Attached files
As
filed with the Securities and Exchange Commission on __________
Registration
Number 333-162687
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
PRE-EFFECTIVE
AMENDMENT NO. 3 TO
FORM
S-1
REGISTRATION
STATEMENT
UNDER THE
SECURITIES ACT OF 1933
ACCESS PHARMACEUTICALS,
INC.
(Exact
Name of Registrant as Specified in its Charter)
Delaware
(State
or other jurisdiction of
incorporation
or organization)
|
3841
(Primary
Standard Industrial
Classification
Code Number)
|
83-0221517
(I.R.S.
Employer
Identification
No.)
|
||
2600
Stemmons Freeway, Suite 176
Dallas,
Texas 75207
(214)
905-5100
(Address,
Including Zip Code, and Telephone Number, Including Area Code, of
Registrant’s Principal Executive Offices)
|
||||
Stephen
B. Thompson
Chief
Financial Officer
Access
Pharmaceuticals, Inc.
2600
Stemmons Freeway, Suite 176
Dallas,
Texas 75207
(214)
905-5100
(Name,
Address, Including Zip Code, and Telephone Number, Including Area Code, of
Agent for Service)
|
with
a copy to:
|
John
J. Concannon III, Esq.
Bingham
McCutchen LLP
One
Federal Street
Boston,
MA 02110
(617)
951-8000
|
Approximate
date of commencement of proposed sale to public: As soon as practicable after
the effective date hereof.
If any of
the securities being registered on this Form are to be offered on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act, check the
following box.
If this
Form is filed to register additional securities for an offering pursuant to
Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering.
If this
Form is a post-effective amendment filed pursuant to Rule 462(c) under the
Securities Act, check the following box and list the Securities Act registration
number of the earlier effective registration statement for the same offering.
If this
Form is a post-effective amendment filed pursuant to Rule 462(d) under the
Securities Act, check the following box and list the Securities Act registration
number of the earlier effective registration statement for the same offering.
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company.
See the definitions
of “large accelerated filer,” “accelerated filer” and “smaller reporting
company” in Rule 12b-2 of the Exchange Act. (Check one):
Larger accelerated
filer ¨ Accelerated
filer ¨
Non-accelerated filer ¨ Smaller
reporting company x
CALCULATION
OF REGISTRATION FEE
Title
of each class of securities to be registered
|
Proposed
maximum
aggregate offering price
|
Amount
of
registration
fee(1)
|
|||||
Units,
each unit consisting of ___ shares of Common Stock, $0.01 par value, and
warrants to purchase ___ shares of Common Stock
|
$
|
25,000,000
|
$
|
1,395
|
|
||
Common
Stock included in the Units
|
$
|
—
|
$
|
—
|
|
||
Warrants
included in the Units
|
$
|
—
|
—
|
(3)
|
|||
Common
Stock issuable upon exercise of the warrants included in the Units
(2)
|
$
|
—
|
—
|
(3)
|
|||
Warrants
issued to placement agent
|
$
|
—
|
—
|
(3)
|
|||
Common
Stock issuable upon exercise of placement agent warrants
|
$
|
—
|
—
|
(3)
|
|||
Series
A Junior Participating Preferred Stock Purchase Rights (4)
|
|||||||
Total
|
$
|
25,000,000
|
$
|
1,395
|
(5)
|
(1) Calculated
pursuant to Rule 457(o) on the basis of the maximum aggregate offering price of
all of the securities to be registered.
(2) Pursuant
to Rule 416, the securities being registered hereunder include such
indeterminate number of additional shares of common stock as may be issuable
upon exercise of warrants registered hereunder as a result of stock splits,
stock dividends, or similar transactions.
(3) No
fee required pursuant to Rule 457(g).
(4) This
registration statement also relates to the rights to purchase shares of Series A
Junior Participating Preferred Stock of the registrant, which, pursuant to the
terms of the registrant’s Rights Agreement dated October 31, 2001, as amended
and in effect, will be attached to all shares of common stock issued until the
occurrence of certain events prescribed in the Rights Agreement. The rights will
not be exercisable and will be transferred with and only with shares of our
common stock until the occurrence of certain events prescribed in the Rights
Agreement.
(5) The
registrant previously paid $1,395 of the registration fee in connection with the
filing of its Form S-1 Registration Statement filed with the Securities and
Exchange Commission on October 27, 2009.
THE REGISTRANT HEREBY AMENDS THIS
REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS
EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH
SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME
EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL
THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE
COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY
DETERMINE.
INFORMATION
CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT
RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION. THESE SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL AND IS NOT A
SOLICITATION OF AN OFFER TO BUY IN ANY STATE IN WHICH AN OFFER, SOLICITATION, OR
SALE IS NOT PERMITTED.
SUBJECT
TO COMPLETION, DATED _______________, 2009
PROSPECTUS
_________UNITS,
EACH CONSISTING OF
_____
SHARES OF COMMON STOCK AND
___
WARRANTS
We are
offering up to ___________ units, each unit consisting of _____ shares of our
common stock and warrants to purchase an additional ___ shares of our common
stock. Each warrant entitles its holder to purchase one share of our
common stock at an exercise price of $____ per share. The units will
separate immediately and the common stock and warrants will be issued separately
and the common stock will trade separately. We are not required to
sell any specific dollar amount or number of units, but will use our best
efforts to sell all of the units being offered. The offering expires
on the earlier of (i) the date upon which all of the units being offered have
been sold, or (ii) _________. We and the placement agent may, upon
request of any investor in this offering, sell units to such investors that
exclude the warrants, provided that the sale of units that exclude such warrants
shall be at the same offering price per unit as all other
investors.
Our
common stock is presently listed on the Over-the-counter Bulletin Board under
the symbol “ACCP”. We do not intend to apply for listing of the warrants on
any securities exchange. On January 14, 2010, the last reported sale
price of our common stock on the OTC BB was $3.25 per share.
INVESTING
IN THE OFFERED SECURITIES INVOLVES RISKS, INCLUDING THOSE SET FORTH IN THE “RISK
FACTORS” SECTION OF THIS PROSPECTUS BEGINNING ON PAGE 7.
Per Unit | Total | |
Offering Price per Unit | $ | $ |
Placement Agent’s Fees | $ | $ |
Offering Proceeds before expenses | $ | $ |
Rodman
& Renshaw, LLC has agreed to act as our placement agent in connection with
this offering. In addition, we may engage one or more sub placement agents or
selected dealers. The placement agent is not purchasing the securities offered
by us, and is not required to sell any specific number or dollar amount of
units, but will assist us in this offering on a “best efforts” basis. We have
agreed to pay the placement agent a cash fee equal to 6% of the gross proceeds
of the offering of units by us, as well as “placement agent warrants” to
purchase shares of our common stock equal to 6% of the aggregate number of
shares of common stock included in units sold in the offering. The placement
agent warrants will have terms substantially similar to the warrants included in
units offered hereby, except that the placement agent warrants will have a term
of five years from the effective date of this registration statement and an
exercise price equal to 125% of the public offering price per share of the
shares sold at the closing. We estimate the total expenses of this offering,
excluding the placement agent fees, will be approximately $______. Because there
is no minimum offering amount required as a condition to closing in this
offering, the actual public offering amount, placement agent fees, and proceeds
to us, if any, are not presently determinable and may be substantially less than
the total maximum offering amounts set forth above. See “Plan of Distribution”
beginning on page 71 of this prospectus for more information on this offering
and the placement agent arrangements.
This
offering will terminate on __________, unless the offering is fully subscribed
before that date or we decide to terminate the offering prior to that date. In
either event, the offering may be closed without further notice to you. All
costs associated with the registration will be borne by us.
Neither
the Securities and Exchange Commission nor any state securities commission has
approved or disapproved of these securities or passed upon the adequacy or
accuracy of this prospectus. Any representation to the contrary is a
criminal offense.
The
shares of Common Stock may be sold directly by us to investors, through our
placement agent or to or through underwriters or dealers. See "Plan
of Distribution". If any underwriters are involved in the sale of any
shares of Common Stock in respect of which this prospectus is being delivered,
the names of such underwriters and any applicable commissions or discounts will
be set forth in a prospectus supplement. The net proceeds we expect
to receive from such sale also will be set forth in a prospectus
supplement.
Brokers or dealers effecting transactions in these shares should confirm
that the shares are registered under the applicable state law or that an
exemption from registration is available.
THE DATE
OF THIS PROSPECTUS IS ________________, 2009.
TABLE
OF CONTENTS
|
|
Page
|
|
PROSPECTUS
SUMMARY
|
1
|
ABOUT
THIS PROSPECTUS
|
1
|
ABOUT
ACCESS
|
1
|
SUMMARY
OF THE OFFERING
|
4
|
SUMMARY
CONDENSED CONSOLIDATED FINANCIAL INFORMATION
|
5
|
RISK
FACTORS
|
7
|
FORWARD-LOOKING
STATEMENTS
|
18
|
USE
OF PROCEEDS
|
19
|
DILUTION
|
20
|
PRICE
RANGE OF OUR COMMON STOCK
|
21
|
DIVIDEND
POLICY
|
22
|
SELECTED
CONDENSED CONSOLIDATED FINANCIAL DATA
|
22
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
|
|
RESULTS
OF OPERATIONS
|
28
|
DESCRIPTION
OF BUSINESS
|
39
|
DESCRIPTION
OF PROPERTY
|
53
|
DIRECTORS,
EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
|
54
|
LEGAL
PROCEEDINGS
|
62
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
|
62
|
TRANSACTIONS
WITH RELATED PERSONS, PROMOTERS AND CERTAIN CONTROL PERSONS
65
|
|
DESCRIPTION
OF SECURITIES
|
66
|
PLAN
OF DISTRIBUTION
|
70
|
EXPERTS
|
73
|
LEGAL
MATTERS
|
73
|
WHERE
YOU CAN FIND MORE INFORMATION
|
73
|
FINANCIAL
STATEMENTS
|
F-1
|
i
PROSPECTUS
SUMMARY
________
UNITS, EACH CONSISTING OF
____
SHARES OF COMMON STOCK AND
____
WARRANTS
ABOUT
THIS PROSPECTUS
This
summary highlights certain information appearing elsewhere in this
prospectus. For a more complete understanding of this offering, you
should read the entire prospectus carefully, including the risk factors and the
financial statements. References in this prospectus to “we,” “us,” “our,”
“Company” and “Access” refer to Access Pharmaceuticals, Inc. You
should read both this prospectus and any prospectus supplement together with
additional information described below under the heading "Where You Can Find
More Information".
ABOUT
ACCESS
Company
Overview
Access
Pharmaceuticals, Inc. (together with our subsidiaries, “We”, “Access” or the
“Company”) is a Delaware corporation. We are an emerging biopharmaceutical
company focused on developing products based upon our nanopolymer chemistry
technologies. We currently have one approved product, two product candidates in
Phase 2 clinical trials and several product candidates in pre-clinical
development. Our description of our business, including our list of products and
product candidates as well as our patents, takes into consideration our
acquisition of Somanta Pharmaceuticals, Inc. which closed January 4, 2008 and
our acquisition of MacroChem Corporation which closed on February 25,
2009.
·
|
MuGard™
is our approved product for the management of oral mucositis, a frequent
side-effect of cancer therapy for which there is no established treatment.
The market for mucositis treatment is estimated to be in excess of $1
billion world-wide. MuGard, a proprietary nanopolymer formulation, has
received marketing allowance in the U.S. from the Food & Drug
Administration (“FDA”). MuGard has been launched in Germany, Italy, UK,
Greece and the Nordic countries by our European commercial partner,
SpePharm.
|
·
|
Our
lead development candidate for the treatment of cancer is ProLindac™, a
nanopolymer DACH-platinum prodrug. We recently completed a Phase 2
clinical trial on ProLindac in the EU in patients with ovarian cancer. The
clinical study had positive safety and efficacy results. We are currently
planning a number of combination trials, looking at combining ProLindac
with other cancer agents such as taxol and gemcitabine, in solid tumor
indications including colorectal and ovarian. The DACH-platinum
incorporated in ProLindac is the same active moiety as that in oxaliplatin
(Eloxatin; Sanofi-Aventis), which had worldwide sales in excess of $2.0
billion in 2008.
|
·
|
Thiarabine,
or 4-thio Ara-C, is a next generation nucleoside analog licensed from
Southern Research Institute. Previously named SR9025 and OSI-7836, the
compound has been in two Phase 1/2 solid tumor human clinical trials and
was shown to have anti-tumor activity. We are working with leukemia and
lymphoma specialists at MD Anderson Cancer Center in Houston and intend to
initiate additional Phase 2 clinical trials in adult AML, ALL and other
indications.
|
·
|
Cobalamin™
is our proprietary preclinical nanopolymer oral drug delivery technology
based on the natural vitamin B12 oral uptake mechanism. We are currently
developing a product for the oral delivery of insulin,, and are conducting
sponsored development of a product for oral delivery of human growth
hormone, in each case, based upon this
technology.
|
·
|
Cobalamin-mediated
cancer targeted delivery is a preclinical technology which makes use of
the fact that cell surface receptors for vitamins such as B12 are often
overexpressed by cancer cells.
|
1
Products
and Product Candidates
Access
used its drug delivery technologies to develop the following products and
product candidates:
Access
Drug Portfolio
Compound
|
Originator
|
Technology
|
Indication
|
Clinical
Stage (1)
|
||||
MuGard™
|
Access
|
Mucoadhesive
liquid
|
Mucositis
|
(510k)
Marketing clearance received
|
||||
ProLindacTM
(Polymer
Platinate,
AP5346) (2)
|
Access
/
Univ
of
London
|
Synthetic
polymer
|
Cancer
|
Phase
2
|
||||
Thiarabine
(4-thio Ara-C) (3)
|
Southern
Research
Institute
|
Small
molecule
|
Cancer
|
Phase
½
|
||||
Oral
Insulin
|
Access
|
Cobalamin
|
Diabetes
|
Pre-clinical
|
||||
Oral
Delivery System
|
Access
|
Cobalamin
|
Various
|
Pre-clinical
|
||||
CobalaminTM-Targeted Therapeutics
|
Access
|
Cobalamin
|
Anti-tumor
|
Pre-clinical
|
(1)
|
For
more information, see “Government Regulation” for description of clinical
stages. Some of these clinical development projects are subject
to funding.
|
(2)
|
Licensed
from the School of Pharmacy, The University of
London.
|
(3)
|
Licensed
from Southern Research Institute of Birmingham,
Alabama.
|
Other
Key Developments
On
January 7, 2010, we announced that we had completed enrollment and evaluation of
the last of the last additional cohort of patients in the ongoing clinical
study of ProLindac as a monotherapy in ovarian cancer patients who have received
at least two prior platinum based treatment regimens. The additional cohort of 8
patients received the ProLindac batch made by an improved scalable process,
which will be used on a larger scale for future clinical and commercial
supplies. None of the 8 patients experienced any acute significant adverse
events, while treatment had the same beneficial pharmacodynamic effect seen in
the first 26 patients treated with the former ProLindac production batch;
clinically relevant sustained biomarker decrease (responses by Rustin's
criteria) and disease stabilization were seen in several patients. The overall
results of our Phase I/II exploratory single agent ProLindac study have helped
define multiple safe dosing regimens, while the level of patient cohort accrued
in the study antitumor activity was as expected in this very heavily pretreated
patient cohort.
Based on
these results, we are initiating a study of ProLindac combined with Paclitaxel
in second line treatment of platinum pretreated advanced ovarian cancer
patients. This study is the first to look at the safety and efficacy of
ProLindac in combination with other oncology agents. The efficacy of Diamino
Cyclohexane Platinum, the active principle in ProLindac, is evidenced mainly
through their synergic association with multiple anticancer agents. The choice
of Paclitaxel and ovarian cancer as the potential first NDA strategic choice to
be explored is based on the results of the Paclitaxel/Oxaliplatin combination in
the same clinical setting. This multi-center study of up to 25 evaluable
patients will be conducted in Europe. The primary efficacy endpoint goal is to
achieve a minimum of 63% response rate in the total of 25 evaluable patients the
study is planning to accrue on a two step design. We anticipate that ProLindac
in combination with Paclitaxel will be well tolerated in this patient population
and anticipate significant activity based on our current experience with
ProLindac in heavily pretreated patients.
On
December 15, 2009, we announced the appointment of Fran Jacobucci to the
position of Vice President, Sales and Marketing. Mr. Jacobucci will be primarily
responsible for our marketing launch of MuGard.
On
October 6, 2009, we announced that we signed an agreement with iMedicor for the
North American launch of MuGard. iMedicor’s highly targeted Alerts System
application will introduce MuGard by the end of the year to the 216,000 selected
physicians in the Unites States.
On
September 11, 2009, we announced the appointment of Accupac, Inc. as our U.S.
manufacturer for MuGard.
On August
3, 2009, we announced that we commenced a new clinical study of ProLindac in
France. The study will examine dose levels and regimens of ProLindac monotherapy
in cancer patients, provide additional data to support design of combinations
studies, and extend the safety database. Two ovarian cancer patients have been
enrolled in the study to date, and it is anticipated 6 to 12 patients will be
enrolled this year in advance of enrolling patients in trial evaluating
ProLindac in combination with other chemotherapies.
On July
29, 2009, we announced that we are evaluating strategic options for the
commercialization of MuGard in North America. Mr. Frank Jacobucci, formerly
President & CEO of Milestone Biosciences, has joined Access as a consultant,
and will assist with ongoing reimbursement, manufacturing and commercial launch
activities at Access, while discussions with potential licensee and co-promotion
partners is ongoing.
On July
23, 2009, we announced that our European partner, SpePharm, is collecting data
from a post approval market seeding study of MuGard in head and neck cancer
patients undergoing radiation treatment in the UK showing prevention of oral
mucositis. In a multi-center study expected to enroll a total of 280 patients,
patients are provided with seven weeks of MuGard therapy, and begin using MuGard
one week prior to radiation treatment and then throughout the subsequent six
weeks of planned therapy. The first 140 patients being treated in this market
seeding study have been enrolled and treated, and as of the time of
the update, none of these patients had experienced any oral
mucositis.
On July
7, 2009, we announced new preclinical data demonstrating that thiarabine shows
remarkable efficacy in the prevention and treatment of rheumatoid arthritis
(RA). In a well-established animal model for RA, an exceptional restoration of
joint structure was observed in the studies, which were conducted at Wayne State
University School of Medicine and at Southern Research Institute.
On June
17, 2009, we announced that we signed evaluation agreements with two
biopharmaceutical companies for our Cobalamin™ Oral Drug Delivery Technology.
Under the terms of the agreements, both companies plan to evaluate Access’ oral
insulin product in preclinical models as a prerequisite to entering licensing
discussions.
2
On
February 25, 2009, we closed the previously announced acquisition of MacroChem
Corporation.
On
September 3, 2008, we announced that we had retained Piper Jaffray to augment
ongoing business development efforts with the goal of establishing additional
strategic development and commercialization partnerships for our product
pipeline. The Piper Jaffray healthcare investment banking team will focus on
partnering opportunities for ProLindac and the Cobalamin programs.
On June
4, 2008, we announced the signing of a definitive licensing agreement with
Jiangsu Aosaikang Pharmaeutical Co., Ltd (“ASK”). Under which agreement ASK will
manufacture, develop and commercialize our proprietary product ProLindac for the
Greater China Region which includes the People’s Republic of China, the Hong
Kong Special Administrative Region, the Macau Special Administrative Region and
Taiwan. Under the terms of the agreement ASK paid Access an upfront
fee and will pay subsequent milestone payments along with a royalty upon
commercialization of ProLindac. In addition, in cooperation with Access, ASK has
committed to fund two Phase 2 studies for ProLindac in colorectal cancer and one
other indication to be determined by both parties.
Steven H.
Rouhandeh was appointed as a director and Chairman of the Board effective as of
March 4, 2008.
On
February 4, 2008, we entered into securities purchase agreements (the “Purchase
Agreements”) with accredited investors whereby we agreed to sell 272.5 shares of
our preferred stock, designated “Series A Cumulative Convertible Preferred
Stock”, par value $0.01 per share, for an issue price of $10,000 per share, (the
“Series A Cumulative Convertible Preferred Stock”) and agreed to issue warrants
to purchase 545,000 shares of our common stock, subject to adjustment, which
includes placement agent warrants to purchase 90,883 shares of our common stock,
at an exercise price of $3.50 per share, for an aggregate purchase price for the
Series A Cumulative Convertible Preferred Stock and Warrants of $2,700,000. The
shares of Series A Cumulative Convertible Preferred Stock are convertible into
common stock at the initial conversion price of $3.00 per share, subject to
adjustment.
On
January 14, 2008, we announced the signing of a definitive licensing agreement
under which RHEI Pharmaceuticals, Inc. will market and manufacture MuGard in the
Peoples Republic of China and certain Southeast Asian countries. RHEI will also
obtain the necessary regulatory approvals for MuGard in the
territory.
On
January 4, 2008, we closed the acquisition of Somanta Pharmaceuticals, Inc.
(“Somanta”). In connection with the merger, Access issued an aggregate of
approximately 1.5 million shares of Access Pharmaceuticals, Inc. common stock to
the common and preferred shareholders of Somanta as consideration. In addition,
Access exchanged all outstanding warrants of Somanta for warrants to purchase
191,991 shares of Access common stock at exercise prices ranging between $18.55
and $69.57 per share.
In
addition, $1,576,000 of Somanta Pharmaceuticals’ acquired accounts payable were
settled by issuing 538,508 shares of Access common stock and warrants to
purchase 246,753 shares of Access common stock at an exercise price of $3.50 per
share. The value of the shares and warrants issued was determined based on the
fair value of the accounts payable.
Corporate
Information
Access
was incorporated in Wyoming in 1974 as Chemex Corporation, and in 1983 Access
changed its name to Chemex Pharmaceuticals, Inc. Access changed its state of
incorporation from Wyoming to Delaware on June 30, 1989. In 1996 Access merged
with Access Pharmaceuticals, Inc., a private Texas corporation, and changed its
name to Access Pharmaceuticals, Inc. Access’ principal executive office is
located at 2600 Stemmons Freeway, Suite 176, Dallas, Texas 75207; Access’
telephone number is (214) 905-5100.
3
SUMMARY
OF THE OFFERING
Securities
offered:
|
Up
to ___ units. Each unit will consist of __ shares of our common stock and
warrants to purchase up to an additional __ shares of our common
stock.
|
Offering
Price:
|
$_____
per unit.
|
Description
of Warrants:
|
The
warrants will include an exercise price of $__ per share. We
and the placement agent may, upon request of any investor in this
offering, sell units to such investors that exclude the warrants, provided
that the sale of units that exclude such warrants shall be at the same
offering price per unit as all other
investors. .
|
Common
stock outstanding prior to the offering:
|
__________
shares.
|
Common
stock outstanding after the offering:
|
__________
shares, which does not include ________ shares of common stock issuable
upon exercise of the warrants included in the offered units or the shares
of common stock issuable upon the exercise of the placement agent
warrants.
|
Over-allotment
option:
|
The
placement agent will have a 30-day option to arrange for the sale of up to
an additional __________ units (consisting of ___ shares and warrants to
purchase ____ shares of common stock) to cover
over-allotments.
|
Use
of proceeds:
|
We
expect to use the proceeds received from the offering to further develop
our products and product candidates and for general working capital
purposes.
|
OTC
BB Symbol:
|
ACCP.OB
|
Risk
Factors:
|
See
“Risk Factors” beginning on page 7 and the other information in this
prospectus for a discussion of the factors you should consider before you
decide to invest in the units.
|
The total
number of shares of our common stock outstanding is 13,336,545 and excludes the
following:
·
|
1,748,935 shares
of common stock reserved for future issuance under our equity incentive
plans. As of January 14, 2010, there were options to
purchase 1,648,153 shares of our common stock outstanding under our
equity incentive plans with a weighted average exercise price of $2.93 per
share;
|
·
|
9,835,479
shares of common stock issuable upon exercise of outstanding warrants as
of January 14, 2010, with exercise prices ranging from $1.32 per share to
$69.57 per share; and
|
·
|
__________
shares of common stock that will be issued upon exercise of warrants at an
exercise price of $___ per share sold as part of the units in this
offering.
|
·
|
9,951,198 shares
of our common stock initially issuable upon conversion of Series A
Cumulative Convertible Preferred Stock, subject to adjustment;
and
|
·
|
the
conversion of our currently outstanding Convertible
Note.
|
All
information in this prospectus assumes the placement agent does not sell any
units contained in the over-allotment option.
4
SUMMARY
CONDENSED CONSOLIDATED FINANCIAL INFORMATION
The following summary
selected condensed consolidated financial information as of and for the years
ended December 31, 2008 and 2007, have been derived from our audited
financial statements. The financial information as of and for the nine months
ended September 30, 2009 and 2008 is derived from our unaudited condensed
consolidated financial statements. The condensed consolidated financial
information set forth below should be read in conjunction with “Management's
Discussion and Analysis of Financial Condition and Results of Operations” and
the financial statements and notes thereto included elsewhere in this
prospectus.
On
February 25, 2009, we closed our acquisition of MacroChem Corporation through
the issuance of an aggregate of approximately 2.5 million shares of our common
stock. The acquisition was recorded using the pooling-of-interest method
and the financial information for all periods presented reflects the financial
statements of the combined companies in accordance with Financial Accounting
Standards Board standards on business combinations for entities under common
control.
(in
thousands, except per share amounts)
|
For the Nine Months
Ended
September 30,
|
For the Year
Ended
December 31,
|
||||||||||||||
2009
|
2008
|
2008
|
2007
|
|||||||||||||
Consolidated
Statement of Operations Data:
|
||||||||||||||||
Total
revenues
|
$ | 248 | $ | 217 | $ | 295 | $ | 57 | ||||||||
Operating
loss
|
(7,991 | ) | (28,996 | ) | (30,727 | ) | (12,750 | ) | ||||||||
Interest
and miscellaneous income
|
18 | 173 | 211 | 315 | ||||||||||||
Interest
and other expense
|
(395 | ) | (512 | ) | (911 | ) | (3,514 | ) | ||||||||
Loss
on extinguishment of debt
|
- | - | - | (11,628 | ) | |||||||||||
Income
tax benefit
|
- | - | - | 61 | ||||||||||||
Gain
on change in warrant liability
|
- | - | 3,972 | - | ||||||||||||
Loss
from continuing operations
|
(8,368 | ) | (29,335 | ) | (27,455 | ) | (30,722 | ) | ||||||||
Preferred
stock dividends
|
(1,434 | ) | (2,873 | ) | (3,358 | ) | (15,504 | ) | ||||||||
Beneficial conversion feature | - | - | - | (3,224) | ||||||||||||
Discontinued
operations, net of taxes of
$61
in 2007
|
- | - | - | 112 | ||||||||||||
Net
loss
|
$ | (9,802 | ) | $ | (32,208 | ) | $ | (30,813 | ) | $ | (49,338 | ) | ||||
Common
Stock Data:
|
||||||||||||||||
Net
loss per basic and
diluted
common share
|
$ | (0.86 | ) | $ | (3.97 | ) | $ | (3.69 | ) | $ | (8.15 | ) | ||||
Weighted
average basic and
diluted
common shares
outstanding
|
11,375 | 8,107 | 8,354 | 6,052 | ||||||||||||
September
30,
|
December
31,
|
|||||||||||||||
2009
|
2008
|
2008
|
2007
|
|||||||||||||
Consolidated
Balance Sheet Data:
|
||||||||||||||||
Cash,
cash equivalents and
short
term investments
|
$ | 1,672 | $ | 4,651 | $ | 2,677 | $ | 10,014 | ||||||||
Total
assets
|
2,705 | 6,449 | 4,171 | 13,002 | ||||||||||||
Deferred
revenue
|
5,164 | 2,450 | 2,409 | 978 | ||||||||||||
Notes
payable
|
- | 791 | - | - | ||||||||||||
Convertible
notes
|
5,500 | 5,500 | 5,500 | 5,564 | ||||||||||||
Total
liabilities
|
18,304 | 15,582 | 15,357 | 12,949 | ||||||||||||
Total
stockholders' equity (deficit)
|
(15,599 | ) | (9,133 | ) | (11,186 | ) | 53 |
5
MacroChem
Corporation
Below is
a summary of selected financial information for MacroChem Corporation. We
completed our acquisition of MacroChem on February 25,
2009. Historical information from MacroChem’s audited financial
statements for the fiscal year ended December 31, 2008 is also contained in
Access’ current report on Form 8-K/A filed with the Securities and Exchange
Commission on August 26, 2009. The information is only a summary and should be
read in conjunction with MacroChem’s financial statements referenced above and
accompanying notes.
(in
thousands, except per share amounts)
|
|||||
2008
|
|||||
CONSOLIDATED
STATEMENT OF OPERATIONS DATA:
|
|||||
Total
revenues
|
$
|
4
|
|||
Operating
loss
|
(13,812)
|
||||
Interest
and other income
|
26
|
||||
Interest
and other expense
|
(433)
|
||||
Gain
on change in value of warrants liability
|
3,972
|
||||
Gain
on sale of equipment
|
7
|
||||
Net
loss
|
$
|
(10,240)
|
|||
Net
loss per basic and diluted common share
|
$
|
(0.26)
|
|||
Weighted
average basic and diluted common shares outstanding
|
38,934
|
||||
CONSOLIDATED
BALANCE SHEET DATA:
|
|||||
December
31,
|
|||||
Cash
and cash equivalents
|
$
|
14
|
|||
Total
assets
|
549
|
||||
Current
liabilities
|
3,346
|
||||
Total
liabilities
|
3,474
|
||||
Stockholders’
(deficit) equity
|
$
|
(2,925)
|
6
RISK
FACTORS
Any
investment in our securities involves a high degree of risk. You should
carefully consider the risks described below, which we believe represent certain
of the material risks to our business, together with the information contained
elsewhere in this Prospectus, before you make a decision to invest in our
units. If any of the following events occur, our business, financial
condition and operating results may be materially adversely
affected. In that event, the trading price of our securities could
decline and you could lose all or part of your investment.
