TM and Amlexanox TM have
not been significant to date. There can be no
assurance of revenue or profits in the future. Access
currently has no products approved for sale and there
can be no assurance as to the expenditures of time and
resources that may be required to complete the
development of potential Access products and obtain
approval for sale or if such completion and approval
can be realized.
Going Concern Uncertainty The Company's audited
consolidated financial statements at and for the
twelve months ended December 31, 1997 contain a
reference to the Company's ability to meet its
obligations as they occur and indicate that the
Company may be unable to continue as a going concern.
14
Early Stage of Product Development; No Assurance of
Successful Commercialization The Company's potential
drug candidates will be subject to the risks of
failure inherent in the development of pharmaceutical
products based on new technologies. These risks
include the possibilities that any or all of the
Company's drug candidates will be found to be unsafe,
ineffective or toxic or otherwise fail to meet
applicable regulatory standards or receive necessary
regulatory clearances; that these drug candidates, if
safe and effective will be difficult to develop into
commercially viable drugs or to manufacture on a large
scale or will be uneconomical to market; that
proprietary rights of third parties will preclude the
Company from marketing such drugs; or that third
parties will market superior or equivalent drugs. The
failure to develop safe, commercially viable drugs
would have a material adverse effect on the Company's
business, operating results and financial condition.
Additional Financing Requirements; Uncertainty of
Available Funding. The Company will require
substantial additional funds for its development
programs, for operating expenses, for pursing
regulatory clearances, and for prosecuting and
defending its intellectual property rights before it
can expect to realize significant revenues from
commercial sales. The Company believes that existing
capital resources, interest income and revenue from
possible collaborative agreements, will be sufficient
to fund its operating expenses and capital
requirements as currently planned for two to six
months. However, there can be no assurance that such
funds will be sufficient to fund its operating
expenses and capital requirements during such period.
The Company's actual cash requirements may vary
materially from those now planned and will depend upon
numerous factors, including the results of the
Company's research and development and collaboration
programs, the timing and results of preclinical
trials, the ability of the Company to maintain
existing and establish new collaborative agreements
with other companies to provide funding to the
Company, the technological advances and activities of
competitors and other factors. Thereafter, the Company
will need to raise substantial additional capital to
fund its operations. The Company intends to seek such
additional funding through issuance of equity
securities or collaborative or other arrangements with
corporate partners. If additional funds are raised by
issuing equity securities, further dilution to
existing stockholders may result and future investors
may be granted rights superior to those of existing
stockholders. There can be no assurance, however, that
any such equity offerings will occur, or that
additional financing will be available from any of
these sources or, if available, will be available on
acceptable or affordable terms. If adequate funds are
not available, the Company may be required to delay,
reduce the scope of or eliminate one or more of its
research and development programs or to obtain funds
by entering into arrangements with collaborative
partners or others that require the Company to issue
additional equity securities or to relinquish rights
to certain technologies or drug candidates that the
Company would not otherwise issue or relinquish in
order to continue independent operations.
Dependence on Others; Collaborations The Company's
strategy for the research, development and
commercialization of its potential pharmaceutical
products may require the Company to enter into various
arrangements with corporate and academic
collaborators, licensors, licensees and others, in
addition to those already established, and may
therefore be dependent upon the subsequent success of
outside parties in performing their responsibilities.
There can be no assurance that the Company will be
able to establish additional collaborative
arrangements or license agreements that the Company
deems necessary or acceptable to develop and
commercialize its potential pharmaceutical products,
or that any of its collaborative arrangements or
license agreements will be successful.
No Marketing, Sales, Clinical Testing or Regulatory
Compliance Activities In view of the development
stage of the Company and its research and development
programs, the Company has restricted hiring to
research scientists and a small administrative staff
and has made no investment in manufacturing,
production, marketing, product sales or regulatory
compliance resources. If the Company successfully
develops any commercially marketable pharmaceutical
products, it may seek to enter joint venture,
sublicense or other marketing arrangements with
parties that have an established marketing capability
or it may choose to pursue the commercialization of
such products on its own. There can be no assurance,
however, that the Company will be able to enter into
such marketing arrangements on acceptable terms, if
at all. Further, the Company will need to hire
additional personnel skilled in the clinical testing
and regulatory compliance process and in marketing or
product sales if it develops pharmaceutical products
with commercial potential that it determines to
commercialize itself. There can be no assurance,
however, that it will be able to acquire such
resources or personnel.
Manufacturing Limitations The Company intends to
establish arrangements with contract manufacturers to
supply sufficient quantities of products to conduct
clinical trials as well as for the manufacture,
packaging, labeling and distribution of finished
pharmaceutical products if its potential products are
approved for commercialization. If the Company is
unable to contract for a sufficient supply of its
potential pharmaceutical products on acceptable terms, the
15
Company's preclinical and human clinical testing
schedule may be delayed, resulting in the delay of
submission of products for regulatory approval and
initiation of new development programs, which may have
a material adverse effect on the Company. If the
Company encounters delays or difficulties in
establishing relationships with manufacturers to
produce, package, label and distribute its finished
pharmaceutical or other medical products (if any),
market introduction and subsequent sales of such
products would be adversely affected. Moreover,
contract manufacturers that the Company may use must
adhere to current Good Manufacturing Practices ("GMP")
required by the FDA. Manufacturing facilities must
pass a preapproval plant inspection before the FDA
will issue a pre-market approval or product and
establishment licenses, where applicable, for the
products. If the Company is unable to obtain or retain
third party manufacturing on commercially acceptable
terms, it may not be able to commercialize its
products as planned. The Company's potential
dependence upon third parties for the manufacture of
its products may adversely affect the Company's profit
margins and its ability to develop and deliver such
products on a timely and competitive basis. The
Company has no experience in the manufacture of
pharmaceutical products in clinical quantities or for
commercial purposes. In addition, there can be no
assurance that the Company will be able to manufacture
or enter into arrangements with third parties for the
manufacture of any products successfully and in a
cost-effective manner.
Hazardous Materials; Environmental Matters The
Company's research and development processes involve
the controlled use of hazardous materials. The Company
is subject to federal, state and local laws and
regulations governing the use, manufacture, storage,
handling and disposal of such materials and certain
waste products. Although the Company believes that its
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, the Company could be held
liable for any damages that result and any such
liability could exceed the resources of the Company.
Although the Company believes that it is in compliance
in all material respects with applicable environmental
laws and regulations and currently does not expect to
make material capital expenditures for environmental
control facilities in the near-term, there can be no
assurance that the Company will not be required to
incur significant costs to comply with environmental
laws and regulations in the future, nor that the
operations, business or assets of the Company will not
be materially adversely affected by current or future
environmental laws or regulations.
Impact of Extensive Government Regulation. The FDA
and comparable agencies in foreign countries impose
substantial requirements upon the introduction of
pharmaceutical products through lengthy and detailed
preclinical, laboratory and clinical testing
procedures, sampling activities and other costly and
time-consuming procedures to establish their safety
and efficacy. All of the Company's drug candidates
will require governmental approvals for
commercialization, none of which have been obtained.
Preclinical and clinical trials and manufacturing of
the Company's 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. There can be no assurance as to when the
Company, independently or with its collaborative
partners, might first submit an Investigational New
Drug Application ("IND") for FDA or other regulatory
review. Government regulation also affects the
manufacturing and marketing of pharmaceutical
products.
The effect of government regulation may be to delay
marketing of the Company's potential drugs for a
considerable or indefinite period of time, impose
costly procedural requirements upon the Company's
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 the
Company's marketing as well as the Company's ability
to generate significant revenues from commercial
sales. There can be no assurance that FDA or other
regulatory approvals for any drug candidates developed
by the Company will be granted 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 initial regulatory approvals
for the Company's drug candidates are obtained, the
Company, its drugs and its 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 such drug or manufacturer,
including withdrawal of the drug from the market. The
regulatory standards are applied stringently by the
FDA and other regulatory authorities and failure to
comply can, among other things, result in fines,
denial or withdrawal of regulatory approvals, product
recalls or seizures, operating restrictions and
criminal prosecution.
The FDA has developed two "fast track" policies for
certain new drugs (including anti-cancer agents), one
policy for expedited development and review and one
policy for accelerated approval. The expedited
development and review policy applies to new drug
therapies that are intended to treat persons with
life-threatening and severely-
16
debilitating illnesses, especially where no satisfactory alternative therapy
exists. The accelerated approval policy applies to
certain new drugs that are intended to treat persons
with serious or life-threatening illnesses that
provide a meaningful therapeutic benefit to patients
over existing treatments. See "Business-Government
Regulation." There can be no assurance that any drug
candidate contemplated by the Company will qualify for
the FDA's various fast track or priority approval
policies. Nor can there by any assurance that such
policies will remain as currently implemented by the
FDA.
Drug-related Risks Adverse side effects of treatment
of diseases and disorders in both human and animal
patients are business risks in the pharmaceutical
industry. 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 cause a
company to terminate its efforts to develop the drug
for commercial use. Even after FDA approval of an NDA,
adverse side effects may develop to a greater extent
than anticipated during the clinical testing phase and
could result in legal action against a company. Drug
developers and manufacturers, including Access, may
face substantial liability for damages in the event of
adverse side effects or product defects identified
with their products used in clinical tests or marketed
to the public. There can be no assurance that Access
will be able to satisfy any claims for which it may be
held liable resulting from the use or misuse of
products which it has developed, manufactured or sold.
Potential Product Liability and Availability of
Insurance. The Company's business exposes it to
potential liability risks that are inherent in the
testing, manufacturing and marketing of pharmaceutical
products. The use of the Company's drug candidates in
clinical trials may expose the Company to product
liability claims and possible adverse publicity. These
risks will expand with respect to the Company's drug
candidates, if any, that receive regulatory approval
for commercial sale. Product liability insurance for
the biotechnology industry is generally expensive, if
available at all. The Company does not have product
liability insurance but intends to obtain such
coverage if and when its drug candidates are tested in
clinical trials. However, such coverage is becoming
increasingly expensive and there can be no assurance
that the Company will be able to obtain insurance
coverage at acceptable costs or in a sufficient
amount, if at all, or that a product liability claim
would not adversely affect the Company's business,
operating results or financial condition.
Reimbursement and Drug Pricing Uncertainty. The
successful commercialization of, and the interest of
potential collaborative partners to invest in, the
development of the Company's drug candidates will
depend substantially on reimbursement of the costs of
the resulting drugs and related treatments at
acceptable levels from government authorities, private
health insurers and other organizations, such as
health maintenance organizations ("HMOs"). There can
be no assurance that reimbursement in the United
States or elsewhere will be available for any drugs
the Company may develop or, if available, will not be
decreased in the future, or that reimbursement amounts
will not reduce the demand for, or the price of, the
Company's drugs, thereby adversely affecting the
Company's business. If reimbursement is not available
or is available only to limited levels, there can be
no assurance that the Company will be able to obtain
collaborative partners to manufacture and
commercialize its drugs, or would be able to obtain a
sufficient financial return on its own manufacture and
commercialization of any future drugs.
Third-party payors are increasingly challenging the
prices charged for medical products and services.
Also, the trend toward managed health care in the
United States and the concurrent growth of
organizations such as HMOs, which can control or
significantly influence the purchase of health care
services and products, as well as legislative
proposals to reform health care or reduce government
insurance programs, may result in lower prices of
pharmaceutical products. The cost containment measures
that health care providers are instituting, including
practice protocols and guidelines and clinical
pathways, and the effect of any health care reform,
could materially adversely affect the Company's
ability to sell any of its drugs if successfully
developed and approved. Moreover, the Company is
unable to predict what additional legislation or
regulation, if any, relating to the health care
industry or third-party coverage and reimbursement may
be enacted in the future or what effect such
legislation or regulation would have on the Company's
business.
