SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended Commission File Number 0-19122
September 30, 2002
APHTON CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 95-3640931
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
80 SW Eighth Street, Suite 2160 33130
Miami, Florida (Zip Code)
(address of principal executive offices)
Registrant's telephone number, including area code (305) 374-7338
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 requirements for the past 90 days.
Yes X No
--- ---
The number of shares of Common Stock outstanding as of the
close of business on November 13, 2002:
Class Number of
Shares outstanding
Common Stock, $0.001 par value 22,681,639
APHTON CORPORATION
Index
Page
Part I - Financial Information 3
Item 1. Condensed Consolidated Financial Statements:
Balance Sheets - September 30, 2002 (Unaudited)
and December 31, 2001 4
Statements of Operations (Unaudited) - Three and
nine months ended September 30, 2002 and 2001 5
Statements of Cash Flows (Unaudited) - Three and
nine months ended September 30, 2002 and 2001 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 6
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 8
Item 4. Controls and Procedures 9
Part II - Other Information
Item 1. Legal Proceedings 9
Item 2. Changes in Securities 9
Item 3. Defaults Upon Senior Securities 9
Item 4. Submission of Matters to a Vote of Security Holders 9
Item 5. Other Information 9
Item 6. Exhibits and Reports on Form 8-K 9
Signature 10
Certifications Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002 11
Part I - Financial Information
Forward-Looking Statements
This Form 10-Q contains forward-looking statements that involve risks and
uncertainties. In some cases, you can identify forward-looking statements by
terminology such as "may", "will", "should", "expect", "plan", "anticipate",
"believe", "continue", "predict", "estimated", "potential", or the negative of
such terms or other comparable terminology. We have based these forward-looking
statements on our current expectations and projections about future events.
These statements include, but are not limited to information about:
o Our business outlook and future financial performance;
o Anticipated profitability, revenues, expenses and capital expenditures;
o Anticipated research, development, clinical, regulatory and reimbursement
progress;
o Future funding and expectations as to any future events; and
o Other statements that are not historical fact and are forward-looking
statements within the meaning of the Private Securities Litigation Reform
Act of 1995 that involve risks and uncertainties.
When considering such forward-looking statements, you should keep in mind the
risk factors and other cautionary statements in our publicly available filings
with the Securities and Exchange Commission, including our most recent
Registration Statement on Form S-3/A declared effective on July 12, 2002, our
Transition Report on Form 10-K/A for the eleven months ended December 31, 2001,
our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2002, June
30, 2002 and this Form 10-Q. These risks and uncertainties could cause our
actual results to differ materially from future results expressed or implied by
the forward-looking statements. Many of these factors are beyond our ability to
control or predict. You should not place undue reliance on any forward-looking
statements. We undertake no obligation to release publicly any revisions to
these forward-looking statements to reflect events or circumstances after the
date of this Form 10-Q or to reflect the occurrence of unanticipated events,
except as may be required under applicable securities laws.
Item 1. Condensed Consolidated Financial Statements
The interim condensed consolidated financial statements included herein have
been prepared by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. In the opinion of
management, the condensed consolidated financial statements include all
adjustments (consisting of normal recurring accruals) necessary to present
fairly the financial position of the Company as of September 30, 2002 and
December 31, 2001 and the results of its operations for the three and nine
months ended September 30, 2002 and 2001; and its cash flows for the nine months
ended September 30, 2002 and 2001. These condensed consolidated financial
statements should be read in conjunction with the financial statements and the
notes thereto included in the Company's latest annual report on Form 10-K/A.
Critical Accounting Policies
The Company's significant accounting policies are described in Note 2 to the
consolidated financial statements included in our Transition Report on Form 10-K
for the eleven months ended December 31, 2001, filed with the SEC on April 1,
2002. The Company believes that its most critical accounting policies include
the use of estimates. The Company believes the impact of these estimates on
results of operations in 2002 and 2001 are not significant. The Company's
management periodically reviews these policies and estimates, the effect of
which is reflected as a component of net loss in the period in which the change
is known. Such changes to these estimates have not been material to the
Company's results of operations during the three and nine months ended September
30, 2002.