Risks
relating to our business and industry
Without
obtaining adequate capital funding, we may not be able to continue as a going
concern.
The
report of Access’ independent registered public accounting firm for the fiscal
year ended December 31, 2008 contained a fourth explanatory paragraph to reflect
its significant doubt about Access’ ability to continue as a going concern as a
result of Access’ history of losses and Access’ liquidity position. If Access is
unable to obtain adequate capital funding in the future, Access may not be able
to continue as a going concern, which would have an adverse effect on Access’
business and operations, and investors’ investment in Access may
decline.
We
have experienced a history of losses, we expect to incur future losses and
Access may be unable to obtain necessary additional capital to fund operations
in the future.
We have
recorded minimal revenue to date and have incurred an accumulated deficit of
approximately $225.8 million through December 31, 2008. Net losses for the years
ended 2008 and 2007 were $30.8 million and $45.5 million, respectively. Our
losses have resulted principally from costs incurred in research and development
activities related to our efforts to develop clinical drug candidates and from
the associated administrative costs. We expect to incur additional operating
losses over the next several years. We also expect cumulative losses to increase
if we expand research and development efforts and preclinical and clinical
trials. Our net cash burn rate for the year ended December 31, 2008 was
approximately $505,000 per month. We project our net cash burn rate from
operations for the next twelve months to be approximately $115,000 per month.
Capital expenditures are forecasted to be minor for the next twelve
months.
We
require substantial capital for its development programs and operating expenses,
to pursue regulatory clearances and to prosecute and defend its intellectual
property rights. We believe that our existing capital resources, interest
income, product sales, royalties and revenue from possible licensing agreements
and collaborative agreements will be sufficient to fund our currently expected
operating expenses and capital requirements into the first quarter of 2010. We
will need to raise substantial additional capital to support our ongoing
operations.
If Access
does raise additional funds by issuing equity securities, further dilution to
existing stockholders would result and future investors may be granted rights
superior to those of existing stockholders. If adequate funds are not available
to Access through additional equity offerings, Access 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 Access to issue additional equity securities or
to relinquish rights to certain technologies or drug candidates that Access
would not otherwise issue or relinquish in order to continue independent
operations.
We
do not have operating revenue and it may never attain
profitability.
To date,
have had funded its operations primarily through private sales of common stock,
preferred stock and convertible notes. Contract research payments and licensing
fees from corporate alliances and mergers have also provided funding for its
operations. Its ability to achieve significant revenue or profitability depends
upon its ability to successfully market MuGard in North America or to complete
the development of drug candidates, to develop and obtain patent protection and
regulatory approvals for Access’ drug candidates and to manufacture and
commercialize the resulting drugs. Access is not expecting any
significant revenues in the short-term from its products or product
candidates. Furthermore, Access may not be able to ever successfully
identify, develop, commercialize, patent, manufacture, obtain required
regulatory approvals and market any additional products. Moreover, even if
Access does identify, develop, commercialize, patent, manufacture, and obtain
required regulatory approvals to market additional products, Access may not
generate revenues or royalties from commercial sales of these products for a
significant number of years, if at all. Therefore, its proposed operations are
subject to all the risks inherent in the establishment of a new business
enterprise. In the next few years, its revenues may be limited to
minimal product sales and royalties, any amounts that Access receives under
strategic partnerships and research or drug development collaborations that
Access may establish and, as a result, Access may be unable to achieve or
maintain profitability in the future or to achieve significant revenues in order
to fund its operations.
7
Although
we expect that the acquisitions of MacroChem and Somanta will result in benefits
to the combined company the combined company may not realize those benefits
because of integration and other challenges.
Our
ability to realize the anticipated benefits of the acquisitions will depend, in
part, on the ability of Access to integrate the businesses of MacroChem and
Somanta, respectively, with the business of Access. The combination of three
independent companies is a complex, costly and time-consuming process. This
process may disrupt the business of any or all of the companies, and may not
result in the full benefits expected by Access, Macrochem and
Somanta.
We
may not successfully commercialize its drug candidates.
Access’
drug candidates are subject to the risks of failure inherent in the development
of pharmaceutical products based on new technologies, and our failure to develop
safe commercially viable drugs would severely limit our ability to become
profitable or to achieve significant revenues. Access may be unable to
successfully commercialize its’ drug candidates because:
·
|
some
or all of its drug candidates may be found to be unsafe or ineffective or
otherwise fail to meet applicable regulatory standards or receive
necessary regulatory clearances;
|
·
|
its
drug candidates, if safe and effective, may be too difficult to develop
into commercially viable drugs;
|
·
|
it
may be difficult to manufacture or market its drug candidates on a large
scale;
|
·
|
proprietary
rights of third parties may preclude it from marketing its drug
candidates; and
|
·
|
third
parties may market superior or equivalent
drugs.
|
The
success of our research and development activities, upon which Access primarily
focuses, is uncertain.
Access’
primary focus is on its research and development activities and the
commercialization of compounds covered by proprietary biopharmaceutical patents
and patent applications. 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, unanticipated regulatory delays or demands, unexpected adverse
side effects or insufficient therapeutic efficacy will prevent or substantially
slow Access’ research and development effort and Access’ business could
ultimately suffer. Access anticipates that it will remain principally engaged in
research and development activities for an indeterminate, but substantial,
period of time.
We
may be unable to successfully develop, market, or commercialize its products or
its product candidates without establishing new relationships and maintaining
current relationships.
Access’
strategy for the research, development and commercialization of its potential
pharmaceutical products may require it to enter into various arrangements with
corporate and academic collaborators, licensors, licensees and others, in
addition to its existing relationships with other parties. Specifically, Access
may seek to joint venture, sublicense or enter other marketing arrangements with
parties that have an established marketing capability or Access may choose to
pursue the commercialization of such products on its own. Access may, however,
be unable to establish such additional collaborative arrangements, license
agreements, or marketing agreements as Access may deem necessary to develop,
commercialize and market Access’ potential pharmaceutical products on acceptable
terms. Furthermore, if Access maintains and establishes arrangements or
relationships with third parties, its business may depend upon the successful
performance by these third parties of their responsibilities under those
arrangements and relationships.
8
Our
ability to successfully commercialize, and market our product candidates could
be limited if a number of these existing relationships were
terminated.
Furthermore,
its strategy with respect to its polymer platinate program is to enter into a
licensing agreement with a pharmaceutical company pursuant to which the further
costs of developing a product would be shared with its licensing partner.
Although Access has had discussions with potential licensing partners with
respect to its polymer platinate program, to date Access has not entered into
any licensing arrangement. Access may be unable to execute its licensing
strategy for polymer platinate.
We
may be unable to successfully manufacture its products and its product
candidates in clinical quantities or for commercial purposes without the
assistance of contract manufacturers, which may be difficult for it to obtain
and maintain.
Access
has limited experience in the manufacture of pharmaceutical products in clinical
quantities or for commercial purposes and Access may not be able to manufacture
any new pharmaceutical products that Access may develop. As a result, Access has
established, and in the future intends to establish arrangements with contract
manufacturers to supply sufficient quantities of products to conduct clinical
trials and for the manufacture, packaging, labeling and distribution of finished
pharmaceutical products if any of its potential products are approved for
commercialization. If Access is unable to contract for a sufficient supply of
its potential pharmaceutical products on acceptable terms, its preclinical and
human clinical testing schedule may be delayed, resulting in the delay of its
clinical programs and submission of product candidates for regulatory approval,
which could cause its business to suffer. Its business could suffer if there are
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. Moreover, contract manufacturers that Access may use must adhere to
current Good Manufacturing Practices, as required by the FDA. In this regard,
the FDA will not issue a pre-market approval or product and establishment
licenses, where applicable, to a manufacturing facility for the products until
the manufacturing facility passes a pre-approval plant inspection. If Access is
unable to obtain or retain third party manufacturing on commercially acceptable
terms, Access may not be able to commercialize its products as planned. Its
potential dependence upon third parties for the manufacture of its products may
adversely affect its ability to generate profits or acceptable profit margins
and its ability to develop and deliver such products on a timely and competitive
basis.
ProLindac™
is manufactured by third parties for Access’ Phase 2 clinical trials.
Manufacturing is ongoing for the current clinical trials. Certain manufacturing
steps are conducted by the Company to enable significant cost savings to be
realized.
We
are subject to extensive governmental regulation which increases its cost of
doing business and may affect its ability to commercialize any new products that
Access may develop.
The FDA
and comparable agencies in foreign countries impose substantial requirements
upon the introduction of pharmaceutical products through lengthy and detailed
laboratory, preclinical and clinical testing procedures and other costly and
time-consuming procedures to establish its safety and efficacy. All of its drugs
and drug candidates require receipt and maintenance of governmental approvals
for commercialization. Preclinical and clinical trials and manufacturing of its
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. The
status of Access’ principal products is as follows:
●
|
Amucoadhesive
liquid technology product, MuGard™, has received marketing approval by the
FDA.
|
●
|
ProLindac™
is currently in a Phase 2 trial in
Europe.
|
●
|
ProLindac™
has been approved for an additional Phase 1 trial in the US by the
FDA.
|
●
|
Thiarabine
™is currently in the planning stage for two additional Phase 2 trials in
the United States.
|
●
|
Cobalamin™
mediated delivery technology is currently in the pre-clinical
phase.
|
●
|
Access
also has other products in the preclinical
phase.
|
9
Due to
the time consuming and uncertain nature of the drug candidate development
process and the governmental approval process described above, Access cannot
assure you when Access, independently or with its collaborative partners, might
submit a NDA, for FDA or other regulatory review. Further, our ability to
commence and/or complete the above development projects will be subject to our
ability to raise enough funds to pay for the development costs of these
projects.
Government
regulation also affects the manufacturing and marketing of pharmaceutical
products. Government regulations may delay marketing of Access’ potential drugs
for a considerable or indefinite period of time, impose costly procedural
requirements upon its 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 Access’
marketing as well as its ability to generate significant revenues from
commercial sales. Access’ drug candidates may not receive FDA or other
regulatory approvals 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 Access obtains
initial regulatory approvals for its drug candidates, Access’ 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 the marketing or
manufacture of such drug, including withdrawal of the drug from the market. The
FDA and other regulatory authorities stringently apply regulatory standards and
failure to comply with regulatory standards can, among other things, result in
fines, denial or withdrawal of regulatory approvals, product recalls or
seizures, operating restrictions and criminal prosecution.
The
uncertainty associated with preclinical and clinical testing may affect our
ability to successfully commercialize new products.
Before
Access can obtain regulatory approvals for the commercial sale of any of its
potential drugs, the drug candidates will be subject to extensive preclinical
and clinical trials to demonstrate their safety and efficacy in
humans. Preclinical or clinical trials of any of its future drug
candidates may not demonstrate the safety and efficacy of such drug candidates
at all or to the extent necessary to obtain regulatory approvals. In this
regard, for example, adverse side effects can occur during the clinical testing
of a new drug on humans which may delay ultimate FDA approval or even lead it to
terminate its efforts to develop the drug for commercial use. Companies in the
biotechnology industry have suffered significant setbacks in advanced clinical
trials, even after demonstrating promising results in earlier trials. In
particular, polymer platinate has taken longer to progress through clinical
trials than originally planned. 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. A delay or failure to receive
regulatory approval for any of Access’ drug candidates could prevent Access from
successfully commercializing such candidates and Access could incur substantial
additional expenses in its attempts to further develop such candidates and
obtain future regulatory approval.
We
may incur substantial product liability expenses due to the use or misuse of its
products for which we may be unable to obtain insurance coverage.
Access’
business exposes it to potential liability risks that are inherent in the
testing, manufacturing and marketing of pharmaceutical products. These risks
will expand with respect to its drug candidates, if any, that receive regulatory
approval for commercial sale and Access may face substantial liability for
damages in the event of adverse side effects or product defects identified with
any of its products that are used in clinical tests or marketed to the public.
Access generally procures product liability insurance for drug candidates that
are undergoing human clinical trials. Product liability insurance for the
biotechnology industry is generally expensive, if available at all, and as a
result, Access may be unable to obtain insurance coverage at acceptable costs or
in a sufficient amount in the future, if at all. Access may be unable to satisfy
any claims for which Access may be held liable as a result of the use or misuse
of products which Access has developed, manufactured or sold and any such
product liability claim could adversely affect its business, operating results
or financial condition.
We
may incur significant liabilities if it fails to comply with stringent
environmental regulations or if we do not comply with these regulations in the
past.
10
Access’
research and development processes involve the controlled use of hazardous
materials. Access is subject to a variety of federal, state and local
governmental laws and regulations related to the use, manufacture, storage,
handling and disposal of such material and certain waste products. Although
Access believes that its activities and 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, Access could be held liable for any damages that result and any
such liability could exceed its resources.
Intense
competition may limit our ability to successfully develop and market commercial
products.
The
biotechnology and pharmaceutical industries are intensely competitive and
subject to rapid and significant technological change. Access’ competitors 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.
The
following products may compete with polymer platinate:
•
Cisplatin, marketed by Bristol-Myers Squibb, the originator of the drug, and
several generic manufacturers;
•
Carboplatin, marketed by Bristol-Myers Squibb in the US; and
•
Oxaliplatin, marketed exclusively by Sanofi-Aventis.
The
following companies are working on therapies and formulations that may be
competitive with Access’ polymer platinate:
• Antigenics
and Regulon are developing liposomal platinum formulations;
• Spectrum
Pharmaceuticals and GPC Biotech are developing oral platinum
formulations;
• Poniard
Pharmaceuticals is developing both i.v. and oral platinum
formulations;
• Nanocarrier
and Debio are developing micellar nanoparticle platinum formulations;
and
▪
|
American
Pharmaceutical Partners, Cell Therapeutics, Daiichi, and Enzon are
developing alternate drugs in combination with polymers and other
drug delivery systems.
|
Companies
working on therapies and formulations that may be competitive with Access’
vitamin mediated drug delivery system are Bristol-Myers Squibb, Centocor
(acquired by Johnson & Johnson), Endocyte, GlaxoSmithKline, Imclone and Xoma
which are developing targeted monoclonal antibody therapy.
Amgen,
Carrington Laboratories, CuraGen Corporation, Cytogen Corporation, Endo
Pharmaceuticals, MGI Pharma, Nuvelo, Inc. and OSI Pharmaceuticals are developing
products to treat mucositis that may compete with Access’ mucoadhesive liquid
technology.
BioDelivery
Sciences International, Biovail Corporation, Cellgate, CIMA Labs, Inc., Cytogen
Corporation, Depomed Inc., Emisphere Technologies, Inc., Eurand, Flamel
Technologies, Nobex and Xenoport are developing products which compete with
Access’ oral drug delivery system.
We are
targeting a propriety gene product which is expressed by cancerous
tumors. We are not aware of any other organization developing similar
products targeting this type of protein.
Many of
these competitors have and employ greater financial and other resources,
including larger research and development, marketing and manufacturing
organizations. As a result, Access’ competitors may successfully develop
technologies and drugs that are more effective or less costly than any that
Access is developing or which would render Access’ technology and future
products obsolete and noncompetitive.
In
addition, some of Access’ competitors have greater experience than Access does
in conducting preclinical and clinical trials and obtaining FDA and other
regulatory approvals. Accordingly, Access’ competitors may succeed in obtaining
FDA or other regulatory approvals for drug candidates more rapidly than Access
does. Companies that complete clinical trials, obtain required regulatory agency
approvals and commence commercial sale of their drugs before their competitors
may achieve a significant competitive advantage. Drugs resulting from Access’
research and development efforts or from its joint efforts with collaborative
partners therefore may not be commercially competitive with its competitors'
existing products or products under development.
11
We depend
on licenses from third parties and the maintenance of its licenses are
necessary for its success.
Access,
as a result of its acquisition of MacroChem Corporation and Somanta
Pharmaceuticals, Inc., has obtained rights to some product
candidates through license agreements with various third party licensors as
follows:
•
|
License
Agreement, dated as of August 8, 2007, by and between Virium
Pharmaceuticals, Inc.(a predecessor in interest to Access) and Southern
Research Institute; and
|
|
•
|
Exclusive
Patent and Know-how Sub-license Agreement between Somanta and
Immunodex, Inc. dated August 18, 2005, as
amended.
|
Access
is dependent upon these licenses for its rights to develop and
commercialize its product candidates. While Access believes it is
in compliance with its obligations under the licenses, certain licenses may be
terminated or converted to non-exclusive licenses by the licensor if Access
breaches the terms of the license. Access cannot guarantee you that the
licenses will not be terminated or converted in the future.
While Access
expects that it will be able to continue to identify licensable product
candidates or research suitable for licensing and commercialization by it, there
can be no assurance that this will occur.
Our
ability to successfully develop and commercialize its drug candidates will
substantially depend upon the availability of reimbursement funds for the costs
of the resulting drugs and related treatments.
The
successful commercialization of, and the interest of potential collaborative
partners to invest in the development of its drug candidates, may depend
substantially upon reimbursement of the costs of the resulting drugs and related
treatments at acceptable levels from government authorities, private health
insurers and other organizations, including health maintenance organizations, or
HMOs. Limited reimbursement for the cost of any drugs that Access develops may
reduce the demand for, or price of such drugs, which would hamper its ability to
obtain collaborative partners to commercialize its drugs, or to obtain a
sufficient financial return on its own manufacture and commercialization of any
future drugs.
The
market may not accept any pharmaceutical products that we successfully
develop.
The drugs
that Access is attempting to develop may 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 it will
depend on a number of factors, including the establishment and demonstration of
the clinical efficacy and safety of its drug candidates, the potential advantage
of its drug candidates over existing therapies and the reimbursement policies of
government and third-party payers. Physicians, patients or the medical community
in general may not accept or use any drugs that Access may develop independently
or with its collaborative partners and if they do not, its business could
suffer.
Trends
toward managed health care and downward price pressures on medical products and
services may limit our ability to profitably sell any drugs that we may
develop.
Lower
prices for pharmaceutical products may result from:
·
|
third-party
payers' increasing challenges to the prices charged for medical products
and services;
|
·
|
the
trend toward managed health care in the United States and the concurrent
growth of HMOs and similar organizations that can control or significantly
influence the purchase of healthcare services and products;
and
|
·
|
legislative
proposals to reform healthcare or reduce government insurance
programs.
|
12
The cost
containment measures that healthcare providers are instituting, including
practice protocols and guidelines and clinical pathways, and the effect of any
healthcare reform, could limit Access’ ability to profitably sell any drugs that
Access may successfully develop. Moreover, any future legislation or regulation,
if any, relating to the healthcare industry or third-party coverage and
reimbursement, may cause its business to suffer.
We
may not be successful in protecting our intellectual property and proprietary
rights.
Access’
success depends, 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 its business without infringing the proprietary rights of third parties.
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 and 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.
Access cannot assure you that any existing or future patents issued to, or
licensed by, it will not subsequently be challenged, infringed upon, invalidated
or circumvented by others. As a result, although Access, together with its
subsidiaries, are either the owner or licensee to 19 U.S. patents and to 7 U.S.
patent applications now pending, and 5 European patents and 13 European patent
applications, Access cannot assure you that any additional patents will issue
from any of the patent applications owned by, or licensed to, it. Furthermore,
any rights that Access may have under issued patents may not provide it with
significant protection against competitive products or otherwise be commercially
viable.
Access’
patents, or the patents of licensors, for the following technologies expire in
the years and during the date ranges indicated below:
·
|
Mucoadhesive
technology in 2021,
|
·
|
ProLindac™
in 2021,
|
·
|
Thiarabine
in 2018,
|
·
|
Cobalamin
mediated technology between 2009 and
2019
|
In
addition to issued patents, Access has, or has the rights to, a number of
pending patent applications. If issued, the patents underlying theses
applications could extend the patent life of its technologies beyond the dates
listed above.
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 Access’ drug
candidates. If Access’ drug candidates or processes are found to infringe upon
the patents or otherwise impermissibly utilize the intellectual property of
others, Access’ development, manufacture and sale of such drug candidates could
be severely restricted or prohibited. In such event, Access may be required to
obtain licenses from third parties to utilize the patents or proprietary rights
of others. Access cannot assure you that it will be able to obtain such licenses
on acceptable terms, if at all. If Access 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
its legal position, and the potential damages that Access could be required to
pay could be substantial.
Our
business could suffer if we lose the services of, or fail to attract, key
personnel.
Access is
highly dependent upon the efforts of its senior management and scientific team,
including its President and Chief Executive Officer, Jeffrey B. Davis. The loss
of the services of one or more of these individuals could delay or prevent the
achievement of its research, development, marketing, or product
commercialization objectives. While Access has employment agreements with
Jeffrey B. Davis, David P. Nowotnik, PhD its Senior Vice President Research and
Development, and Stephen B. Thompson, its Vice President and Chief Financial
Officer, their employment may be terminated by them or Access at any time. Mr.
Davis’, Dr. Nowotnik's and Mr. Thompson’s agreements expire within one year and
are extendable each year on the anniversary date. As a cost savings measure, we
recently lowered the cash compensation of certain of our key employees including
our executive officers. Access does not have employment contracts
with its other key personnel. Access does not maintain any "key-man" insurance
policies on any of its key employees and Access does not intend to obtain such
insurance. In addition, due to the specialized scientific nature of its
business, Access is highly dependent upon its ability to attract and retain
qualified scientific and technical personnel. In view of the stage of its
development and its research and development programs, Access has restricted its
hiring to research scientists and a small administrative staff and Access has
made only limited investments in manufacturing, production, sales or regulatory
compliance resources. 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 Access’
activities, however, and Access may be unsuccessful in attracting and retaining
these personnel.
13
We
may be required to pay liquidated damages to certain investors if it does not
maintain an effective registration statement relating to common stock issuable
upon conversion of Series A Cumulative Convertible Preferred stock or upon
exercise of certain warrants.
Pursuant
to issuing Series A Cumulative Convertible Preferred Stock and warrants, Access
entered into an Investor Rights Agreement with the purchasers of Series A
Cumulative Convertible Preferred Stock. The Investor Rights Agreement
requires, among other things, that Access maintain an effective registration
statement for common stock issuable upon conversion of Series A Cumulative
Convertible Preferred Stock or upon exercise of certain
warrants. Access has failed to maintain such an effective
registration statement and, as a result, it may be required to pay liquidated
damages to certain holders of such Series A Cumulative Convertible Preferred
Stock and warrants for the period of time in which an effective registration
statement was not in place.
Provisions
of our charter documents could discourage an acquisition of our company that
would benefit its stockholders and may have the effect of entrenching, and
making it difficult to remove, management.
Provisions
of Access’ Certificate of Incorporation, By-laws and Stockholders Rights Plan
may make it more difficult for a third party to acquire control of the Company,
even if a change in control would benefit Access stockholders. In particular,
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 Access’ Board of Directors may determine,
including, for example, rights to convert into Access common stock. The rights
of the holders of Access common stock will be subject to, and may be adversely
affected by, the rights of the holders of any of 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 control of Access. This could limit the price that
certain investors might be willing to pay in the future for shares of Access
common stock and discourage these investors from acquiring a majority of Access
common stock. Further, the existence of these corporate governance provisions
could have the effect of entrenching management and making it more difficult to
change Access’ management.
Substantial
sales of our common stock could lower its stock price.
The
market price for Access common stock could drop as a result of sales of a large
number of its presently outstanding shares or shares that Access may
issue or be obligated to issue in the future. Substantially all of
the shares of Access common stock that are outstanding as
of January 14, 2010, are unrestricted and freely tradable or tradable
pursuant to a resale registration statement or under Rule 144 of the Securities
Act or are covered by a registration rights agreement.
Failure
to achieve and maintain effective internal controls could have a material
adverse effect on our business.
Effective
internal controls are necessary for Access to provide reliable financial
reports. If Access cannot provide reliable financial reports, Access’ operating
results could be harmed. All internal control systems, no matter how well
designed, have inherent limitations. Therefore, even those systems determined to
be effective can provide only reasonable assurance with respect to financial
statement preparation and presentation.
While
Access continues to evaluate and improve its internal controls, Access cannot be
certain that these measures will ensure that Access implements and maintains
adequate controls over its financial processes and reporting in the future. Any
failure to implement required new or improved controls, or difficulties
encountered in their implementation, could harm its operating results or cause
Access to fail to meet its reporting obligations.
Failure
to achieve and maintain an effective internal control environment could cause
investors to lose confidence in Access’ reported financial information, which
could have a material adverse effect on its stock price.
14
Risks
relating to this Offering
We
will have immediate and broad discretion over the use of the net proceeds from
this offering.
There is
no minimum offering amount required as a condition to closing this offering and
therefore net proceeds from this offering will be immediately available to us to
use at our discretion. We intend to use the net proceeds to further develop our
products and product candidates and for working capital and general corporate
purposes. Our judgment may not result in positive returns on your investment and
you will not have an opportunity to evaluate the economic, financial, or other
information upon which we base our decisions.
Future
sales by our stockholders may adversely affect our stock price and our ability
to raise funds in new stock offerings.
Sales of
our common stock in the public market following this offering could lower the
market price of our common stock. Sales may also make it more difficult for us
to sell equity securities or equity-related securities in the future at a time
and price that our management deems acceptable or at all. Of the 13,336,545
shares of common stock outstanding as of January 14, 2010, 13,336,545
shares are, or will be, freely tradable without restriction, unless held by our
“affiliates.” Some of these shares may be resold under Rule 144. The sale of the
9,951,198 shares issuable upon conversion of our outstanding preferred stock and
9,835,479 shares issuable upon exercise of outstanding warrants could also lower
the market price of our common stock.
You will experience immediate and
substantial dilution as a result of this offering and may experience additional
dilution in the future.
You will
incur immediate and substantial dilution as a result of this
offering. After giving effect to the sale by us of up to __________
units offered in this offering at a public offering price of $____ per unit, and
after deducting placement agent commissions and estimated offering expenses
payable by us, investors in this offering can expect an immediate dilution of
$___ per share, or __%, at the public offering price, assuming no exercise of
the warrants. In addition, in the past, we issued options and
warrants to acquire shares of common stock. To the extent these
options are ultimately exercised, you will sustain future dilution. We may also
acquire or license other technologies or finance strategic alliances by issuing
equity, which may result in additional dilution to our
stockholders.
There
is no public market for the warrants to purchase common stock in this
offering.
There is
no established public trading market for the warrants being offered in this
offering, and we do not expect a market to develop. In addition, we do not
intend to apply for listing the warrants on any securities exchange. Without an
active market, the liquidity of the warrants will be limited.
If the
registration statement covering the shares issuable upon exercise of the
warrants contained in the units is no longer effective, the unit warrants will
be issued with restrictive legends unless such shares are eligible for sale
under Rule 144.
The
offering may not be fully subscribed and, even if the offering is fully
subscribed, we will need additional capital in the future. If
additional capital is not available, we may not be able to continue to operate
our business pursuant to our business plan or we may have to discontinue our
operations entirely.
The
placement agent in this offering will offer the units on a “best-efforts” basis,
meaning that we may raise substantially less than the total maximum offering
amounts. No refund will be made available to investors if less than all of the
units are sold. Based on our proposed use of proceeds, we will likely
need significant additional financing, which we may seek to raise through, among
other things, public and private equity offerings and debt
financing. Any equity financing will be dilutive to existing
stockholders, and any debt financings will likely involve covenants restricting
our business activities. Additional financing may not be available on
acceptable terms, or at all.
15
Risks
related to our common stock
We
have a convertible note outstanding in the principle amount of $5,500,000 which
is due on September 13, 2011 and which we may be unable to repay at
maturity.
We have a
convertible note outstanding to a high net worth individual in the principle
amount of $5.5 million which is due and payable by Access on September 13,
2011. This convertible note accrues interest at the rate of 7.7% paid
annually. We may not have the funds to repay the holder of the
convertible note at maturity or to continue to pay the interest on the
convertible note in the ordinary course which would result in our defaulting
under the note. If this occurs, the holder of the note would have
rights senior to those of our common stockholders.
We
have issued and outstanding shares of Series A Cumulative Convertible Preferred
Stock with rights and preferences superior to those of its common
stock.
The
issued and outstanding shares of Series A Cumulative Convertible Preferred Stock
grants the holders of such preferred stock anti-dilution, dividend and
liquidations rights that are superior to those held by the holders of our common
stock. Should Access issue additional shares of common stock for a
price below $3.00 per share, the conversion price of the Series A Cumulative
Convertible Preferred Stock shall be lowered to the lowest issue price below
$3.00 per share which will have the effect of immediately diluting the holders
of our common stock.
If
we issue shares of our common stock or common stock equivalents at a price below
$3.00 per share, the conversion price of our Series A Cumulative Convertible
Preferred Stock will automatically BE lowered to the common stock issue
price.
Our
Series A Cumulative Convertible Preferred Stock includes certain anti-dilution
provisions. As a result of the anti-dilution provisions, the conversion
price of the Series A Cumulative Convertible Preferred Stock is subject to a
price adjustment upon certain issuances of additional shares of common stock for
a price below $3.00 per share. Under the terms of the currently proposed
offering, we anticipate selling shares of our common stock for $_____ per
share. This will result in the conversion price of outstanding Series A
Cumulative Convertible Preferred Stock automatically decreasing to $_____ per
share. This lower conversion price will entitle our holders of
Series A Cumulative Convertible Preferred to acquire a greater number of shares
of our common stock than they otherwise would have been able to obtain if not
for the anti-dilution price adjustment.