Uncertainty of Patents and Proprietary Rights. The
Company's success will depend in part on its ability
to obtain U.S. and foreign patent protection for its
drug candidates and processes, preserve its trade
secrets and operate without infringing the proprietary
rights of third parties. Because of the length of time
and expense associated with bringing new drug
candidates through the development and regulatory
approval process to the marketplace, the
pharmaceutical industry has traditionally placed
considerable importance on obtaining patent and trade
secret protection for significant new technologies,
products and processes. Although Access has fourteen
U.S. patents and is either the owner or licensee of
technology and there are six U.S. patent applications
now pending, there can be no assurance that any
additional patents will issue from any of the patent
applications owned by, or licensed to, the Company. Further,
17
there can be no assurance that any rights the
Company may have under issued patents will provide the
Company with significant protection against
competitive products or otherwise be commercially
viable. 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. 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. There can be no
assurance that any existing or future patents issued
to, or licensed by, the Company will not subsequently
be challenged, infringed upon, invalidated or
circumvented by others. 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 the Company's drug
candidates. If the Company's drug candidates or
processes are found to infringe upon the patents or
otherwise impermissibly utilize the intellectual
property of others, the Company's development,
manufacturer and sale of such drug candidates could be
severely restricted or prohibited. In such event, the
Company may be required to obtain licenses from third
parties to utilize the patents or proprietary rights
of others. There can be no assurance that the Company
will be able to obtain such licenses on acceptable
terms, or at all. There has been significant
litigation regarding patents and other proprietary
rights. If the Company becomes involved in litigation
regarding its intellectual property rights or the
intellectual property rights of others, the potential
cost of such litigation (regardless of the strength of
the Company's legal position) and the potential
damages that the Company could be required to pay
could be substantial.
In addition to patent protection, the Company relies
on trade secrets, proprietary know-how and
technological advances which it seeks to protect, in
part, by confidentiality agreements with its
collaborative partners, employees and consultants.
There can be no assurance that these confidentiality
agreements will not be breached, that the Company
would have adequate remedies for any such breach, or
that the Company's trade secrets, proprietary know-how
and technological advances will not otherwise become
known or be independently discovered by others.
Intense Competition. The biotechnology and
pharmaceutical industries are intensely competitive
and subject to rapid and significant technological
change. Competitors of the Company 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. Many
of these competitors employ greater financial and
other resources, including larger research and
development staffs and more effective marketing and
manufacturing organizations, than the Company or its
collaborative partners. Acquisitions of competing
companies and potential competitors by large
pharmaceutical companies or others could enhance
financial, marketing and other resources available to
such competitors. As a result of academic and
government institutions becoming increasingly aware of
the commercial value of their research findings, such
institutions are more likely to enter into exclusive
licensing agreements with commercial enterprises,
including competitors of the Company, to market
commercial products. There can be no assurance that
the Company's competitors will not succeed in
developing technologies and drugs that are more
effective or less costly than any which are being
developed by the Company or which would render the
Company's technology and future drugs obsolete and
noncompetitive.
In addition, some of the Company's competitors have
greater experience than the Company in conducting
preclinical and clinical trials and obtaining FDA and
other regulatory approvals. Accordingly, the
Company's competitors may succeed in obtaining FDA or
other regulatory approvals for drug candidates more
rapidly than the Company. Companies that complete
clinical trials, obtain required regulation agency
approvals and commence commercial sale of their drugs
before their competitors may achieve a significant
competitive advantage, including certain patent and
FDA marketing exclusivity rights that would delay the
Company's ability to market certain products. There
can be no assurance that drugs resulting from the
Company's research and development efforts, or from
the joint efforts of the Company and its collaborative
partners, will be able to compete successfully with
competitors' existing products or products under
development or that they will obtain regulatory
approval in the United States or elsewhere.
Uncertainty Associated with Preclinical and Clinical
Testing. Before obtaining regulatory approvals for
the commercial sale of any of the Company's potential
drugs, the drug candidates will be subject to
extensive preclinical and clinical trials to
demonstrate their safety and efficacy in humans. The
Company is dependent on its collaborative partners to
conduct clinical trials for its drug candidates.
Furthermore, there can be no assurance that
preclinical or clinical trials of any future drug
candidates will demonstrate the safety and efficacy of
such drug candidates at all or to the extent necessary
to obtain regulatory approvals. Companies in the
biotechnology industry have suffered significant
setbacks in advanced clinical trials, even after
demonstrating promising results in earlier trials. 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 and would have a material adverse effect on
the Company's business, operating results and
financial condition. See "Business-Government
Regulation."
18
No Assurance of Market Acceptance. There can be no
assurance that any drugs successfully developed by the
Company, independently or with its collaborative
partners, if approved for marketing, will achieve
market acceptance. The drugs which the Company is
attempting to develop will 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 the Company will
depend on a number of factors, including the
establishment and demonstration of the clinical
efficacy and safety of the Company's drug candidates,
their potential advantage over existing therapies and
reimbursement policies of government and third-party
payors. There is no assurance that physicians,
patients or the medical community in general will
accept and utilize any drugs that may be developed by
the Company independently or with its collaborative
partners.
Dependence on Key Personnel. The Company is highly
dependent upon the efforts of its senior management
and scientific team, including its President and Chief
Executive Officer. The Company does not maintain key
man life insurance for any of its key employees and
does not intend to obtain such insurance. The loss of
the services of one or more of these individuals might
impede the achievement of the Company's development
objectives. Because of the specialized scientific
nature of the Company's business, the Company is
highly dependent upon its ability to attract and
retain qualified scientific and technical personnel.
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 the Company's activities.
Concentration of Ownership Dr. David Ranney and
Nicholas Madonia currently beneficially own
approximately 24.4% and 17.1%, respectively, of the
issued and outstanding Common Stock. Dr. Ranney
subject to the terms of a certain Stockholder's
Agreement between Dr. Ranney and the Company (the
"Stockholder's Agreement") which provides that so long
as he beneficially owns fifteen percent or more of the
capital stock of Access, he will, subject to certain
conditions and exceptions, vote all of his shares of
the capital stock of Access as recommended by the
Board of Directors of Access for any proposal
presented to the Access Stockholders for approval.
Nicholas Madonia does not have a Stockholders
Agreement with the Company. In addition, each of Dr.
Ranney and Mr. Madonia has agreed not to sell any
shares of Common Stock of the Company for a period of
twenty-four months. See "Security Ownership of
Certain Beneficial Owners and Management" and "Certain
Relationships and Related Transactions."
Possible Volatility of Stock Price Stock prices for
many technology companies fluctuate widely for reasons
which may be unrelated to operating performance or new
product or service announcements. Broad market
fluctuations, earnings and other announcements of
other companies, general economic conditions or other
matters unrelated to Access and outside its control
also could affect the market price of the Common
Stock. See "Per Share Prices of and Dividends on
Common Stock."
Limited Market for Common Stock Trading in Access'
securities is presently conducted in the over-the-
counter market on the OTC Bulletin Board. As a result,
an investor may find it difficult to dispose of, or to
obtain accurate quotations as to the price of the
Company's securities. In addition, the Company's
securities are subject to a rule that imposes
additional sales practice requirements on broker-
dealers who sell such securities to persons other than
established customers and accredited investors
(generally with assets of $1,000,000, or annual income
exceeding $200,000, or $300,000 together with their
spouse). For transactions covered by this rule, the
broker-dealer must make a special suitability
determination for the purchaser and have received the
purchaser's written consent to the transaction prior
to the sale. Consequently, the rule may affect the
ability of broker-dealers to sell the securities of
the Company and may effect the ability of purchasers
to sell their securities in the secondary market.
Effect of Recapitalization of the Company through a
Proposed One-For-Twenty Reverse Stock Split and
Decrease in the Number of Authorized Shares The
Company will propose to its shareholders at its
shareholders meeting, to be held on April 14, 1998, an
amendment to its Certificate of Incorporation, as
amended, to effect a recapitalization (the
"Recapitalization") of the Company through a one-for-
twenty reverse stock split of its Common Stock and
decrease the number of authorized shares of Common
Stock from 60.0 million shares, par value $.04 per
share to 20.0 million shares, par value $.01 per
share. The Recapitalization would in fact
proportionately increase the number of authorized but
unissued shares when compared with the number of
issued and outstanding shares before the
Recapitalization. This proposal, if approved, would
decrease the number of outstanding shares of Common
Stock from approximately 37.4 million to 1.9 million.
This proposal has not been approved as of the date of
this report.
If the Company implements the Recapitalization, there
can be no assurances that the market price of the
19
Company's Common Stock immediately after the
implementation of the proposed Recapitalization will
increase, and if it does increase, there can be no
assurance that such increase can be maintained for any
period of time, or that such market price will
approximate twenty times the market price before the
proposed reverse stock split. The Company currently
does not meet the listing requirements for the NASDAQ
SmallCap Market and there can be no assurances that
the Company will be listed on the NASDAQ SmallCap
Market or any exchange.
Effect of Certain Charter and By-Law Provisions;
Possible Issuance of Preferred Stock Access'
Certificate of Incorporation and Bylaws contain
provisions that may discourage acquisition bids for
Access. This could limit the price that certain
investors might be willing to pay in the future for
shares of Common Stock. In addition, shares of Access
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 the Board of Directors may determine
(including, for example, rights to convert into Common
Stock). The rights of the holders of Common Stock will
be subject to, and may be adversely affected by, the
rights of the holders of any Access Preferred Stock
that may be issued in the future. The issuance of
Access 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,
or discouraging a third party from acquiring, a
majority of the outstanding voting Common Stock of
Access.
Market Impact of Future Sales of Common Stock Sales
of substantial amounts of shares of Access Common
Stock in the public market could adversely affect the
market price of the Common Stock. As of the date of
this report, all outstanding shares of Common Stock
are unrestricted and freely tradable or tradable under
Rule 144, however, shareholders holding approximately
17.6 shares of Common Stock have agreed not to sell
such shares for a period up to twenty-four months.
There also are outstanding options, warrants and
rights to purchase up to approximately 8.5 million
shares of the Common Stock. The sale of a substantial
amount of these shares could have a material adverse
effect on the future market price of the Common
Stock.
Absence of Dividends. Access has not paid cash
dividends on its Common Stock does not anticipate
paying cash dividends on Common Stock in the
foreseeable future. See "Share Prices of and Dividends
on Common Stock.
NASD Requirements. The Company's shares were delisted
from the NASDAQ Small Cap Market effective April 27,
1995 for failure to meet certain financial criteria.
The Common Stock continues to be traded in the over-
the-counter market and reported in the OTC Bulletin
Board. As such, the Common Stock, when recommended by
a broker-dealer, is subject to the limitations of rule
15g-9 under the Exchange Act, which Rule imposes
additional sales practices requirements on broker-
dealers which sell the Common Stock (1) to persons
other than (a) existing customers with a previous
history of trading through such broker-dealer, (b)
institutional accredited investors (for example, a
bank or savings and loan association) and (c) a
director and/or officer of the Company and/or the
beneficial owner of 5% or more of the Common Shares or
(2) in transactions not exempt by the Rule. For
transactions under Rule 15g-9, the broker-dealer must
obtain written information from the prospective
purchaser as to his or her financial situation,
investment experience and investment objectives and,
based on such information, reasonably determine that
transactions in the security are suitable for that
person and that the prospective investor (or his or
her independent adviser) has sufficient knowledge and
experience in financial matters so as to be reasonably
expected to be capable of evaluating the risks of
transactions in such security. The broker-dealer must
also receive the purchaser's written agreement to the
transaction prior to the sale. Certain broker-
dealers, particularly if they are market makers in the
Common Stock, will have to comply with the disclosure
requirements of Rule 15g-2, 15g-3, 15g-4, 15g-5 and
15g-6 under the Exchange Act. Consequently, Rule 15g-9
and these other Rules may adversely affect the ability
of broker-dealers to sell the Common Stock.
Penny Stock Regulations; Illiquid Securities The
regulations of the Securities and Exchange Commission
("Commission") promulgated under the Exchange Act
require additional disclosure relating to the market
for penny stocks in connection with trades in any
stock defined as a penny stock. Commission regulations
generally define a penny stock to be an equity that
has a market price of less than $5.00 per share,
subject to certain exceptions. Unless an exception is
available, those regulations require the delivery,
prior to any transaction involving a penny stock, of
a disclosure schedule explaining the penny stock
market and the risks associated therewith and impose
various sales practice requirements on broker-dealers
who sell penny stocks to persons other than
established customers and accredited investors
(generally institutions). In addition, the broker-
dealer must provide the customer with current bid and
offer quotations for the penny stock, the compensation
of the broker-dealer and its salesperson in the
transaction and monthly account statements showing the
market value of each penny stock held in the
customer's account. Moreover, broker-dealers who
recommend such securities to persons other than
established customers and
20
accredited investors must make a special written suitability determination
for the purchaser and receive the purchaser's written
agreement to transactions prior to sale. Regulations
on penny stocks could limit the ability of broker-
dealers to sell the Company's securities and thus the
ability of purchasers of the Company's securities to
sell their securities in the secondary market
ITEM 2. PROPERTIES
Access maintains one facility of approximately 9,100
square feet of administrative offices and laboratories
in Dallas, Texas. Access has a lease agreement for the
facility, which terminates in November 2002, however,
the Company has an option for early termination.