-3-
APHTON CORPORATION
Financial Statement Overview
The following highlighted information is also contained in Management's
Discussion and Analysis of Financial Condition and Results of Operations. During
the nine months ended September 30, 2002, Aphton received approximately $32.1
million for approximately 5.2 million shares of its common stock. Total costs
were reduced from $13.1 million in the quarter ending December 31, 2001 to $10.1
million in the quarter ended March 31, 2002, to $9.9 million for the quarter
ended June 30, 2002. This decrease is primarily due to the completion of
recruitment for two of the Company's clinical trials. Total costs increased to
$10.8 million in the quarter ended September 30, 2002 primarily due to the costs
of preparing for and filing an application for clinical trials for the
non-cancer indication of GERD in Europe and the US. The Company is planning to
initiate a clinical trial in Europe for GERD in the fourth quarter and to begin
recruiting patients in January of 2003. Most of the costs relating to these
trials will be incurred during the fiscal year ended December 31, 2003.
APHTON CORPORATION
Condensed Consolidated Balance Sheets
Assets September 30, December 31,
Current Assets: 2002 2001 (a)
Cash and current investments: (Unaudited)
Cash and short-term cash investments $ 8,252,086 $ 3,176,717
Investment securities-trading 692,466 1,147,417
Investment securities-held-to-maturity - 1,999,006
------------- -------------
Total cash and current investments 8,944,552 6,323,140
Other assets (including current portion of
unconditional supply commitment) 409,729 595,390
------------- -------------
Total current assets 9,354,281 6,918,530
Equipment and improvements, net 192,153 188,597
Unconditional supply commitment 6,605,515 6,875,515
------------- -------------
Total assets $ 16,151,949 $ 13,982,642
============= =============
Liabilities and Stockholders' Deficit
Current liabilities - Accounts payable and other $11,663,562 $10,715,430
Deferred revenue 10,000,000 10,000,000
------------- -------------
Total liabilities 21,663,562 20,715,430
Commitments
Stockholders' Deficit:
Preferred stock, $0.001 par value -
Authorized: 2,000,000 shares
Issued and outstanding: none - -
Common stock, $0.001 par value -
Authorized: 30,000,000 shares
Issued and outstanding: 22,681,639 shares at
September 30, 2002 and 17,386,996 shares at
December 31, 2001 22,682 17,387
Additional paid-in capital 125,627,773 93,566,314
Purchase warrants 298,900 298,900
Accumulated deficit (131,460,968) (100,615,389)
------------- -------------
Total stockholders' deficit (5,511,613) (6,732,788)
------------- -------------
Total liabilities and stockholders' deficit $ 16,151,949 $ 13,982,642
============= =============
(a) The balance sheet at December 31, 2001 has been derived from the 2001 audited financial
statements.
-4-
APHTON CORPORATION
Unaudited Condensed Consolidated Statements of Operations
For the three and nine months ended September 30, 2002 and 2001
Three months ended September 30, Nine months ended September 30,
2002 2001 2002 2001
Revenue: $ - $ - $ - $ -
------------ ----------- ------------ -----------
Costs and expenses:
General and administrative 657,405 629,190 1,611,332 1,520,949
Research and development 10,180,407 7,550,430 29,182,312 18,126,330
------------- ------------ ------------- -------------
Total costs and expenses 10,837,812 8,179,620 30,793,644 19,647,279
------------- ------------ ------------- -------------
Loss from operations 10,837,812 8,179,620 30,793,644 19,647,279
Other income (expense):
Dividend and interest income 29,011 79,620 100,624 433,196
Unrealized losses from investments (115,043) (39,156) (152,558) (1,417,340)
------------- ------------ ------------- -------------
Net loss $(10,923,844) $(8,139,156) $(30,845,578) $(20,631,423)
============= ============= ============= ==============
Per share data: Basic diluted
loss per common share $(0.52) $(0.48) $(1.55) $(1.25)
======= ======= ======= =======
Weighted average number of common
shares outstanding 20,961,639 16,991,161 19,934,496 16,463,382
=========== =========== =========== ===========
The net loss for the three and nine months ended September 30, 2002 and 2001 was
the comprehensive loss for those periods. Potential common shares, consisting of
approximately 3.7 million purchase warrants at September 30, 2002 and 2.7
million purchase warrants at September 30, 2001, were excluded from the
computation of net loss per share because their effect was anti-dilutive.