If
we issue shares of our common stock or common stock equivalents at a price below
$3.50 per share, the exercise price of certain of our outstanding warrants will
be automatically lowered to the common stock issue price.
Certain
of our warrants contain a price protection mechanisms in which the exercise
price of these the warrants will automatically be lowered in the event we issue
shares of our common stock for a price less than $3.50 per share. Under
the terms of the currently proposed offering, we anticipate selling shares of
our common stock for $_____ per share. This will result in the exercise
price of certain previously issued warrants automatically decreasing to $_____
per share.
An
investment in our common stock may be less attractive because it is not traded
on a recognized public market.
Access’
common stock has traded on the OTC Bulletin Board, or OTCBB since June 5, 2006.
The OTCBB and Pink Sheets are viewed by most investors as a less desirable, and
less liquid, marketplace. As a result, an investor may find it more difficult to
purchase, dispose of or obtain accurate quotations as to the value of its common
stock.
Access’
common stock is subject to Rules 15g-1 through 15g-9 under the Exchange Act,
which imposes certain sales practice requirements on broker-dealers who sell its
common stock to persons other than established customers and "accredited
investors" (as defined in Rule 501(c) of the Securities Act). For transactions
covered by this rule, a 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. This rule adversely affects the
ability of broker-dealers to sell Access’ common stock and purchasers of its
common stock to sell their shares of Access’ common stock.
Additionally,
Access’ common stock is subject to SEC regulations applicable to "penny stock."
Penny stock includes any non-NASDAQ equity security that has a market price of
less than $5.00 per share, subject to certain exceptions. The
regulations require that prior to any non-exempt buy/sell transaction in a penny
stock, a disclosure schedule proscribed by the SEC relating to the penny stock
market must be delivered by a broker-dealer to the purchaser of such penny
stock. This disclosure must include the amount of commissions payable
to both the broker-dealer and the registered representative and current price
quotations for Access’ common stock. The regulations also require
that monthly statements be sent to holders of penny stock that disclose recent
price information for the penny stock and information of the limited market for
penny stocks. These requirements adversely affect the market
liquidity of Access’ common stock.
16
Ownership
of our shares is concentrated in the hands of a few investors which could limit
the ability of our other stockholders to influence the direction of the
company.
As
calculated by the SEC rules of beneficial ownership, SCO Capital Partners LLC
and affiliates, Larry N. Feinberg (Oracle Partners LP, Oracle Institutional
Partners LP and Oracle Investment Management Inc.), and Lake End Capital LLC
each beneficially owned approximately 56.6%, 11.2% and 7.7%, respectively, of
Access’ common stock on an as converted basis as of January 14, 2010.
Accordingly, they collectively may have the ability to significantly influence
or determine the election of all of Access’ directors or the outcome of most
corporate actions requiring stockholder approval. They may exercise this ability
in a manner that advances their best interests and not necessarily those of
Access’ other stockholders.
17
FORWARD-LOOKING
STATEMENTS
This
Prospectus contains “forward-looking statements” within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of
the Securities Exchange Act of 1934, as amended, and that involve risks and
uncertainties. These statements include, without limitation, statements relating
to uncertainties associated with research and development activities, clinical
trials, our ability to raise capital, the timing of and our ability to achieve
regulatory approvals, dependence on others to market our licensed products,
collaborations, future cash flow, the timing and receipt of licensing and
milestone revenues, the future success of our marketed products and products in
development, our sales projections, and the sales projections of our licensing
partners, our ability to achieve licensing milestones, the size of the
prospective markets in which we may offer products, our ability to continue as a
going concern, anticipated product approvals and timing thereof, product
opportunities, clinical trials and U.S. Food and Drug Administration (“FDA”)
applications, as well as our drug development strategy, our clinical development
organization expectations regarding our rate of technological developments and
competition, our plan not to establish an internal marketing organization, our
expectations regarding minimizing development risk and developing and
introducing technology, the terms of future licensing arrangements, our ability
to secure additional financing for our operations, our ability to establish new
relationships and maintain current relationships, our ability to attract and
retain key personnel, our belief that we will not pay any cash dividends in the
foreseeable future, our belief that a failure to obtain necessary additional
capital in the future will result in our operations being jeopardized, our
belief that we will expend substantial funds to conduct research and development
programs, preclinical studies and clinical trials of potential products, our
belief that we will continue to invest available finds in certificates of
deposit, money market funds, government securities and investment grade
interest-bearing securities and that we will not invest in derivative financial
instruments, our belief that the market for a mucositis product is in excess of
$1 billion, our belief that we have a rich pipeline of products and product
candidates, our belief that we will continue to evaluate the most cost-effective
methods to advance our programs, and our expected cash burn rate.
These statements relate to future events or our future financial performance. In
some cases, you can identify forward-looking statements by terminology such as
“may,” “will,” “should,” “expects,” “plans,” “could,” “anticipates,” “believes,”
“estimates,” “predicts,” “potential” or “continue” or the negative of such terms
or other comparable terminology. We intend the forward-looking
statements to be covered by the safe harbor for forward-looking statements in
these sections. The forward-looking information is based on various factors and
was derived using numerous assumptions.
Forward-looking
statements necessarily involve risks and uncertainties, and our actual results
could differ materially from those anticipated in the forward-looking statements
due to a number of factors, including those set forth above under “Risk Factors”
and elsewhere in this Prospectus. The factors set forth above under “Risk
Factors” and other cautionary statements made in this Prospectus should be read
and understood as being applicable to all related forward-looking statements
wherever they appear in this Prospectus. The forward-looking statements
contained in this Prospectus represent our judgment as of the date of this
Prospectus. We caution readers not to place undue reliance on such statements.
Except as required by law, we undertake no obligation to update publicly any
forward-looking statements for any reason, even if new information becomes
available or other events occur in the future.
18
USE
OF PROCEEDS
We
estimate that we will receive up to $_________ in net proceeds from the sale of
units in this offering, based on an assumed price of $___ per unit and after
deducting estimated placement agent fees and estimated offering expenses payable
by us. We will use the net proceeds from this offering to further
develop our products and product candidates and for working capital and other
general corporate purposes. Pending any use, we plan to invest the
net proceeds in investment grade, short-term, interest-bearing
securities.
If a
warrant holder elects to pay the exercise price, rather than exercising the
warrants on a “cashless” basis, we may also receive proceeds from the exercise
of warrants. We cannot predict when or if the warrants will be exercised. It is
possible that the warrants may expire and may never be exercised.
19
DILUTION
If you
purchase units in this offering, and assuming no value is attributed to the
warrants, your interest will be diluted immediately to the extent of the
difference between the assumed public offering price of $___ per unit and the as
adjusted net tangible book value per share of our common stock immediately
following this offering.
Our net
tangible book value as of January 14, 2010 was approximately $(___) million, or
approximately $(0.__) per share. Net tangible book value per share
represents our total tangible assets less total liabilities, divided by the
number of shares of common stock outstanding as of January 14,
2010.
Net
tangible book value dilution per unit to new investors represents the difference
between the amount per unit paid by purchasers in this offering and the as
adjusted net tangible book value per share of common stock immediately after
completion of this offering, assuming that no value is attributed to the
warrants. After giving effect to our sale of ________ units in this
offering at an assumed public offering price of $___ per unit, and after
deducting the placement agent commissions and estimated offering expenses, our
as adjusted net tangible book value as of September 30, 2009 would have
been $_______ million, or $__ per share. This represents an immediate
increase in net tangible book value of $___ per share to existing stockholders
and an immediate dilution in net tangible book value of $___ per unit to
purchasers of units in this offering, as illustrated in the following
table:
Assumed
public offering price per unit
|
$ | |||
Net
tangible book value per share as of January 14, 2010
|
$ | ( | ) | |
Increase
in net tangible book value per unit attributable to new
investors
|
$ | |||
Adjusted
net tangible book value per share as of September 30, 2009,
after
|
||||
giving
effect to the offering
|
$ | |||
Dilution
per unit to new investors in the offering
|
$ |
The above
discussion and tables do not include the following:
·
|
1,748,935 shares
of common stock reserved for future issuance under our equity incentive
plans. As of January 14 ,2010 there were 1,648,153 options
outstanding under our equity incentive plans with a weighted average
exercise price of $2.93 per share;
|
·
|
9,835,479
shares of common stock issuable upon exercise of outstanding warrants as
of January 14, 2010, with exercise prices ranging from $1.32 per share to
$69.57 per share;
|
·
|
__________
shares of common stock that will be issued upon exercise of warrants at an
exercise price of $___ per share sold as part of the units in this
offering; and
|
·
|
the
conversion of our currently outstanding Convertible
Note.
|
The above
discussion and tables assume that our 2,985.3617 shares of Series A Cumulative
Convertible Preferred Stock are converted into 9,951,198 shares of common stock
at a conversion price of $3.00 per share.
20
PRICE
RANGE OF OUR COMMON STOCK
Market
Information
Access’
common stock has traded on the OTC Bulletin Board, or OTCBB, under the trading
symbol ACCP since June 5, 2006.
The
following table sets forth, for the periods indicated, the high and low closing
prices as reported by OTCBB for Access’ common stock for fiscal years 2010 (year
to date), 2009 and 2008. The OTCBB quotations reflect inter-dealer
prices, without retail mark-up, mark-down or commission and may not represent
actual transactions.
Common Stock
|
||||||||
High
|
Low
|
|||||||
Fiscal Year 2010 Year to
date
|
||||||||
First
quarter ( through January 14, 2010)
|
$ | 3.29 | $ | 3.11 | ||||
Fiscal Year Ended December
31, 2009
|
||||||||
First
quarter
|
$ | 1.85 | $ | 0.77 | ||||
Second
quarter
|
2.25 | 1.25 | ||||||
Third
quarter
|
4.70 | 1.84 | ||||||
Fourth
quarter
|
3.50 | 2.80 | ||||||
Fiscal Year Ended December 31,
2008
|
||||||||
First
quarter
|
$ | 3.50 | $ | 1.35 | ||||
Second
quarter
|
3.30 | 1.40 | ||||||
Third
quarter
|
3.49 | 2.50 | ||||||
Fourth
quarter
|
2.75 | 0.80 |
Holders
The
number of record holders of Access common stock at January 14, 2010 was
approximately 10,900. On January 14, 2010, the closing price for the common
stock as quoted on the OTCBB was $3.25. There were 13,336,545 shares of common
stock outstanding at January 14, 2010.
There
were 2,985.3617 shares of Series A Cumulative Convertible Preferred Stock
convertible into 9,951,198 shares of Common Stock at January 14,
2010.
Options
and Warrants
There are
9,835,479 outstanding warrants and 1,648,153 outstanding options to purchase
Access’ common equity as of January 14, 2010.
Convertible
Notes
There is
$5.5 million of convertible notes outstanding and convertible into 200,000
shares of common stock as of January 14, 2010.
21
DIVIDEND
POLICY
Access
never declared or paid any cash dividends on its common stock and Access does
not anticipate paying any cash dividends in the foreseeable future on its common
stock. The payment of dividends on common stock, if any, in the future is within
the discretion of Access’ Board of Directors and will depend on its earnings,
capital requirements and financial condition and other relevant facts. Access
currently intends to retain all future earnings, if any, to finance the
development and growth of its business.
The
holders of Series A Cumulative Convertible Preferred Stock are entitled to
receive dividends of 6% per annum on their shares Series A Cumulative
Convertible Preferred Stock. The dividends are payable by Access semi-annually
and may be paid by Access either in cash, or if certain conditions are met, at
Access’ option, in shares of Access’ common stock. To be eligible to pay
dividends in shares of common stock, among other things, there must be in place
a registration statement pursuant to which the holders of the Series A
Cumulative Convertible Preferred Stock are permitted to utilize the prospectus
thereunder to resell all of the shares of common stock issuable in relation to
the Series A Cumulative Convertible Preferred Stock.
SELECTED
CONDENSED CONSOLIDATED FINANCIAL INFORMATION
The
following selected condensed consolidated financial information as of and for
the years ended December 31, 2008 and 2007, have been derived from our
audited financial statements. The financial information as of and for the nine
months ended September 30, 2009 and 2008 is derived from our unaudited condensed
consolidated financial statements. The condensed consolidated financial
information set forth below should be read in conjunction with “Management's
Discussion and Analysis of Financial Condition and Results of Operations” and
the financial statements and notes thereto included elsewhere in this
prospectus.
On
February 25, 2009, we closed our acquisition of MacroChem Corporation through
the issuance of an aggregate of approximately 2.5 million shares of our common
stock. The acquisition was recorded using the pooling-of-interest method
and the financial information for all periods presented reflects the financial
statements of the combined companies in accordance with Financial Accounting
Standards Board standards on business combinations for entities under common
control.
(in
thousands, except per share amounts)
|
For the Nine Months
Ended
September 30,
|
For the Year
Ended
December 31,
|
||||||||||||||
2009
|
2008
|
2008
|
2007
|
Consolidated
Statement of Operations Data:
|
||||||||||||||||
Total
revenues
|
$ | 248 | $ | 217 | $ | 295 | $ | 57 | ||||||||
Operating
loss
|
(7,991 | ) | (28,996 | ) | (30,727 | ) | (12,750 | ) | ||||||||
Interest
and miscellaneous income
|
18 | 173 | 211 | 315 | ||||||||||||
Interest
and other expense
|
(395 | ) | (512 | ) | (911 | ) | (3,514 | ) | ||||||||
Loss
on extinguishment of debt
|
- | - | - | (11,628 | ) | |||||||||||
Income
tax benefit
|
- | - | - | 61 | ||||||||||||
Gain
on change in warrant liability
|
- | - | 3,972 | - | ||||||||||||
Loss
from continuing operations
|
(8,368 | ) | (29,335 | ) | (27,455 | ) | (30,722 | ) | ||||||||
Preferred
stock dividends
|
(1,434 | ) | (2,873 | ) | (3,358 | ) | (15,504 | ) | ||||||||
Beneficial conversion feature | - | - | - | (3,224) | ||||||||||||
Discontinued
operations, net of taxes of
$61
in 2007
|
- | - | - | 112 | ||||||||||||
Net
loss
|
$ | (9,802 | ) | $ | (32,208 | ) | $ | (30,813 | ) | $ | (49,338 | ) | ||||
Common
Stock Data:
|
||||||||||||||||
Net
loss per basic and
diluted
common share
|
$ | (0.86 | ) | $ | (3.97 | ) | $ | (3.69 | ) | $ | (8.15 | ) | ||||
Weighted
average basic and
diluted
common shares
outstanding
|
11,375 | 8,107 | 8,354 | 6,052 | ||||||||||||
September 30,
|
December 31,
|
|||||||||||||||
2009
|
2008
|
2008
|
2007
|
Consolidated
Balance Sheet Data:
|
||||||||||||||||
Cash,
cash equivalents and
short
term investments
|
$ | 1,672 | $ | 4,651 | $ | 2,677 | $ | 10,014 | ||||||||
Total
assets
|
2,705 | 6,449 | 4,171 | 13,002 | ||||||||||||
Deferred
revenue
|
5,164 | 2,450 | 2,409 | 978 | ||||||||||||
Notes
payable
|
- | 791 | - | - | ||||||||||||
Convertible
notes
|
5,500 | 5,500 | 5,500 | 5,564 | ||||||||||||
Total
liabilities
|
18,304 | 15,582 | 15,357 | 12,949 | ||||||||||||
Total
stockholders' equity (deficit)
|
(15,599 | ) | (9,133 | ) | (11,186 | ) | 53 |
22
MacroChem
Corporation
Below is
selected financial information for MacroChem Corporation. We completed our
acquisition of MacroChem on February 25, 2009. Historical information
from MacroChem’s audited financial statements for the fiscal year ended December
31, 2008 is also contained in Access’ current report on Form 8-K/A filed with
the Securities and Exchange Commission on August 26, 2009. The information is
only a summary and should be read in conjunction with MacroChem’s financial
statements referenced above and accompanying notes.
(in
thousands, except per share amounts)
|
|||||
2008
|
|||||
CONSOLIDATED
STATEMENT OF OPERATIONS DATA:
|
|||||
Total
revenues
|
$
|
4
|
|||
Operating
loss
|
(13,812)
|
||||
Interest
and other income
|
26
|
||||
Interest
and other expense
|
(433)
|
||||
Gain
on change in value of warrants liability
|
3,972
|
||||
Gain
on sale of equipment
|
7
|
||||
Net
loss
|
$
|
(10,240)
|
|||
Net
loss per basic and diluted common share
|
$
|
(0.26)
|
|||
Weighted
average basic and diluted common shares outstanding
|
38,934
|
||||
CONSOLIDATED
BALANCE SHEET DATA:
|
|||||
December
31,
|
|||||
Cash
and cash equivalents
|
$
|
14
|
|||
Total
assets
|
549
|
||||
Current
liabilities
|
3,346
|
||||
Total
liabilities
|
3,474
|
||||
Stockholders’
(deficit) equity
|
$
|
(2,925)
|
23
UNAUDITED
PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The
following unaudited pro forma condensed combined financial statements apply to
the merger between MacroChem Corporation (“MacroChem”) and Access, by which
MacroChem became a wholly owned subsidiary of Access, and are based upon the
historical condensed consolidated financial statements and notes thereto (as
applicable) of Access and MacroChem. The unaudited pro forma condensed combined
balance sheet gives pro forma effect to the merger as if the merger had been
completed on December 31, 2008 and combines Access’s December 31, 2008 audited
consolidated balance sheet with MacroChem’s December 31, 2008 audited
consolidated balance sheet. The unaudited pro forma condensed combined statement
of operations gives pro forma effect to the merger as if it had been completed
on January 1, 2008 and combines Access’ audited consolidated statement of
operations for the year ended December 31, 2008, with MacroChem’s audited
consolidated statement of operations for the year ended December 31,
2008.
On February
25, 2009, we closed our acquisition of MacroChem through the issuance of an
aggregate of approximately 2.5 million shares of our common stock. Prior to our
acquisition of MacroChem, SCO, an investment company, held a majority of Access’
and MacroChem’s voting stock. Specifically, SCO owned 53% of the
voting stock of Access and 63% of the voting stock of MacroChem. A
non-controlling interest of 37% existed at the merger date of MacroChem. In
addition, certain members of SCO’s management serve on the board of directors of
both Access and MacroChem. Based on these facts, Access and MacroChem were
deemed under the common control of SCO. As the entities were deemed under common
control, the acquisition was recorded using the pooling-of-interest method and
beginning in 2009, the financial information for all periods presented will
reflect the financial statements of the combined companies in accordance with
Financial Accounting Standards Board standards on business combinations for
entities under common control.
Upon
acquisition, all outstanding warrants and any other dilutive instruments in
MacroChem’s stock were cancelled. The in-the-money warrants converted with the
common stock. In addition to the merger, the noteholders of MacroChem agreed to
exchange their notes and interest due on the notes in the total amount of
$859,000 for 859,000 restricted shares of the Access’ common stock. The value of
the shares issued was determined based on the carrying value of the debt, which
was established to be the more readily determinable fair value.
In
addition, we issued 125,000 shares of Access common stock valued at $197,000 to
former executives of MacroChem for the settlement of employment
agreements.
In
connection with the exchange of equity interests, $106,000 in merger costs were
expensed.
The pro
forma adjustments are based upon available information and certain assumptions
that Access believes are reasonable under the circumstances.
Total
consideration paid in connection with the acquisition included:
·
|
Approximately
2.5 million shares of Access common stock was issued to the common
shareholders and the in-the-money warrant holders of MacroChem as
consideration having a value of approximately $3.5 million (the value was
calculated using Access’ stock price on February 25, 2009 times the shares
issued);
|
·
|
an
aggregate of $106,000 in direct transaction costs;
and
|
·
|
cancelled
receivable from MacroChem of
$635,000.
|
These
unaudited pro forma condensed combined financial statements should be read in
conjunction with the historical consolidated financial statements and related
notes contained in the annual, quarterly and other reports filed by Access and
MacroChem with the Securities and Exchange Commission.
24
Pro
Forma Condensed Combined Balance Sheet
As
of December 31, 2008
(Unaudited)
Historical
Access
|
MacroChem
|
Pro
Forma
Adjustments
|
Pro
Forma
Combined
|
|||||||||||||
ASSETS
|
||||||||||||||||
Current
assets
|
||||||||||||||||
Cash
and cash equivalents
|
$
|
2,663,000
|
$
|
14,000
|
$
|
2,677,000
|
||||||||||
Receivables
|
147,000
|
-
|
147,000
|
|||||||||||||
Receivables
due from MacroChem
|
635,000
|
-
|
(635,000
|
)
|
(f)
|
-
|
||||||||||
Prepaid
expenses and other current expenses
|
105,000
|
70,000
|
175,000
|
|||||||||||||
Total
current assets
|
3,550,000
|
84,000
|
2,999,000
|
|||||||||||||
Property
and equipment, net
|
87,000
|
8,000
|
95,000
|
|||||||||||||
Patents
net
|
542,000
|
457,000
|
999,000
|
|||||||||||||
Other
assets
|
78,000
|
-
|
78,000
|
|||||||||||||
Total
assets
|
$
|
4,257,000
|
$
|
549,000
|
$
|
4,171,000
|
||||||||||
LIABILITIES
AND STOCKHOLDERS’ DEFICIT
|
||||||||||||||||
Current
liabilities
|
||||||||||||||||
Accounts
payable
|
$
|
1,970,000
|
$
|
1,317,000
|
106,000
|
(e)
|
$
|
3,393,000
|
||||||||
Accrued
expenses
|
748,000
|
547,000
|
1,295,000
|
|||||||||||||
Dividends
payable
|
1,896,000
|
-
|
1,896,000
|
|||||||||||||
Accrued
interest payable
|
128,000
|
17,000
|
(17,000
|
)
|
(b)
|
128,000
|
||||||||||
Current
portion of deferred revenue
|
164,000
|
5,000
|
(5,000
|
)
|
(d)
|
164,000
|
||||||||||
Notes
payable
|
-
|
825,000
|
(825,000
|
)
|
(b)
|
-
|
||||||||||
Payables
due Access
|
-
|
635,000
|
(635,000
|
)
|
(f)
|
-
|
||||||||||
Total
current liabilities
|
4,906,000
|
3,346,000
|
6,876,000
|
|||||||||||||
Long-term
deferred revenue
|
2,245,000
|
24,000
|
(24,000
|
)
|
(d)
|
2,245,000
|
||||||||||
Warrants
liability
|
-
|
104,000
|
(104,000
|
)
|
(d)
|
-
|
||||||||||
Long-term
debt
|
5,500,000
|
-
|
5,500,000
|
|||||||||||||
Total
liabilities
|
12,651,000
|
3,474,000
|
14,621,000
|
|||||||||||||
Stockholders’
equity (deficit)
|
||||||||||||||||
Preferred
stock
|
-
|
-
|
-
|
|||||||||||||
Common
stock
|
70,000
|
459,000
|
25,000
8,000
1,000
(459,000
|
)
|
(a)
(b)
(c)
(d)
|
104,000
|
||||||||||
Additional
paid-in capital
|
127,482,000
|
97,763,000
|
508,000
834,000
196,000
|
(a)
(b)
(c)
|
226,783,000
|
|||||||||||
Notes
receivable from stockholders
|
(1,045,000
|
)
|
(1,045,000
|
)
|
||||||||||||
Treasury
stock, at cost
|
(4,000
|
)
|
(59,000
|
)
|
59,000
|
(d)
|
(4,000
|
)
|
||||||||
Accumulated
deficit
|
(134,897,000
|
)
|
(101,088,000
|
)
|
(197,000
|
)
|
(c)
|
(236,288,000
|
)
|
|||||||
(106,000
|
)
|
(e)
|
||||||||||||||
Total
stockholders’ equity (deficit)
|
(8,394,000
|
)
|
(2,925,000
|
)
|
(10,450,000
|
)
|
||||||||||
Total
liabilities and stockholders’ equity (deficit)
|
$
|
4,257,000
|
$
|
549,000
|
$
|
4,171,000
|
See
accompanying Notes to Pro Forma Condensed Combined Balance Sheet
25
Notes
to Pro Forma Condensed Combined Balance Sheet
|
Note
1: The above statement gives effect to the following pro forma adjustments
necessary to reflect the merger of Access and MacroChem, entities deemed
under common control, as if the transaction had occurred on December 31,
2008.
|
|
a)
|
To
record the exchange, for accounting purposes, by MacroChem shareholders of
their common stock and in-the-money warrants for 2,500,000 shares of
Access and the impact of pro-forma adjustments to additional paid-in
capital in the amount of $508,000.
|
b)
|
To
record Access common stock exchanged for notes payable of $825,000 and
accrued interest of $17,000.
|
c)
|
To
record Access common stock issued to former executives of MacroChem for
the settlement of employment
agreements.
|
d)
|
To
eliminate the common stock, treasury stock, warrant liabilities and
deferred revenue of MacroChem.
|
e)
|
To
record $106,000 in merger costs.
|
f)
|
To
eliminate intercompany notes payable/receivable of
$635,000.
|
After the
consummation of the transactions described herein, Access had 100,000,000 common
shares authorized, approximately 10,434,474 common shares issued and
outstanding, 2,000,000 preferred shares authorized with approximately 3,242.8617
shares of Series A Cumulative Convertible Preferred Stock issued and
outstanding, convertible into 10,809,539 shares of Access common
stock.
26
Pro
Forma Condensed Combined Statement of Operations
For
the Twelve Months Ended December 31, 2008
(Unaudited)
Historical
|
Access
|
MacroChem
|
Pro
Forma
Combined
|
|||||||
Revenues
|
$
|
291,000
|
$
|
4,000
|
$
|
295,000
|
||||
Expenses
|
||||||||||
Research
and development
|
12,613,000
|
10,622,000
|
23,235,000
|
|||||||
General
and administrative
|
4,340,000
|
3,123,000
|
7,463,000
|
|||||||
Depreciation
and amortization
|
253,000
|
71,000
|
324,000
|
|||||||
Total
expenses
|
17,206,000
|
13,816,000
|
31,022,000
|
|||||||
Loss
from operations
|
(16,915,000
|
)
|
(13,812,000
|
)
|
(30,727,000
|
)
|
||||
Interest
and other income
|
178,000
|
33,000
|
211,000
|
|||||||
Interest
and other expenses
|
(478,000
|
)
|
(433,000
|
)
|
(911,000
|
)
|
||||
Change
in fair value of warrants liability
|
-
|
3,972,000
|
3,972,000
|
|||||||
(300,000
|
)
|
3,572,000
|
3,272,000
|
|||||||
Net
loss
|
(17,215,000
|
)
|
(10,240,000)
|
(27,455,000
|
)
|
|||||
Less
preferred stock dividends
|
(3,358,000
|
)
|
-
|
(3,358,000
|
)
|
|||||
Net
loss allocable to common stockholders
|
$
|
(20,573,000
|
)
|
$
|
(10,240,000
|
)
|
$
|
(30,813,000
|
)
|
|
Basic
and diluted loss per common share
Loss
from operations allocable to
all
common stockholders
|
$
|
(3.51
|
)
|
$
|
(0.26
|
)
|
$
|
(3.31
|
)
|
|
Weighted
average basic and diluted common shares outstanding
|
5,854,031
|
38,934,207
|
9,321,031
|
Notes to
Pro Forma Condensed Combined Statement of Operations
Note 1:
The above statement gives effect to the merger of Access and MacroChem, as if
the merger had occurred on January 1, 2008.
Note 2:
The pro forma combined-weighted average number of common shares outstanding
shares is based on the weighted average number of shares of common stock of
Access during the period plus those shares to be issued in conjunction with the
merger. A reconciliation between Access' historical weighted average
shares outstanding and pro forma weighted average shares outstanding is as
follows:
Historical
|
5,854,031
|
|
MacroChem
equivalent shares giving effect to the merger
|
2,500,000
|
|
Shares
issued to former MacroChem executives
|
125,000
|
|
Shares
issued for notes payable and interest
|
842,000
|
|
Total
|
9,321,031
|
27
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The
following discussion should be read in conjunction with our consolidated
financial statements and related notes included in this Prospectus.
OVERVIEW
Access
Pharmaceuticals, Inc. is a Delaware corporation. We are an emerging
biopharmaceutical company focused on developing a range of pharmaceutical
products primarily based upon our nanopolymer chemistry technologies and other
drug delivery technologies. We currently have one approved product, two products
in Phase 2 of clinical development and several products in pre-clinical
development. Low priority clinical and pre-clinical programs will be dependent
on our ability to enter into collaborative arrangements. Our description of our
business, including our list of products and patents, takes into consideration
our acquisition of MacroChem Corporation which closed February 25,
2009.
·
|
MuGard™
is our approved product for the management of oral mucositis, a frequent
side-effect of cancer therapy for which there is no established treatment.