Adjacent space is available for expansion which the
Company believes would accommodate growth for the
foreseeable future.
ITEM 3. LEGAL PROCEEDINGS
Access is not a party to any legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDERS MATTERS
Price Range of Common Stock and Dividend Policy
Since February 1, 1996, the Company's Common Stock
trades on the OTC Bulletin Board under the trading
symbol AXCS. Prior to this date the Common Stock
traded under the trading symbol CHMX. The following
table sets forth, for the periods indicated, the high
and low closing prices for the Common Stock as
reported by the OTC Bulletin Board for the Company's
past two fiscal years.
Common Stock
--------------
High Low
------ ------
Fiscal Year Ended December 31, 1997
First quarter $1-9/32 $ 23/32
Second quarter 55/64 3/8
Third quarter 1/2 3/16
Fourth quarter 45/64 13/64
Fiscal Year Ended December 31, 1996
First quarter $2-11/16 $ 7/8
Second quarter 2-9/16 1-5/8
Third quarter 1-11/16 7/8
Fourth quarter 1-5/16 3/4
The Company has never declared or paid any cash
dividends on its Preferred Stock or Common Stock and
does not anticipate paying any cash dividends in the
foreseeable future. The payment of dividends, if any,
in the future is within the discretion of the Board of
Directors and will depend on Access' earnings, its
capital requirements and financial condition and other
relevant facts. The Company currently intends to
retain all future earnings, if any, to finance the
development and growth of the Company's business.
21
The number of record holders of Access Common Stock at
March 13, 1998 was approximately 5,000. Also on March
27, 1998, the closing sale price for the Common Stock
as quoted on the OTC Bulletin Board was $0.28. There
were 37,442,343 shares of common stock outstanding at
March 27, 1998.
To date, no preferred shares have been issued.
Recent Sales of Unregistered Securities
On March 20, 1998, the Company, assisted by an
investment bank, raised $725,000 in gross proceeds,
less issuance costs of $47,250, from the placement
of 29 Units. Each Unit consists of 166,667 shares of
Common Stock and warrants to purchase 166,667 shares
of Common Stock at $0.15 per share. The funds will be
used to fund the Company's activities until further
funds are raised. The investment bank has been engaged
to assist the Company in raising up to a total of
$8,000,000 to fund the Company's research and
development activities.
Effective December 31, 1997 the Company issued 200,000 shares of
Common Stock to The Dow Chemical Company in connection
with the License Agreement. The Company relied on Rule
506 and Section 4(2) of the Securities Act of 1933 as
exemption from the registration thereunder.
Effective December 31, 1997 the Company issued 417,686 shares
of Common Stock to creditors of Tacora Corporation in
connection with the Merger Agreement between the
Company and Tacora Corporation. The Company relied on
Rule 506 and Section 4(2) of the Securities Act of
1933 as exemption from the registration thereunder.
ITEM 6.SELECTED FINANCIAL DATA (Thousands, Except for
Net Loss Per Share) (1)
The following data, insofar as it relates to each of
the years in the five year period ended December 31,
1997, has been derived from the audited financial
statements of Access and notes thereto appearing
elsewhere herein. The data should be read in
conjunction with the Financial Statements and Notes
thereto and "Management's Discussion and Analysis of
Financial Condition and Results of Operations"
appearing elsewhere in this Form 10K.
For the Year Ended December 31,
-------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
Consolidated Statement of Operations Data:
Total Revenues $ 435 $167 $690 $1,039 $322
Operating Loss (4,524) (11,613) (1,046) (466) (1,386)
Other Income 119 196 5 9 34
Interest Expense 36 45 58 19 -
Loss Before Income Taxes (4,441) (11,462) (1,099) (476) (1,352)
Income taxes - - - - 32
Net Loss (4,441) (11,462) (1,099) (476) (1,384)
Common Stock Data:
Net Loss Per Basic and
Diluted Common Share $(.14) $(.38) $(.09) $(.04) $(.12)
Weighted Average Basic and
Diluted Common Shares
Outstanding 31,676 29,845 11,846 11,160 11,160
December 31,
-------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
Consolidated Balance Sheet Data:
Total Assets $1,447 $4,928 $424 $1,261 $1,079
Notes Payable - 110 100 - -
Total Liabilities 848 868 773 731 71
Stockholders' Equity (Deficit) 599 4,060 (349) 531 1,007
(1) - Reflects Company data for 1997 and 1996 and API data for the years
1995, 1994 and 1993. Net Loss Per Basic and Diluted Common Share and
Weighted Average Basic and Diluted Common Shares Outstanding are
adjusted by the conversion factor 3.824251 used for the merger of
API with the Company.
22
On December 9, 1997, a wholly-owned subsidiary of the
Company merged with Tacora Corporation ("Tacora"), a
privately-held pharmaceutical company based in
Seattle, Washington, whereby Tacora became a wholly-
owned subsidiary of the Company. Operations have been
included in the Company's consolidated financial
statements since the date of acquisition. Pro forma
disclosure relating to the Tacora acquisition is not
presented as the impact is immaterial to the Company.
The Company used the purchase method of accounting for
the investment in Tacora. The aggregate purchase price
was $733,000 payable in $124,000 in cash and $192,000 in
stock. Additionally, the Company assumed $239,000 in
trade and accrued payables and $184,000 of Tacora's
capital lease obligations. Based upon the achievement
of certain milestones enumerated in the merger
agreement, the Company may be required to issue up to
approximately 2,750,000 shares of common stock of the
Company ("Common Stock") to the former stockholders of
Tacora. Such shares of Common Stock are payable at an
escalating value over the milestone period. The excess
purchase price of the fair value of Tacora's net
assets of $579,544 was recorded and written off in
the fourth quarter of 1997 due to an impairment of the excess purchase
price based on estimated future cash flows.
On January 25, 1996, the Company shareholders, at a
Special Meeting, approved the merger with Access
Pharmaceuticals, Inc. ("API"), a Texas corporation.
Under the terms of the agreement, API was merged into
the Company with Chemex as the surviving entity.
Chemex also changed its name to Access
Pharmaceuticals, Inc. and the operations of the
consolidated company are now based in Dallas, Texas.
Shareholders of both companies approved the merger.
As a result of the merger, and at time of the merger,
the former API stockholders owned approximately 60% of
the issued and outstanding shares of the Company.
Generally accepted accounting principles require that
a company whose stockholders retain the controlling
interest in a combined business be treated as the
acquiror for accounting purposes. As a consequence,
the merger is being accounted for as a "reverse
acquisition" for financial reporting purposes and API
has been deemed to have acquired an approximate 60%
interest in Chemex. Despite the financial reporting
requirement to account for the acquisition as a
"reverse acquisition", the Company remains the
continuing legal entity and registrant for Securities
and Exchange Commission reporting purposes.
Subsequent to the Merger of API into Access, the
Company is now managed by the former management of API
and the focus of the Company has changed to the
development of enhanced delivery of parenteral
therapeutic and diagnostic imaging agents and topical
delivery systems through the utilization of its
patented and proprietary technology.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
In connection with the merger ("Merger") of Access
Pharmaceuticals, Inc., a Texas corporation ("API"),
with and into Chemex Pharmaceuticals, Inc. ("Chemex")
on January 25, 1996, the name of Chemex was changed to
Access Pharmaceuticals, Inc. ("Access" or the
"Company").
As a result of the merger and immediately after the
merger, the former API Stockholders owned
approximately 60% of the issued and outstanding shares
of the Company. Generally accepted accounting
principles require that a company whose stockholders
retain the controlling interest in a combined business
be treated as the acquiror for accounting purposes. As
a consequence, the merger was accounted for as a
"reverse acquisition" for financial reporting purposes
and API was deemed to have acquired an approximate 60%
interest in Chemex. Despite the financial reporting
requirement to account for the acquisition as a
"reverse acquisition," Chemex remains the continuing
legal entity and registrant for Securities and
Exchange Commission reporting purposes.
Subsequent to the Merger of API into Access, the
Company has been managed by the former management of
API and the focus of the Company has changed to a drug
delivery company using advanced drug carrier
technology for application in cancer treatment,
dermatology and imaging. In addition, the Company has
developed a drug to treat canker sores that was sold
to Block Drug Company ("Block") and is currently being
marketed in the United States by Block subject to a
royalty agreement with the Company.
In August 1997, the Company entered into an agreement
to enter into a collaboration with The Dow Chemical
Company ("Dow Chemical") for the development of
products incorporating Dow Chemical's chelation
technology and Access' Bio~Responsive TM polymer systems.
The collaboration focus is on the development of MRI
contrast agents and
23
radiopharmaceutical diagnostics
and therapeutics. The advancement of the Access
developments in these areas are dependent on securing
chelation technology, which encapsulates metals to
avoid adverse effects on the body.
On December 9, 1997, a wholly-owned subsidiary of the
Company merged with Tacora Corporation ("Tacora"), a
privately-held pharmaceutical company based in
Seattle, Washington, whereby Tacora became a wholly-
owned subsidiary of the Company. Operations have been
included in the Company's consolidated financial
statements since the date of acquisition. Pro forma
disclosure relating to the Tacora acquisition is not
presented as the impact is immaterial to the Company.
The Company used the purchase method of accounting for
the investment in Tacora. The aggregate purchase price
was $730,000 in $124,000 in cash and $192,000 in
stock. Additionally, the Company assumed $239,000 in
trade and accrued payables and $184,000 of Tacora's
capital lease obligations. Based upon the achievement
of certain milestones enumerated in the merger
agreement, the Company may be required to issue up to
approximately 2,750,000 shares of common stock of the
Company ("Common Stock") to the former stockholders of
Tacora. Such shares of Common Stock are payable at an
escalating value over the milestone period. The excess
purchase price of the fair value of Tacora's net
assets of $579,544 was recorded and written off in
the fourth quarter of 1997 due to an immediate
of the excess purchase price based on estimated cash flows.
Since its inception, Access has devoted its resources
primarily to fund its research and development
programs. The Company has been unprofitable since
inception and to date has not received any revenues
from the sale of products. No assurance can be given
that the Company will be able to generate sufficient
product revenues to attain profitability on a
sustained basis if at all. The Company expects to
incur losses for the next several years as it
continues to invest in product research and
development, preclinical studies, clinical trials and
regulatory compliance. At December 31, 1997, the
Company's accumulated deficit was approximately $19.7
million.
Recent Developments
On March 20, 1998, the Company, assisted by an
investment bank raised $725,000 in gross proceeds, less
issuance costs of $47,250, from the placement of
29 Units. Each unit consists of 166,667 shares Common
Stock and warrants to purchase 166,667 shares of
Common Stock at $0.15 per share. The funds will be
used to fund the Company's activities until further
funds are raised. The investment bank has been engaged
to assist the Company in raising up to $8,000,000 to
fund the Company's research and development
activities.
On April 14, 1998 the Company will hold a special
shareholders meeting of stockholders to consider a
proposal to amend Access' Certificate of
Incorporation, as amended, to effect a
recapitalization of the Company through a one-for-
twenty reverse stock split of Access common stock,
$.04 par value per share (the "Common Stock"),
decrease the number of authorized shares of Common
Stock from 60.0 million to 20.0 million and decrease
the authorized shares of preferred stock of the
Company from 10.0 million to 2.0 million (the
"Recapitalization"). This proposal will decrease the
number of outstanding shares of Common Stock from
approximately 37.4 million to 1.9 million.
In addition, if the proposal is approved by
shareholders, the Company intends to submit an
application for listing on NASDAQ or an alternate
exchange if it meets all such listing qualifications.