APHTON CORPORATION
Unaudited Condensed Consolidated Statements of Cash Flows
For the nine months ended September 30, 2002 and 2001
Cash flows from operating activities: 2002 2001
Cash paid to suppliers and employees $(28,928,147) $(19,928,526)
------------- -------------
Net cash used in operating activities (28,928,147) (19,928,526)
Cash flows from investing activities:
Purchase of held to maturity securities - (12,121,649)
Proceeds from maturity of held to maturity securities 1,999,024 23,095,000
Capital expenditures (62,262) (75,871)
------------- -------------
Net cash used in investing activities 1,936,762 10,897,480
------------- -------------
Cash flows provided by financing activities:
Sales of stock 32,066,754 13,275,024
------------- -------------
Cash provided by financing activities 32,066,754 13,275,024
------------- -------------
Net increase (decrease) in cash and short-term cash investments 5,075,369 4,243,978
Cash and short-term cash investments:
Beginning of period 3,176,717 4,998,650
------------- -------------
End of period $ 8,252,086 $ 9,242,628
============= =============
Reconciliation of net loss to net cash used in operating activities
Net loss $(30,845,578) $(20,631,423)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 58,707 55,705
Unrealized losses from investments 152,558 1,417,340
Non-cash employee research and development expense (credit) (152,558) (1,417,340)
Changes in -
Net (increase) decrease in investment securities-trading 454,931 1,396,418
Other assets - including current portion of supply commitment 185,661 147,010
Unconditional supply commitment - long term portion 270,000 150,000
Accounts payable and other 948,132 (1,046,236)
------------- -------------
Net cash used in operating activities: $(28,928,147) $(19,928,526)
============= =============
-5-
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Three and nine months ended September 30, 2002
General
Aphton Corporation is a biopharmaceutical company conducting a randomized,
double blind, controlled, combination therapy Phase III clinical trial in the US
and Europe for patients with advanced pancreatic cancer; a Phase II clinical
trial in Europe and the US for patients with advanced gastric (stomach) cancer;
and a Phase II clinical trial in Europe for patients with prostate cancer.
Aphton is initiating a Phase II dose-ranging/indications of efficacy clinical
trial in Europe for treating patients with gastrointestinal reflux disease
(GERD).
We apply our innovative technology-platform to develop products for
neutralizing, and removing from circulation, hormones and other molecules that
participate in gastrointestinal system and reproductive system cancer and
non-cancer diseases. We have strategic alliances with Aventis Pasteur (NYSE:
AVE), GlaxoSmithKline (NYSE: GSK) and others.
Aphton's anti-gastrin targeted therapy induces antibodies in patients that bind
to both gastrin 17 and gly-gastrin and remove them from circulation before they
can initiate cell growth. Gastrin 17 and gly-gastrin are believed to be central
growth factors, or the initiating signals, for cell growth and cell
proliferation and metastasis (spread) in colon, pancreatic, stomach, esophageal
and other gastrointestinal system cancers. This is accomplished by gastrin
binding to the large numbers of gastrin receptors on the tumor cell surface.
Interrupting this process by immunizing the patient with Aphton's anti-gastrin
immunogen is a precisely "targeted" immunotherapy. This specificity of targeting
only cancer cells occurs because gastrin is not normally secreted and gastrin
receptors are not normally found on "healthy" cells in the GI system, unless
they are malignant, or on the path to malignancy (except for cells involved with
normal acid secretion). Recent findings have shown that inhibiting gastrin not
only inhibits cell growth, proliferation and metastasis directly, but also
"unblocks" a central pathway leading to cell-suicide (apoptosis). This tilts the
balance, from cell growth, to cell suicide. This effect was amplified
synergistically when Aphton's drug was given together with a chemotherapeutic.
Gastrin also stimulates the secretion and expression of other important growth
factors and receptors within and on the surface of the cancer cell involved in
tumor growth. Hence, inhibiting gastrin inhibits all of the foregoing factors
contributing to tumor growth and spread, while simultaneously opening a central
pathway to cell suicide.