The market for mucositis treatment is estimated to be in excess of $1
billion world-wide. MuGard, a proprietary nanopolymer formulation, has
received marketing allowance in the U.S. from the Food & Drug
Administration (“FDA”). MuGard has been launched in Germany, Italy, UK,
Greece and the Nordic countries by our European commercial partner,
SpePharm.
|
·
|
Our
lead development candidate for the treatment of cancer is ProLindac™, a
nanopolymer DACH-platinum prodrug. We recently completed a Phase 2
clinical trial on ProLindac in the EU in patients with ovarian cancer. The
clinical study had positive safety and efficacy results. We are currently
planning a number of combination trials, looking at combining ProLindac
with other cancer agents such as taxol and gemcitabine, in solid tumor
indications including colorectal and ovarian. The DACH-platinum
incorporated in ProLindac is the same active moiety as that in oxaliplatin
(Eloxatin; Sanofi-Aventis), which has sales in excess of $2.0
billion.
|
·
|
Thiarabine,
or 4-thio Ara-C, is a next generation nucleoside analog licensed from
Southern Research Institute. Previously named SR9025 and OSI-7836, the
compound has been in two Phase 1/2 solid tumor human clinical trials and
was shown to have anti-tumor activity. We are working with leukemia and
lymphoma specialists at MD Anderson Cancer Center in Houston and intend to
initiate additional Phase 2 clinical trials in adult AML, ALL and other
indications.
|
·
|
Cobalamin™
is our proprietary preclinical nanopolymer oral drug delivery technology
based on the natural vitamin B12 oral uptake mechanism. We are currently
developing a product for the oral delivery of insulin, and are conducting
sponsored development of a product for oral delivery of human growth
hormone.
|
·
|
Cobalamin-mediated
cancer targeted delivery is a preclinical technology which makes use of
the fact that cell surface receptors for vitamins such as B12 are often
overexpressed by cancer cells.
|
28
Access
Drug Portfolio
Compound
|
Originator
|
Technology
|
Indication
|
Clinical
Stage (1)
|
||||
MuGard™
|
Access
|
Mucoadhesive
liquid
|
Mucositis
|
(510k)
Marketing clearance received
|
||||
ProLindacTM
(Polymer
Platinate,
AP5346) (2)
|
Access
/
Univ
of
London
|
Synthetic
polymer
|
Cancer
|
Phase
2
|
||||
Thiarabine
(4-thio Ara-C) (3)
|
Southern
Research
Institute
|
Small
molecule
|
Cancer
|
Phase
1/2
|
||||
Oral
Insulin
|
Access
|
Cobalamin
|
Diabetes
|
Pre-clinical
|
||||
Oral
Delivery System
|
Access
|
Cobalamin
|
Various
|
Pre-clinical
|
||||
CobalaminTM-Targeted
Therapeutics
|
Access
|
Cobalamin
|
Anti-tumor
|
Pre-clinical
|
(1)
|
For
more information, see “Government Regulation” for description of clinical
stages.
|
(2)
|
Licensed
from the School of Pharmacy, The University of
London.
|
(3)
|
Licensed
from Southern Research Institute of Birmingham,
Alabama.
|
RECENT
EVENTS
On
January 7, 2010, we announced that we had completed enrollment and evaluation of
the last of the last additional cohort of patients in the ongoing clinical study
of ProLindac as a monotherapy in ovarian cancer patients who have received at
least two prior platinum based treatment regimens. The additional cohort of 8
patients received the ProLindac batch made by an improved scalable process,
which will be used on a larger scale for future clinical and commercial
supplies. None of the 8 patients experienced any acute significant adverse
events, while treatment had the same beneficial pharmacodynamic effect seen in
the first 26 patients treated with the former ProLindac production batch;
clinically relevant sustained biomarker decrease (responses by Rustin's
criteria) and disease stabilization were seen in several patients. The overall
results of our Phase I/II exploratory single agent ProLindac study have helped
define multiple safe dosing regimens, while the level of patient cohort accrued
in the study antitumor activity was as expected in this very heavily pretreated
patient cohort.
Based on
these results, we are initiating a study of ProLindac combined with Paclitaxel
in second line treatment of platinum pretreated advanced ovarian cancer
patients. This study is the first to look at the safety and efficacy of
ProLindac in combination with other oncology agents. The efficacy of Diamino
Cyclohexane Platinum, the active principle in ProLindac, is evidenced mainly
through their synergic association with multiple anticancer agents. The choice
of Paclitaxel and ovarian cancer as the potential first NDA strategic choice to
be explored is based on the results of the Paclitaxel/Oxaliplatin combination in
the same clinical setting. This multi-center study of up to 25 evaluable
patients will be conducted in Europe. The primary efficacy endpoint goal is to
achieve a minimum of 63% response rate in the total of 25 evaluable patients the
study is planning to accrue on a two step design. We anticipate that ProLindac
in combination with Paclitaxel will be well tolerated in this patient population
and anticipate significant activity based on our current experience with
ProLindac in heavily pretreated patients.
On
December 15, 2009, we announced the appointment of Fran Jacobucci to the
position of Vice President, Sales and Marketing. Mr. Jacobucci will be primarily
responsible for our marketing launch of MuGard.
On
October 6, 2009, we announced that we signed an agreement with iMedicor for the
North American launch of MuGard. iMedicor’s highly targeted Alerts System
application will introduce MuGard by the end of the year to the 216,000 selected
physicians in the Unites States.
On
September 11, 2009, we announced the appointment of Accupac, Inc. as our U.S.
manufacturer for MuGard.
On August
3, 2009, we announced that we commenced a new clinical study of ProLindac in
France. The study will examine dose levels and regimens of ProLindac monotherapy
in cancer patients, provide additional data to support design of combinations
studies, and extend the safety database. Two ovarian cancer patients have been
enrolled in the study to date, and it is anticipated 6 to 12 patients will be
enrolled this year in advance of enrolling patients in trial evaluating
ProLindac in combination with other chemotherapies.
On July
29, 2009, we announced that we are evaluating strategic options for the
commercialization of MuGard in North America. Frank Jacobucci, formerly
President & CEO of Milestone Biosciences, has joined Access as a consultant,
and will assist with ongoing reimbursement, manufacturing and commercial launch
activities at Access, while discussions with potential licensee and co-promotion
partners is ongoing.
On July
23, 2009, we announced that our European partner, SpePharm, is collecting data
from a post approval study of MuGard in head and neck cancer patients undergoing
radiation treatment in the UK showing prevention of oral mucositis. In a
multi-center study expected to enroll a total of 280 patients, patients are
provided with seven weeks of MuGard therapy, and begin using MuGard one week
prior to radiation treatment and then throughout the subsequent six weeks of
planned therapy. The first 140 patients being treated in this assessment study
have been enrolled and treated, and as of the time of the update, none of these
patients have experienced any oral mucositis.
On July
7, 2009, we announced new preclinical data demonstrating that thiarabine shows
remarkable efficacy in the prevention and treatment of rheumatoid arthritis
(RA). In a well-established animal model for RA, an exceptional restoration of
joint structure was observed in the studies, which were conducted at Wayne State
University School of Medicine and at Southern Research Institute.
29
On
February 25, 2009, we closed our acquisition of MacroChem Corporation through
the issuance of an aggregate of approximately 2.5 million shares of our common
stock. In addition, we cancelled all of the outstanding debt of MacroChem in
exchange for the issuance of 859,172 shares of our unregistered common
stock.
RESULTS
OF OPERATIONS
Comparison
of Third Quarter 2009 with the Third Quarter of 2008
On
February 25, 2009, we closed our acquisition of MacroChem Corporation through
the issuance of an aggregate of approximately 2.5 million shares of our common
stock. Prior to our acquisition of MacroChem, SCO, an investment company, held a
majority of Access’ and MacroChem’s voting stock. Specifically, SCO
owned 53% of the voting stock of Access and 63% of the voting stock of
MacroChem. A non-controlling interest of 37% existed at the merger date of
MacroChem. In addition, certain members of SCO’s management serve on the board
of directors of both Access and MacroChem. Based on these facts, Access and
MacroChem were deemed under the common control of SCO. As the entities were
deemed under common control, the acquisition was recorded using the
pooling-of-interest method and the financial information for all periods
presented reflects the financial statements of the combined companies in
accordance with Financial Accounting Standards Board standards on business
combinations for entities under common control.
Our
licensing revenue for the third quarter of 2009 was $124,000 as compared to
$38,000 for 2008, an increase of $86,000. We recognize licensing revenue over
the period of the performance obligation under our licensing
agreements.
We
received royalties of $20,000 in the third quarter of 2009. There were no
royalties in the same period in 2008.
We had
sponsored research and development revenue of $9,000 in 2008. The research and
development agreement was completed in 2008.
Total
research and development spending for the third quarter of 2009 was $561,000, as
compared to $1,670,000 for 2008, a decrease of $1,109,000. The decrease in
expenses was primarily due to:
·
|
lower
costs for product manufacturing for a new ProLindac clinical trial in 2009
as some manufacturing is complete and a clinical trial has started
($444,000);
|
·
|
research
and development expenses incurred by MacroChem in the third quarter of
2008, which are no longer ongoing
($386,000);
|
·
|
lower
scientific consulting expenses
($149,000);
|
·
|
lower
salary and related expenses
($129,000);
|
·
|
other
net decreases in research spending ($92,000);
and
|
·
|
offset
by higher expenses due to the cost of option grants
($91,000).
|
Total
general and administrative expenses were $3,458,000 for the third quarter of
2009, an increase of $1,291,000 compared to 2008 expenses of $2,167,000 for the
same quarter. The increase in expenses was due primarily to the
following:
·
|
higher
shareholder consultant expenses ($2,012,000) to inform investors about
Access and to expand our shareholder
base;
|
·
|
higher
business professional expenses
($371,000);
|
·
|
higher
expenses due to the cost of option grants
($89,000);
|
·
|
offset
by general and administrative expenses incurred by MacroChem in the third
quarter of 2008 that are no longer ongoing
($732,000);
|
·
|
lower
accrual of potential liquidated damages under an investor rights agreement
with certain investors ($205,000);
|
·
|
lower
director and officer insurance and lower director fees ($111,000) due to
lower insurance costs and directors taking options instead of fees in
2009;
|
·
|
lower
salary and related expenses ($83,000);
and
|
·
|
other
net decreases in general and administrative expenses
($50,000).
|
30
Depreciation
and amortization was $65,000 for the third quarter of 2009, as compared to
$80,000 for 2008, a decrease of $15,000. The decrease in expenses was primarily
due to assets becoming fully depreciated.
Total
operating expenses for the third quarter of 2009, were $4,084,000 as compared to
total operating expenses of $3,917,000 for same period in 2008, an increase of
$167,000 for the reasons listed above.
Interest
and miscellaneous income was $2,000 for the third quarter of 2009, as compared
to $32,000 for the same period in 2008, a decrease of $30,000. The decrease in
interest and miscellaneous income was due to lower average cash balances during
2009 versus 2008.
Interest
and other expense was $133,000 for the third quarter of 2009, as compared to
$183,000 in 2008, a decrease of $50,000. The decrease in interest and other
expense was due to MacroChem notes payable that were exchanged and cancelled for
shares of our common stock in connection with our acquisition of MacroChem. The
notes payable were issued by MacroChem in the second quarter of
2008.
Preferred
stock dividends of $471,000 were accrued for the third quarter of 2009 and
$523,000 for 2008, a decrease of $52,000. The decrease is due to preferred
shareholders converting their ownership to common stock. Dividends are paid
semi-annually in either cash or common stock.
Net loss
allocable to common stockholders for the third quarter of 2009, was $4,542,000,
or a $0.37 basic and diluted loss per common share, compared with a loss of
$4,544,000, or a $0.55 basic and diluted loss per common share for the same
period in 2008, a decreased loss of $2,000.
Comparison
of Nine-Months ended September 30, 2009 with Nine-Months ended September 30,
2008
On
February 25, 2009, we closed our acquisition of MacroChem Corporation through
the issuance of an aggregate of approximately 2.5 million shares of our common
stock. Prior to our acquisition of MacroChem, SCO, an investment company, held a
majority of Access’ and MacroChem’s voting stock. Specifically, SCO
owned 53% of the voting stock of Access and 63% of the voting stock of
MacroChem. A non-controlling interest of 37% existed at the merger date of
MacroChem. In addition, certain members of SCO’s management serve on the board
of directors of both Access and MacroChem. Based on these facts, Access and
MacroChem were deemed under the common control of SCO. As the entities were
deemed under common control, the acquisition was recorded using the
pooling-of-interest method and the financial information for all periods
presented reflects the financial statements of the combined companies in
accordance with Financial Accounting Standards Board standards on business
combinations for entities under common control.
Our
licensing revenue for the first nine months of 2009 was $228,000 as compared to
$77,000 for the same period of 2008. We recognize licensing revenue over the
period of the performance obligation under our licensing agreement. We have
received upfront licensing payments from SpePharm Holding, B.V., RHEI, JCOM and
ASK.
We
received royalties of $20,000 in the first nine months of 2009. There were no
royalties in the same nine month period in 2008.
We had
sponsored research and development revenue of $140,000 in the first nine months
of 2008. The research and development agreement was completed in
2008.
Total
research and development spending for the first nine months of 2009 was
$1,830,000, as compared to $22,682,000 for the same period in 2008, a decrease
of $20,852,000. The decrease in expenses was primarily due to:
·
|
the
Somanta acquisition resulted in a one-time non-cash in-process research
and development expense in the first quarter of 2008
($8,879,000);
|
·
|
MacroChem’s
acquisition of Virium on April 18, 2008 which resulted in a one-time
non-cash in-process research and development expense
($9,657,000);
|
31
·
|
research
and development expenses incurred by MacroChem in the first nine months of
2008, which are no longer ongoing
($851,000);
|
·
|
lower
costs for product manufacturing due to the start of a new ProLindac
clinical trial ($1,038,000);
|
·
|
lower
salary and related expenses
($189,000);
|
·
|
lower
scientific consulting expenses
($210,000);
|
·
|
lower
travel expenses ($84,000);
|
·
|
other
net decreases in research spending ($130,000);
and
|
·
|
offset
by higher expenses due to option grants
($186,000).
|
Total
general and administrative expenses were $6,212,000 for the first nine months of
2009, a decrease of $73,000 over 2008 expenses of $6,285,000. The decrease in
spending was due primarily to the following:
·
|
general
and administrative expenses incurred by MacroChem in the first nine months
of 2008 that are no longer ongoing
($2,728,000);
|
·
|
lower
director and officer insurance and lower director fees ($137,000) due to
lower insurance costs and directors taking options instead of fees in
2009;
|
·
|
lower
salary and related expenses
($121,000);
|
·
|
lower
legal and accounting expenses
($93,000);
|
·
|
other
net decreases in general and administrative expenses
($58,000);
|
·
|
offset
by higher shareholder consultant expenses ($2,165,000) to inform investors
about Access and to expand our shareholder
base;
|
·
|
higher
business professional expenses ($737,000);
and
|
·
|
higher
expenses due to the cost of option grants
($162,000).
|
Depreciation
and amortization was $197,000 for the first nine months of 2009 as compared to
$246,000 for the same period in 2008 reflecting a decrease of $49,000. The
decrease in depreciation and amortization was due to assets becoming fully
depreciated.
Total
operating expenses for the first nine months of 2009 were $8,239,000 as compared
to total operating expenses of $29,213,000 for same period in 2008, a decrease
of $20,974,000 for the reasons listed above.
Interest
and miscellaneous income was $18,000 for the first nine months of 2009 as
compared to $173,000 for the same period of 2008, a decrease of $155,000. The
decrease in interest and miscellaneous income was due to lower average cash
balances during 2009 versus 2008.
Interest
and other expense was $395,000 for the first nine months of 2009 as compared to
$512,000 in 2008, a decrease of $117,000. The decrease in interest and other
expense was due to MacroChem notes payable that were exchanged and cancelled for
shares of our common stock in connection with our acquisition of MacroChem. The
notes payable were issued in the second quarter of 2008.
Preferred
stock dividends of $1,434,000 were accrued for the first nine months of 2009 and
$2,873,000 for 2008, a decrease of $1,439,000. The decrease is due to preferred
shareholders converting their ownership to common stock in 2009 and beneficial
conversion feature in 2008 as discussed below, offset by a placement of
preferred stock that closed in February 4, 2008. Dividends are paid
semi-annually in either cash or common stock.
On
February 4, 2008, we issued 272.5 shares of our Series A Preferred Stock. The
shares are convertible into common stock at $3.00 per share. Based on the price
of our common stock on February 4, 2008 a new conversion price was calculated
for the Series A Preferred Stock and was considered to be “in the money” at the
time of the agreement to exchange the convertible notes for preferred stock.
This resulted in a beneficial conversion feature. The preferred stockholder has
the right at any time to convert all or any lesser portion of the Series A
Preferred Stock into common stock. This resulted in an intrinsic value of the
preferred stock. The difference between the implied value of the preferred stock
and the beneficial conversion feature was treated as preferred stock dividends
of $857,000.
32
An
additional $451,000 in preferred stock dividends was recorded in the first
quarter of 2008. The change was due to preferred stock dividends and the
beneficial conversion feature associated with the warrants issued in association
with the sale of preferred stock in November 2007.
Net loss
allocable to common stockholders for the first nine months of 2009 was
$9,802,000, or a $0.86 basic and diluted loss per common share, compared with a
loss of $32,208,000, or a $3.97 basic and diluted loss per common share for the
same period in 2008, a decreased loss of $22,406,000.
The following comparison
is from the Form 10-K at December 31, 2008 and therefore excludes the
acquisition of MacroChem Corporation on February 25, 2009.
Our
licensing revenue for the year ended December 31, 2008 was $118,000 as compared
to $23,000 for 2007, an increase of $95,000. We received upfront licensing
payments from SpePharm, RHEI, Milestone and ASK in 2007 and 2008. We recognize
licensing revenue over the period of the performance obligation under our
licensing agreements.
We have a
sponsored research and development agreement. Our revenue from this agreement
for the year ended December 31, 2008 was $173,000 as compared to $34,000 for
2007, an increase of $139,000. We recognize revenue over the term of the
agreement as services are performed. The agreement started in December 2007 and
was completed in the third quarter of 2008.
Total
research and development spending for the year ended December 31, 2008 was
$12,613,000, as compared to $2,602,000 for 2007, an increase of $10,011,000. The
increase in expenses was primarily due to:
·
|
the
Somanta acquisition resulted in a one-time non-cash in-process research
and development expense in the first quarter of 2008
($8,879,000);
|
·
|
costs
for product manufacturing for a new ProLindac clinical trial expected to
start in early 2009
($548,000);
|
·
|
higher
scientific consulting expenses ($278,000);
|
· | higher salary and related cost due to the hiring of additional scientific staff ($269,000); and |
·
|
other
net increases in research spending
($86,000);
|
·
|
partially
offset by lower clinical development costs ($49,000) due to the winding
down of the ProLindac Phase 2 clinical
trail.
|
Total
general and administrative expenses were $4,340,000 for 2008, an increase of
$264,000 over 2007 expenses of $4,076,000. The increase in spending was due
primarily to the following:
·
|
accrual
of potential liquidated damages under an investor rights agreement with
certain investors ($675,000);
|
·
|
higher
patent expenses and license fees
($453,000);
|
·
|
higher
professional fees ($29,000);
|
·
|
lower
salary and other salary related expenses
($469,000);
|
·
|
lower
salary related expenses due to stock option expenses
($325,000);
|
·
|
lower
investor relations expenses ($148,000);
and
|
·
|
other
net increases in general and administrative expenses
($49,000).
|
Depreciation
and amortization was $253,000 for the year ended December 31, 2008, as
compared to $279,000 for 2007 reflecting a decrease of $26,000. The decrease in
depreciation and amortization was due to certain assets becoming fully
depreciated.
Total
operating expenses for the year ended December 31, 2008, were $17,206,000 as
compared to total operating expenses of $6,957,000 for same period in 2007, an
increase of $10,249,000.
33
Interest
and miscellaneous income was $178,000 for the year ended December 31, 2008, as
compared to $125,000 for 2007, an increase of $53,000. The increase in interest
and miscellaneous income was due to higher average cash balances during 2008
versus 2007.
Interest
and other expense was $478,000 for the year ended December 31, 2008, as compared
to $3,514,000 in 2007, a decrease of $3,036,000. The decrease in interest and
other expense was due to amortization of the discount on certain convertible
notes and the amortization of certain additional notes recognized in 2007. In
addition, the decrease in interest and other expense was due to $9,015,000 of
convertible notes that were outstanding until November 7, 2007, that were not
outstanding during 2008. The convertible notes were exchanged for preferred
stock in November 2007.
Convertible
notes payable of $10,015,000 and accrued interest of $1,090,000 were converted
from debt and accrued interest payable into preferred stock on November 10,
2007. A conversion of a portion of the debt and interest resulted in a loss on
the extinguishment of debt of $11,628,000 for 2007. There was no conversion of
debt or interest in 2008. The same transaction in November 2007 also resulted in
a beneficial conversion feature that was recorded as preferred stock dividends
of $14,648,000.
An
additional $451,000 in preferred stock dividends was recorded in the first
quarter of 2008. The change was due to preferred stock dividends and the
beneficial conversion feature associated with the warrants issued in association
with the sale of preferred stock in November 2007.
On
February 4, 2008, we issued 272.5 shares of our Series A Cumulative Convertible
Preferred Stock. The shares are convertible into common stock at $3.00 per
share. Based on the price of our common stock on February 4, 2008 and the fair
value allocated to the attached warrants for accounting purposes, a new
conversion price was calculated for accounting purposes for the Series A
Cumulative Convertible Preferred Stock and was considered to be “in the money”
at the time of the agreement to exchange the convertible notes for preferred
stock. This resulted in a beneficial conversion feature. The preferred
stockholder has the right at any time to convert all or any lesser portion of
the Series A Cumulative Convertible Preferred Stock into common stock. This
resulted in an intrinsic value of the preferred stock. The difference between
the implied value of the preferred stock and the beneficial conversion feature
was treated as preferred stock dividends of $857,000 for the year ended December
31, 2008.
Preferred
stock dividends of $2,050,000 were accrued for the year ended December 31, 2008
and $260,000 for 2007, an increase of $1,790,000. Preferred stock was first
issued in November 2007. Dividends are paid semi-annually in either cash or
common stock.
We
recognized deferred revenues of $173,000 from discontinued operations in 2007.
There were no discontinued operations recognitions in 2008.
Net loss
allocable to common stockholders for the year ended December 31, 2008, was
$20,573,000, or a $3.51 basic and diluted loss per common share, compared with a
loss of $36,652,000, or a $10.32 basic and diluted loss per common share for
2007, a decreased loss of $16,079,000.
LIQUIDITY
AND CAPITAL RESOURCES
We have
funded our operations primarily through private sales of common stock, preferred
stock, convertible notes and through licensing agreements. Our principal source
of liquidity is cash and cash equivalents. Licensing fees provided some funding
for operations during the quarter ended September 30, 2009. As of September 30,
2009, our cash and cash equivalents were $1,672,000 and our net cash burn rate
for the nine months ended September 30, 2009, was approximately $115,000 per
month. As of September 30, 2009, our working capital deficit was $6,252,000. Our
working capital deficit at September 30, 2009 represented an increase of
$1,639,000 as compared to our working capital deficit as of December 31, 2008 of
$4,613,000. The increase in the working capital deficit at September 30, 2009
reflects an increase in operating expenses which included manufacturing product
scale-up for our new ProLindac trial and MacroChem expenses offset by milestone
payments from our licensing agreements. As of September 30, 2009, we had one
convertible note outstanding in the principal amount of $5.5 million which is
due September 13, 2011.
34
As of
September 30, 2009, the Company did not have enough capital to achieve its
long-term goals. If we raise additional funds by selling equity securities, the
relative equity ownership of our existing investors would be diluted and the new
investors could obtain terms more favorable than previous investors. A failure
to obtain necessary additional capital in the future could jeopardize our
operations and our ability to continue as a going concern.
We have
generally incurred negative cash flows from operations since inception, and have
expended, and expect to continue to expend in the future, substantial funds to
complete our planned product development efforts. Since inception, our expenses
have significantly exceeded revenues, resulting in an accumulated deficit as of
September 30, 2009 of $245,787,000. We expect that our capital resources will be
adequate to fund our current level of operations into the first quarter of 2010.
However, our ability to fund operations over this time could change
significantly depending upon changes to future operational funding obligations
or capital expenditures. As a result, we are required to seek additional
financing sources within the next twelve months. We cannot assure you that we
will ever be able to generate significant product revenue or achieve or sustain
profitability.
In order
to conserve cash for the operations of Access, management, employees and
consultants reduced their monthly stipends. Some consultants also agreed to take
common stock and warrants for their services.
Since our
inception, we have devoted our resources primarily to fund our research and
development programs. We have been unprofitable since inception and to date have
received limited revenues from the sale of products. We cannot assure you that
we will be able to generate sufficient product revenues to attain profitability
on a sustained basis or at all. We expect to incur losses for the next several
years as we continue to invest in product research and development, preclinical
studies, clinical trials and regulatory compliance.
Currently,
one noteholder holding $5.5 million worth of 7.7% convertible notes has amended
their note to a new maturity date, September 13, 2011.
We plan
to expend substantial funds to conduct research and development programs,
preclinical studies and clinical trials of potential products, including
research and development with respect to our acquired and developed technology.
Our future capital requirements and adequacy of available funds will depend on
many factors, including:
·
|
the
successful development and commercialization of ProLindac™, MuGard™ and
our other product candidates;
|
·
|
the
ability to convert, repay or restructure our outstanding convertible notes
and debentures;
|
·
|
the
ability to integrate Somanta Pharmaceuticals, Inc. assets and programs
with ours;
|
·
|
the
ability to establish and maintain collaborative arrangements with
corporate partners for the research, development and commercialization of
products;
|
·
|
continued
scientific progress in our 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;
|
·
|
the
costs involved in conducting clinical
trials;
|
·
|
competing
technological developments;
|
·
|
the
cost of manufacturing and scale-up;
|
35
·
|
the
ability to establish and maintain effective commercialization arrangements
and activities; and
|
·
|
successful
regulatory filings.
|
We plan
to continue our policy of investing any available funds in certificates of
deposit, money market funds, government securities and investment-grade
interest-bearing securities. We do not invest in derivative financial
instruments.
Critical
Accounting Policies and Estimates
The
preparation of our consolidated financial statements in conformity with
accounting principles generally accepted in the United State of America requires
us to make estimates and assumptions that affect the reported amounts of assets
and liabilities, disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amount of revenues and expenses during
the reported period. In applying our accounting principles, we must often make
individual estimates and assumptions regarding expected outcomes or
uncertainties. As you might expect, the actual results or outcomes are often
different than the estimated or assumed amounts. These differences are usually
minor and are included in our consolidated financial statements as soon as they
are known. Our estimates, judgments and assumptions are continually evaluated
based on available information and experience. Because of the use of estimates
inherent in the financial reporting process, actual results could differ from
those estimates.
Asset
Impairment
Our
intangible assets at December 31, 2008 consist primarily of patents
acquired in acquisitions and licenses which were recorded at fair value on the
acquisition date. We perform an impairment test on at least an annual basis or
when indications of impairment exist. At December 31, 2008, Management believes
no impairment of our intangible assets exists.
Based on
an assessment of our accounting policies and underlying judgments and
uncertainties affecting the application of those policies, we believe that our
consolidated financial statements provide a meaningful and fair perspective of
us. We do not suggest that other general factors, such as those discussed
elsewhere in this report, could not adversely impact our consolidated financial
position, results of operations or cash flows. The impairment test involves
judgment on the part of management as to the value of goodwill, licenses and
intangibles.
Revenues
Our
revenues are generated from licensing and research and development agreements.
We recognize revenue in accordance with SEC Staff Accounting Bulletin No. 104
(SAB 104), Revenue
Recognition. License revenue is recognized over the remaining life of the
underlying patent. Research and development revenues are recognized as services
are performed.
Stock
Based Compensation Expense
On
January 1, 2006, we adopted SFAS No. 123 (revised 2004), “Share-Based Payment,” (“SFAS
123(R)”), which requires the measurement and recognition of all share-based
payment awards made to employees and directors including stock options based on
estimated fair values. SFAS 123(R) supersedes the Company’s previous accounting
under Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to
Employees” (“APB 25”), for periods beginning in fiscal year 2006. In
March 2005, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 107 (“SAB 107”) relating to SFAS 123(R). We applied the
provisions of SAB 107 in its adoption of SFAS 123(R).
We
adopted SFAS 123(R) using the modified prospective transition method, which
requires the application of the accounting standard as of January 1, 2006,
the first day of the Company’s 2006 fiscal year. Our consolidated financial
statements for the years ended December 31, 2007 and 2006, reflect the
impact of SFAS 123(R). In accordance with the modified prospective transition
method, our consolidated financial statements for prior periods have not been
restated to include the impact of SFAS 123(R). Stock-based compensation expense
recognized under SFAS 123(R) for the years ended December 31, 2008 and 2007
was approximately $415,000 and $1,048,000, respectively.
36
SFAS
123(R) requires companies to estimate the fair value of share-based payment
awards on the date of grant using an option-pricing model. The value of the
portion of the award that is ultimately expected to vest is recognized as
expense over the requisite service period in the company’s Statement of
Operations. Prior to the adoption of SFAS 123(R), we accounted for stock-based
awards to employees and directors using the intrinsic value method in accordance
with APB No. 25 as allowed under SFAS No. 123, “Accounting for Stock-Based
Compensation” (“SFAS 123”). Under the intrinsic value method, no
stock-based compensation expense for stock option grants was recognized because
the exercise price of our stock options granted to employees and directors
equaled the fair market value of the underlying stock at the date of grant.
There were no restricted stock awards granted in either 2007 or
2008.
Stock-based
compensation expense recognized in the our Statement of Operations for the years
ended December 31, 2007 and 2006 includes compensation expense for share-based
payment awards granted prior to, but not yet vested as of December
31, 2005, based on the grant date fair value estimated in accordance with the
pro forma provisions of SFAS 123 and compensation expense for the share-based
payment awards granted subsequent to December 31, 2005, based on the grant date
fair value estimated in accordance with the provisions of SFAS 123(R).
Stock-based compensation expense recognized in the Company’s Statement of
Operations for the year ended December 31, 2007 and 2006 is based on awards
ultimately expected to vest and has been reduced for estimated forfeitures,
which currently is nil. SFAS 123(R) requires forfeitures to be estimated at the
time of grant and revised, if necessary, in subsequent periods if actual
forfeitures differ from those estimates.