There can be no assurances that the market price of
the Common Stock immediately after the implementation
of the proposed reverse stock split will increase, and
if it does increase, there can be no assurance that
such increase can be maintained for any period of
time, or that such market price will approximate
twenty times the market price before the proposed
reverse stock split. There can be no assurances that
the Company will be listed on NASDAQ or an alternate
exchange.
On February 26, 1998, the Company entered into a
license agreement with Strakan Limited ("Strakan")
relating to the Company's zinc technology. Strakan
has agreed to fund the development costs of Zinc
Clindamycin, for the treatment of acne, and any
additional compounds developed utilizing the zinc
patent, and will share equally all milestones payments
received from the sublicensing of the compound. In
addition, Access will receive a royalty on sales of
products based on this technology.
Liquidity and Capital Resources
The Company's principal source of liquidity as of
March 27, 1998, is $229,000 of cash and cash
equivalents. Working deficit as of December 31, 1997
was $(216,000), a decrease of $4,160,000 as compared
to the working capital as of December 31, 1996 of
$3,944,000. The decrease in working capital was
principally due to the
24
current year's operations and the assumption of liabilities from the Tacora
acquisition.
Since its inception, the Company's expenses have
significantly exceeded its revenues, resulting in an
accumulated deficit of $19,748,000 at December 31,
1997. The Company has funded its operations primarily
through private sales of its equity securities,
contract research payments from corporate alliances
and the merger with Chemex Pharmaceuticals, Inc.
The Company has incurred negative cash flows from
operations since its inception, and has expended, and
expects to continue to expend in the future,
substantial funds to complete its planned product
development efforts. The Company expects that its
existing capital resources will be adequate to fund
the Company's operations through the next two to six
months. The Company is dependent on raising additional
capital to fund its development of technology and to
implement its business plan. Such dependence will
continue at least until the Company begins marketing
its new technologies.
If the anticipated revenues are delayed or do not
occur or the Company is unsuccessful in raising
additional capital on acceptable terms, the Company
would be required to curtail research and development
and general and administrative expenditures so that
working capital would cover reduced operations into
the third quarter of 1998. There can be no assurance,
however, that changes in the Company's operating
expenses will not result in the expenditure of such
resources before such time.
The Company will require substantial funds to conduct
research and development programs, preclinical studies
and clinical trials of its potential products. The
Company's future capital requirements and adequacy of
available funds will depend on many factors including:
the successful commercialization of amlexanox; the
ability to establish and maintain collaborative
arrangements for research, development and
commercialization of products with corporate partners;
continued scientific progress in the Company's
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; competing technological
developments; the cost of manufacturing and scale-up;
and, the ability to establish and maintain effective
commercialization activities and arrangements.
The Company intends to seek additional funding through
research and development or licensing arrangements
with potential corporate partners, public or private
financing, or from other sources. The Company does not
have any committed sources of additional financing and
there can be no assurance that additional financing
will be available on favorable terms, if at all. In
the event that adequate funding is not available, the
Company may be required to delay, reduce or eliminate
one or more of its research or development programs or
obtain funds through arrangements with corporate
collaborators or others that may require the Company
to relinquish greater or all rights to product
candidates at an earlier stage of development or on
less favorable terms than the Company would otherwise
seek. Insufficient financing may also require the
Company to relinquish rights to certain of its
technologies that the Company would otherwise develop
or commercialize itself. If adequate funds are not
available, the Company's business, financial condition
and results of operations will be materially and
adversely effected.
The Company's business is subject to significant
risks, including, without limitation, uncertainties
associated with the length and expense of the
regulatory approval process, uncertainty associated
with obtaining and enforcing patents and risks
associated with dependence on corporate partners.
Although certain of the Company's products may appear
promising at an early stage of development, they may
not be successfully commercialized for a number of
reasons, such as the possibility that the potential
products will be determined to be ineffective during
clinical trials, fail to receive necessary approvals,
be precluded from commercialization by proprietary
rights of third parties or competitive technology is
more effective than product developed by the Company.
Further, there can be no assurance that any
collaborations will be initiated, continued or result
in successfully commercialized products.
Year 2000 Issue
The Company has developed a plan to modify its
information technology to be ready for the year 2000.
The Company relies upon PC-based systems and does not
expect to incur material costs to transition to Year
2000 compliant systems in its internal operations. The
Company does not expect this project to have a
significant effect on operations. The Company will
continue to implement systems and all new investments
are expected to be with Year 2000 compliant software.
25
Results of Operations
Comparison of Years Ended December 31, 1997 and 1996
Revenues for 1997 were $435,000 as compared to
$167,000 in 1996, an increase of $158,000. Revenues
for 1997 were comprised of $325,000 of licensing
income from an ongoing agreement with an emerging
pharmaceutical company. The agreement provides for
royalty payments if a product is developed from the
technology. There was also $110,000 of option income
recorded in 1997. Revenues for 1996 were comprised of
option income with a pharmaceutical company.
Total research and development spending for 1997 was
$2,433,000 as compared to $1,405,000 for the same
period in 1996, an increase of $1,028,000. The
increase in research and development expenses was due
to the following: external research expenditures-
$683,000 primarily due to additional funding of
Polymer Platinate at University of London and research
at Duke University; salaries and related expenses-
$158,000 due to hiring of additional scientists;
equipment rental and maintenance costs- $82,000;
travel and entertainment- $44,000 due to project
management of external research; scientific consulting-
$43,000 due to additional consulting and manpower for
the ongoing projects; and other net increases totaling
$83,000. The increase in research and development
expenses is offset by lower moving expenses- $65,000
due to the relocation of scientists in 1996. If the
Company is successful in raising additional capital,
research spending is expected to increase in future
quarters as the Company intends to hire additional
scientific management and staff and will accelerate
activities to develop the Company's product
candidates. If the Company is not successful in
raising additional capital, research spending will be
curtailed.
Total general and administrative expenses were
$1,784,000 in 1997, a decrease of $154,000 as compared
to the same period in 1996. The decrease in spending
was due to the following decreases in: business
consulting fees- $109,000 primarily due to the fair
value of warrants issued in 1997 for consulting being
less than the fair value of the warrants issued in
1996; patent expenses- $74,000 due to fewer initial
patent filings in 1997 as compared to 1996; lower
moving expenses- $44,000 due to the moving expenses
associated with the hiring of a business development
vice president in 1996; and other decreases of
$27,000. The decreases are offset by higher salaries
and related expenses- $111,000 due to a full twelve
months of salaries in 1997 for all administrative
employees as compared to a partial period in 1996. If
the Company is not successful in raising additional
capital, general and administrative spending will be
curtailed.
Interest expense of $36,000 was $9,000 lower in 1997
versus 1996 due to the decrease of the outstanding
balance of capital lease obligations. Interest expense
will increase in 1998 due to the addition of capital
leases from the Tacora acquisition.
Depreciation and amortization increased to $162,000 in
1997 from $123,000 in 1996, an increase of $39,000.
The increase is due to the amortization of $25,000 of
licenses and one month of depreciation and
amortization of the Tacora assets.
Excess purchase price over the fair value of Tacora's
net assets of $580,000 was recorded and written off in
the fourth quarter of 1997. In 1996, excess purchase
price over the fair value of Chemex's net assets of
$8,314,000 was recorded and written off due to an
immediate impairment of the excess purchase price.
Total expenses were $4,849,000, including $580,000 of
excess purchase price written off for the Tacora
purchase, which resulted in a loss for the twelve
months of $4,441,000, or $.14 per share.
Comparison of Years Ended December 31, 1996 and 1995
Revenues for 1996 were $167,000 as compared to
$690,000 in 1995, a decrease of $523,000. The decrease
in revenues for 1996 as compared to the comparable
1995 period was principally due to option payments
recorded as income related to a third-party evaluation
of certain of the Company's technology. The company
performing the evaluation elected not to extend the
option period beyond March 29, 1996. An additional
$110,000 in option payments was recorded as unearned
revenue. Revenues for 1995 were comprised of sponsored
research and development revenues.
26
Total research spending for 1996 was $1,405,000 as
compared to $728,000 for the same period in 1995, an
increase of $677,000. The increase in expenses was due
to the following: increased salaries and related
expenses- $353,000; increased external research
expenditures- $133,000; increased equipment rental
costs- $88,000; increased scientific consulting-
$72,000; and other increases of $31,000.
Total general and administrative expenses were
$1,938,000 in 1996, an increase of $1,297,000 as
compared to the same period in 1995. The increase in
spending was due to the following increases in:
business consulting fees- $344,000; professional
expenses due to the Merger and legal costs of being a
public company- $301,000; salaries and related expenses-
$184,000; general business consulting fees and
expenses- $146,000; patent expenses- $142,000;
director fees and director and officer insurance-
$134,000; and other increases of $46,000.
Interest expense was $13,000 lower in 1996 versus 1995
due to the decrease of the outstanding balance of
capital lease obligations.
Depreciation and amortization decreased to $123,000 in
1996 from $367,000 in 1995, a decrease of $244,000.
The decrease is due to the write off of $246,000
capitalized patent and application costs in 1995.
Excess purchase price over the fair value of Chemex's
net assets of $8,314,000 was recorded and written off
in the first quarter of 1996 due to an immediate
impairment of the excess purchase price.
Total expenses were $11,780,000, including $8,314,000
of excess purchase price written off, which resulted
in a loss for the twelve months of $11,462,000, or
$.38 per share.
New Accounting Standard
In June 1997, the Financial Accounting Standards Board issued two new Statements
of Financial Accounting Standards ("SFAS") which are effective for financial
statements for periods beginning after December 15, 1997 and which will apply
to tghe Company beginning with its fiscal year ending December 31, 1998.
Management of the Company does not expect that the adoption of either
pronouncement will have a material impact on the Company's financial position,
results of operations, or liquidity.
SFAS No. 130, "Reporting Comprehensive Income," establishes standards for
reporting and display of comprehensive income and its components in a full set
of general purpose financial statements. Comprehensive income includes net
income and is defined as the change in net assets of a business enterprise
during a period from transactions and other events and circumstances from
nonowner sources. It includes all changes in equity during a period except
those from investments by owners and distributions to owners. Examples of
comprehensive income, other than net income, include unrealized gains and
losses on certain investments in debt and equity securities and foreign
currency items.
SFAS No. 131. "Disclosure About Segments of an Enterprise and Related
Information," establishes standards for the way that public enterprises report
information about operating segments in annual financial statements. It also
requires that those enterprises report selected information about operating
segments in interim financial reports issued to stockholders.
ITEM 8. FINANCIAL AND SUPPLEMENTARY DATA
The response to this Item is submitted as a separate
section of this report.
ITEM 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE
COMPANY
The information requested by this item will be
contained in the Company's definitive Proxy Statement
("Proxy Statement") for its 1998 Annual Meeting of
Stockholders to be held on June 12, 1998 and is
incorporated by reference. Such Proxy Statement will
be filed with the Securities and Exchange Commission
not later than 120 days subsequent to December 31,
1997.
ITEM 11. EXECUTIVE COMPENSATION
The information requested by this item will be
contained in the Company's definitive Proxy Statement
and is incorporated by reference. Such Proxy Statement
will be filed with the Securities and Exchange
Commission not later than 120 days subsequent to
December 31, 1997.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The information requested by this item will be
contained in the Company's definitive Proxy Statement
and is incorporated by reference. Such Proxy Statement
will be filed with the Securities and Exchange
Commission not later than 120 days subsequent to
December 31, 1997.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS
The information requested by this item will be
contained in the Company's definitive Proxy Statement and is
27
incorporated by reference. Such Proxy Statement
will be filed with the Securities and Exchange
Commission not later than 120 days subsequent to
December 31, 1997.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
AND REPORTS ON FORM 8-K
a. Financial Statements and Exhibits Page
1. Financial Statements. The following financial statements are
submitted as part of this report:
Independent Auditors' Report of KPMG Peat Marwick LLP F-1
Independent Auditors' Report of Smith Anglin and Company F-2
Consolidated Balance Sheets at December 31, 1997 and 1996 F-3
Consolidated Statements of Operations for the three
years ended December 31, 1997 and the period from
February 24, 1988 (Inception) to December 31, 1997 F-4
Consolidated Statements of Stockholders' Equity
(Deficit) for the period from February 24, 1988
(Inception) to December 31, 1997 F-5
Consolidated Statements of Cash Flows for the three
years ended December 31, 1997 and the period from
February 24, 1988 (Inception) to December 31, 1997 F-6
Notes to Consolidated Financial Statements F-7
2. Financial Statement Schedule.
No financial statement schedules are included because they are
not required or the information is included in the financial
statements or notes thereto.