Clinical Results
On October 28, 2002, the Company announced results of a randomized,
double-blind, controlled, statistically powered, phase III clinical trial
conducted in European countries. Patients with advanced pancreatic cancer who
had received no previous therapy were treated either with the Company's
anti-gastrin immunogen G17DT as a monotherapy, or with the control. The primary
efficacy measure was survival time from the date of randomization. A summary of
the results follows: a) patients with stage IV pancreatic cancer treated with
G17DT had a median survival time that was 53% longer than the stage IV patients
in the control arm; b) 25% of the patients with stage IV pancreatic cancer who
were treated with G17DT had a survival time that was 106% longer than the
control arm; and c) the overall Hazard Ratio was 0.7; that is to say, at any
point in time, patients on G17DT had a 143% higher likelihood of surviving
longer than patients on the control.
Significance of Clinical Results
Aphton believes that these results with G17DT are the first in which a
biological agent showed a survival benefit against a solid tumor in a
randomized, double-blind, phase III clinical trial with previously untreated
patients (non-refractory patients). For further information on our clinical
trials see the discussion of our reports filed on Form 8-K in Item 6 below.
Planned Filings for Marketing Approvals
Aphton plans to submit these results to certain foreign regulatory agencies in
the next few weeks for their consideration for marketing approval in those
jurisdictions.
Results of Operations
During the nine months ended September 30, 2002, Aphton received approximately
$32.1 million for approximately 5.2 million shares of its common stock. Total
costs were reduced from $13.1 million in the quarter ending December 31, 2001 to
$10.1 million in the quarter ended March 31, 2002, to $9.9 million for the
quarter ended June 30, 2002. This decrease is primarily due to the completion of
recruitment for two of the Company's clinical trials. Total costs increased to
$10.8 million in the quarter ended September 30, 2002 primarily due to the costs
of preparing for and filing an application for clinical trials for the
non-cancer indication of GERD in Europe and the US. The Company is planning to
initiate a clinical trial in Europe for GERD in the fourth quarter and to begin
recruiting patients in January of 2003. Most of the costs relating to these
trials will be incurred during the fiscal year ended December 31, 2003.
During this period the Company had no contract revenues. The investment earnings
on cash and current investments for the nine months ended September 30, 2002 was
$100,624, compared to $433,196 for the nine months ended September 30, 2001.
This decrease was due to lower average cash balances and interest rates. Total
research and development expenditures increased from $7,550,430 to $10,180,407
in the three months ended September 30, 2002 over the three months ended
September 30, 2001. Total research and development costs increased from
$18,126,330 for the nine months ended September 30, 2001 to $29,182,312 for the
-6-
nine months ended September 30, 2002. These costs included the costs of
establishing centers where patients are treated and monitored. This 61% increase
was a result of the increased clinical trial costs associated with the
development of the Company's products and were partially offset by a significant
reduction of research and development costs in the nine months ended September
30, 2001. The Company allows certain employees to defer a portion of
compensation, and the Company transfers this amount into an investment account
such that the employee is able to direct the investment of the funds. The
related investment securities are held by the Company, and are subject to the
general creditors of the Company. These employees direct the investment of the
funds, and the changes in value in these investments are recognized as
unrealized gains and losses in the statement of operations with a corresponding
increase or decrease to the carrying value of the investment account. The same
amount is used to adjust research and development expense and the corresponding
liability for employees' wages and benefits payable. Unrealized holding losses
on trading securities and the corresponding decrease in research and development
expense totaled $152,558 in the nine month period ending September 30, 2002 and
approximately $1,417,340 for the nine months ended September 30, 2001.
The Company does not accumulate cost information by major development product.
Many costs are applicable to more than one product. We receive reimbursements
from our strategic partners for some of our research and development expenses
and these expenses are not included in our costs. We estimate that 93% of our
research and development costs are spent on gastrointestinal and reproductive
system cancers. There are no payment or penalty milestones associated with any
of the projects, all of which are in Phase II or III clinical trials. The
Company does not speculate on the timing of approvals by regulatory authorities.