We used
the Black-Scholes option-pricing model (“Black-Scholes”) as our method of
valuation under SFAS 123(R) in fiscal years 2008 and 2007 and a single option
award approach. This fair value is then amortized on a straight-line basis over
the requisite service periods of the awards, which is generally the vesting
period. The fair value of share-based payment awards on the date of grant as
determined by the Black-Scholes model is affected by our stock price as well as
other assumptions. These assumptions include, but are not limited to the
expected stock price volatility over the term of the awards, and actual and
projected employee stock option exercise behaviors.
Accounting
for Uncertain Tax Positions
As of
January 1, 2007, we adopted FASB Interpretation No. 48, Accounting for Uncertainty in Income
Taxes, an Interpretation of FASB Statement No. 109, Accounting for Income Taxes
(“FIN 48”). The adoption did not have a material impact on our
consolidated financial statements or effective tax rate and did not result in
any unrecognized tax benefits. Interest costs and penalties related to income
taxes are classified as interest expense and general and administrative costs,
respectively, in our consolidated financial statements. For the years ended
December 31, 2008 and 2007, we did not recognize any interest or penalty expense
related to income taxes. It is determined not to be reasonably likely for the
amounts of unrecognized tax benefits to significantly increase or decrease
within the next 12 months. We are currently subject to a three year statute of
limitations by major tax jurisdictions. We and our subsidiaries file income tax
returns in the U.S. federal jurisdiction.
Recent
Accounting Pronouncements
In
September 2006, the FASB issued Statement of Financial Accounting Standard
(“SFAS”) No. 157, “Fair Value Measurements” (“SFAS 157”). SFAS 157 defines
fair value, establishes a market-based framework or hierarchy for measuring fair
value, and expands disclosures about fair value measurements. SFAS 157 is
applicable whenever another accounting pronouncement requires or permits assets
and liabilities to be measured at fair value. SFAS 157 does not expand or
require any new fair value measures; however the application of this statement
may change current practice. The requirements of SFAS 157 are first effective
for our fiscal year beginning January 1, 2008. However, in
February 2008 the FASB decided that an entity need not apply this standard
to nonfinancial assets and liabilities that are recognized or disclosed at fair
value in the financial statements on a nonrecurring basis until the subsequent
year. Accordingly, our adoption of this standard on January 1, 2008 is
limited to financial assets and liabilities. We do not believe the initial
adoption of SFAS 157 will have a material effect on our financial condition or
results of operations. However, we are still in the process of evaluating this
standard with respect to its effect on nonfinancial assets and liabilities and
therefore have not yet determined the impact that it will have on our financial
statements upon full adoption.
37
In
December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business
Combinations” (“SFAS 141(R)”) and
SFAS No. 160,
“Noncontrolling Interests in Consolidated Financial Statements—an amendment of ARB
No. 51” (“SFAS 160”). SFAS 141(R) significantly changes current practices
regarding business combinations. Among the more significant changes, SFAS 141(R)
expands the definition of a business and a business combination; requires the
acquirer to recognize the assets acquired, liabilities assumed and
noncontrolling interests (including goodwill), measured at fair value at the
acquisition date; requires acquisition-related expenses and restructuring costs
to be recognized separately from the business combination; requires assets
acquired and liabilities assumed from contractual and noncontractual
contingencies to be recognized at their acquisition-date fair values with
subsequent changes recognized in earnings; and requires in-process research and
development to be capitalized at fair value as an indefinite-lived intangible
asset. SFAS 160 will change the accounting and reporting for minority interests,
reporting them as equity separate from the parent entity’s equity, as well as
requiring expanded disclosures. SFAS 141(R) and SFAS 160 are effective for
financial statements issued for fiscal years beginning after December 15,
2008.
Off-Balance
Sheet Transactions
None
38
DESCRIPTION
OF BUSINESS
Business
Access
Pharmaceuticals, Inc. (together with our subsidiaries, “We”, “Access” or the
“Company”) is a Delaware corporation. We are an emerging biopharmaceutical
company focused on developing a range of pharmaceutical products primarily based
upon our nanopolymer chemistry technologies and other drug delivery
technologies. We currently have one approved product, two products at Phase 2 of
clinical development and several products in pre-clinical development. Low
priority clinical and pre-clinical programs will be dependent on our ability to
enter into collaborative arrangements. Certain of our development programs are
dependent upon our ability to secure approved funding for such
projects. Our description of our business, including our list of
products and patents, takes into consideration our acquisition of MacroChem
Corporation which closed February 25, 2009 and Somanta Pharmaceuticals, Inc.
which closed on January 4, 2008.
·
|
MuGard™
is our approved product for the management of oral mucositis, a frequent
side-effect of cancer therapy for which there is no established treatment.
The market for mucositis treatment is estimated to be in excess of $1
billion world-wide. MuGard, a proprietary nanopolymer formulation, has
received marketing allowance in the U.S. from the Food & Drug
Administration (“FDA”). MuGard has been launched in Germany, Italy, UK,
Greece and the Nordic countries by our European commercial partner,
SpePharm.
|
·
|
Our
lead development candidate for the treatment of cancer is ProLindac™, a
nanopolymer DACH-platinum prodrug. We recently completed a Phase 2
clinical trial on ProLindac in the EU in patients with ovarian cancer. The
clinical study had positive safety and efficacy results. We are currently
planning a number of combination trials, looking at combining ProLindac
with other cancer agents such as taxol and gemcitabine, in solid tumor
indications including colorectal and ovarian. The DACH-platinum
incorporated in ProLindac is the same active moiety as that in oxaliplatin
(Eloxatin; Sanofi-Aventis), which has sales in excess of $2.0
billion.
|
·
|
Thiarabine,
or 4-thio Ara-C, is a next generation nucleoside analog licensed from
Southern Research Institute. Previously named SR9025 and OSI-7836, the
compound has been in two Phase 1/2 solid tumor human clinical trials and
was shown to have anti-tumor activity. We are working with leukemia and
lymphoma specialists at MD Anderson Cancer Center in Houston and intend to
initiate additional Phase 2 clinical trials in adult AML, ALL and other
indications.
|
·
|
Cobalamin™
is our proprietary preclinical nanopolymer oral drug delivery technology
based on the natural vitamin B12 oral uptake mechanism. We are currently
developing a product for the oral delivery of insulin, and are conducting
sponsored development of a product for oral delivery of human growth
hormone.
|
·
|
Cobalamin-mediated
cancer targeted delivery is a preclinical technology which makes use of
the fact that cell surface receptors for vitamins such as B12 are often
overexpressed by cancer cells.
|
39
Access
Drug Portfolio
Compound
|
Originator
|
Technology
|
Indication
|
Clinical
Stage (1)
|
||||
MuGard™
|
Access
|
Mucoadhesive
liquid
|
Mucositis
|
(510k)
Marketing clearance received
|
||||
ProLindacTM
(Polymer
Platinate,
AP5346) (2)
|
Access
/
Univ
of
London
|
Synthetic
polymer
|
Cancer
|
Phase
2
|
||||
Thiarabine
(4-thio Ara-C) (3)
|
Southern
Research
Institute
|
Small
molecule
|
Cancer
|
Phase
1/2
|
||||
Oral
Insulin
|
Access
|
Cobalamin
|
Diabetes
|
Pre-clinical
|
||||
Oral
Delivery System
|
Access
|
Cobalamin
|
Various
|
Pre-clinical
|
||||
CobalaminTM-Targeted
Therapeutics
|
Access
|
Cobalamin
|
Anti-tumor
|
Pre-clinical
|
(1)
|
For
more information, see “Government Regulation” for description of clinical
stages.
|
(2)
|
Licensed
from the School of Pharmacy, The University of
London.
|
(3)
|
Licensed
from Southern Research Institute of Birmingham,
Alabama.
|
Approved
Product
MuGard™ - Mucoadhesive
Liquid Technology (MLT)
Mucositis
is a debilitating condition involving extensive inflammation of mouth tissue
that affects annually an estimated 400,000 cancer patients in the United States
undergoing chemotherapy and radiation treatment. We believe that any treatment
that would accelerate healing and/or diminish the rate of appearance of
mucositis would have a significant beneficial impact on the quality of life of
these patients and may allow for more aggressive chemotherapy. We believe the
potential addressable market for a mucositis product could be over $1 billion
world-wide.
Access’
MuGard is a viscous polymer solution which provides a coating for the oral
cavity. MuGard is dispensed in a ready to use form. A multi-site, randomized
clinical study was performed in the United States testing MuGard and MuGard
containing an anti-inflammatory drug to determine the effect of these products
on the prevention and treatment of mucositis. The data from this trial indicated
that the patients using MuGard displayed a lower incidence of mucositis than is
typically seen in the studied population with no additional benefit from the
drug.
The data
were retrospectively compared with two historical patient databases to evaluate
the potential advantages MuGard may provide in the prevention, treatment and
management of mucositis. The patient evaluation was conducted using the oral
mucositis assessment scale (OMAS), which qualifies the disease severity on a
scale of 0-5. Key highlights of the comparison with the historical patient
databases are as follows:
•
the average severity of the disease was reduced by approximately
40%;
•
the maximum intensity of the mucositis was approximately 35% lower;
and
•
the median peak intensity was approximately 50% lower.
These
data confirmed the fact that MuGard could represent an important advancement in
the management and prevention of mucositis. On December 13, 2006, we
announced that we had received marketing clearance for MuGard from FDA for the
indication of the management of oral wounds including mucositis, aphthous ulcers
and traumatic ulcers.
In August
2007, we signed a definitive licensing agreement with SpePharm Holding, B.V.
under which SpePharm will market MuGard in Europe. MuGard
sales started in Europe in the second quarter of 2009. In
January 2008, we signed a definitive licensing agreement with RHEI
Pharmaceuticals, Inc. under which RHEI will market MuGard in China and other
Southeast Asian countries.
40
On July
29, 2009, we took control of the North American rights to MuGard from a previous
partner which had not received required funding to launch the product in the
U.S. In addition, we announced that we are evaluating strategic
options for the commercialization of MuGard in North America. Also on July 29,
2009, we announced that Mr. Frank Jacobucci, formerly President & CEO of
Milestone Biosciences, has joined Access as a consultant, and will assist with
ongoing reimbursement, manufacturing and commercial launch activities at Access,
while discussions with potential licensee and co-promotion partners is
ongoing.
On
September 11, 2009, we announced the appointment of Accupac, Inc. as our U.S.
manufacturer for MuGard.
Products
in Development
ProLindac™ (Polymer
Platinate, AP5346) DACH Platinum
Chemotherapy,
surgery and radiation are the major components in the clinical management of
cancer patients. Chemotherapy serves as the primary therapy for some solid
tumors and metastases and is increasingly used as an adjunct to radiation and
surgery to improve their effectiveness. For chemotherapeutic agents to be
effective in treating cancer patients, however, the agent must reach the target
cells in effective quantities with minimal toxicity in normal
tissues.
The
current optimal strategy for chemotherapy involves exposing patients to the most
intensive cytotoxic regimens they can tolerate and clinicians attempt to design
a combination of chemotherapeutic drugs, a dosing schedule and a method of
administration to increase the probability that cancerous cells will be
destroyed while minimizing the harm to healthy cells. Notwithstanding
clinicians’ efforts, most current chemotherapeutic drugs have significant
shortcomings that limit the efficacy of chemotherapy. For example, certain
cancers are inherently unresponsive to chemotherapeutic agents. Alternatively,
other cancers may initially respond, but subgroups of cancer cells acquire
resistance to the drug during the course of therapy and the resistant cells may
survive and cause a relapse. Serious toxicity, including bone marrow
suppression, renal toxicity, neuropathy, or irreversible cardiotoxicity, are
some of the limitations of current anti-cancer drugs that can prevent their
administration in curative doses.
Oxaliplatin,
a compound of DACH platinum, is a chemotherapeutic which was initially approved
in Europe in 1999 for the treatment of colorectal cancer. It is now also being
marketed worldwide and generated sales in excess of $2 billion in 2008.
Carboplatin and Cisplatin, two other approved platinum chemotherapy drugs, are
not indicated for the treatment of metastatic colorectal cancer. Oxaliplatin, in
combination with 5-flurouracil and folinic acid (known as the FOLFOX regime) is
indicated for the first-line treatment of metastatic colorectal cancer in Europe
and the U.S. The colorectal cancer market is a significant opportunity as there
are over 940,000 reported new cases annually worldwide, increasing at a rate of
approximately three percent per year, and 500,000 deaths.
Currently,
platinum compounds are one of the largest selling categories of chemotherapeutic
agents, with annual sales in excess of $3.0 billion in 2006. As is the case with
all chemotherapeutic drugs, the use of such compounds is associated with serious
systemic side effects. The drug development goal therefore is to enhance
delivery of the active drug to the tumor and minimize the amount of active drug
affecting normal organs in the body.
Utilizing a biocompatible water-soluble polymer
(HPMA) as a drug carrier, Access’ drug candidate ProLindac, links DACH platinum
to a polymer in a manner which permits the selective release of active drug to
the tumor by several mechanisms. The main release mechanism takes advantage of
the differential pH in tumor tissue compared to healthy tissue. The polymer also
capitalizes on the biological differences in the permeability of blood vessels
at tumor sites versus normal tissue. In this way, tumor selective delivery and
platinum release is achieved. The ability of ProLindac to inhibit tumor growth
has been evaluated in more than ten preclinical models. Compared with the
marketed product oxaliplatin, ProLindac was superior, and in several cases
markedly superior in most of these models. Preclinical studies of the delivery
of platinum to tumors in an animal model have shown that, compared with
oxaliplatin at equitoxic doses, ProLindac delivers in excess of 16 times more
platinum to the tumor. An analysis of tumor DNA, which is the main target for
anti-cancer platinum agents, has shown that ProLindac delivers
approximately 14 times more platinum to tumor DNA than oxaliplatin. Results from
preclinical efficacy studies conducted in
the B16 and other tumor models have also shown
that ProLindac is superior to oxaliplatin in inhibiting the growth of tumors. An
extensive preclinical package has been developed supporting the development of
ProLindac.
41
In 2005,
we completed a Phase 1 multi-center clinical study conducted in Europe, which
enrolled 26 patients. The study was reported in a journal publication, Cancer
Chemotherapy and Pharmacology, 60(4): 523-533 in 2007. The European trial
was designed to identify the maximum tolerated dose, dose limiting toxicities,
the pharmacokinetics of the platinum in plasma and the possible anti-tumor
activity of ProLindac. The open-label, non-randomized, dose-escalation Phase 1
study was performed at two European centers. ProLindac was administered as an
intravenous infusion over one hour, once a week on days 1, 8 and 15 of each
28-day cycle to patients with solid progressive tumors. We obtained results in
26 patients with a broad cross-section of tumor types, with doses ranging from
80-1,280 mg Pt/m2.
Of the 26
patients, 10 were not evaluable for tumor response, principally due to
withdrawal from the study prior to completing the required number of cycles. Of
the 16 evaluable patients, 2 demonstrated a partial response, 1 experienced a
partial response based on a biomarker and 4 experienced stable disease. One of
the patients who attained a partial response had a melanoma with lung
metastasis; a CT scan revealed a tumor decrease of greater than 50%. The other
patient who responded had ovarian cancer; she had a reduction in lymph node
metastasis and remission of a liver metastasis. The patient who experienced a
partial response based on a biomarker was an ovarian cancer patient for whom
Ca125 levels returned to normal. Also of note, a patient with cisplatin
resistant cervical cancer showed a short lasting significant reduction in lung
metastasis after 3 doses. However, due to toxicity, the patient could not be
retreated to determine whether the partial response could be
maintained.
Enrollment
in a Phase 2 clinical trial of ProLindac was completed late in 2008 in ovarian
cancer patients who have relapsed after first line platinum therapy and second
line therapies. The primary aim of the study was to determine the response rate
of ProLindac monotherapy in this patient population. The response rates for
other platinum compounds in this indication are reported, and were used for
comparison. Patients were dosed either once every 2 weeks or once every three
weeks. As the Phase 1 study involved weekly dosing, the initial phase of the
ovarian cancer monotherapy study involved some dose escalation to determine
recommended doses using these dosing regimens.
This 26
patient Phase 2 study explored 3 different dose levels and 2 dosing regimens of
ProLindac as a monotherapy treatment for advanced ovarian cancer, to provide
data on the monotherapy anticancer activity and safety of ProLindac. Of patients
eligible for evaluation according to standard RECIST criteria,
clinically-meaningful disease stabilization was achieved in 42% of all patients,
and 66% of all patients in the higher dose groups. Sustained and significant
reductions in Ca125, the established specific serum marker for ovarian cancer,
were also observed in several patients.
We reported positive safety and efficacy
results from this Phase 2 monotherapy clinical study of ProLindacTM in late-stage, heavily
pretreated ovarian cancer patients. No patient in any dose group exhibited any
signs of acute neurotoxicity, which is a major adverse side-effect of the
approved DACH platinum, Eloxatin, and ProLindac was well tolerated overall. The
maximum tolerated dose of ProLindac was established as well as the recommended
dose levels for future combination studies.
ProLindac
was well tolerated in an absolute sense and relative to commercially-available
platinum therapies. We saw significant DACH platinum activity and efficacy in
patients at the highest dose levels which is very encouraging given that this
study involved monotherapy in a heavily pretreated patient population that
typically only respond to aggressive drug combinations. The DACH platinum
activity level seen benchmarked favorably with published studies of monotherapy
oxaliplatin in similar but less heavily pre-treated patient
populations.
42
On August
3, 2009, we announced that we commenced a new clinical study of ProLindac in
France. The study will examine dose levels and regimens of ProLindac monotherapy
in cancer patients, provide additional data to support design of combinations
studies, and extend the safety database. Two ovarian cancer patients have been
enrolled in the study to date, and it is anticipated 6 to 12 patients will be
enrolled this year in advance of enrolling patients in trial evaluating
ProLindac in combination with other chemotherapies.
We
previously submitted an IND application to the US Food and Drug Administration,
and received clearance from the agency to proceed with a Phase 1 clinical study
of ProLindac in combination with fluorouracil and leucovorin. The study is
designed to evaluate the safety of ProLindac in combination with two standard
drugs used to treat colorectal cancer and to establish a safe dose for Phase 2
clinical studies of this combination in colorectal cancer. We are
currently evaluating various options for combination trials, to be conducted
either within the US or in other countries. We are looking at combining
ProLindac with other cancer agents, such as taxol and gemcitabine, in multiple
solid tumor indications including colorectal and ovarian.
Thiarabine (4-thio
Ara-C)
Our
product candidate Thiarabine (SR-9025 or
4'-thio-beta-D-arabinofuranosylcytosine) is a new generation nucleoside analogue
which was invented by Southern Research Institute of Birmingham, Alabama. This
compound is within a certain class of anti-cancer drugs generally characterized
as cytotoxic agents with proven success in certain blood-borne
cancers.
Thiarabine
exhibited significant activity, including regressions or cures, in six tested
leukemia or lymphoma cell lines. The compound produced better activity than
ara-C or a fatty acid-modified ara-C (depot) analog in four of six tested
models. Thiarabine also performed as well or better than clofarabine and
gemcitabine in each of the models.
Unlike
ara-C, thiarabine was found to be active in a wide variety of solid tumor
xenograft models (14 different cell lines), including colorectal, lung, renal,
prostate, breast and pancreatic tumors, mainly via intraperitoneal
administration (one model was done iv). Thiarabine produced regressions or
tumor-free survivors in about half of the models and exhibited better activity
than gemcitabine or clofarabine in many models. Thiarabine activity was also
better than that of paclitaxel or cisplatin in certain lung models. An increase
in regression or cure rate over either compound alone was observed with
combinations of thiarabine and cisplatin in lung tumors, thiarabine and
irinotecan or clofarabine in colorectal tumors, and thiarabine plus clofarabine
in a leukemia model.
Two phase 1 studies were conducted of thiarabine monotherapy in patients
with solid tumors.
In the first phase 1 study, 26 patients with
incurable advanced and/or metastatic solid tumors were enrolled. The protocol
involved dose escalation, starting at 100 mg/m2 iv over 30 minutes on days 1 and
8, every three weeks. Patients were dosed at 200, 400, 500, and 600 mg/m2.
Out of 21 evaluable patients, 9 experienced
stable disease (median duration 4.3 months, range 1.8-6.4 months).
Dose-limiting toxicities (DLTs) were observed
at 400-600 mg/m2. Unlike previous observations with gemcitabine and ara-C (where
the DLT is myelosupression; leucopenia and thrombocytopenia), there were no
grade four toxicities and no hematological toxicities other than reversible,
lymphopenia. Investigators concluded that the (Grade 3) dose-limiting toxicities
were fatigue, rash, fever, seizure and lymphopenia.
A second solid tumor phase 1 trial was carried
out to explore other schedules. The schedules were 200 mg/m2 via 60-minute IV
infusion every 21 days, 5-minute bolus on same schedule, and 5-minute bolus
weekly for 4 weeks starting with a dose of 100 mg/m2. Of the 27 evaluable
patients, 7 patients (bladder cancer and mesothelioma) achieved disease
stabilization (median 3.7 months, range 1.9-5.4). The main toxicity was fatigue,
which appeared to be schedule independent.
43
We
believe the results seen for thiarabine in leukemia and lymphoma preclinical
models and the lymphopenia observed in clinical studies provides a strong
rationale for further investigation of thiarabine in leukemia and lymphoma
patients. Access plans to initiate further thiarabine clinical studies in at
least one of these patient populations subject to funding or
partnering.
Drug
Development Strategy
With the
acquisition of Somanta Ltd. in 2008 and MacroChem Corporation in 2009, Access
has a rich pipeline of products and product candidates ranging from preclinical
development candidates to one approved product. To maximize return on this
portfolio, we have elected to sell the rights to some of the products so that we
can focus our efforts on the development of the remaining products. Products
potentially being sold include Pexiganan, EcoNail and Phenylbutyrate. Products
and technologies that we plan to develop in-house and with
collaborators are MuGard, ProLindac, Thiarabine andCobalamin.
A part of
our integrated drug development strategy is to form alliances with centers of
excellence in order to obtain alternative lead compounds while minimizing the
overall cost of research. The Company does not spend significant resources on
fundamental biological research but rather focuses on its chemistry expertise
and clinical development. For example, certain of our polymer platinate
technology has resulted in part from a research collaboration with The School of
Pharmacy, University of London.
Our
strategy is to focus on our polymer therapeutic program for the treatment of
cancer while continuing to develop technologies such as Cobalamin-mediated oral
drug delivery and Cobalamin-mediated tumor targeting which could provide us with
a revenue stream in the short term through commercialization or outlicensing to
fund our longer-term polymer and oncology drug development programs such
as Thiarabine. To reduce financial risk and financing requirements,
we are directing our resources to the preclinical and early clinical phases of
development. Where the size of the necessary clinical studies and cost
associated with the later clinical development phases are significant, we plan
to co-develop with or to outlicense to marketing partners our therapeutic
product candidates. By forming strategic alliances with pharmaceutical and/or
biotech companies, we believe that our technology can be more rapidly developed
and successfully introduced into the marketplace.
We will
continue to evaluate the most cost-effective methods to advance our programs.
We plan to contract certain research and development, manufacturing
and manufacturing scaleup, certain preclinical testing and product production to
research organizations, contract manufacturers and strategic partners. As
appropriate to achieve cost savings and accelerate our development programs, we
plan to expand our internal core capabilities and infrastructure in the areas of
chemistry, formulation, analytical methods development, clinical development,
biology and project management to maximize product opportunities in a timely
manner.
Process
We
generally begin the product development effort by screening and formulating
potential product candidates, selecting an optimal active component, developing
a formulation, 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 our technology. We
have a limited core internal development capability with significant experience
in developing these formulations, but also depend upon the skills and expertise
of our contractors.
Once the
product candidate has been successfully screened in pilot testing, our
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 our consultants. The
initial Phase 1 and Phase 2 studies are conducted by institutions and
investigators supervised and monitored by our employees and contract research
organizations. We do not plan to have an extensive clinical development
organization as we plan to have the advance phases of this process conducted by
a development partner. Should we conduct Phase 3 clinical studies we expect to
engage a contract research organization to perform this work.
44
We
contract with third party contract research organizations (CROs) to complete our
large clinical trials and for data management of all of our clinical trials.
Currently, we are preparing for two Phase 2 ProLindac trials to be completed by
our licensees in China and Korea. Our licensees are funding these trials. We are
also conducting an additional Phase 2 clinical study in France. Our
licensees for MuGard are planning additional clinical studies to strengthen
marketing claims
With all
of our product development candidates, we cannot assure you 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. We
cannot assure you that any of these projects will be successfully completed or
that regulatory approval of any product will be obtained.
We
expended approximately $12,613,000 and $2,602,000 on research and development
during the years 2008 and 2007, respectively.
Scientific
Background
Access
possesses a broad range of technologies and intellectual property in the areas
of drug delivery and oncology. Our core technologies rely on the use of
nanopolymers for use in the management of oral conditions such as mucositis, and
in drug delivery. In addition, we have small molecule and monoclonal antibody
programs which also embody the principals of drug delivery and drug
targeting.
We
believe the ultimate criteria for effective drug delivery is to control and
optimize the localized release of the drug at the target site and rapidly clear
the non-targeted fraction. Conventional drug delivery systems such as controlled
release, sustained release, transdermal systems and others are designed for
delivering active product into the systemic circulation over time 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.
We
believe our drug delivery technologies are differentiated from conventional drug
delivery systems in that they seek to apply a disease-specific approach to
improve the drug delivery process with formulations to significantly enhance the
therapeutic efficacy and reduce toxicity of a broad spectrum of
products.
Core
Drug Delivery Technology Platforms and Technologies
Our
current drug delivery technology platforms for use in cancer chemotherapy
are:
·
|
Synthetic
Polymer Targeted Drug Delivery
Technology;
|
·
|
Cobalamin™-Mediated
Oral Delivery Technology; and
|
Cobalamin™-Mediated Targeted Delivery Technology |
Each
of these platforms is discussed below:
45
Synthetic
Polymer Targeted Drug Delivery Technology
In
collaboration with The School of Pharmacy, University of London, we have
developed a synthetic polymer technology, which utilizes a
hydroxypropylmethacrylamide (HPMA) polymer with platinum, designed to exploit
enhanced permeability and retention, or EPR, at tumor sites to selectively
accumulate drug and control drug release. This technology is employed in our
lead clinical program, ProLindac. Many solid tumors possess vasculature that is
hyperpermeable, or leaky, to macromolecules. In addition to this enhanced
permeability, tumors usually lack effective lymphatic and/or capillary drainage.
Consequently, tumors selectively accumulate circulating macromolecules,
including, for example, up to 10% of an intravenous dose in mice. This effect
has been termed EPR, and is thought to constitute the mechanism of action of
styrene-maleic/anhydride-neocarzinostatin, or SMANCS, which is in regular
clinical use in Japan for the treatment of hepatoma. These polymers take
advantage of endothelial permeability as the drug carrying polymers are trapped
in tumors and then taken up by tumor cells. Linkages between the polymer and
drug can be designed to be cleaved extracellularly or intracellularly. Utilizing
the principles of prodrugs, the drug is essentially inert while attached to the
polymer, but is released inside the tumor mass while polymer/drug not delivered
to tumors is cleared from the body via the kidneys. For example, ProLindac is
attached to a pH-sensitive linker which releases the platinum cytotoxic agent
much faster in the low pH environments found typically outside of hypoxic tumor
cells and within specific compartments inside of tumor cells. 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, including, for example, platinum.
Cobalamin™-Mediated
Oral Delivery Technology
Oral
delivery is the preferred method of administration of drugs where either
long-term or daily use (or both) is required. However many therapeutics,
including peptide and protein drugs, are poorly absorbed when given orally. With
more and more peptide and protein based biopharmaceuticals entering the market,
there is an increasing need to develop an effective oral delivery system for
them, as well as for long-standing injected drugs such as insulin.
The
difficulty in administering proteins orally is their susceptibility to
degradation by digestive enzymes, their inability to cross the intestinal wall
and their rapid excretion by the body. Over the years, many different
methodologies for making protein drugs available orally have been attempted.
Most of the oral protein delivery technologies involve protecting the protein
degradation in the intestine. More recently, strategies have been developed that
involve coadministering the protein or peptide with permeation enhancers, which
assist in passive transit through the gut wall or by attaching the protein or
peptide to a molecule that transports the protein across the gut wall. However,
the field of oral drug delivery of proteins and peptides has yet to achieve
successful commercialization of a product (although positive results have been
achieved in early clinical trials for some products under
development).
Many
pharmaceutically active compounds such as proteins, peptides and cytotoxic
agents cannot be administered orally due to their instability in the
gastrointestinal tract or their inability to be absorbed and transferred to the
bloodstream. A technology that would allow many of these actives to be taken
orally would greatly enhance their acceptance and value. Several technologies
for the protection of sensitive actives in the gastro-intestinal tract and/or
enhancement of gastro-intestinal absorption have been explored and many have
failed.
Our
proprietary technology for oral drug delivery utilizes the body’s natural
vitamin B12 (VB12) transport system in the gut. The absorption of VB12 in the
intestine occurs by way of a receptor-mediated endocytosis. Initially, VB12
binds to intrinsic factor (IF) in the small intestine, and the VB12-IF complex
then binds to the IF receptor on the surface of the intestine. Receptor-mediated
endocytosis then allows the transport of VB12 across the gut wall. After binding
to another VB12-binding protein, transcobalamin II (TcII), VB12 is transferred
to the bloodstream.