3. Exhibits.
4. Exhibit Number
2.1 Amended and Restated Agreement of Merger and
Plan of Reorganization between Access Pharmaceuticals,
Inc. and Chemex Pharmaceuticals, Inc., dated as of
October 31, 1995 (Incorporated by reference to
Exhibit A of the Company's Registration Statement on
Form S-4 dated December 21, 1995, Commission File No. 33-64031)
3.0 Articles of incorporation and bylaws:
3.1 Certificate of Incorporation (Incorporated by
Reference to Exhibit 3(a) of the Company's Form 8-B
dated July 12, 1989, Commission File Number 9-9134)
3.2 Bylaws (Incorporated by referenced to Exhibit
3(b) of the Company's Form 8-B dated July 12, 1989,
Commission File Number 0-9314)
3.3 Certificate of Amendment of Certificate of
Incorporation filed August 21, 1992
3.4 Certificate of Merger filed January 25, 1996.
(Incorporated by reference to Exhibit E of the
Company's Registration Statement on Form S-4 dated
December 21, 1995, Commission File No. 33-64031)
3.5 Certificate of Amendment of Certificate of
Incorporation filed January 25, 1996. (Incorporated
by reference to Exhibit E of the Company's
Registration Statement on Form S-4 dated December 21,
1995, Commission File No. 33-64031)
3.6 Amended and Restated Bylaws (Incorporated by
reference to Exhibit 3.1 of the Company's Form 10-Q
for the quarter ended June 30, 1996)
3.7 Certificate of Amendment of Certificate of
Incorporation filed July 18, 1996
10.0 Material contracts:
28
10.1 Irrevocable Assignment of Proprietary
Information with Dr. Charles G. Smith (Incorporated by
reference to Exhibit 10.6 of the Company's Form 10-K
for the year ended December 31, 1991)
10.2 Conversion Agreement with Sentinel Charitable
Remainder Trust dated June 18, 1990 (Incorporated by
reference to Exhibit 10 of the Company's Form 10-K for
the year ended December 31, 1990)
10.3 Asset Purchase and Royalty Agreement between
Block Drug Company, Inc. and the Company dated June 7,
1995 (Incorporated by reference to Exhibit 10.28 of
the Company's Form 10-Q for the quarter ended June 30, 1995)
*10.4 1995 Stock Option Plan (Incorporated by
reference to Exhibit F of the Company's Registration
Statement on Form S-4 dated December 21, 1995,
Commission File No. 33-64031)
10.5 Stockholder's Agreement dated October 1995
between Access Pharmaceuticals, Inc. and Dr. David F.
Ranney (Incorporated by reference to Exhibit A of the
Company's Registration Statement on Form S-4 dated
December 21, 1995, Commission File No. 33-64031).
10.6 Patent Purchase Agreement dated April 5, 1994
between David F. Ranney and Access Pharmaceuticals,
Inc. (Incorporated by reference to Exhibit 10.16 of
the Company's Form 10-K for the year ended December 31, 1995)
10.7 First Amendment to Patent Purchase Agreement
dated January 23, 1996 between David F. Ranney and
Access Pharmaceuticals, Inc. (Incorporated by
reference to Exhibit 10.17 of the Company's Form 10-K
for the year ended December 31, 1995)
10.8 Lease Agreement between Pollock Realty
Corporation and the Company dated July 25, 1996
(Incorporated by reference to Exhibit 10.19 of the
Company's Form 10-Q for the quarter ended September 30, 1996)
10.9 Platinate HPMA Copolymer Royalty Agreement
between The School of Pharmacy, University of London
and the Company dated November 19, 1996
10.10 License Agreement between The Dow Chemical
Company and the Company dated June 30, 1997.
(Incorporated by reference to Exhibit 10.12 of the
Company's Form 10-Q for the quarter ended September 30, 1997)
10.11 Agreement of Merger and Plan of
Reorganization, dated May 23, 1997 among the Company,
Access Holdings, Inc and Tacora Corporation
21. Subsidiaries of the registrant
23.0 Consent of Experts and Counsel
23.1 Consent of KPMG Peat Marwick LLP
23.2 Consent of Smith, Anglin & Co.
27.1 Financial Data Schedule
* Management contract or compensatory plan required to be filed as an
Exhibit to this Form pursuant to Item 14(c) of the report
b. Reports on Form 8-K.
There were no reports on Form 8-K during the fourth quarter of 1997.
29
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this Report to be signed
on its behalf by the undersigned, thereunto duly authorized.
ACCESS PHARMACEUTICALS, INC.
Date March 30, 1998 By: /s/ Kerry P. Gray
----------------------
Kerry P. Gray
President and Chief Executive
Officer, Treasurer
Date March 30, 1998 By: /s/ Stephen B. Thompson
---------------------------
Stephen B. Thompson
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Company and in the capacities and on the dates indicated.
Date March 30, 1998 By:/s/ Kerry P. Gray
---------------------------
Kerry P. Gray
President and Chief Executive
Officer, Treasurer, Director
Date March 30, 1998 By:/s/ J. Michael Flinn
--------------------------
J. Michael Flinn, Director
Date March 30, 1998 By:/s/ Stephen B. Howell
---------------------------
Stephen B. Howell, Director
Date March 30, 1998 By:/s/ Max Link
-----------------
Max Link, Director
Date March 30, 1998 By:/s/ Herbert H. McDade, Jr.
--------------------------------
Herbert H. McDade, Jr., Director
30
Independent Auditors' Report
The Board of Directors and Stockholders
Access Pharmaceuticals, Inc.:
We have audited the accompanying consolidated balance
sheets of Access Pharmaceuticals, Inc. and subsidiary
(a development stage company) as of December 31, 1997
and 1996, and the related consolidated statements of
operations, stockholders' equity (deficit), and cash
flows for each of the years in the three-year period
ended December 31, 1997 and for the period February 24, 1988
(inception) to December 31, 1997. These consolidated financial
statements are the responsibility of the Company's
management. Our responsibility is to express an
opinion on these consolidated financial statements
based on our audits. The cumulative statements of
operations, stockholders' equity (deficit), and cash
flows for the period February 24, 1988 (inception) to
December 31, 1997 include amounts for the period from
February 24, 1988 (inception) to December 31, 1988 and
for each of the years in the six-year period ending
December 31, 1994, which were audited by other
auditors whose report has been furnished to us and is
included herein, and our opinion, insofar as it
relates to the amounts included for the period
February 24, 1988 (inception) through December 31,
1994, is based solely on the report of the other
auditors.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require
that we plan and perform the audit to obtain
reasonable assurance about whether the financial
statements are free of material misstatement. An audit
includes examining, on a test basis, evidence
supporting the amounts and disclosures in the
financial statements. An audit also includes assessing
the accounting principles used and significant
estimates made by management, as well as evaluating
the overall financial statement presentation. We
believe that our audits provide a reasonable basis for
our opinion.
In our opinion, based on our audits and report of the
other auditors included herein, the consolidated
financial statements for the three-year period ended
December 31, 1997 referred to above present fairly, in
all material respects the financial position of Access
Pharmaceuticals, Inc. and subsidiary (a development
stage company) as of December 31, 1997 and 1996, and
the results of their operations and their cash flows
for each of the years in the three-year period ended
December 31, 1997 and for the period February 24, 1988
(inception) to December 31, 1997, in conformity with generally
accepted accounting principles.
The accompanying consolidated financial statements
have been prepared assuming that the Company will
continue as a going concern. As discussed in note 11
to the consolidated financial statements, the Company
has suffered recurring losses from operations and has
a net capital deficiency that raise substantial doubt
about its ability to continue as a going concern.
Management's plan's in regard to these matters are
also described in note 11. The consolidated financial
statements do not include any adjustments that might
result from the outcome of this uncertainty.
/s/ KPMG Peat Marwick LLP
-------------------------
KPMG Peat Marwick LLP
Dallas, Texas
March 24, 1998
31
Independent Auditors' Report
The Board of Directors and Stockholders
of Access Pharmaceuticals, Inc.:
We have audited the accompanying statements of
operations, stockholders' equity and cash flows of
Access Pharmaceuticals, Inc. (a development stage
company) for the period February 24, 1988 (inception)
through December 31, 1994. These financial statements
are the responsibility of the Company's management.
Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require
that we plan and perform the audit to obtain
reasonable assurance about whether the financial
statements are free of material misstatement. An audit
includes examining, on a test basis, evidence
supporting the amounts and disclosures in the
financial statements. An audit also includes assessing
the accounting principles used and significant
estimates made by management, as well as evaluating
the overall financial statement presentation. We
believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements referred to
above present fairly, in all material respects, the
period February 24, 1988 (inception) through December
31, 1994, in conformity with generally accepted
accounting principles.
/s/ Smith, Anglin & Co.
-----------------------
Smith, Anglin & Co.