Other
In June 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 141, "Business Combinations," which the
Company adopted in July 2001 and No. 142, "Goodwill and Other Intangible
Assets," which was adopted in January 2002, effective for fiscal years beginning
after December 15, 2001. Under the new rules, goodwill and intangible assets
deemed to have indefinite lives will no longer be amortized but will be subject
to annual impairment tests in accordance with the Statements. Other intangible
assets will continue to be amortized over their useful lives. The adoption of
these statements did not have an impact on the Company's financial position or
results from operations.
In August 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets" (SFAS No. 144) which the Company adopted January
1, 2002. SFAS 144 superseded Statement of Financial Accounting Standards No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of," and the accounting and reporting provisions of
Accounting Principles Board Opinion No. 30, "Reporting the Results of
Operations-Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions," for
the disposal of a segment of a business. SFAS No. 144 also amended Accounting
Research Bulletin No. 51, "Consolidated Financial Statements," to eliminate the
exception to consolidation for a subsidiary for which control is likely to be
temporary. The adoption of these statements did not have an impact on the
Company's financial position or results from operations.
In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities" (SFAS 146). This Statement addresses financial
accounting and reporting for costs associated with exit or disposal activities
and nullifies Emerging Issues Task Force (EITF) Issue No. 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring)." SFAS No. 146
requires that a liability for a cost associated with an exit or disposal
activity be recognized when the liability is incurred rather than when a
commitment to an exit plan is made. It is effective for exit or disposal
activities that are initiated after December 31, 2002. The Company does not
expect the impact of adopting SFAS 146 to be significant to the Company's
financial position, results of operations, or cash flows.
-7-
Inflation and changing prices have not had a significant effect on continuing
operations and are not expected to have any material effect in the foreseeable
future. Interest and other income were primarily derived from money-market
accounts.
Liquidity and Capital Resources
The Company has financed its operations since inception through the sale of its
equity securities and, to a lesser extent, using operating revenues from R&D
limited partnerships to conduct research and development. These funds provided
the Company with the resources to retain staff, construct its research and
development facilities, acquire capital equipment and finance technology and
product development, manufacturing and clinical trials. During the nine month
period ended September 30, 2002, total cash inflow from financing activities was
$32.1 million compared to $28.9 million total cash outflows from operating
activities. This reflects the use of our proceeds from the sale of common stock
to finance our research and development activities.
On September 26, 2002 the Company sold 2,500,000 shares of registered common
stock at $2.00 per share and received net proceeds of $4.4 million. On March 21,
2002, the Company sold 1,200,000 shares of registered common stock at $10.50 per
share and received net proceeds of $11.7 million. On February 7, 2002, the
Company sold 1,345,000 shares of registered common stock at $12.70 per share and
received net proceeds of $16.0 million.
During the eleven months ended December 31, 2001, the Company received proceeds
of approximately $13.3 million net of approximately $1.0 million offering costs
from the closing of a private financing with several funds. The Company issued
1,187,503 shares of common stock and there were no warrants or options included
with this private placement. Approximately 170,000 additional shares were issued
subsequent to December 31, 2001 due to an anti-dilution provision for the sale
of securities at less than $12.00 per share prior to September 21, 2002.
On October 15, 2002 and on November 1, 2002, the Company received notices from
the staff of the Nasdaq National Market that its Common Stock had failed to
maintain certain minimum requirements for continued listing on the Nasdaq
National Market and both of the notices suggested that the company may want to
apply to transfer its securities to the Nasdaq SmallCap Market.
On November 13, 2002, we submitted an application to Nasdaq to move trading of
our Common Stock from the Nasdaq National Market to the Nasdaq SmallCap Market
under the same ticker symbol. We believe that we satisfied all of the criteria
for trading our Common Stock on the Nasdaq SmallCap Market as of that date, and
believe that Nasdaq should accept our application. Our application to be listed
on the Nasdaq SmallCap Market may not, however, be accepted or if accepted we
may not be able to maintain eligibility and if our common stock were to be
delisted from the Nasdaq it could adversely affect or limit or restrict our
ability to raise funds through stock issuances.