Our
scientists discovered that Cobalamin (analogs of VB12) will still be transported
by this process even when drugs, macromolecules, or nanoparticles are coupled to
the Cobalamin. Thus Cobalamin serves as a carrier to transfer these
materials from the intestinal lumen to the bloodstream. For drugs and
macromolecules that are stable in the gastro-intestinal tract, the drug or
macromolecule can be coupled directly (or via a linker) to Cobalamin. If the
capacity of the Cobalamin transport system is inadequate to provide an effective
blood concentration of the active, transport can be amplified by attaching many
molecules of the drug to a polymer, to which Cobalamin is also attached. A
further option, especially for drugs and macromolecules that are unstable in the
intestine, is to formulate the drug in a nanoparticle which is then coated with
Cobalamin. Once in the bloodstream, the active is released by diffusion and/or
erosion of the nanoparticle. Utilization of nanoparticles also serves to
‘amplify’ delivery by transporting many molecules at one time due to the
inherently large nanoparticle volume compared with the size of the
drug.
46
Our
proprietary position in this technology involves the conjugation of Cobalamin
and/or folic acid and/or biotin (or their analogs) to a polymer to which is also
attached the drug to be delivered, or attached to a nanoparticle in which the
drug is incorporated. Since many molecules of the drug are attached to a single
polymer strand, or are incorporated in a single nanoparticle, disease targeting
is amplified compared to simpler conjugates involving one molecule of the
vitamin with one drug molecule. However, in situations when such a simple
conjugate might be preferred, our patents also encompass these vitamin-drug
conjugates.
Cobalamin™-Mediated
Targeted Delivery Technology
Most
drugs are effective only when they reach a certain minimum concentration in the
region of disease, yet are well distributed throughout the body contributing to
undesirable side effects. It is therefore advantageous to alter the natural
biodistribution of a drug to have it more localized where it is needed. Our
Cobalamin-mediated targeted delivery technology utilizes the fact that in many
diseases where there is rapid growth and/or cell division, the demand for
certain vitamins increases. By coupling the drug to a vitamin analog, the analog
serves as a carrier to increase the amount of drug at the disease site relative
to its normal distribution.
One
application of this technology is in tumor targeting. The use of cytotoxic drugs
is one of the most common methods for treating a variety of malignancies
including solid and non-solid tumors. The drawbacks of chemotherapeutic
treatments, which include tumor resistance, cancer relapse and toxicity from
severe damage to healthy tissues, has fuelled a scientific quest for novel
treatments that are specifically targeted to malignant cells thus reducing
damage to collateral tissues.
The
design of targeted therapies involves exploitation of the difference between the
structure and function of normal cells compared with malignant cells.
Differences include the increased levels of surface receptors on cancer cells,
which makes them more sensitive to treatment regimes that target these cell
surface receptors and differences in blood supply within and around tumor cells
compared with normal cells.
Two basic
types of targeting approaches are utilized, passive tumor targeting and active
tumor targeting.
▪
|
passive
tumor targeting involves transporting anti-cancer agents through the
bloodstream to tumor cells using a “carrier” molecule. Many different
carrier molecules, which can take a variety of forms (micelles,
nanoparticles, liposomes and polymers), are being investigated as each
provides advantages such as specificity and protection of the anti-cancer
drug from degradation due to their structure, size (molecular weights) and
particular interactions with tumor cells. Our polymer platinate program is
a passive tumor targeting
technology.
|
▪
|
active
tumor targeting involves attaching an additional fragment to the
anticancer drug and the carrier molecule to create a new “targeted” agent
that will actively seek a complementary surface receptor to which it binds
(preferentially located on the exterior of the tumor cells). The theory is
that the targeting of the anti-cancer agent through active means to the
affected cells should allow more of the anti-cancer drug to enter the
tumor cell, thus amplifying the response to the treatment and reducing the
toxic effect on bystander, normal
tissue.
|
Examples
of active targeting fragments include antibodies, growth factors and vitamins.
Our scientists have specifically focused on using Cobalamin compounds (analogs
of vitamin B12), but we have also used and have certain intellectual property
protection for the use of folate and biotin which may more
effectively target anti-cancer drugs to certain solid tumors.
47
It has
been known for some time that vitamin B12 and folic acid are essential for tumor
growth, and as a result, receptors for these vitamins are up-regulated in
certain tumors. Vitamin B12 receptor over-expression occurs in breast, lung,
leukemic cells, lymphoma cells, bone, thyroid, colon, prostate and brain cancers
and some other tumor lines, while folate receptor over-expression occurs in
breast, lung, ovarian, endometrial, renal, colon, brain and cancers of myeloid
hemotopoietic cells and methotrexate-sensitive tumors.
Other
Key Developments
On
January 7, 2010, we announced that we had completed enrollment and evaluation of
the last of the last additional cohort of patients in the ongoing clinical study
of ProLindac as a monotherapy in ovarian cancer patients who have received at
least two prior platinum based treatment regimens. The additional cohort of 8
patients received the ProLindac batch made by an improved scalable process,
which will be used on a larger scale for future clinical and commercial
supplies. None of the 8 patients experienced any acute significant adverse
events, while treatment had the same beneficial pharmacodynamic effect seen in
the first 26 patients treated with the former ProLindac production batch;
clinically relevant sustained biomarker decrease (responses by Rustin's
criteria) and disease stabilization were seen in several patients. The overall
results of our Phase I/II exploratory single agent ProLindac study have helped
define multiple safe dosing regimens, while the level of patient cohort accrued
in the study antitumor activity was as expected in this very heavily pretreated
patient cohort.
Based on
these results, we are initiating a study of ProLindac combined with Paclitaxel
in second line treatment of platinum pretreated advanced ovarian cancer
patients. This study is the first to look at the safety and efficacy of
ProLindac in combination with other oncology agents. The efficacy of Diamino
Cyclohexane Platinum, the active principle in ProLindac, is evidenced mainly
through their synergic association with multiple anticancer agents. The choice
of Paclitaxel and ovarian cancer as the potential first NDA strategic choice to
be explored is based on the results of the Paclitaxel/Oxaliplatin combination in
the same clinical setting. This multi-center study of up to 25 evaluable
patients will be conducted in Europe. The primary efficacy endpoint goal is to
achieve a minimum of 63% response rate in the total of 25 evaluable patients the
study is planning to accrue on a two step design. We anticipate that ProLindac
in combination with Paclitaxel will be well tolerated in this patient population
and anticipate significant activity based on our current experience with
ProLindac in heavily pretreated patients.
On
December 15, 2009, we announced the appointment of Fran Jacobucci to the
position of Vice President, Sales and Marketing. Mr. Jacobucci will be primarily
responsible for our marketing launch of MuGard.
On
October 6, 2009, we announced that we signed an agreement with iMedicor for the
North American launch of MuGard. iMedicor’s highly targeted Alerts System
application will introduce MuGard by the end of the year to the 216,000 selected
physicians in the Unites States.
On
September 11, 2009, we announced the appointment of Accupac, Inc. as our U.S.
manufacturer for MuGard.
On August
3, 2009, we announced that we commenced a new clinical study of ProLindac in
France. The study will examine dose levels and regimens of ProLindac monotherapy
in cancer patients, provide additional data to support design of combinations
studies, and extend the safety database. Two ovarian cancer patients have been
enrolled in the study to date, and it is anticipated 6 to 12 patients will be
enrolled this year in advance of enrolling patients in trial evaluating
ProLindac in combination with other chemotherapies.
On July
29, 2009, we announced that we are evaluating strategic options for the
commercialization of MuGard in North America. Frank Jacobucci, formerly
President & CEO of Milestone Biosciences, has joined Access as a consultant,
and will assist with ongoing reimbursement, manufacturing and commercial launch
activities at Access, while discussions with potential licensee and co-promotion
partners is ongoing.
On July
23, 2009, we announced that our European partner, SpePharm, is collecting data
from a post approval study of MuGard in head and neck cancer patients undergoing
radiation treatment in the UK showing prevention of oral mucositis. In a
multi-center study expected to enroll a total of 280 patients, patients are
provided with seven weeks of MuGard therapy, and begin using MuGard one week
prior to radiation treatment and then throughout the subsequent six weeks of
planned therapy. The first 140 patients being treated in this assessment study
have been enrolled and treated, and as of the time of the update, none of these
patients have experienced any oral mucositis.
On July
7, 2009, we announced new preclinical data demonstrating that thiarabine shows
remarkable efficacy in the prevention and treatment of rheumatoid arthritis
(RA). In a well-established animal model for RA, an exceptional restoration of
joint structure was observed in the studies, which were conducted at Wayne State
University School of Medicine and at Southern Research Institute.
On June
17, 2009, we announced that we signed evaluation agreements with two
biopharmaceutical companies for our Cobalamin™ Oral Drug Delivery Technology.
Under the terms of the agreements, both companies plan to evaluate Access’ oral
insulin product in preclinical models as a prerequisite to entering licensing
discussions.
On
February 25, 2009, we closed the previously announced acquisition of MacroChem
Corporation.
On
September 3, 2008, we announced that we had retained Piper Jaffray to augment
ongoing business development efforts with the goal of establishing additional
strategic development and commercialization partnerships for our product
pipeline. The Piper Jaffray healthcare investment banking team will focus on
partnering opportunities for ProLindac and the Cobalamin
programs.
48
On August
27, 2008, we entered into a Note Purchase Agreement with MacroChem Corporation
in order for Access to loan MacroChem amounts to keep certain of their licenses
and vendors current. As of December 31, 2008, we had loaned MacroChem
$635,000.
On August
18, 2008, we announced the signing of a definitive licensing agreement under
which Milestone Biosciences, LLC will market MuGard in the United States and
Canada.
On June
4, 2008, we announced the signing of a definitive licensing agreement with
Jiangsu Aosaikang Pharmaceutical Co., Ltd (“ASK”). Under this agreement ASK will
manufacture, develop and commercialize our proprietary product ProLindac for the
Greater China Region which includes the People’s Republic of China, the Hong
Kong Special Administrative Region, the Macau Special Administrative Region and
Taiwan. Under the terms of the agreement ASK paid Access an upfront
fee and will pay subsequent milestone payments along with a royalty upon
commercialization of ProLindac. In addition, in cooperation with Access, ASK has
committed to fund two Phase 2 studies for ProLindac in colorectal cancer and one
other indication to be determined by both parties.
On
February 4, 2008, we entered into securities purchase agreements (the “Purchase
Agreements”) with accredited investors whereby we agreed to sell 272.5 shares of
our preferred stock, designated “Series A Cumulative Convertible Preferred
Stock”, par value $0.01 per share, for an issue price of $10,000 per share, (the
“Series A Cumulative Convertible Preferred Stock”) and agreed to issue warrants
to purchase 499,584 shares of our common stock, which includes placement agent
warrants to purchase 45,417 shares of our common stock, at an exercise price of
$3.50 per share, for an aggregate purchase price for the Series A Cumulative
Convertible Preferred Stock and Warrants of $2,725,000. The shares of Series A
Cumulative Convertible Preferred Stock are convertible into common stock at the
initial conversion price of $3.00 per share.
On
January 14, 2008, we announced the signing of a definitive licensing agreement
under which RHEI Pharmaceuticals, Inc. will market and manufacture MuGard in the
Peoples Republic of China and certain Southeast Asian countries. RHEI will also
obtain the necessary regulatory approvals for MuGard in the
territory.
On
January 4, 2008, we closed our acquisition of Somanta Pharmaceuticals, Inc. In
connection with the acquisition, Access issued an aggregate of approximately 1.5
million shares of Access Pharmaceuticals, Inc. common stock to the common and
preferred shareholders of Somanta as consideration. In addition, Access
exchanged all outstanding warrants of Somanta for warrants to purchase 191,991
shares of Access common stock at exercise prices ranging between $18.55 and
$69.57 per share.
In
addition, $1,576,000 of Somanta Pharmaceuticals’ acquired accounts payable were
settled by issuing 538,508 shares of Access common stock and warrants to
purchase 246,753 shares of Access common stock at an exercise price of $3.50 per
share. The value of the shares and warrants issued was determined based on the
fair value of the accounts payable.
Access
was incorporated in Wyoming in 1974 as Chemex Corporation, and in 1983 Access
changed its name to Chemex Pharmaceuticals, Inc. Access changed its state of
incorporation from Wyoming to Delaware on June 30, 1989. In 1996 Access merged
with Access Pharmaceuticals, Inc., a private Texas corporation, and changed its
name to Access Pharmaceuticals, Inc. Access’ principal executive office is
located at 2600 Stemmons Freeway, Suite 176, Dallas, Texas 75207; Access’
telephone number is (214) 905-5100.
Patents
We
believe that the value of technology both to us and to our potential corporate
partners is established and enhanced by our broad intellectual property
positions. Consequently, we have already been issued and seek 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 our inventions and prospective products.
49
Two U.S.
patents have issued and two European patent applications are under review for
our mucoadhesive liquid technology. Our patent applications cover a range of
products utilizing our mucoadhesive liquid technology for the management of the
various phases of mucositis.
Three
U.S. patents and two European patents have issued and one U.S. patent and two
European patent applications are pending for polymer platinum compounds. The two
patents and patent applications are the result in part of our collaboration with
The School of Pharmacy, University of London, from which the technology has been
licensed and include a synthetic polymer, hydroxypropylmethacrylamide
incorporating platinates, that can be used to exploit enhanced permeability and
retention in tumors and control drug release. The patents and patent
applications include a pharmaceutical composition for use in tumor treatment
comprising a polymer-platinum compound through linkages that are designed to be
cleaved under selected conditions to yield a platinum which is selectively
released at a tumor site. The patents and patent applications also include
methods for improving the pharmaceutical properties of platinum
compounds.
Thiarabine
is subject to two process patents that expire in 2018, one use patent that
expires in 2019, as well as patent applications that provide additional
protection to the manufacturing process and use.
We have
two patented Cobalamin-mediated targeted therapeutic technologies:
-
|
the
use of vitamin B12 to target the transcobalamin II receptor which is
upregulated in numerous diseases including cancer, rheumatoid arthritis,
certain neurological and autoimmune disorders with two U.S. patents and
three U.S. and four European patent applications;
and
|
-
|
oral
delivery of a wide variety of molecules which cannot otherwise be orally
administered, utilizing the active transport mechanism which transports
vitamin B12 into the systemic circulation with six U.S. patents and two
European patents and one U.S. and one European patent
application.
|
We also
have intellectual property in connection with the use of another B vitamin,
folic acid, for targeting of polymer therapeutics. Enhanced tumor delivery is
achieved by targeting folate receptors, which are upregulated in certain tumor
types. We have two U.S. and two European patent applications related to folate
polymer therapeutics.
Our
patents for the following technologies expire in the years and during the date
ranges indicated below:
·
|
Mucoadhesive
technology in 2021,
|
·
|
ProLindac™
in 2021,
|
·
|
Thiarabine
in 2018, and
|
·
|
Cobalamin
mediated technology between 2009 and
2019
|
In
addition to issued patents, we have a number of pending patent applications. If
issued, the patents underlying theses applications could extend the patent life
of our technologies beyond the dates listed above.
We have a
strategy of maintaining an ongoing line of patent continuation applications for
each major category of patentable carrier and delivery technology. By this
approach, we are extending the intellectual property protection of our 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.
50
Government
Regulation
We are
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 our 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 our products. The FDA has the authority
to approve or not approve new drug applications and inspect research, clinical
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 regulations, which establish the minimum requirements
for methods to be used in, and the facilities or controls to be used during, the
production process. Such 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, numerous phases of clinical testing and the FDA approval of a New Drug
Application (“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. All trials are conducted under International Conference on
Harmonization, or ICH, good clinical practice guidelines. All investigator sites
and sponsor facilities are subject to FDA inspection to insure compliance.
Clinical trials typically involve a three-phase process. Phase 1 the initial
clinical evaluations, consists of administering the drug and testing for safety
and tolerated dosages and in some indications such as cancer and HIV, as
preliminary evidence of efficacy in humans. Phase 2 involves a study to evaluate
the effectiveness of the drug for a particular indication and to determine
optimal dosage and dose interval and to identify possible adverse side effects
and risks in a larger patient group. When a product is found safe, an initial
efficacy is established in Phase 2, it is then evaluated in Phase 3 clinical
trials. Phase 3 trials consist of expanded multi-location testing for efficacy
and safety to evaluate the overall benefit to 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 forming 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
considerable time and there is no guarantee that an NDA will be approved.
Therefore, we cannot estimate with any certainty the length of the approval
cycle.
We are
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 characterized by intense
competition, rapid product development and technological change. Competition is
intense among manufacturers of prescription pharmaceuticals and other product
areas where we may develop and market products in the future. Most of our
potential competitors are large, well established pharmaceutical, chemical or
healthcare companies with considerably greater financial, marketing, sales and
technical resources than are available to us. Additionally, many of our
potential competitors have research and development capabilities that may allow
such competitors to develop new or improved products that may compete with our
product lines. Our potential products could be rendered obsolete or made
uneconomical by the development of new products to treat the conditions to be
addressed by our developments, technological advances affecting the cost of
production, or marketing or pricing actions by one or more of our potential
competitors. Our business, financial condition and results of operation could be
materially adversely affected by any one or more of such developments. We cannot
assure you that we will be able to compete successfully against current or
future competitors or that competition will not have a material adverse effect
on our business, financial condition and results of operations. Academic
institutions, governmental agencies and other public and private research
organizations are also conducting research activities and seeking patent
protection and may commercialize products on their own or with the assistance of
major health care companies in areas where we are developing product candidates.
We are aware of certain development projects for products to treat or prevent
certain diseases targeted by us, the existence of these potential products or
other products or treatments of which we are not aware, or products or
treatments that may be developed in the future, may adversely affect the
marketability of products developed by us.
51
In the
area of advanced drug delivery, which is the focus of our early stage research
and development activities, a number of companies are developing or evaluating
enhanced drug delivery systems. We expect that technological developments will
occur at a rapid rate and that competition is likely to intensify as various
alternative delivery system technologies achieve similar if not identical
advantages.
Even if
our products are fully developed and receive required regulatory approval, of
which there can be no assurance, we believe that our products can only compete
successfully if marketed by a company having expertise and a strong presence in
the therapeutic area. Consequently, we do not currently plan to establish an
internal marketing organization. By forming strategic alliances with major and
regional pharmaceutical companies, management believes that our development
risks should be minimized and that the technology potentially could be more
rapidly developed and successfully introduced into the marketplace.
Amgen
Inc., Carrington Laboratories Inc., CuraGen Corporation, Cytogen Corporation,
Endo Pharmaceuticals, MGI Pharma Inc., Nuvelo, Inc. and OSI Pharmaceuticals Inc.
are developing products to treat mucositis that may compete with Access’
mucoadhesive liquid technology.
The
following products may compete with polymer platinate:
•
Cisplatin, marketed by Bristol-Myers Squibb, the originator of the drug, and
several generic manufacturers;
•
Carboplatin, marketed by Bristol-Myers Squibb in the US; and
•
Oxaliplatin, marketed exclusively by Sanofi-Aventis.
The
following companies are working on therapies and formulations that may be
competitive with Access’ polymer platinate:
• Antigenics
and Regulon are developing liposomal platinum formulations;
• Poniard
Pharmaceuticals is developing both i.v. and oral platinum
formulations;
• Nanocarrier
and Debio are developing micellar nanoparticle platinum formulations;
and
•
|
American
Pharmaceutical Partners, Cell Therapeutics, Daiichi, and Enzon are
developing alternate drugs in combination with polymers and other drug
delivery systems.
|
Thiarabine’s
competitors are Eli Lilly and Company, Bayer Healthcare, SciClone
Pharmaceuticals and Genzyme.
Companies
working on therapies and formulations that may be competitive with our vitamin
mediated drug delivery system are Bristol-Myers Squibb, Centocor (acquired by
Johnson & Johnson), Endocyte, GlaxoSmithKline, Imclone and Xoma which are
developing targeted monoclonal antibody therapy.
BioDelivery
Sciences International, Biovail Corporation, Cellgate, CIMA Labs, Inc., EUSA
Pharma, Depomed Inc., Emisphere Technologies, Inc., Eurand, Flamel Technologies,
Nobex and Xenoport are developing products which compete with our oral drug
delivery system.
52
Many of
these competitors have and employ greater financial and other resources,
including larger research and development, marketing and manufacturing
organizations. As a result, our competitors may successfully develop
technologies and drugs that are more effective or less costly than any that we
are developing or which would render our technology and future products obsolete
and noncompetitive.
In
addition, some of our competitors have greater experience than we do in
conducting preclinical and clinical trials and obtaining FDA and other
regulatory approvals. Accordingly, our competitors may succeed in obtaining FDA
or other regulatory approvals for drug candidates more rapidly than we do.
Companies that complete clinical trials, obtain required regulatory agency
approvals and commence commercial sale of their drugs before their competitors
may achieve a significant competitive advantage. Drugs resulting from our
research and development efforts or from its joint efforts with collaborative
partners therefore may not be commercially competitive with its competitors'
existing products or products under development.
Suppliers
Some
materials used by us are specialized. We obtain materials from several suppliers
based in different countries around the world. If materials are unavailable from
one supplier we generally have alternate suppliers available.
Employees
As of
January __, 2010, we had 8 full time employees, four of whom have advanced
scientific degrees. We have never experienced employment-related work stoppages
and consider that we maintain good relations with our personnel. In addition, to
complement our internal expertise, we have contracts with scientific
consultants, contract research organizations and university research
laboratories that specialize in various aspects of drug development including
clinical development, regulatory affairs, toxicology, process scale-up and
preclinical testing.
Web
Availability
We make
available free of charge through our website, www.accesspharma.com, our annual
reports on Form 10-K and other reports that we file with the Securities and
Exchange Commission as well as certain of our corporate governance policies,
including the charters for the Board of Directors’ audit, compensation and
nominating and corporate governance committees and its code of ethics, corporate
governance guidelines and whistleblower policy. We will also provide to any
person without charge, upon request, a copy of any of the foregoing materials.
Any such request must be made in writing to us at: Access Pharmaceuticals, Inc.,
2600 Stemmons Freeway, Suite 176, Dallas, TX 75207 attn: Investor
Relations.
Access
maintains one facility of approximately 9,000 square feet for administrative
offices and laboratories in Dallas, Texas. Access has a lease agreement for the
facility, which terminates in December 2009. Adjacent space may be available for
expansion which Access believes would accommodate growth for the foreseeable
future.
Access
believes that its existing properties are suitable for the conduct of its
business and adequate to meet its present needs.
53
DIRECTORS,
EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The
following table sets forth the Directors, Executive Officers, and Key Employees
of Access along with their respective ages and positions and is as
follows:
Name
|
Age
|
Title
|
|
Steven
H. Rouhandeh
|
52
|
Chairman
of the Board*
|
|
Jeffrey
B. Davis
|
46
|
Chief
Executive Officer, Director*
|
|
Esteban
Cvitkovic
|
59
|
Vice
Chairman – Europe
|
|
Mark
J. Ahn, Ph.D.
|
47
|
Director
|
|
Mark
J. Alvino
|
41
|
Director
|
|
Stephen
B. Howell, M.D.
|
65
|
Director
|
|
David
P. Luci
|
42
|
Director
|
|
David
P. Nowotnik, Ph.D.
|
60
|
Senior
Vice President Research & Development
|
|
Frank A. Jacobucci | 47 | Vice President, Sales and Marketing | |
Phillip
S. Wise
|
51
|
Vice
President, Business Development & Strategy
|
|
Stephen
B. Thompson
|
56
|
Vice
President, Chief Financial Officer, Treasurer,
|
|
Secretary
|
*
|
Appointed
to the board of directors by SCO Capital Partners LLC (“SCO”) pursuant to
a Director Designation Agreement between SCO and
Access.
|
No
director, officer, affiliate or promoter of Access has, within the past five
years, filed any bankruptcy petition, been convicted in or been the subject of
any pending criminal proceedings, or is any such person the subject or any
order, judgment or decree involving the violation of any state or federal
securities laws.
The
following is a brief account of the business experience during the past five
years of each director and executive officer of Access, including principal
occupations and employment during that period and the name and principal
business of any corporation or other organization in which such occupation and
employment were carried on.
Mr. Steven H. Rouhandeh
became a director and Chairman of the Board on March 4, 2008. He is a Chief Investment Officer
of SCO Capital Partners, L.P., a New York based life sciences fund. Mr.
Rouhandeh also is a founder of SCO Financial Group LLC, a highly successful
value-oriented healthcare group with an 12-year track record in this sector
(advisory, research, banking and investing). He possesses a diverse
background in financial services that includes experience in asset management,
corporate finance, investment banking and law. He has been active
throughout recent years as an executive in venture capital and as a founder of
several companies in the biotech field. His experience also includes
positions as Managing Director of a private equity group at Metzler Bank, a
private European investment firm and Vice President, Investment Banking at
Deutsche Morgan Grenfell. Mr. Rouhandeh was also a corporate attorney at
New York City-based Cravath, Swaine & Moore. Mr. Rouhandeh holds a J.D.,
from Harvard Law School, Harvard University and B.A. Government, Economics, from
Southern Illinois University.
Mr. Jeffrey B. Davis became a
director in March 2006. Mr. Davis became Chief Executive Officer of the Company
on December 26, 2007. Previously, Mr. Davis was Chairman of the Board and
Chairman of the Compensation Committee of the Board. Mr. Davis currently serves
as President of SCO Financial Group LLC and has been employed by SCO since 1997.
Previously, Mr. Davis served in senior management at a publicly traded
healthcare technology company. Prior to that, Mr. Davis was an investment banker
with various Deutsche Bank banking organizations, both in the U.S. and Europe.
Mr. Davis also served in senior marketing and product management positions at
AT&T Bell Laboratories, where he was also a member of the technical staff,
and at Philips Medical Systems North America. Mr. Davis is currently on
the board of Uluru, Inc., a public biotechnology company. Mr. Davis holds
a B.S. in biomedical engineering from Boston University and an M.B.A. degree
from the Wharton School, University of Pennsylvania.
54
Dr. Esteban Cvitkovic became
a director in February 2007 as Vice Chairman (Europe) and is also a consultant
to the Company as Senior Director, Oncology Clinical Research & Development.
Recently, Dr. Cvitkovic co-founded the new contract research organization (CRO),
Oncology Therapeutic Development. The oncology-focused CRO, Cvitkovic &
Associés Consultants (CAC), founded by Dr. Cvitkovic 11 years ago and which he
developed from a small oncology consultancy to a full-service CRO, was sold to
AAIPharma to become AAIOncology in 2007. Dr. Cvitkovic is currently a Senior
Medical Consultant to AAIOncology. In addition, he maintains a part-time
academic practice including teaching at the hospitals Beaujon and St. Louis in
Paris. Dr. Cvitkovic is Scientific President of the FNAB, a foundation devoted
to the furthering of personalized cancer treatments. Together with a small
number of collaborators, he has recently co-founded Oncoethix, a biotech company
focused on licensing and co-development of anti-cancer molecules. Dr. Cvitkovic
has authored more than 200 peer-reviewed articles and 600 abstracts focused on
therapeutic oncology development. His international career includes staff and
academic appointments at Memorial Sloan Kettering Cancer Center (New York),
Columbia Presbyterian (New York), Instituto Mario Negri (Milan), Institut
Gustave Roussy (Villejuif), Hôpital Paul Brousse (Villejuif) and Hôpital St.
Louis (Paris).
Dr. Mark J. Ahn became a
director in September 2006 and is chairman of the Compensation Committee. Dr.
Ahn is also a member of the Audit and Finance Committee and the Nominating &
Corporate Governance Committee. Dr. Ahn is Principal at Pukana Partners, Ltd.
since 2009. Dr. Ahn was Professor and Chair, Science & Technology Faculties
of Commerce & Administration Science at Victoria University of Wellington,
New Zealand from 2007 to 2009. Dr. Ahn was President and Chief Executive
Officer and a member of the board of directors of Hana Biosciences, Inc.
from 2003 to 2007. Prior to joining Hana, from 2001 to 2003,
he served as Vice President, Hematology and corporate officer at Genentech, Inc.
where he was responsible for commercial and clinical development of the
Hematology franchise. From 1991 to 2001, Dr. Ahn was employed by Amgen
and Bristol-Myers Squibb Company holding a series of positions of increasing
responsibility in strategy, general management, sales & marketing, business
development, and finance. He has also served as an officer in the U.S. Army. Dr.
Ahn is a Henry Crown Fellow at the Aspen Institute, founder of the Center for
Non-Profit Leadership, a director of TransMolecular, Inc., a privately held
biotechnology company focused on neuroncology, and a member of the Board of
Trustees for the MEDUNSA (Medical University of South Africa) Trust. Dr. Ahn
received a B.A. in History and an M.B.A. in Finance from Chaminade University.
He was a graduate fellow in Economics at Essex University, and has a Ph.D. in
Business Administration from the University of South Australia.
Mr. Mark J. Alvino became a
director in March 2006 initially as a designee of SCO Capital Partners LLC and
is chairman of the Audit and Finace Committee. Mr. Alvino is also a member of
the Nominating and Corporate Governance Committee. Mr. Alvino is currently
Managing Director for Griffin Securities and has been in this position
since 2007. Mr. Alvino was Managing Director for SCO Financial Group LLC
from 2002 to 2007. Mr. Alvino was a member of the board of directors
of MacroChem Corporation from 2007 until February 2009. He previously
worked at Feinstein Kean Healthcare, an Ogilvy Public Relations Worldwide
Company. There he was Senior Vice President, responsible for managing both
investor and corporate communications programs for many private and public
companies and acted as senior counsel throughout the agency's network of
offices. Prior to working at FKH, Mr. Alvino served as Vice President of
Investor Relations and managed the New York Office of Allen & Caron, Inc.,
an investor relations agency. His base of clients included medical devices,
biotechnology, and e-healthcare companies. Mr. Alvino also spent several years
working with Wall Street brokerages including Ladenburg, Thallman & Co. and
Martin Simpson & Co.