Dallas, Texas
September 21, 1995
32
ACCESS PHARMACEUTICALS, INC. AND SUBSIDIARY
a development stage company
CONSOLIDATED BALANCE SHEETS
December 31,
1997 1996
---------- ----------
Assets
Current Assets
Cash and cash equivalents $ 438,000 $4,428,000
Accounts receivable 1,000 1,000
Prepaid expenses and other current assets 51,000 190,000
---------- ----------
Total Current Assets 490,000 4,619,000
Property and equipment, net (note 5) 422,000 300,000
Licenses, net (note 1) 475,000 -
Other assets 60,000 9,000
---------- ----------
Total Assets $1,447,000 $4,928,000
=========== ==========
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable and accrued expenses $ 434,000 $ 399,000
Royalties payable (note 10) 53,000 50,000
Accrued insurance premium 38,000 74,000
Current portion of obligations
under capital leases (note 6) 181,000 152,000
---------- ----------
Total Current Liabilities 706,000 675,000
Obligations under capital leases, net of
current portion (note 6) 142,000 83,000
Unearned revenue (note 3) - 110,000
---------- ----------
Total Liabilities 848,000 868,000
Commitments and Contingencies (notes 6, 10 & 11)
Stockholders' Equity (note 7)
Preferred stock, at December 31, 1997 and 1996,
$.01 par value, Authorized 10,000,000 shares,
none issued or outstanding - -
Common stock, $.04 par value, authorized
60,000,000 shares, 32,609,010 and 31,391,324
issued and outstanding at December 31, 1997
and 1996, respectively 1,304,000 1,256,000
Additional paid-in capital 19,043,000 18,111,000
Deficit accumulated during the development stage (19,748,000) (15,307,000)
---------- ----------
Total Stockholders' Equity 599,000 4,060,000
Total Liabilities and Stockholders' Equity $1,447,000 $4,928,000
========== ==========
- ----------------------------------------------
See Accompanying Notes to Consolidated Financial Statements
33
ACCESS PHARMACEUTICALS, INC. AND SUBSIDIARY
a development stage company
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31, (Inception) to
1997 1996 1995 December 31, 1997
---------- ---------- ---------- ----------
Revenues (note 3)
Research and development $ - $ - $ 690,000 $2,711,000
Option income 110,000 167,000 - 2,149,000
Licensing revenues 325,000 - - 325,000
---------- ---------- ---------- ----------
Total Revenues 435,000 167,000 690,000 5,185,000
Expenses
Research and development 2,433,000 1,405,000 728,000 8,609,000
General and administrative 1,784,000 1,938,000 641,000 6,863,000
Depreciation and amortization 162,000 123,000 367,000 1,056,000
Write-off of excess purchase price 580,000 8,314,000 - 8,894,000
---------- ---------- ---------- ----------
Total Expenses 4,959,000 11,780,000 1,736,000 25,422,000
Loss From Operations (4,524,000) (11,613,000) (1,046,000) (20,237,000)
Other Income (Expense)
Interest and miscellaneous income 119,000 196,000 5,000 774,000
Interest expense (36,000) (45,000) (58,000) (158,000)
---------- ---------- ---------- ----------
83,000 151,000 (53,000) 616,000
Loss Before Income Taxes (4,441,000) (11,462,000) (1,099,000) (19,621,000)
Provision for Income Taxes - - - 127,000
---------- ---------- ---------- ----------
Net Loss $(4,441,000)$(11,462,000) $(1,099,000)$(19,748,000)
========== ========== ========== ==========
Basic and Diluted Loss Per Common Share $(0.14) $(0.38) $(0.09)
Weighted Average Basic and Diluted
Common Shares Outstanding 31,675,708 29,845,560 11,846,329
- ----------------------------------------
See Accompanying Notes to Consolidated Financial Statements
34
ACCESS PHARMACEUTICALS, INC. AND SUBSIDIARY
a development stage company
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
Deficit
Common Stock Additional Accumulated
---------------------- Paid-in During the
Shares Amount Capital Development Stage
---------- ---------- ---------- ----------
Balance, February 24, 1988 - $ - $ - $ -
Common stock issued, $0.33 per share 294,000 3,000 94,000 -
Common stock issued, $0.08 per share 153,000 3,000 9,000 -
Net loss for the period February 24,
1988 to December 31, 1988 - - - (30,000)
---------- ---------- ---------- ----------
Balance, December 31, 1988 447,000 6,000 103,000 (30,000)
Common stock issued, $0.33 per share 87,000 - 29,000 -
Common stock issued, $1.65 per share 75,000 - 124,000 -
Common stock issued, $0.01 per share 1,950,000 20,000 (11,000) -
Net loss for the year - - - (191,000)
---------- ---------- ---------- ----------
Balance, December 31, 1989 2,559,000 26,000 245,000 (221,000)
Common stock issued, $3.00 per share 73,000 - 218,000 -
Common stock issued, $7.82 per share 284,000 3,000 2,222,000 -
Net loss for the year - - - (219,000)
---------- ---------- ---------- ----------
Balance, December 31, 1990 2,916,000 29,000 2,685,000 (440,000)
Common stock issued, $3.00 per share 2,000 - 6,000 -
Contribution of equipment by shareholder - - 468,000 -
Net income for the year - - - 413,000
---------- ---------- ---------- ----------
Balance, December 31, 1991 2,918,000 29,000 3,159,000 (27,000)
Contribution of equipment by shareholder - - 89,000 -
Net loss for the year - - - (859,000)
---------- ---------- ---------- ----------
Balance, December 31, 1992 2,918,000 29,000 3,248,000 (886,000)
Net loss for the year - - - (1,384,000)
---------- ---------- ---------- ----------
Balance, December 31, 1993 2,918,000 29,000 3,248,000 (2,270,000)
Net loss for the year - - - (476,000)
---------- ---------- ---------- ----------
Balance, December 31, 1994 2,918,000 29,000 3,248,000 (2,746,000)
Common stock issued, $2.00 per share 25,000 - 50,000 -
Exercise of stock options between
$0.25 and $1.25 per share 623,000 6,000 163,000 -
Common stock grants 74,000 1,000 (1,000) -
Net loss for the year - - - (1,099,000)
---------- ---------- ---------- ----------
Balance, December 31, 1995 3,640,000 36,000 3,460,000 (3,845,000)
Merger 19,018,000 871,000 9,130,000 -
Common stock issued, $.70 share 8,571,000 343,000 5,160,000 -
Exercise of stock options/SAR's
between $0.00 and $0.88 per share 162,000 6,000 17,000 -
Warrants issued at $1.00 per share
for consulting services - - 344,000 -
Net loss for the year - - - (11,462,000)
---------- ---------- ---------- ----------
Balance, December 31, 1996 31,391,000 1,256,000 18,111,000 (15,307,000)
Common stock issued, $0.75 share 800,000 32,000 568,000 -
Common stock issued, $0.46 share 418,000 16,000 176,000 -
Warrants issued at $0.60 and $0.90 per
share for financial consulting services - - 188,000 -
Net loss for the year - - - (4,441,000)
---------- ---------- ---------- ----------
Balance, December 31, 1997 32,609,000 $1,304,000 $19,043,000 $(19,748,000)
========== ========== ========== ==========
- ----------------------------------------
See Accompanying Notes to Consolidated Financial Statements
35
ACCESS PHARMACEUTICALS, INC. AND SUBSIDIARY
a development stage company
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31, February 24, 1988
-------------------------------------- (Inception) to
1997 1996 1995 December 31, 1997
----------- ----------- ----------- ------------
Cash Flows From Operating Activities:
Net Loss $(4,441,000) $(11,462,000) $(1,099,000) $(19,748,000)
Adjustments to reconcile net loss to
net cash used in operating activities:
Write off of excess purchase price 580,000 8,314,000 - 8,894,000
Consulting expense related to
warrants granted 188,000 344,000 - 532,000
Research expenses related to
common stock granted 100,000 - - 100,000
Depreciation and amortization 162,000 123,000 367,000 1,056,000
Unearned revenue (110,000) - - (110,000)
Change in operating assets and liabilities:
Accounts receivable (1,000) 2,000 (3,000) (2,000)
Prepaid expenses and other
current assets 139,000 (186,000) 16,000 (52,000)
Other assets (1,000) (7,000) 1,000 (8,000)
Accounts payable and accrued expenses (244,000) 354,000 43,000 232,000
----------- ------------ ----------- ------------
Net Cash Used In Operating Activities (3,628,000) (2,668,000) (705,000) (9,106,000)
Cash Flows From Investing Activities:
Capital expenditures (16,000) (38,000) - (1,164,000)
Sales of capital equipment 6,000 - - 6,000
Purchase of Tacora, net of cash acquired (124,000) - - (124,000)
Other investing activities (50,000) - - (50,000)
----------- ------------ ---------- ------------
Net Cash Used In Investing Activities (184,000) (38,000) - (1,332,000)
Cash Flows From Financing Activities
Proceeds from notes payable - 118,000 100,000 721,000
Payments of principal on obligations
under capital leases (178,000) (127,000) (117,000) (454,000)
Cash acquired in merger with Chemex - 1,587,000 - 1,587,000
Proceeds from stock issuances - 5,526,000 219,000 9,022,000
------------ ------------ ---------- ------------
Net Cash (Used In) Provided by
Financing Activities (178,000) 7,104,000 202,000 10,876,000
Net Increase (Decrease) in Cash
and Cash Equivalents (3,990,000) 4,398,000 (503,000) 438,000
Cash and Cash Equivalents
At Beginning of Period 4,428,000 30,000 533,000 -
----------- ------------ --------- ------------
Cash and Cash Equivalents
at End of Period $438,000 $4,428,000 $ 30,000 $438,000
=========== ============ ========= ============
Cash Paid for Interest $34,000 $45,000 $58,000 $155,000
Cash Paid for Income Taxes - - - 127,000
Supplemental disclosure of noncash transactions
Payable accrued for fixed asset purchase $- $- $47,000 $47,000
Elimination of note payable to
Chemex Pharmaceuticals due to merger - 100,000 - 100,000
Stock issued for License on patents 500,000 - - 500,000
Equipment purchases financed through
capital leases 82,000 - - 82,000
Net liabilities assumed in acquisition
of Tacora Corporation (note 1) 455,000 - - 455,000
- -----------------------------------------
See Accompanying Notes to Consolidated Financial Statements
36
ACCESS PHARMACEUTICALS, INC. AND SUBSIDARY
(a development stage company)
Notes to Consolidated Financial Statements
Three Years Ended December 31, 1997
(1) Summary of Significant Accounting Policies:
(a) Business
Access Pharmaceuticals, Inc. ("Access" or the
"Company") is a site-directed targeting company using
bioresponsive drug carriers to target and control the
release of therapeutic agents into sites of disease
activity and clear the non-targeted drug-fraction. The
Company operates in a single industry segment.
On December 9, 1997, a wholly-owned subsidiary of the
Company merged with Tacora Corporation ("Tacora"), a
privately-held pharmaceutical company based in
Seattle, Washington, whereby Tacora became a wholly-
owned subsidiary of the Company. The Company used the purchase method
of accounting for the investment in Tacora. The aggregate purchase price
was $739,000 payable $124,000 in cash, $192,000 in stock representing
418,000 shares of Company common stock and assumption of $239,000 in
trade and accrued payables and $184,000 of Tacora's
capital lease obligations. Based upon the achievement
of certain milestones enumerated in the merger
agreement, the Company may be required to issue up to
approximately 2,750,000 shares of common stock of the
Company ("Common Stock") to the former stockholders of
Tacora. Such shares of Common Stock are payable at an
escalating value over the milestone period. The aggregate purchase price
has been allocated to the net assets acquired based on management's
estimated of the fair value of assets acquired and liabilities
assumed. The excess purchase price over the fair value of Tacora's net
identifiable assets of $579,544 was recorded and written off in
the fourth quarter of 1997 due to an impairment of the excess
purchase price based on estimated future cash flows.
Access, formerly known as Chemex Pharmaceuticals, Inc.
("Chemex"), merged with Access Pharmaceuticals, Inc.,
a Texas corporation ("API") on January 25, 1996.
Shareholders of both companies approved the merger.
Under the terms of the merger agreement, API was
merged into Chemex with Chemex as the surviving legal
entity. Chemex acquired all of the outstanding shares
of API in exchange for 13,919,979 shares of registered
common stock of Chemex, a conversion factor of
3.824251 Chemex shares for each API share. The fair
value of Chemex was $10.0 million. The excess of
purchase price over the net assets acquired of
$8,313,516 was recorded and written off during the
first quarter of 1996 due to an immediate impairment
of the excess purchase price. Chemex also changed its
name to Access Pharmaceuticals, Inc. and the
operations of the merged company are now based in
Dallas, Texas.
As a result of the merger and immediately after the
merger, the former API Stockholders owned
approximately 60% of the issued and outstanding shares
of Chemex. Generally accepted accounting principles
require that a company whose stockholders retain the
controlling interest in a combined business be treated
as the acquiror for accounting purposes. As a
consequence, the merger was accounted for as a
"reverse acquisition" for financial reporting purposes
and API was deemed to have acquired an approximate 60%
interest in Chemex. Despite the financial reporting
requirement to account for the acquisition as a
"reverse acquisition," Chemex remains the continuing
legal entity and registrant for Securities and
Exchange Commission reporting purposes.
In March 1996 the Company concluded a $6.0 million
private placement of 8.571 million shares of common
stock.
The Company's products will require clinical trials,
U.S. Food and Drug Administration ("FDA") approval, or
approval of similar authorities internationally and
acceptance in the marketplace prior to
commercialization. Although the Company believes its
patents and patent applications are valid, the
invalidation of its major patents would have a
material adverse effect upon its business. The
Company competes with specialized biotechnology
companies and major pharmaceutical companies. Many of
these competitors have substantially greater resources
than the Company.
The Company is in the development stage and its
efforts have been principally devoted to research and
development resulting in significant losses since
inception on February 24, 1988.
37
(b) Principles of Consolidation
The consolidated financial statements include the
financial statements of Access Pharmaceuticals, Inc.
and Tacora Corporation, a wholly-owned subsidiary. All
significant intercompany balances have been eliminated
in consolidation.
(c) Cash and Cash Equivalents
The Company considers all highly liquid instruments
with an original maturity of three months or less to
be cash equivalents for purposes of the statements of
cash flows. Cash and cash equivalents consist
primarily of cash in banks and money market funds.
(d) Property and Equipment
Property and equipment are recorded at cost.
Depreciation is provided using the straight-line
method over estimated useful lives ranging from three
to seven years. Assets acquired pursuant to capital
lease arrangements are amortized over the shorter of
the estimated useful lives or the lease terms.
(e) Patents and Applications
In the fourth quarter of 1995, the Company changed
from deferring and amortizing patent and application
costs to recording them as expenses as incurred
because, even though the Company believes the patents
and underlying processes have continuing value, the
amount of future benefits to be derived therefrom are
uncertain. Accordingly, the new accounting method has
been adopted in recognition of a possible change in
estimated future benefits. Since the effect of this
change in accounting principle is inseparable from the
effect of the change in accounting estimate, such
change has been accounted for as a change in estimate
in accordance with Opinion No. 20 of the Accounting
Principles Board. Future patent and application costs
are expected to be expensed since the benefits to be
derived therefrom are likely to be uncertain. As a
result of the change, the Company wrote down
capitalized patent and application costs by
approximately $246,000 which amounts were included in
depreciation and amortization expense in the
accompanying Statement of Operations for 1995.