The Company anticipates that its existing capital resources of $8.9 million,
which are composed primarily of cash and short-term cash investments, would
enable it to maintain its currently planned operations into the quarter ending
December 31, 2002. The Company's working capital and capital requirements, which
have averaged $3.4 million per month during the nine months ended September 30,
2002, will depend upon numerous factors, including the following: the progress
of the Company's research and development program, preclinical testing and
clinical trials; the timing and cost of obtaining regulatory approvals; the
levels of resources that the Company devotes to product development,
manufacturing and marketing capabilities; technological advances; competition;
and collaborative arrangements or strategic alliances with other drug companies,
including the further development, manufacturing and marketing of certain of the
Company's products and the ability of the Company to obtain funds from such
strategic alliances or from other sources. The Company is negotiating with
current and potential strategic partners to obtain upfront payments and
milestone payments and royalties as part of, and in return for, granting certain
additional licensing rights to its products and technologies. If adequate funds
do not become available as a result of our current negotiations, the sale of our
equity securities or otherwise, we may be required to delay, reduce the scope
of, or eliminate one or more of our research or development programs or obtain
funds through arrangements with collaborative partners or others that may
require us to negotiate agreements which may be less than favorable to us, if we
are able to secure them at all.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company has no material changes to the disclosure on this matter made under
Item 7A of its Transition Report on Form 10-K for the eleven month period ended
December 31, 2001.
-8-
Item 4. Controls and Procedures
We evaluated the design and operation of our disclosure controls and procedures
to determine whether they are effective in ensuring that the disclosure of
required information is timely made in accordance with the Exchange Act and the
rules and forms of the Securities and Exchange Commission. This evaluation was
made under the supervision and with the participation of management, including
our Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO") within
the 90-day period prior to the filing of this Quarterly Report on Form 10-Q. The
CEO and CFO have concluded, based on their review, that our disclosure controls
and procedures, as defined at Exchange Act Rules 13a-14(c) and 15d-14(c), are
effective to ensure that information required to be disclosed by the Company in
reports that it files under the Exchange Act is recorded, processed, summarized
and reported within the time periods specified in Securities and Exchange
Commission rules and forms. No significant changes were made to the Company's
internal controls or other factors that could significantly affect these
controls subsequent to the date of their evaluation.
Part II - Other Information
Item 1. Legal Proceedings. Not applicable.
Item 2. Changes in Securities. Not applicable.
Item 3. Defaults Upon Senior Securities. Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders. Not applicable.
Item 5. Other Information. Not applicable.
Item 6. Exhibits and Report on Form 8-K.
(a) Exhibits
99.1 Certificate of the Chief Executive Officer pursuant to 18
U.S.C. (Section 1350 as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002)
99.2 Certificate of the Chief Financial Officer pursuant to 18
U.S.C. (Section 1350 as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002)
(b) Reports on Form 8-K
During the three months ended September 30, 2002 and through
November 13, 2002, the Company filed the following current
reports on Form 8-K:
-On July 17, 2002, announced that it received official notice from the
Food and Drug Administration (the "FDA") granting its anti-gastrin
G17DT Immunogen Orphan-Drug status for treatment of adenocarcinoma of
the pancreas;
-On July 23, 2002, announced that it received official notice from the
FDA granting its anti-gastrin G17DT Immunogen Orphan-Drug status for
treatment of gastric (stomach) cancer. The FDA noted that the
indication designated is broader than the indication originally sought
by the Company;
-On July 29, 2002, in its S-3 filing of July 8, 2002, Aphton
Corporation noted that it has concluded a phase II clinical trial with
G17DT which showed, among other findings, the reduction of
post-prandial (post-meal) levels of gastrin to pre-meal levels of
gastrin, in patients immunized with G17DT. Furthermore, for patients
also treated with the proton-pump inhibitor (PPI) drug omeprazole, we
showed the reduction of the many-fold increase in gastrin levels
induced by omeprazole, a condition known as hypergastrinemia, to
pre-meal levels of gastrin. The Company has been preparing to file an
Investigational New Drug (IND) application to examine, among other
endpoints, whether G17DT may be efficacious in providing symptomatic
relief to patients suffering from gastroesophageal reflux disease (or
GERD). The preparation of an IND for a drug that could be administered
to millions of patients each year entails resources and effort which
Aphton has made in recent months and is now completing.