Stephen B. Howell, M.D. has
served as one of Access’ directors since 1996. Dr. Howell is a member of the
Compensation Committee of the Board. Dr. Howell is a Professor of Medicine at
the University of California, San Diego, and director of the Cancer Pharmacology
Program of the UCSD Cancer Center. Dr. Howell is a recipient of the Milken
Foundation prize for his contributions to the field of cancer chemotherapy. He
has served on the National Research Council of the American Cancer Society and
is on the editorial boards of multiple medical journals. Dr. Howell founded
DepoTech, Inc. and served as a member of its board of directors from 1989 to
1999. Dr. Howell served on the board of directors of Matrix Pharmaceuticals from
2000 to 2002. Dr. Howell received his A.B. at the University of Chicago and his
M.D. from Harvard Medical School.
55
Mr. David P. Luci has served
as one of Access’ directors since January 2007. Mr. Luci was chairman of the
Audit and Finance Committee and a member of the Compensation Committee during
2009. Mr. Luci is currently a business consultant. Mr. Luci was President
and Chief Business Officer of MacroChem Corporation until its merger with us on
February 25, 2009. Additionally, Mr. Luci was a senior executive
officer of Bioenvision, Inc. from 2002 until 2007. He served as
Bioenvision’s General Counsel & Corporate Secretary (2002-2007), Executive
Vice President (2006-2007), Chief Financial Officer (2004-2006), and
Director of Finance (2002-2004). From 1994 to 2002, Mr. Luci served as
a corporate associate at Paul, Hastings, Janofsky & Walker LLP (New York
office). Prior to that, Mr. Luci served as a senior auditor at Ernst & Young
LLP (New York office). Mr. Luci is a certified public accountant. He holds a
Bachelor of Science in Business Administration with a concentration in
accounting from Bucknell University and a J.D. (cum laude) from Albany Law
School of Union University.
David P. Nowotnik, Ph.D. has
been Senior Vice President Research and Development since January 2003 and was
Vice President Research and Development from 1998. From 1994 until 1998, Dr.
Nowotnik had been with Guilford Pharmaceuticals, Inc. in the position of Senior
Director, Product Development and was responsible for a team of scientists
developing polymeric controlled-release drug delivery systems. From 1988 to 1994
he was with Bristol-Myers Squibb researching and developing technetium
radiopharmaceuticals and MRI contrast agents. From 1977 to 1988 he was with
Amersham International leading the project which resulted in the discovery and
development of Ceretec.
Mr. Frank A. Jacobucci has been Access’ Vice President Sales and Marketing since December 2009. Mr. Jacobucci was President and COO of Milestone Biosciences, LLC from 2007 to 2009. He was Vice President Sales/Marketing of Claims Resolution Center Oncology Services in 2007, Area Sales Manager-Eastern Seaboard of Precision Therapeutics, Inc. from 2006-2007 and Sales Trainer/Field Sales Advisor/Senior Sales Executive of MGI Pharma from 2003 to 2006. Mr. Jacobucci has had manager positions with increasing responsibilities from 1990 to 2003 with various other pharmaceutical and other companies. He holds a B.S. degree from University of Nevada , Las Vegas.
Mr. Phillip S. Wise has been Access’ Vice President Business Development since June 2006. Mr. Wise was Vice President of Commercial and Business Development for Enhance Pharmaceuticals, Inc. and Ardent Pharmaceuticals, Inc. from 2000 until 2006. Prior to that time he was with Glaxo Wellcome, from 1990 to 2000 in various capacities.
Mr. Stephen B. Thompson has
been Vice President since 2000 and Access’ Chief Financial Officer since 1996.
From 1990 to 1996, he was Controller and Administration Manager of Access
Pharmaceuticals, Inc., a private Texas corporation. Previously, from 1989 to
1990, Mr. Thompson was Controller of Robert E. Woolley, Inc., a hotel real
estate company where he was responsible for accounting, finances and investor
relations. From 1985 to 1989, he was Controller of OKC Limited Partnership, an
oil and gas company, where he was responsible for accounting, finances and SEC
reporting. Between 1975 and 1985 he held various accounting and finance
positions with Santa Fe International Corporation.
Committees
of the Board of Directors
The Board
established an Audit and Finance Committee, a Compensation Committee and a
Nominating and Corporate Governance Committee. Each of the committees of the
Board acts pursuant to a separate written charter adopted by the
Board.
The Audit
and Finance Committee is currently comprised of Mark J.
Alvino (chairman) and Mark J. Ahn. The Board has determined that Mr.
Alvino, the chairman of the Audit and Finance Committee, is an “audit committee
financial expert,” under applicable SEC rules and regulations. David P. Luci was
chairman of the Audit and Finace Committee during 2009. The Audit and Finance
Committee’s responsibilities and duties are among other things to engage the
independent auditors, review the audit fees, supervise matters relating to audit
functions and review and set internal policies and procedure regarding audits,
accounting and other financial controls.
The
Compensation Committee is currently comprised of Mr. Mark J. Ahn and Dr. Stephen
B. Howell. Mr. Ahn and Dr. Howell are non-employee directors under applicable
SEC rules and are “outside” directors under Internal Revenue Code Section
162(m). Mr. Ahn and Dr. Howell are independent under applicable NYSE Amex
rules and regulations. Mr. David P. Luci and Dr. Stephen B. Howell were members
of the Compensation Committee during 2009.
56
The
Nominating and Corporate Governance Committee is currently comprised of Mark
Ahn, PhD and Mark J. Alvino. All committee members are independent under
applicable NYSE Amex rules and regulations. The Nominating and Corporate
Governance Committee is responsible for, among other things, considering
potential Board members, making recommendations to the full Board as to nominees
for election to the Board, assessing the effectiveness of the Board and
implementing Access’ corporate governance guidelines.
Code
of Business Conduct and Ethics
In
October 2004, Access adopted a written Code of Business Conduct and Ethics for
Employees, Executive Officers and Directors, applicable to all employees,
management, and directors, designed to deter wrongdoing and promote honest and
ethical conduct, full, fair and accurate disclosure, compliance with laws,
prompt internal reporting and accountability to adherence to the Code of
Business Conduct and Ethics.
The
following table sets forth the aggregate compensation paid to our CEO and each
of our other executive officers whose aggregate salary and bonus exceeded
$100,000 for services rendered in all capacities for the fiscal years ended
December 31, 2009, 2008 and 2007.
Summary
Compensation Table
Name and Principal Position
|
Year
|
Salary ($)
(1)
|
Option Awards ($) (2)
|
All Other Compensation (3)
|
Total ($)
|
|||||||||||||||
Jeffrey
B. Davis (4)
Chief
Executive Officer
|
2009
2008
|
$
|
170,000
266,076
|
$
|
-
-
|
$
|
-
-
|
$
|
170,000 266,076 | |||||||||||
David
P. Nowotnik, Ph.D.
Senior
Vice President Research
and
Development
|
2009
2008
2007
|
$
|
175,675 253,620 253,620 |
$
|
87,117 136,977 - |
$
|
6,307 12,225 12,225 |
$
|
269,099 402,822 265,845 | |||||||||||
Phillip
S. Wise
Vice
President, Business
Development
|
2009
2008
2007
|
$
|
200,000 200,000 200,000 |
$
|
-
136,977
-
|
$
|
5,209 9,876 9,876 |
$
|
205,209 346,853 209,876 | |||||||||||
Stephen
B. Thompson
Vice
President, Chief Financial Officer
|
2009
2008
2007
|
$
|
113,200 154,080 154,080 |
$
|
87,117 136,977 - |
$
|
4,107 7,612 7,427 |
$
|
204,424 298,669 161,507 |
____________________
(1)
|
Includes
amounts deferred under our 401(k)
Plan.
|
(2)
|
The
value listed in the above table represents the fair value of the options
granted in prior years that was recognized in 2009, 2008 and 2007 under
FAS 123R. Fair value is calculated as of the grant date using a
Black-Scholes option-pricing model. The determination of the fair value of
share-based payment awards made on the date of grant is affected by our
stock price as well as assumptions regarding a number of complex and
subjective variables. Our assumptions in determining fair value are
described in note 10 to our audited financial statements for the year
ended December 31, 2008, included in our Annual Report on Form
10-K.
|
(3)
|
Amounts
reported for fiscal years 2009, 2008 and 2007 consist of: (i) amounts we
contributed to our 401(k) Plan with respect to each named individual, and
(ii) amounts we paid for group term life insurance for each named
individual.
|
(4)
|
Jeffrey
B. Davis became our Chief Executive Officer effective December 26, 2007
and his salary began to accrue as of the date of his employment agreement
which was January 4, 2008.
|
57
Outstanding
Equity Awards at Fiscal Year-End
The
following table summarizes the aggregate number of option awards held by our
named executive officers at December 31, 2009. There were no outstanding stock
awards held by any such officers at December 31, 2009:
Name
|
Number
of Securities Underlying Unexercised Options (#)
Exercisable
|
Number
of Securities Underlying Unexercised Options (#)
Unexercisable
|
Equity
Incentive Plan Awards: Number of Securities Underlying Unexercised
Unearned Options (#)
|
Option
Exercise Price ($)(1)
|
Option
Expiration Date
|
Jeffrey
B. Davis (2)
|
25,000
|
-
|
-
|
0.63
|
08/17/16
|
David
P. Nowotnik, Ph.D. (3)
|
75,000
19,791
100,000
8,000
5,000
7,000
10,000
10,000
|
-
30,209
-
-
-
-
-
-
|
-
|
1.38
3.00
0.63
11.60
29.25
10.10
18.65
12.50
|
05/27/19
05/21/18
08/17/16
05/23/15
01/23/14
01/30/13
03/22/12
03/01/10
|
Phillip
S. Wise (5)
|
19,791
100,000
|
30,209
-
|
-
|
3.00
0.63
|
05/21/18
08/17/16
|
Stephen
B. Thompson (3)
|
75,000
19,791
100,000
5,000
3,000
4,000
6,000
9,000
|
-
30,209
-
-
-
-
-
-
|
-
|
1.38
3.00
0.63
11.60
29.25
10.10
18.65
12.50
|
05/27/19
05/21/18
08/17/16
05/23/15
01/23/14
01/30/13
03/22/12
03/01/10
|
____________________
(1)
|
On
December 31, 2009, the closing price of our Common Stock as quoted on the
OTC Bulletin Board was $3.29.
|
(2)
|
Jeffrey
B. Davis became our Chief Executive Officer effective December 26, 2007
and his employment agreement started January 4, 2008. The options included
in this table were granted to him as a director before he became CEO. Mr.
Davis does not have any stock options granted to him as
CEO.
|
(3)
|
Dr.
Nowotnik’s options to purchase 50,000 shares of common stock will be fully
vested in April 2012.
|
(5)
|
Mr.
Wise’s options to purchase 50,000 shares of common stock will be fully
vested in April 2012.
|
(4)
|
Mr.
Thompson’s options to purchase 50,000 shares of common stock will be fully
vested in April 2012..
|
58
Compensation
Pursuant to Agreements and Plans
Employment
Agreements
President and Chief
Executive Officer
Access is
a party to an employment agreement, with Jeffrey B. Davis, who was named by the
Board as Access’ Chief Executive Officer, effective as of December 26, 2007. Mr.
Davis’ employment agreement, dated January 4, 2008, was amended April 9, 2008.
Pursuant to the terms of his employment agreement, Mr. Davis was paid an annual
salary of $335,000 from January 4, 2008, through March 31, 2008, and was paid an
annual salary of $240,000 from April 1, 2008 until May 31, 2009. Mr. Davis is
currently paid an annual salary of $120,000 from June 1, 2009. Mr. Davis does
not currently have any stock options resulting from his employment with us. Mr.
Davis was previously awarded stock options to purchase 600,000 shares of our
Common Stock. However, as of January 4, 2008, and pursuant to the amended
employment agreement, Mr. Davis agreed to forgo any stock options awarded under
the terms of the original employment agreement. Mr. Davis is entitled to similar
employee benefits as Access’ other executive officers.
Senior Vice
President
Access
was a party to an employment agreement with David P. Nowotnik, Ph.D., Access’
Senior Vice President, Research and Development, until May 31, 2009. Under this
agreement, Dr. Nowotnik was entitled to receive an annual base salary of
$253,620, subject to adjustment by the Board. Dr. Nowotnik was eligible to
participate in all of Access’ employee benefit programs available to executives.
Dr. Nowotnik was also eligible to receive:
·
|
a
bonus payable in cash and Common Stock related to the attainment of
reasonable performance goals specified by the
Board;
|
·
|
stock
options at the discretion of the
Board;
|
·
|
long-term
disability insurance to provide compensation equal to at least $60,000
annually; and
|
·
|
term
life insurance coverage of
$254,000.
|
On May
31, 2009 Dr. Nowotnik entered into a Transition Service Agreement with Access
pursuant to which his current salary is $10,000 per month until November 30,
2009. He was also granted options to purchase 75,000 shares of common stock at
$1.38, 12,500 of which options vest each month for six consecutive
months. The transition services agreement continues provision for Dr.
Nowotnik’s healthcare coverage.
Vice President – Chief
Financial Officer
Access
was party to an employment agreement with Stephen B. Thompson, Access’ Vice
President and Chief Financial Officer, until May 31, 2009. Mr. Thompson was
entitled to an annual base salary of $154,080, subject to adjustment by the
Board. The employment agreement also granted Mr. Thompson similar employee
benefits as Access’ other executive officers. Mr. Thompson was also eligible to
receive:
·
|
a
bonus payable in cash and Common Stock related to the attainment of
reasonable performance goals specified by the
Board;
|
·
|
stock
options at the discretion of the
Board;
|
·
|
long-term
disability insurance to provide compensation equal to at least $90,000
annually; and
|
·
|
term
life insurance coverage of
$155,000.
|
On May
31, 2009 Mr. Thompson entered into a Transition Service Agreement with Access
pursuant to which his current salary is $7,000 per month until November 30,
2009. He was also granted options to purchase 75,000 shares of common stock at
$1.38, 12,500 of which options vest each month for six consecutive
months. The transition services agreement continues provision for Mr.
Thompson’s healthcare coverage.
59
Compensation
of Directors
Director
Compensation Table - 2009
The table below represents the compensation paid to our outside directors
during the year ended December 31, 2009:
Name
|
Fees
earned or Paid in Cash ($)
|
Stock
Awards ($)
|
Option
Awards ($)(1)
|
All
Other Compensation ($)
|
Total
($)
|
Mark
J. Ahn, PhD (2)
|
-
|
-
|
40,000
|
-
|
40,000
|
Mark
J. Alvino (3)
|
-
|
-
|
40,000
|
-
|
40,000
|
Esteban
Cvitkovic, MD (4)
|
-
|
-
|
116,000
|
132,000
|
248,000
|
Jeffrey
B. Davis (5)
|
-
|
-
|
-
|
-
|
-
|
Stephen
B. Howell, MD (6)
|
-
|
-
|
40,000
|
-
|
40,000
|
David
P. Luci (7)
|
-
|
265,000
|
52,000
|
83,000
|
400,000
|
Steven
H. Rouhandeh (8)
|
-
|
-
|
-
|
-
|
-
|
__________________
|
(1)
|
|
The
value listed represents the fair value of the options recognized as
expense under FAS 123R during 2009, including unvested options granted
before 2009 and those granted in 2009. Fair value is calculated as of the
grant date using a Black-Scholes (“Black-Scholes”) option-pricing model.
The determination of the fair value of share-based payment awards made on
the date of grant is affected by our stock price as well as assumptions
regarding a number of complex and subjective variables. Our assumptions in
determining fair value are described in note 10 to our audited financial
statements for the year ended December 31, 2008, included in our Annual
Report on Form 10-K.
|
(2)
|
Represents
expense recognized in 2009 in respect of options to purchase 35,000 shares
of our Common Stock based on a grant date fair value of $40,000. Dr. Ahn
has options to purchase 66,000 shares of our Common Stock at December 31,
2009.
|
||
(3)
|
Represents
expense recognized in 2009 in respect of options to purchase 35,000 shares
of our Common Stock based on a grant date fair value of $40,000. Mr.
Alvino has options to purchase 66,000 shares of our Common Stock at
December 31, 2009.
|
||
(4)
|
Represents
expense recognized in 2009 in respect of options to purchase 100,000
shares of our Common Stock based on a grant date fair value of $116,000.
Includes $132,000 Dr. Cvitkovic received for scientific consulting
services in 2009. Dr. Cvitkovic has options to purchase 156,000 shares of
our Common Stock and warrants to purchase 200,000 of our Common Stock at
December 31, 2009.
|
||
(5)
|
Mr.
Davis served as our CEO during 2009 and did not receive board fees or
options. Mr. Davis’ salary and employment agreement are discussed in the
Summary Compensation Table and Compensation Pursuant to Agreements and
Plans – Employment Agreements – President and Chief Executive Officer. Mr.
Davis has options to purchase 25,000 shares of our Common Stock at
December 31, 2009.
|
||
(6)
|
Represents
expense recognized in 2009 in respect of options to purchase 35000 shares
of our Common Stock based on a grant date fair value of $40,000. Dr.
Howell has options to purchase 79,700 shares of our Common Stock at
December 31, 2009.
|
||
(7)
|
Represents
expense recognized in 2009 in respect to 66,667 shares of Common Stock
received on June 1, 2009 based on a fair value of $181,000 per Mr. Luci’s
consulting agreement. Also represents expense recognized in 2009 in
respect to 60,000 shares of Common Stock received due to the termination
of his employment agreement with MacroChem Corporation based on a fair
value of $84,000. Represents expense recognized in 2009 in respect of
options to purchase 45,000 shares of our Common Stock based on a grant
date fair value of $52,000. Includes $83,000 Mr. Luci received for
business consulting services to Access in 2009. Mr. Luci has options to
purchase 76,000 shares of our Common Stock at December 31, 2009. He also
has warrants to purchase 4,167 shares of our Common Stock at December 31,
2009.
|
||
(8)
|
Mr.
Rouhandeh does not have any options or warrants outstanding at December
31, 2009. See also the Security Ownership of Certain Beneficial Owners and
Management.
|
60
Equity Compensation Plan
Information
The
following table sets forth information as of December 31, 2009, about shares of
Common Stock outstanding and available for issuance under our equity
compensation plans existing as of such date.
Number
of securities
|
||||||||||||
remaining
available
|
||||||||||||
for
future issuance
|
||||||||||||
Number
of securities to
|
Weighted-average
|
under
equity
|
||||||||||
be
issued upon exercise
|
exercise
price of
|
compensation
plans
|
||||||||||
of
outstanding options
|
outstanding
options
|
(excluding
securities
|
||||||||||
Plan
Category
|
warrants and
rights
|
warrants and
rights
|
reflected
in column
(a))
|
|||||||||
Equity
compensation plans
|
||||||||||||
approved
by security
|
||||||||||||
holders
|
||||||||||||
2005
Equity Incentive Plan
|
1,445,153 | $ | 2.01 | 1,398,935 | ||||||||
1995
Stock Awards Plan
|
103,000 | 15.89 | - | |||||||||
2001
Restricted Stock Plan
|
- | - | 52,818 | |||||||||
Equity
compensation plans
|
||||||||||||
not
approved by security
|
||||||||||||
holders
|
||||||||||||
2007
Special Stock Option Plan
|
100,000 | 2.90 | 350,000 | |||||||||
Total
|
1,648,153 | $ | 2.93 | 1,801,753 |
For a
description of our equity incentive plans, see Footnote 10 to our Consolidated
Financial Statements for the fiscal year ended December 31,
2008.
61
LEGAL
PROCEEDINGS
The
Company is not currently subject to any material pending legal
proceedings.
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Security
Ownership of Certain Beneficial Owners and Management
Based
solely upon information made available to Access, the following table sets forth
certain information with respect to the beneficial ownership of Access’ Common
Stock as of January 14, 2010 by (i) each person who is known by Access to
beneficially own more than five percent of any class of Access’ capital stock;
(ii) each of Access’ directors; (iii) each of Access’ named executive officers;
and (iv) all Access’ executive officers and directors as a group. Beneficial
ownership as reported in the following table has been determined in accordance
with Rule 13d-3 under the Securities Exchange Act of 1934, as amended. The
address of each holder listed below, except as otherwise indicated, is c/o
Access Pharmaceuticals, Inc., 2600 Stemmons Freeway, Suite 176, Dallas, Texas
75207.
Name
and Address of Beneficial Owner
|
Amount
and Nature of Beneficial Ownership
Common
Stock (1)
|
Percent
of Class
|
Amount
and Nature of Beneficial Ownership
Preferred
Stock
|
Percent
of Class
|
Amount
and Nature of Beneficial Ownership
All
Classes
of
Stock
|
Percent
of Class
|
|
Steven H.
Rouhandeh(2)
|
-
|
*
|
-
|
*
|
-
|
*
|
|
Jeffery
B. Davis (3)
|
36,000
|
*
|
-
|
*
|
36,000
|
*
|
|
Mark J.
Ahn, Ph. D. (4)
|
66,000
|
*
|
-
|
*
|
66,000
|
*
|
|
Mark J.
Alvino (5)
|
101,454
|
*
|
-
|
*
|
101,454
|
*
|
|
Esteban
Cvitkovic, M.D. (6)
|
306,000
|
2.2%
|
-
|
*
|
306,000
|
1.3%
|
|
Stephen
B. Howell, M.D. (7)
|
89,422
|
*
|
-
|
*
|
89,422
|
*
|
|
David P.
Luci (8)
|
276,717
|
2.1%
|
8,333
|
*
|
285,050
|
1.2%
|
|
David P.
Nowotnik, Ph.D. (9)
|
252,310
|
1.9%
|
-
|
*
|
252,310
|
1.1%
|
|
Frank A. Jacobucci (10) | 128,125 | * | 128,125 | * | |||
Phillip
S. Wise (11)
|
119,794
|
*
|
-
|
*
|
119,794
|
*
|
|
Stephen
B. Thompson (12)
|
231,315
|
1.7%
|
-
|
*
|
231,315
|
*
|
|
SCO
Capital Partners LLC, SCO Capital Partners LP, and Beach Capital LLC (13)
|
9,535,087
|
49.2%
|
7,077,100
|
71.1%
|
16,612,187
|
56.6%
|
|
Larry N.
Feinberg (14)
|
1,222,443
|
8.7%
|
1,457,699
|
14.7%
|
2,680,142
|
11.2%
|
|
Lake End
Capital LLC (15)
|
1,059,601
|
7.5%
|
793,067
|
8.0%
|
1,852,668
|
7.7%
|
|
All
Directors and Executive
Officers
as a group
(consisting
of 10 persons) (16)
|
1,607,137
|
11.0%
|
8,333
|
*
|
1,487,345
|
6.1%
|
* - Less
than 1%
(1)
|
Includes
Access’ outstanding shares of Common Stock held plus all shares of Common
Stock issuable upon exercise of options, warrants and other rights
exercisable within 60 days of January 14,
2010.
|
(2)
|
Steven
H. Rouhandeh is Chairman of SCO Securities LLC, a wholly-owned subsidiary
of SCO Financial Group LLC. His address is c/o SCO Capital Partners LLC,
1285 Avenue of the Americas, 35th Floor, New York, NY 10019. SCO
Securities LLC and affiliates (SCO Capital Partners LP and Beach Capital
LLC) are known to beneficially own an aggregate of 3,481,800 shares of
Access’ Common Stock, warrants to purchase an aggregate of 6,053,287
shares of Access’ Common Stock and 7,077,100 shares of Common Stock
issuable upon conversion of Series A Cumulative Convertible Preferred
Stock. Mr. Rouhandeh disclaims beneficial ownership of all such shares
except to the extent of his pecuniary interest
therein.
|
(3)
|
Mr.
Davis is known to beneficially own an aggregate of 7,333 shares of Access’
Common Stock, presently exercisable options for the purchase of 25,000
shares of Access’ Common Stock pursuant to the 2005 Equity Incentive Plan
and 3,667 shares of Common Stock underlying warrants held by Mr. Davis.
Mr. Davis is President of SCO Securities LLC, a wholly-owned subsidiary of
SCO Financial Group LLC. His address is c/o SCO Capital Partners LLC, 1285
Avenue of the Americas, 35th Floor, New York, NY 10019. SCO Securities LLC
and affiliates (SCO Capital Partners LP and Beach Capital LLC) are known
to beneficially own 3,481,800 shares of Access’ Common Stock, warrants to
purchase an aggregate of 6,053,287 shares of Access’ Common Stock and
7,077,100 shares of Common Stock issuable upon conversion of Series A
Cumulative Convertible Preferred Stock. Mr. Davis disclaims beneficial
ownership of all such shares except to the extent of his pecuniary
interest therein.
|
62
(4)
|
Includes
presently exercisable options for the purchase of 66,000 shares of Access’
Common Stock pursuant to the 2005 Equity Incentive
Plan.
|
(5)
|
Includes
35,454 shares of Common Stock underlying warrants held by Mr. Alvino and
presently exercisable options for the purchase of 66,000 shares of Access’
Common Stock pursuant to the 2005 Equity Incentive Plan. Mr. Alvino is
Managing Director of Griffin Securities LLC. His address is c/o Griffin
Securities LLC, 17 State St., 3rd
Floor, New York, NY 10004. Mr. Alvino is a designated director of SCO
Securities LLC. SCO Securities LLC and affiliates (SCO Capital Partners LP
and Beach Capital LLC) are known to beneficially own 3,481,800 shares of
Access’ Common Stock, warrants to purchase an aggregate of 6,053,287
shares of Access’ Common Stock and 7,077,100 shares of Common Stock
issuable upon conversion of Series A Cumulative Convertible Preferred
Stock. Mr. Alvino disclaims beneficial ownership of all such shares except
to the extent of his pecuniary interest therein. Mr. Alvino disclaims
beneficial ownership of all such shares except to the extent of his
pecuniary interest therein.
|
(6)
|
Includes
presently exercisable options for the purchase of 156,000 shares of
Access’ Common Stock pursuant to the 2005 Equity Incentive Plan and a
warrant to purchase 150,000 shares of Access’ Common Stock at an exercise
price of $3.15 per share. Dr. Cvitkovic has also been granted an
additional warrant of 50,000 shares of Access’ Common Stock at an exercise
price of $3.15 that vests January 1,
2010.
|
(7)
|
Dr.
Howell is known to beneficially own an aggregate of 9,722 shares of
Access’ Common Stock, presently exercisable options for the purchase of
67,200 shares of Access’ Common Stock pursuant to the 2005 Equity
Incentive Plan and 12,500 shares of Access’ Common Stock pursuant to the
1995 Stock Option Plan.
|
(8)
|
Mr.
Luci is known to beneficially own an aggregate of 129,884 shares of
Access’ Common Stock, warrants to purchase an aggregate of 4,167 shares of
Access’ Common Stock, 8,333 shares of Common Stock issuable to him upon
conversion of Series A Cumulative Convertible Preferred Stock and
presently exercisable options for the purchase of 76,000 shares of Access’
Common Stock pursuant to the 2005 Equity Incentive Plan. Mr. Luci has also
been granted 66,666 restricted shares of Access’ Common Stock that vests
on January 1, 2010 and 66,666 restricted shares of Access’ Common Stock
that vests on June 1, 2010.
|
(9)
|
Dr.
Nowotnik is known to beneficially own an aggregate of 17,516 shares of
Access’ Common Stock, presently exercisable options for the purchase of
193,752 shares of Access’ Common Stock pursuant to the 2005 Equity
Incentive Plan and 40,000 shares of Access’ Common Stock pursuant to the
1995 Stock Option Plan.
|
(10) | Includes presenty exercisable options for the purchase of 28,125 shares of Access' Common Stock pursuant to the 2005 Equity Incentive Plan |
(11)
|
Includes
presently exercisable options for the purchase of 118,752 shares of
Access’ Common Stock pursuant to the 2005 Equity Incentive
Plan.
|
(12)
|
Mr.
Thompson is known to beneficially own an aggregate of 9,521 shares of
Access’ Common Stock, presently exercisable options for the purchase of
193,752 shares of Access’ Common Stock pursuant to the 2005 Equity
Incentive Plan and 27,000 shares of Access’ Common Stock pursuant to the
1995 Stock Option Plan.
|
(13)
|
SCO
Capital Partners LLC, SCO Capital Partner LP, Beach Capital LLC and SCO
Financial Group's address is 1285 Avenue of the Americas, 35th
Floor, New York, NY 10019. SCO Capital Partners LLC and affiliates (SCO
Capital Partners LP, Beach Capital LLC and SCO Financial Group) are known
to beneficially own an aggregate of 3,481,800 shares of Access’ Common
Stock, warrants to purchase an aggregate of 6,053,287 shares of Access’
Common Stock and 7,077,100 shares of Common Stock issuable upon conversion
of Series A Cumulative Convertible Preferred Stock. Each of Mr. Rouhandeh,
Mr. Davis and Mr. Alvino, directors of Access and Mr. Rouhandeh and Mr.