(f) Licenses
The Company recognizes the purchase value of licenses
and amortizes them over the estimated useful lives.
The Company acquired a license to certain patents for
$500,000 by issuing 700,000 shares of Common Stock in 1997. The License is
amortized over ten years. Amortization was $25,000 for
the year ended December 31, 1997.
(g) Revenue Recognition
Sponsored research and development revenues are
recognized as research and development activities are
performed under the terms of research contracts.
Advance payments received are recorded as unearned
revenue until the related research activities are
performed. Option revenues are recognized when the
earnings process is completed pursuant to the terms of
the respective contract.
(h) Research and Development Expenses
Research and development costs are expensed as
incurred.
(i) Income Taxes
Tax credits related to research and development and to
investments in equipment and improvements are reported as
38
a reduction of income tax expense in the year
realized. Income taxes are accounted for under the
asset and liability method. Deferred tax assets and
liabilities are recognized for the future tax
consequences attributable to differences between the
financial statement carrying amounts of existing
assets and liabilities and their respective tax bases
and operating loss and tax credit carryforwards.
Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income
in the years in which those temporary differences are
expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that
includes the enactment date.
(j) Net Loss Per Share
In February 1997, the Financial Accounting Standards
Board issued Statement of Financial Accounting
Standards No. 128, "Earnings per Share" ("SFAS No.
128"). SFAS No. 128 revised the previous calculation
methods and presentations of earnings per share and
requires that all prior-period earnings (loss) per
share data be restated. The Company adopted SFAS No.
128 in the forth quarter of 1997 as required by this
Statement. In accordance with SFAS No. 128, the
Company has presented basic loss per share, computed
on the basis of the weighted average number of common
shares outstanding during the year, and diluted loss
per share, computed on the basis of the weighted
average number of common shares and all dilutive
potential common shares outstanding during the year.
All prior period loss per share amounts have been
restated in accordance with this Statement.
At December 31, 1997, the Company has options and
common stock warrants outstanding (notes 7 & 8). These
options and warrants would have resulted in
additional weighted average securities, under the
treasury stock method, totaling 410,459, 1,133,822 and
203,951 for the three years ended December 31, 1997, respectively.
The potetially dilutive effect of these securities has
not been considered in the computation of diluted net
loss per common share since their inclusion would be
anti-dilutive.
(k) Use of Estimates
Management of the Company has made a number of
estimates and assumptions relative to the reporting of
assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these
consolidated financial statements in conformity with
generally accepted accounting principles. Actual
results could differ from those estimates.
(l) Reclassifications
Certain reclassifications have been made to prior year
financial statements to conform with the December 31,
1997 presentation.
(m) Year 2000 Issue
The Company has developed a plan to modify its
information technology to be ready for the year 2000.
The Company relies upon PC-based systems and does not
expect to incur material costs to transition to Year
2000 compliant systems in its internal operations. The
Company does not expect this project to have a
significant effect on operations. The Company will
continue to implement systems and all new investments
are expected to be with Year 2000 compliant software.
(n) Stock Option Plans
Prior to January 1, 1996, the Company accounted for
its stock option plan in accordance with the
provisions of Accounting Principles Board ("APB")
Opinion No. 25, Accounting for Stock Issued to
Employees, and related interpretations. As such,
compensation expense would be recorded on the day of
grant only if the current market price of the
underlying stock exceeded the exercise price. On
January 1, 1996, the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 123,
Accounting for Stock-Based Compensation, which permits
39
entities to recognize as expense over the vesting
period the fair value of all stock-based awards on the
date of grant. Alternatively, SFAS No. 123 also allows
entities to continue to apply the provisions of APB
Opinion No. 25 and provide pro forma net income (loss)
and pro forma earnings (loss) per share disclosures
for employee stock option grants made in 1995 and
future years as if the fair-value-based method defined
in SFAS No. 123 had been applied. The Company has
elected to continue to apply the provisions of ABP
Opinion No. 25 and provide the pro forma disclosure
provisions of SFAS No. 123.
Impairment of Long-Lived Assets and Long-Lived Assets
to Be Disposed Of
The Company adopted the provisions of SFAS No. 121,
Accounting for the Impairment of Long-Lived Assets and
Long-Lived Assets to Be Disposed Of, on January 1,
1996. This Statement requires that long-lived assets
and certain identifiable intangibles be reviewed for
impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not
be recoverable. Recoverability of assets to be held
and used is measured by a comparison of the carrying
amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are
considered to be impaired, the impairment to be
recognized is measured by the amount by which the
carrying amount of the assets exceed the fair value of
the assets. Assets to be disposed of are reported at
the lower of the carrying amount or fair value less
costs to sell. Adoption of this Statement did not have
a material impact on the Company's financial position,
results of operations, or liquidity.
(2) Related Party Transactions:
Under consulting agreements between Thoma Corporation
("Thoma") and the Company, Thoma receives payments for
consulting services and reimbursement of direct
expenses. Herbert H. McDade, Jr., the Chairman of the
Board of Directors of the Company, is an owner of
Thoma Corp. During 1997, 1996 and 1995 Thoma received
payments for consulting services of $72,000, $60,000
and $0 respectively. Thoma was also reimbursed for
expenses of $6,000, $18,000, and $3,000 respectively,
in 1997, 1996 and 1995.
Stephen B. Howell, M.D., Director of the Company
receives payments for consulting services and
reimbursement of direct expenses. Dr. Howell consulted
with the Company in 1997 and received $2,000 in
consulting fees and $1,000 in expenses.
On October 4, 1995, Chemex made a loan to API of
$100,000 which was evidenced by a 7% promissory note.
In addition, Chemex sold the remainder of its fixed
assets to API at book value in the fourth quarter of
1995. A payable to Chemex for approximately $47,000
was recorded at December 31, 1995 for these fixed
assets. The loan and payable were both eliminated on
January 25, 1996, the date of the merger.
See Note 10 "Commitments", for transactions regarding
Dr. David F. Ranney, a major shareholder of the
Company.
(3) Research and Development Agreements:
On August 1, 1997, the Company entered into an
agreement with The Dow Chemical Company ("Dow
Chemical") for the development of products
incorporating Dow Chemical's chelation technology and
Access' Bio~Responsive polymer systems. The
collaboration will focus on the development of MRI
contrast agents and radiopharmaceutical diagnostics
and therapeutics. The advancement of the Access
developments in these areas are dependent on securing
chelation technology, which encapsulates metals to
avoid adverse effects on the body.
The Company entered into a technology evaluation option agreement with a
pharmaceutical company. The Company recognized revenues under the
agreement as certain milestones were achieved and accounted for $110,000
and $165,000 in 1997 and 1996, respectively. Proceeds received in excess
of amounts recognized were accounted for as unearned income. This
agreement was terminated March 29, 1996.
40
On April 26, 1994, the Company entered into
agreements, as amended, with Corange International
Ltd. (Corange) to develop drugs based on the Company's
endothelial binding technology for use in the oncology
area. Under the agreements, the Company granted
Corange an option for a period up to two years, as
defined, to exclusively license worldwide, any
oncology agent developed pursuant to the terms of the
common research agreement. In 1995, Corange made
$495,000 in payments to the Company for sponsored
research and development which amounts were recognized
as revenue in 1995. In addition, $180,000 of unearned
revenue at December 31, 1994 was recognized as revenue
in 1995 pursuant to the Corange agreements. The
Corange agreements were terminated by Corange on June
30, 1995.
(4) Fair Value of Financial Instruments
The carrying value of current assets and current
liabilities approximates fair value due to the short
maturity of these items.
(5) Property and Equipment:
Property and equipment, of which a majority is held
under capital leases, consists of the following:
December 31,
1997 1996
---------- ----------
Laboratory equipment $ 852,000 $448,000
Laboratory and building improvements 25,000 23,000
Furniture and equipment 170,000 114,000
---------- ----------
1,047,000 585,000
Less accumulated depreciation and amortization 625,000 285,000
----------- ----------
Net property and equipment $ 422,000 $300,000
Depreciation and amortization on property and
equipment was $137,000, $123,000, and $115,000 for the
years ended December 31, 1997, 1996 and 1995,
respectively.
(6) Leases:
At December 31, 1997, future minimum lease payments
under capital lease obligations and commitments under
noncancelable operating leases were as follows:
Capital leases Operating leases
-------------- ---------------
1998 $ 211,000 $ 77,000
1999 126,000 81,000
2000 31,000 85,000
2001 - 90,000
2002 - 85,000
-------------- ---------------
Total future minimum lease
payments 368,000 $418,000
Less amount representing interest 45,000 ===============
Present value of minimum capital
lease payments 323,000
Less current portion 181,000
-------------
Obligations under capital leases,
excluding current portion $142,000
=============
The Company leases certain office and research and
development facilities under an operating lease. Rent
expense for the years ended December 31, 1997, 1996
and 1995 was $74,000, $69,000 and $59,000,
respectively.
In September 1994, pursuant to a sales leaseback
transaction, the Company sold substantially all of its
property and
41
equipment for $426,000, which amount equaled the net book value of
the property and equipment sold. The lease agreement is classified as
a capital lease with an initial minimum obligation of
$426,000, payable in 42 monthly installments plus
interest. The agreement allows for the purchase of
the equipment at the end of the lease term for
$43,000, which management intends to purchase in April 1998.
The Company also issued a warrant to the lessor for the purchase
of 135,899 shares of the Company's common stock at an exercise price of $0.52
per share, subject to adjustment, as part of the transaction (see Note 7).
(7) Stockholders' Equity:
(a) Preferred Stock
The Company is authorized to issue 10,000,000 shares
of $0.01 par value preferred stock, none of which was
issued or outstanding at December 31, 1997 or 1996.
(b) Common Stock
The Company is authorized to issue 60,000,000 shares
of $0.04 par value common stock, 32,609,010 of which
was issued or outstanding at December 31, 1997. No
dividends have been paid or declared by the Company
since its inception.
(c) Warrants
The Company has issued 500,000 Units to the Sentinel
Charitable Remainder Trust (the "Trust") consisting in
the aggregate of 500,000 shares of common stock and
warrants exercisable in the aggregate for an
additional 700,000 shares of common stock. The
authorization and issuance of the Units was made in connection with
a Conversion Agreement, dated June 18, 1990, as
amended, by and between the Company and the Trust (the
"Conversion Agreement"). Pursuant to the terms of the
Conversion Agreement, each Unit has an exercise price
of $2.50 and the rights to subscribe for the Units
expire on January 1, 1999.
Each warrant issuable in connection with the Units
described above is exercisable for one share of common
stock (subject to adjustment as provided in the
warrant), with 500,000 of the warrants exercisable at
$6.25 and the remaining 200,000 warrants exercisable
at $2.50, all upon terms and conditions set forth in
the Conversion Agreement. The warrants expire on
January 1, 2000.
Under the terms of the 1994 lease agreement (described
in Note 6), the leasing company received a warrant to
purchase 135,899 shares of common stock. The warrant
remains exercisable for seven years from the date of
issuance and will expire on September 19, 2001. The
warrant is exercisable at $.52 per share. The warrant
may be adjusted under some conditions, as defined, for
dividends, changes in stock price, reorganization,
consolidation or merger and extraordinary events.
On October 5, 1995 API entered into an agreement with
a shareholder to purchase 47,803 Units of API equity.
Each Unit consisted of one share of stock and one
warrant. The exercise price for the warrants is $0.52
for every two warrants, which entitles the holder to
one share of common stock. The warrants are
exercisable until October 5, 1999.
Under the terms of the merger on January 25, 1996, a
maximum of 750,000 warrants could have been issued to
the former holders of record of API Common Stock upon
the occurrence of certain conditions within twelve
months of the merger. These warrants would have been
exercisable at $0.75 per share with a 5 year
expiration from the date of issue. These conditions
did not occur by January 25, 1997, therefore these
warrants were not issued and have expired.