-On July 31, 2002, Aphton reported further impressive interim results
from its phase II clinical trial with patients with metastatic stomach
cancer who were treated with Aphton's G17DT and chemotherapy
consisting of cisplatin and 5FU. The report updates results reported
on June 12, 2002 for 58 evaluable patients, where 28 patients had
either a partial or a complete tumor response for an overall tumor
response rate of 48.3%.
-9-
-On September 23, 2002, Aphton Corporation (the "Company") announced
that the Food and Drug Administration (the "FDA") has reviewed the
Company's request for Fast Track designation for its G17DT
(anti-gastrin) immunogen under its Investigational New Drug
Application to treat pancreatic cancer patients together with the
chemotherapy gemcitabine and concluded that it meets the criteria for
Fast Track designation. The Company announced on August 19, 2002, that
it had filed an application with the FDA for this designation.
-On September 23, 2002, Aphton Corporation (the "Company") entered
into a placement agency agreement (the "Agreement") with Life Science
Group, Inc., as placement agent, in connection with the sale and
issuance by the Company of 2,500,000 shares (the "Shares") of the
Company's common stock, $0.001 par value. The Shares will be issued
pursuant to a Registration Statement on Form S-3 (File No. 333-92058)
(the "Registration Statement") filed with the Securities and Exchange
Commission under the Securities Act of 1933, as amended.
-On September 26, 2002, Aphton Corporation (the "Company") announced
that the Company received gross proceeds of $5,000,000 for the sale of
2,500,000 shares of registered common stock. Life Science Group, Inc.
acted as placement agent in connection with the transaction. The
proceeds of the financing will be used for general corporate purposes,
including to fund the Company's on-going clinical trials and
operations.
-On October 28, 2002, Aphton Corporation (the "Company") announced
results of a randomized, double-blind, controlled, statistically
powered, phase III clinical trial conducted in European countries.
Patients with advanced pancreatic cancer who had received no previous
therapy were treated either with the Company's anti-gastrin immunogen
G17DT as a monotherapy, or with the control. The primary efficacy
measure was survival time from the date of randomization. A summary of
the results follows: a) patients with stage IV pancreatic cancer
treated with G17DT had a median survival time that was 53% longer than
the stage IV patients in the control arm; b) 25% of the patients with
stage IV pancreatic cancer who were treated with G17DT had a survival
time that was 106% longer than the control arm; and c) The overall
Hazard Ratio was 0.7; that is to say, at any point in time, patients
on G17DT had a 143% higher likelihood of surviving longer than
patients on the control.
-On November 6, 2002, Aphton Corporation (the "Company") announced
that it has received approval and plans to initiate a clinical trial
in Europe for patients suffering from Gastroesophageal Reflux Disease
(GERD). The clinical trial will examine, among other endpoints,
whether G17DT may be efficacious in providing symptomatic relief to
patients suffering from GERD. In parallel with the clinical trial in
Europe, the Company has agreed with the FDA to conduct certain
toxicology and other preclinical studies prior to initiation of this
trial in the US. The Company is in discussions with current and
potential strategic partners to license the GERD product worldwide, in
return for an up-front fee, milestone payments, payments for
conducting clinical trials and royalties. The Company plans to recruit
the first patients in Europe by mid-January, 2003.
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed by the undersigned thereunto
duly authorized.
Aphton Corporation
Date: November 14, 2002 By:/s/ Frederick W. Jacobs
----------------------------------------
Frederick W. Jacobs
Vice President, Chief Financial Officer,
Treasurer and Chief Accounting Officer
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APHTON CORPORATION
CERTIFICATIONS
PURSUANT TO SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
Certification
I, Philip C. Gevas, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Aphton Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
the registrant's board of directors (or persons performing the equivalent
function):
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
By:/s/ Philip C. Gevas
----------------------------------------------
Philip C. Gevas
Chairman of the Board, Chief Executive Officer
and President
Date: November 14, 2002
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Certification
I, Frederick W. Jacobs, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Aphton Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
the registrant's board of directors (or persons performing the equivalent
function):
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
By:/s/ Frederick W. Jacobs
----------------------------------------
Frederick W. Jacobs
Vice President, Chief Financial Officer,
Treasurer and Chief Accounting Officer
Date: November 14, 2002
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