During 1996, under terms of a consulting agreement, a
shareholder received warrants to purchase 600,000
shares of common stock at an exercise price of $1.00
per share any time from March 5, 1997 until March 4, 2000, for
41
compensation for consulting services. The
fair value of the warrants was $0.77 on the date of
the grant using the Black-Scholes pricing model with
the following assumptions: 1996-expected dividend
yield 0.0%, risk-free interest rate 6.1%, expected
volatility 100% and an expected life of 3 years. The
portion of the total fair value of the warrants
relating to the consulting services ($344,000) has
been recorded as general and administrative expense
and an increase to additional paid-in capital in the
accompanying 1996 consolidated financial statements.
During 1997, under terms of an agreement, a financial
advisor received warrants to purchase 750,000 shares
of common stock, one-half (375,000 shares) at an
exercise price of $0.60 per share, and one-half
(375,000 shares) at an exercise price of $0.90 per
share any time from January 1, 1998 until June 30,
2002, for financial consulting services rendered in
1997. The fair value of the warrants was $0.25 on the
date of the grant using the Black-Scholes pricing
model with the following assumptions: 1997-expected
dividend yield 0.0%, risk-free interest rate 5.6%,
expected volatility 129% and an expected life of 5
years. Total fair value of the warrants relating to
the consulting services ($188,000) has been recorded
as general and administrative expense and an increase
to additional paid-in capital in the accompanying 1997
consolidated financial statements.
(8) Stock Option Plans
The Company adopted a new stock option plan (the "1995
Stock Awards Plan") on January 25, 1996 and reserved
2,000,000 shares of the Company's authorized but
unissued common stock for issuance to optionees
including officers, employees, and other individuals
performing services for the Company. The 1995 Stock
Awards Plan replaced the previously approved stock
options plan (the "1987 Stock Awards Plan") and API's
stock option plan ("API Stock Option Plan"). Options
granted under the plans vest ratably over a 4-5 year
period and are generally exercisable over a ten-year
period from the date of grant. However, as a result of
certain events occurring in 1995, all granted options
in the 1987 Stock Awards Plan became vested and
exercisable and all options in the API Stock Option
Plan were exercised or forfeited. No further grants
have been or can be made under the 1987 Stock Awards
Plan and the API Stock Option Plan has been canceled.
New stock options are generally granted with an
exercise price equal to the stock's quoted market
value at the date of grant.
At December 31, 1997 there were 1,357,000 additional
shares available for grant under the 1995 Stock Awards
Plan. The per share weighted-average fair value of
stock options granted during 1997 was $0.65
on the date of grant using the Black-Scholes option
pricing method with the following weighted-average
assumptions: 1997-expected dividend yield 0.0%, risk-
free interest rate 5.6%, expected volatility 129% and
an expected vesting life of 4 years for option grants.
The per share weighted-average fair value of stock
options granted during 1996 was $0.92 on the date of
grant using the Black-Scholes option pricing method
with the following weighted-average assumptions: 1996-
expected dividend yield 0.0%, risk-free interest rate
6.0%, expected volatility 100% and an expected life of
4 years.
The Company applies APB Opinion No. 25 in accounting
for its 1995 Stock Awards Plan. Accordingly, no
compensation expense has been recognized in the
accompanying Consolidated Statements of Operations for
employee stock options because the quoted market price
of the underlying common stock did not exceed the
exercise price of the option at the date of grant. Had
the Company determined compensation cost based on the
fair value at the grant date for its stock options
under SFAS No. 123, the Company's net loss and loss
per share would have been reduced to the pro forma
amounts indicated below:
Years Ended December 31,
1997 1996 1995
----------- ------------ ------------
Net Loss
As reported $(4,441,000) $(11,462,000) $(1,099,000)
Pro forma (4,614,000) (11,563,000) (1,101,000)
Basic and diluted loss per share
As reported $(0.14) $(0.38) $(0.09)
Pro forma $(0.15) $(0.39) $(0.09)
43
Pro forma net loss and loss per share amounts reflect
only options granted in 1997 and 1996. No options were granted in 1995.
Therefore, the full impact of calculating compensation
cost for stock options under SFAS No. 123 is not
reflected in the pro forma net loss amounts and loss
per share presented above because compensation cost is
reflected over the awards' vesting period of four and
five years and compensation cost for options granted
prior to January 1, 1995 is not considered.
(a) 1995 Stock Awards Plan
Summarized information for the 1995 Stock Awards Plan
is as follows:
1995 Stock Awards Plan
Weighted-Average
Stock Options Exercise Price
------------ -------------
Outstanding options at December 31, 1995 - $ -
Granted 665,998 1.32
Forfeited (36,000) (1.44)
Exercised - -
------------
Outstanding options at December 31, 1996 629,998 1.31
Granted 164,335 .65
Forfeited (151,333) (1.38)
Exercised - -
------------
Outstanding options at December 31, 1997 643,000 1.02
At December 31, 1997, the range of
exercise prices and weighted average remaining
contractual life of outstanding options was $0.28 -
$1.81 and 9 years, respectively.
At December 31, 1997, the number of awards exercisable was 179,000
and the weighted-average exercise price of those
options was $1.28. At December 31, 1996, the number of options
was 95,000 and the weighted-average exercise price of those
awards was $1.31.
(b) 1987 Stock Awards Plan
Chemex adopted the 1987 Stock Awards Plan in 1987. All
issued options and stock appreciation rights ("SAR's")
became vested and exercisable due to the merger on
January 25, 1996. No further grants can be made.
Summarized information for the 1987 Stock Awards Plan
is as follows:
1987 Stock Awards Plan
1987 Non- Weighted-
Employee Average
Incentive Director Exercise
Stock Options SAR's Plan Price
----------- ----------- ----------- -----------
Outstanding awards, from
Chemex,December 31, 1995 976,097 338,665 279,117 $1.99
Granted - - - -
Forfeited (151,375) - (100,900) 2.57
Exercised (27,428) (134,714) - .15
44
Outstanding awards,
December 31, 1996 797,294 203,951 178,217 2.04
Granted - - - -
Forfeited (22,500) - (73,217) 3.62
Exercised - - - -
Outstanding awards at
December 31, 1997 774,794 203,951 105,000 1.90
At December 31, 1996, the range of exercise prices and
weighted average remaining contractual life of
outstanding awards was $0.00 - $9.00 and 6 years
respectively. At December 31, 1997, the range of
exercise prices and weighted average remaining
contractual life of outstanding awards was $0.00 -
$5.13 and 5 years respectively.
At December 31, 1996, the number of awards exercisable
was 1,179,462 and the weighted-average exercise price
of those awards was $2.04. At December 31, 1997, the
number of awards exercisable was 1,083,745 and the
weighted-average exercise price of those awards was
$1.90.
(9) Income Taxes:
The Company follows Statement of Financial Accounting
Standards Number 109 - Accounting for Income Taxes
("FASB 109"). No provision for federal income taxes
has been made in fiscal years 1997, 1996 and 1995 due
to the operating losses incurred for income tax
purposes. The Company's only significant temporary
difference relates to net operating loss
carryforwards. This resulted in gross deferred tax
assets of approximately $14,700,000 and $13,515,000
at December 31, 1997 and 1996, respectively, all of which have been
fully reserved. Because
the Company has a history of losses, a 100% provision
against the deferred tax assets was recorded in the
form of a valuation allowance. Increases in the
valuation allowance amounted to $1,185,000, $954,000 and $360,000
during the years ended December 31, 1997, 1996 and 1995, respectively.
At December 31, 1997, the Company's regular and
alternative minimum tax net operating loss carry-
forwards for federal income tax purposes approximated
$42 million, which if not utilized, will expire in
varying amounts through the year 2011. As a result of
the merger on January 25, 1996, a change in control
occurred for federal income tax purposes which limited
the utilization of pre-merger net operating loss
carry-forwards related to Chemex to approximately
$530,000 per year.
(10) Commitments and Contingencies:
The Company is not currently a party to any material
legal proceedings.
Under the terms of the "Patent Purchase Agreement"
dated April 5, 1994, as amended on January 23, 1996
between Dr. David F. Ranney and the Company, Dr.
Ranney, a majority stockholder, is entitled to yearly
cash royalty payments as consideration for the
assignment of patents to the Company as follows:
Royalty Payments
Date Amount
----------- --------------
April 15, 1994 $7,500
January 31, 1995 $15,000
January 31, 1996 $25,000
January 31, 1997 $50,000
Thereafter each January 31, payments equal to 105% of
the payment made in the immediately preceding calendar
year will be paid to Dr. Ranney through the life of
the patents. A royalty of $52,500 and $ 50,000 was
payable at December 31, 1997 and 1996, respectively,
and included in the accompanying
consolidated balance sheets. Access will also pay Dr.
Ranney a royalty of three quarters of one percent
(0.75%) of gross revenues derived from products
covered by the patents.
(11) Liquidity:
The Company has incurred negative cash flows from
operations since its inception, and has expended, and expects to
45
continue to expend in the future,
substantial funds to complete its planned product
development efforts. The Company expects that its
existing capital resources will be adequate to fund
the Company's operations through the next two to six
months. The Company is dependent on raising additional
capital to fund its development of technology and to
implement its business plan. Such dependence will
continue at least until the Company begins marketing
its new technologies.
If the anticipated revenues are delayed or do not
occur or the Company is unsuccessful in raising
additional capital on acceptable terms, the Company
would be required to curtail research and development
and general and administrative expenditures so that
working capital would cover reduced operations into
the third quarter of 1998. There can be no assurance,
however, that changes in the Company's operating
expenses will not result in the expenditure of such
resources before such time.
The Company will require substantial funds to conduct
research and development programs, preclinical studies
and clinical trials of its potential products. The
Company's future capital requirements and adequacy of
available funds will depend on many factors including:
the successful commercialization of amlexanox; the
ability to establish and maintain collaborative
arrangements for research, development and
commercialization of products with corporate partners;
continued scientific progress in the Company's
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; competing technological
developments; the cost of manufacturing and scale-up;
and, the ability to establish and maintain effective
commercialization activities and arrangements.
The Company intends to seek additional funding through
research and development or licensing arrangements
with potential corporate partners, public or private
financing, or from other sources. The Company does not
have any committed sources of additional financing and
there can be no assurance that additional financing
will be available on favorable terms, if at all. In
the event that adequate funding is not available, the
Company may be required to delay, reduce or eliminate
one or more of its research or development programs or
obtain funds through arrangements with corporate
collaborators or others that may require the Company
to relinquish greater or all rights to product
candidates at an earlier stage of development or on
less favorable terms than the Company would otherwise
seek. Insufficient financing may also require the
Company to relinquish rights to certain of its
technologies that the Company would otherwise develop
or commercialize itself. If adequate funds are not
available, the Company's business, financial condition
and results of operations will be materially and
adversely effected.
(12) Subsequent Events:
On March 11, 1998 the Company sent to the shareholders
a request to amend Access' Certificate of
incorporation, as amended, to effect a
recapitalization of the Company through a one-for-
twenty reverse stock split of Access common stock,
$.04 par value per share (the "Common Stock"),
decrease the number of authorized shares of Common
Stock from 60.0 million to 20.0 million and decrease
the authorized shares of preferred stock of the
Company from 10.0 million to 2.0 million (the
"Recapitalization"). This proposal will decrease the
number of outstanding shares of Common Stock from
approximately 37.4 million to 1.9 million.
In addition, if the proposal is approved by
shareholders, the Company intends to submit an
application for listing on NASDAQ or an alternate
exchange if it meets all such qualifications. There
can be no assurances that the market price immediately
after the implementation of the proposed reverse stock
split will increase, and if it does increase, there
can be no assurance that such increase can be
maintained for any period of time, or that such market
price will approximate twenty times the market price
before the proposed reverse stock split. There can be
no assurances that the Company will be listed on any
exchange or NASDAQ or an exchange.
On March 20, 1998, the Company, assisted by an
investment bank, raised $725,000 in gross proceeds,
less issuance costs of $47,250, from the placement
of 29 Units. Each Unit consists of 166,667 shares of
Common Stock and warrants to purchase 166,667 shares
of Common Stock at $0.15 per share. The funds will be
used to fund the Company's activities until further
funds are raised. The investment bank has been engaged
to assist the Company in raising up to a total of
$8,000,000 to fund the Company's research and
development activities.