Davis are executives of SCO Capital Partners LLC and disclaim beneficial
ownership of such shares except to the extent of their pecuniary interest
therein.
|
(14)
|
Larry
N. Feinberg is a partner in Oracle Partners, L.P. His address is c/o
Oracle Partners, L.P., 200 Greenwich Avenue, 3rd
Floor, Greenwich, CT 06830. Oracle Partners, L.P. and affiliates (Oracle
Institutional Partners, L.P., Oracle Investment Management, Inc., Sam
Oracle Fund, Inc. and Mr. Feinberg) are known to beneficially own an
aggregate of 493,593 shares of Access’ Common Stock, warrants to purchase
an aggregate of 728,850 shares of Access’ Common Stock and Series A
Cumulative Convertible Preferred Stock which may be converted into an
aggregate of 1,457,699 shares of Access’ Common
Stock.
|
(15)
|
Lake
End Capital LLC’s address is 1285 Avenue of the Americas, 35th
Floor, New York, NY 10019. Lake End Capital LLC is known to beneficially
own an aggregate of 335,575 shares of Access’ Common Stock, warrants to
purchase an aggregate of 724,026 shares of Access’ Common Stock and
793,067 shares of Common Stock issuable to them upon conversion of Series
A Cumulative Convertible Preferred
Stock.
|
(16)
|
Does
not include shares held by SCO Securities LLC and
affiliates.
|
63
TRANSACTIONS
WITH RELATED PERSONS, PROMOTERS AND CERTAIN CONTROL PERSONS
On
occasion we may engage in certain related party transactions. Our policy is that
all related party transactions are reviewed and approved by the Board of
Directors or Audit Committee prior to the Company entering into any related
party transactions.
On
February 12, 2008, the Board of Directors of the Company elected Steven H.
Rouhandeh as director and Chairman of the Board effective as of March 4, 2008.
Mr. Rouhandeh is Chief Investment Officer of SCO Capital Partners, L.P. In the
event SCO Capital Partners LLC (“SCO”) and its affiliates were to convert all of
their shares of Series A Cumulative Convertible Preferred Stock and exercise all
of their warrants, they would own approximately 59.0% of the voting securities
of Access. During 2008 SCO and affiliates were paid $191,000 in placement agent
fees relating to the issuance of preferred stock and were issued warrants to
purchase 39,667 shares of our common stock. During 2007 SCO and affiliates were
paid $240,000 in placement agent fees relating to the issuance of preferred
stock and were issued warrants to purchase 100,000 shares of our Common Stock.
SCO and affiliates also were paid $232,000 in investor relations fees in 2008
and $150,000 in investor relations fees in 2007.
On
February 25, 2009 we closed our acquisition of MacroChem Corporation. In
connection with the merger, Access issued an aggregate of approximately 2.5
million shares of Access Pharmaceuticals, Inc. common stock to the holders of
MacroChem common stock and in-the-money warrant holders as consideration, having
a value of approximately $3,500,000 (the value was calculated using Access’
stock price on February 25, 2009, times the number of shares
issued).
In
addition, on February 25, 2009, we issued 859,172 shares of our unregistered
common stock to the holders of $825,000 of MacroChem notes and interest in
exchange for cancellation of those notes. We also issued 60,000 shares of our
unregistered common stock in exchange for the settlement and release agreement
with David P. Luci, Chief Business Officer of MacroChem Corporation. Mr. Luci is
a director of Access. Additionally, on February 25, 2009 we issued 35,000 shares
of our unregistered common stock in exchange for the cancellation of employment
agreements to two former executives of MacroChem. The securities issued to the
former MacroChem noteholders and the former executives were issued under section
4(2) of the Securities Act, as amended.
Prior to
our acquisition of MacroChem Corporation, SCO and its affiliates and Lake End
Capital LLC owned approximately 63% of MacroChem.
In
connection with the sale and issuance of Series A Cumulative Convertible
Preferred Stock and warrants, we entered into a Director Designation Agreement
whereby we agreed to continue SCO’s right to designate two individuals to serve
on the Board of Directors of Access. The directors appointed by SCO
pursuant to this arrangement were Jeffrey B. Davis, our Chief Executive Officer,
and Mr. Mark Alvino.
David P.
Luci, one of our directors, participated in the February 2008 sale of our
preferred stock. Mr. Luci purchased 2.5 preferred shares for $25,000 and
warrants to purchase 4,167 shares of our common stock. In addition, Mr. Luci was
the President & Chief Business Officer of MacroChem, which we acquired on
February 25, 2009, pursuant to a Merger Agreement dated July 9, 2008. We signed an amended
Consulting, Settlement and Release Agreement with Mr. Luci on March 16, 2009
where he received 60,000 shares of our restricted common stock and $27,500 in a
one time cash payment to settle his rights under a previous consulting agreement
with MacroChem. On June 1, 2009 we signed a consulting agreement with Mr. Luci
where Mr. Luci will provide consulting services to Access for cash compensation
of $9,415 per month and for 200,000 shares of our restricted common stock and a
cash bonus if certain events occur, as defined in the agreement. The 200,000
shares of restricted common stock vests 66,667 shares on June 1, 2009, 66,666
shares on January 1, 2010 and 66,667 shares on June 1, 2010.
64
Dr.
Esteban Cvitkovic, a Director, has served as a consultant and Senior Director,
Oncology Clinical Research & Development, since August 2007. Dr. Cvitkovic
currently receives $20,000 per month plus $2,500 for office expenses. During
2008, Dr. Cvitkovic received $350,000 from us for consulting services. In
January 2008, Dr. Cvitkovic also received for his consulting services, warrants
to purchase 200,000 shares of our Common Stock which warrants can be exercised
until January 4, 2012. The warrants vest over two years in 50,000 share blocks
with vesting on July 4, 2008, January 4, 2009, July 4, 2009, and the remaining
shares on January 4, 2010. Dr. Cvitkovic is a principal of OTD Oncology
Therapeutic Development, a clinical research organization which has been working
with the Company on the clinical development of ProLindac.
Mr.
Alvino is a principal of Griffin Securities which maintains a banking
relationship with the Company.
Stephen
B. Howell, M.D., a Director, received payments for consulting services and
reimbursement of direct expenses. His consulting agreement expired in March 1,
2008. Dr. Howell was paid $32,000 in 2008 in consulting fees.
On
October 12, 2000, the Board authorized a restricted stock purchase program.
Under the program, our executive officers were given the opportunity to purchase
shares of Common Stock in an individually designated amount per participant
determined by our Compensation Committee. A total of 36,000 shares were
purchased by such officers at $27.50 per share, the fair market value of the
Common Stock on October 12, 2000, for an aggregate consideration of $990,000.
The purchase price was paid through the participant’s delivery of a 50%-recourse
promissory note payable to us. Each note bears interest at 5.87% compounded
semi-annually and has a maximum term of ten years. The notes are secured by a
pledge to us of the purchased shares. We recorded the notes receivable of
$990,000 from participants in this program as a reduction of equity in the
Consolidated Balance Sheet. As of December 31, 2008, principal and interest on
the notes was: Mr. Gray - $908,000; Dr. Nowotnik - $454,000; and Mr. Thompson -
$272,000. In accordance with the Sarbanes-Oxley Act of 2002, we no longer make
loans to our executive officers. Interest on the notes is neither being
collected nor accrued.
65
Access’
certificate of incorporation authorizes the issuance of 100,000,000 shares of
its common stock, $.01 par value per share, and 2,000,000 shares of preferred
stock, $.01 par value per share, which may be issued in one or more series.
Currently, 4,000 shares of preferred stock are designated as Series A Cumulative
Convertible Preferred Stock and 300,000 are designated as Series A Junior
Participating Preferred Stock. As of January 14, 2010 there were 13,336,545
shares of Access’ common stock outstanding and held of record by
approximately 10,900 stockholders, and there were 2,985.3617 shares
of its Series A Cumulative Convertible Preferred Stock outstanding
convertible into 9,951,198 shares of common stock.
Common
Stock
Holders
of Access’ common stock are entitled to one vote for each share held on all
matters submitted to a vote of stockholders and have the right to vote
cumulatively for the election of directors. This means that in the voting at
Access’ annual meeting, each stockholder or his proxy, may multiply the number
of his shares by the number of directors to be elected then cast the resulting
total number of votes for a single nominee, or distribute such votes on the
ballot among the nominees as desired. Holders of Access’ common stock are
entitled to receive ratably such dividends, if any, as may be declared by
Access’ Board of Directors out of funds legally available therefor, subject to
any preferential dividend rights for Access’ outstanding preferred stock. Upon
Access’ liquidation, dissolution or winding up, the holders of Access’ common
stock are entitled to receive ratably Access’ net assets available after the
payment of all debts and other liabilities and subject to the prior rights of
any of Access’ outstanding preferred stock. Holders of Access’ common stock have
no preemptive, subscription, redemption or conversion rights. The
rights, preferences and privileges of holders of Access’ common stock are
subject to, and may be adversely affected by, the rights of the holders of
shares of any series of Access’ preferred stock which Access may designate and
issue in the future.
Preferred
Stock
Access’
Board of Directors is authorized, subject to certain limitations prescribed by
law, without further stockholder approval, to issue from time to time up to an
aggregate of 2,000,000 shares of preferred stock in one or more series and to
fix or alter the designations, preferences, rights and any qualifications,
limitations or restrictions of the shares of each such series thereof, including
the dividend rights, dividend rates, conversion rights, voting rights and terms
of redemption of shares constituting any series or designations of such series.
The issuance of preferred stock may have the effect of delaying, deferring or
preventing a change of control. The fact that Access’ board of
directors has the right to issue preferred stock without stockholder approval
allowed Access to institute a “poison pill” that would work to dilute the stock
ownership of a potential hostile acquirer, effectively preventing acquisitions
that have not been approved by Access’ board of directors.
Access’
Board of Directors has designated 4,000 shares of preferred stock as Series A
Cumulative Convertible Preferred Stock. The shares of Series A
Cumulative Convertible Preferred are convertible at the option of the holder
into shares of our common stock at a conversion price of $3.00 per share of
common stock.
The
Series A Cumulative Convertible Preferred Stock is entitled to a liquidation
preference equal to $10,000 per share and is entitled to a dividend of 6% per
annum, payable semi-annually in cash or if certain conditions are met, in common
stock, at the option of the Company at time of payment. Our ability
to pay dividends in shares of common stock is limited by among other things a
requirement that (i) there is an effective registration statement on the shares
of common stock, issuable to the holders of Series A Cumulative Convertible
Preferred Stock, in the 20 day period immediately prior to such dividend or (ii)
that such shares of common stock referred to in (i) may be sold without
restriction pursuant to Rule 144(k) during the 20 day period immediately
prior to such dividend.
66
The
Company has the right, but not the obligation, to force conversion of all, and
not less than all, of the outstanding Series A Cumulative Convertible Preferred
Stock into common stock (i) as long as the closing price of our common stock
exceeds $7.00 for at least 20 of the 30 consecutive trading days immediately
prior to the conversion and the average daily trading volume is greater than
100,000 shares per day for at least 20 of the 30 consecutive trading days
immediately prior to such conversion, in each case, immediately prior to the
date on which we gives notice of such conversion or (ii) if we close a sale of
common stock in which the aggregate proceeds are equal to or greater than
$10,000,000. Our ability to cause a mandatory conversion is subject
to certain other conditions, including that a registration statement covering
the common stock issuable upon such mandatory conversion is in effect and able
to be used.
The
conversion price of the Series A Cumulative Convertible Preferred Stock is
subject to a price adjustment upon the issuance of additional shares of common
stock for a price below $3.00 per share and equitable adjustment for stock
splits, dividends, combinations, reorganizations and the like. Under
the terms of the currently proposed offering, we anticipate selling shares of
our common stock for $_____ per share. This will result in the conversion
price of outstanding Series A Cumulative Convertible Preferred Stock
automatically decreasing to $_____ per share.
The
Series A Cumulative Convertible Preferred Stock will vote together with the
common stock on an as-if-converted basis.
Holders
of Series A Cumulative Convertible Preferred Stock are entitled to purchase
their pro rata share of additional stock issuances in certain future
financings.
We are a
party to a Rights Agreement pursuant to which we agree to provide holders of our
common stock with the right to buy shares of preferred stock should a party
acquire or beneficially own more than 15% of our common stock without first
being exempted by us. Such shares of preferred stock will entitle to
the holder to certain voting, dividend and liquidation preferences and is
designed to discourage take-over attempts not previously approved by our Board
of Directors.
Warrants
As of
January 14, 2010, warrants for the issuance of 9,835,479 shares of our common
stock were outstanding, all of which are exercisable at a weighted average
exercise price of $2.81 per share, all of which are exercisable through various
dates expiring between June 9, 2010 and July 23,
2014. Outstanding warrants to acquire ______ shares of our
common stock include a price protection mechanisms in which the exercise price
of these the warrants will automatically be lowered in the event we issue shares
of our common stock for a price less than $3.50 per share. Under the terms
of the currently proposed offering, we anticipate selling shares of our common
stock for $_____ per share. This will result in the exercise price of
certain previously issued warrants automatically decreasing to $_____ per
share.
The
descriptions of the warrants are only a summary and are qualified in their
entirety by the provisions of the forms of the warrant, which are attached or
referenced to the registration statement of which this prospectus forms a
part.
Unit
Warrants
In
connection with this offering, we will issue warrants to purchase up to
_________ shares of common stock. Each warrant entitles the holder to
purchase one share of common stock at an exercise price of $
per share. After the expiration of the exercise period, unit warrant holders
will have no further rights to exercise such unit warrants.
The unit
warrants may be exercised only for full shares of common stock, and may be
exercised on a “cashless” basis. If the registration statement covering the
shares issuable upon exercise of the warrants contained in the units is no
longer effective, the unit warrants may only be exercised on a “cashless” basis
and will be issued with restrictive legends unless such shares are eligible for
sale under Rule 144. We will not issue fractional shares of common stock or cash
in lieu of fractional shares of common stock. Unit warrant holders do not have
any voting or other rights as a stockholder of our company. The exercise price
and the number of shares of common stock purchasable upon the exercise of each
unit warrant are subject to adjustment upon the happening of certain events,
such as stock dividends, distributions, and splits.
Certain
institutional investors are prohibited, pursuant to their investment charter or
other governing documents, from acquiring warrants. Accordingly, we and the
placement agent may, upon request of any such investor in this offering, sell
units to such investors that exclude the warrants, provided that the sale of
units that exclude such warrants will be at a price per unit equal to $ .
67
Transfer
Agent and Registrar
The
transfer agent and registrar of our common stock is American Stock Transfer
& Trust Company, New York, New York.
Delaware
Law and Certain Charter and By-Law Provisions
Certain
anti-takeover provisions.
We are
subject to the provisions of Section 203 of the General Corporation Law of
Delaware. Section 203 prohibits certain publicly held Delaware corporations from
engaging in a "business combination" with an "interested stockholder," for a
period of three years after the date of the transaction in which the person
became an "interested stockholder", unless the business combination is approved
in a prescribed manner. A "business combination" includes mergers, asset sales
and other transactions resulting in a financial benefit to the interested
stockholder. Subject to certain exceptions, an "interested stockholder" is a
person or entity who, together with affiliates and associates, owns (or within
the preceding three years, did own) 15% or more of the corporation's voting
stock. The statute contains provisions enabling a corporation to avoid the
statute's restrictions if the stockholders holding a majority of the
corporation's voting stock approve our Certificate of Incorporation provides
that our directors shall be divided into three classes, with the terms of each
class to expire on different years.
In
addition, our Certificate of Incorporation, in order to combat "greenmail,"
provides in general that any direct or indirect purchase by us of any of our
voting stock or rights to acquire voting stock known to be beneficially owned by
any person or group which holds more than five percent of a class of our voting
stock and which has owned the securities being purchased for less than two years
must be approved by the affirmative vote of at least two-thirds of the votes
entitled to be cast by the holders of voting stock, subject to certain
exceptions. The prohibition of "greenmail" may tend to discourage or foreclose
certain acquisitions of our securities which might temporarily increase the
price of our securities. Discouraging the acquisition of a large block of our
securities by an outside party may also have a potential negative effect on
takeovers. Parties seeking control of us through large acquisitions of its
securities will not be able to resort to "greenmail" should their bid fail, thus
making such a bid less attractive to persons seeking to initiate a takeover
effort.
We are a
party to a Rights Agreement pursuant to which we agree to provide holders of our
common stock with the right to buy shares of preferred stock should a party
acquire or beneficially own more than 15% of our common stock without first
being exempted by us. Such shares of preferred stock will entitle to
the holder to certain voting, dividend and liquidation preferences and is
designed to discourage take-over attempts not previously approved by our Board
of Directors.
Elimination
of Monetary Liability for Officers and Directors
Our
Certificate of Incorporation incorporates certain provisions permitted under the
General Corporation Law of Delaware relating to the liability of directors. The
provisions eliminate a director's liability for monetary damages for a breach of
fiduciary duty, including gross negligence, except in circumstances involving
certain wrongful acts, such as the breach of director's duty of loyalty or acts
or omissions, which involve intentional misconduct or a knowing violation of
law. These provisions do not eliminate a director's duty of care. Moreover,
these provisions do not apply to claims against a Director for certain
violations of law, including knowing violations of federal securities law. Our
Certificate of Incorporation also contains provisions to indemnify the
directors, officers, employees or other agents to the fullest extent permitted
by the General Corporation Law of Delaware. We believe that these provisions
will assist us in attracting and retaining qualified individual to serve as
directors.
68
Indemnification
of Officers and Directors
Our
Certificate of Incorporation also contains provisions to indemnify the
directors, officers, employees or other agents to the fullest extent permitted
by the General Corporation Law of Delaware. These provisions may have the
practical effect in certain cases of eliminating the ability of shareholders to
collect monetary damages from directors. We believe that these provisions will
assist us in attracting or retaining qualified individuals to serve as our
directors.
Disclosure
of Commission Position on Indemnification For Securities Act
Liabilities
Insofar
as indemnification for liabilities arising under the Securities Act of 1933 may
be permitted to directors, officers and controlling persons of the Registrant
pursuant to the foregoing provisions, the Registrant has been
informed that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable.
69
PLAN
OF DISTRIBUTION
We are
offering up to _______ units, each consisting of __ shares of common stock and
warrants to purchase an additional __ shares of common stock for $__ per unit
with aggregate gross proceeds of up to $25,000,000. Pursuant to an
engagement letter agreement, we engaged Rodman & Renshaw, LLC as our
placement agent for this offering. Rodman is not
purchasing or selling any units, nor are they required to arrange for the
purchase and sale of any specific number or dollar amount of units, other than
to use their “best efforts” to arrange for the sale of units by
us. Therefore, we may not sell the entire amount of units being
offered. Additionally, we and the placement agent may, upon request
of any investor in this offering, sell units to such investors that exclude the
warrants, provided that the sale of units that exclude such warrants shall be at
the same offering price per unit as all other investors.
Upon the
closing of the offering, we will pay the placement agent a cash transaction fee
equal to 6% of the gross proceeds to us from the sale of the units in the
offering. In addition, we agreed to grant the placement agent a
warrant to purchase a number of shares of our common stock equal to 6% of the
number of units sold by us in the offering. The compensation warrants
will have the same terms as the warrants issued to the public in the offering
except that it will have an exercise price equal to 125% of the public offering
price per unit, an expiration date that is five years from the earlier of the
effective date or commencement of sales and will be subject to FINRA Rule
5110(g)(1) in that for a period of six months after the issuance date of the
compensation warrants (which shall not be earlier than the closing date of the
offering pursuant to which the compensation warrants are being issued), neither
the compensation warrants nor any warrant shares issued upon exercise of the
compensation warrants shall be (A) sold, transferred, assigned, pledged, or
hypothecated, or (B) the subject of any hedging, short sale, derivative, put, or
call transaction that would result in the effective economic disposition of the
securities by any person for a period of 180 days immediately following the date
of effectiveness or commencement of sales of the offering pursuant to which the
compensation warrants are being issued, except the transfer of any security as
permitted by FINRA rules.
The
placement agent may be deemed to be an underwriter within the meaning of Section
2(a)(11) of the Securities Act and any commissions received by it and any profit
realized on the sale of the securities by them while acting as principal might
be deemed to be underwriting discounts or commissions under the Securities
Act. The placement agent would be required to comply with the
requirements of the Securities Act of 1933, as amended, or the Securities Act,
and the Securities Exchange Act of 1934, as amended, or the Exchange Act,
including, without limitation, Rule 10b-5 and Regulation M under the Exchange
Act. These rules and regulations may limit the timing of purchases
and sales of shares of common stock and warrants to purchase shares of common
stock by the placement agent. Under these rules and regulations, the
placement agent may not (i) engage in any stabilization activity in connection
with our securities; and (ii) bid for or purchase any of our securities or
attempt to induce any person to purchase any of our securities, other than as
permitted under the Exchange Act, until they have completed their participation
in the distribution.
The
placement agent agreement provides that we will indemnify the placement agent
against specified liabilities, including liabilities under the Securities Act.
We have been advised that, in the opinion of the Securities and Exchange
Commission, indemnification for liabilities under the Securities Act is against
public policy as expressed in the Securities Act and is therefore
unenforceable. The placement agent agreement also provides that the
agreement may be terminated by either party upon thirty (30) days prior written
notice.
Notice
to Investors in the United Kingdom
70
This
prospectus is being distributed only to, and is only directed at (i) persons who
are outside the United Kingdom, or (ii) investment professionals falling within
Article 19(5) of the Financial Services and Markets Act 2000 (Financial
Promotion) Order 2005 (the “Order”) or (iii) high net worth entities, and other
persons to whom it may lawfully be communicated, falling within Article 49(2)(a)
to (e) of the Order, or (iv) persons to whom Article 33 of the Order applies
(all such persons being referred to as “relevant persons” and each a “relevant
person”). Accordingly, by accepting delivery of this prospectus, the
recipient warrants and acknowledges that it is such a relevant person and where
Article 33 of the Order applies it acknowledges that it has previously been
advised (a) that the protections conferred by the Financial Services and Markets
Act 2000 (the “Act”) will not apply to any communication in relation to the
securities the subject of this prospectus; and (b) that the protections
conferred by or under the Act may not apply to any investment activity that may
be engaged in as a result of any such communication. The securities
are only available to, and any invitation, offer, or agreement to subscribe,
purchase or otherwise acquire such securities will be engaged in only with
relevant persons. Any person who is not a relevant person should not act or rely
on tis prospectus or any of its contents.
This
prospectus has not bee approved by an authorized person in the United Kingdom.
No person may communicate or cause to be communicated any invitation or
inducement to engage in investment activity (within the meaning of Section 21(1)
of the Act) received by it in connection with the issue or sale of the
securities other than in circumstances in which Section 21(1) of the Act does
not apply to us.
European
Economic Area
In
particular, this document does not constitute an approved prospectus in
accordance with European Commission’s Regulation on Prospectuses no. 809/2004
and no such prospectus is to be prepared and approved in connection with this
offering. Accordingly, in relation to each Member State of the European Economic
Area which has implemented the Prospectus Directive (being the Directive of the
European Parliament and of the Council 2003/71/EC and including any relevant
implementing measure in each Relevant Member State) (each, a Relevant Member
State), with effect from and including the date on which the Prospectus
Directive is implemented in that Relevant Member State (the Relevant
Implementation Date) an offer of securities to the public may not be made in
that Relevant Member State prior to the publication of a prospectus in relation
to units which has been approved by the competent authority in that Relevant
Member State or, where appropriate, approved in another Relevant Member State
and notified to the competent authority in that Relevant Member State, all in
accordance with the Prospectus Directive, except that it may, with effect from
and including the Relative Implementation Date, make an offer of securities to
the public in that Relevant Member State at any time:
·
|
to
legal entities which are authorized or regulated to operate in the
financial markets or, if not so authorized or regulated, whose corporate
purpose is solely to invest in
securities;
|
·
|
to
any legal entity which has two or more of (1) an average of at least 250
employees during the last financial year; (2) a total balance sheet of
more than 43,000,000 euros; and (3) an annual net turnover of more than
50,000,000 euros, as shown in the last annual or consolidated accounts;
or
|
·
|
in
any other circumstances which do not require the publication by the Issuer
of a prospectus pursuant to Article 3 of the Prospectus
Directive.
|
For the
purposes of this provision, the expression an “offer of securities to the
public” in relation to any shares in any Relevant Member State means the
communication in any form and by any means of sufficient information on the
terms of the offer and the securities to be offered so as to enable an investor
to decide to purchase or subscribe the shares, as the same may be varied in that
Member State by any measure implementing the Prospectus Directive in that Member
State. For these purposes the units are “securities.”
Each of
our executive officers and directors reside in and are citizens of the United
States except as follows:
71
Dr.
Esteban Citkovic, our Vice Chairman, resides in and is a citizen of France;
and
Dr. David
Nowotnik, our Senior Vice President, Research and Development, is a permanent
resident of the United States but is a citizen of the United
Kingdom.
Abandoned
Private Placement
Between
July 2009 and October 15, 2009, we were engaged in preliminary discussions with
a number of potential investors, both directly and through registered
broker-dealers, concerning a possible private placement of an unspecified amount
of shares of our common stock or other equity securities. We and any
person acting on our behalf offered securities only to persons that were, or
that we reasonably believed to be, accredited investors, as defined in
Regulation D under the Securities Act of 1933, as amended. The
private placement was intended to be completed in reliance upon Rule 506 of
Regulation D. On October 15, 2009, we abandoned the private placement and all
offering activity in connection therewith was terminated in order to enable us
to pursue this offering. No offers to buy or indications of interest given in
the private placement discussions were accepted. This prospectus supersedes any
offering materials used in the abandoned private placement.
72
EXPERTS
The
consolidated financial statements of Access for the years ended December 31,
2008 and 2007 included in this prospectus, and included in the Registration
Statement, were audited by Whitley Penn LLP, an independent public
accounting firm, as stated in their report appearing with the consolidated
financial statements herein and incorporated in this Registration Statement, and
are included in reliance upon the report of such firm given upon their authority
as experts in accounting and auditing.
The
consolidated financial statements of MacroChem Corporation for the year ended
December 31, 2008 included in this prospectus, and included in the
Registration Statement, were audited by Whitley Penn LLP, an independent public
accounting firm, as stated in their report appearing with the consolidated
financial statements herein and incorporated in this Registration Statement, and
are included in reliance upon the report of such firm given upon their authority
as experts in accounting and auditing.
The
independent public registered accounting firm named above has no interest in the
prospectus.
LEGAL
MATTERS
Bingham
McCutchen LLP will pass upon the validity of the securities offered
hereby. Several partners and attorneys of Bingham McCutchen LLP are
also shareholders of Access.
WHERE
YOU CAN FIND MORE INFORMATION
We have
filed with the Securities and Exchange Commission, Washington, D.C. 20549, under
the Securities Act of 1933, a registration statement on Form S-1 relating to the
shares of common stock offered hereby. This Prospectus does not contain all of
the information set forth in the registration statement and the exhibits and
schedules thereto. For further information with respect to our company and the
shares we are offering by this Prospectus you should refer to the registration
statement, including the exhibits and schedules thereto. You may inspect a copy
of the registration statement without charge at the Public Reference Section of
the Securities and Exchange Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549. The public may obtain information on the operation of
the Public Reference Room by calling the Securities and Exchange Commission. The
Securities and Exchange Commission also maintains an Internet site that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Securities and Exchange
Commission. The Securities and Exchange Commission's World Wide Web address is
http://www.sec.gov.
We file
periodic reports, proxy statements and other information with the Securities and
Exchange Commission in accordance with requirements of the Exchange Act. These
periodic reports, proxy statements and other information are available for
inspection and copying at the regional offices, public reference facilities and
Internet site of the Securities and Exchange Commission referred to above. In
addition, you may request a copy of any of our periodic reports filed with the
Securities and Exchange Commission at no cost, by writing or telephoning us at
the following address:
Investor
Relations
Access
Pharmaceuticals, Inc.
2600
Stemmons Freeway, Suite 176
Dallas,
Texas 75207
(214)
905-5100
Information
contained on our website is not a prospectus and does not constitute a part of
this Prospectus.
You
should rely only on the information contained in or incorporated by reference or
provided in this Prospectus. We have not authorized anyone else to provide you
with different information. We are not making an offer of these securities in
any state where the offer is not permitted. You should not assume the
information in this Prospectus is accurate as of any date other than the date on
the front of this Prospectus.
73
FINANCIAL
STATEMENTS
ACCESS
PHARMACEUTICALS, INC.
PAGE
|
|
Report
of Independent Registered Public Accounting
Firm
|
F-2
|
Consolidated
Balance Sheets at December 31, 2008 and
2007
|
F-3
|
Consolidated
Statements of Operations for 2008 and
2007
|
F-4
|
Consolidated
Statements of Stockholders' Equity (Deficit) for 2008 and
2007
|
F-5
|
Consolidated
Statements of Cash Flows for 2008 and
2007
|
F-6
|
Notes
to Consolidated Financial Statements (Two years ended December 31,
2008)
|
F-7
|
Condensed
Consolidated Balance Sheets at September 30, 2009
(unaudited)
|
F-25
|
Condensed
Consolidated Statements of Operations for September 30, 2009 and 2008
(unaudited)
|
F-26
|
Condensed
Consolidated Statement of Stockholders’ Deficit for September 30, 2009
(unaudited)
|
F-27
|
Condensed
Consolidated Statements of Cash Flows for September 30, 2009 and 2008
(unaudited)
|
F-28
|
Notes
to Condensed Consolidated Financial Statements (Three Months Ended
September 30, 2009 and 2008) (unaudited)
|
F-29
|
F-1
Report
of Independent Registered Public Accounting Firm
To the
Board of Directors and Stockholders of
Access
Pharmaceuticals, Inc.
We have
audited the accompanying consolidated balance sheets of Access Pharmaceuticals,
Inc. and subsidiaries, as of December 31, 2008 and 2007, and the related
consolidated statements of operations, changes in stockholders’ equity
(deficit), and cash flows for the years then ended. 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 the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. An audit includes consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, 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 consolidated financial position Access Pharmaceuticals,
Inc. and subsidiaries as of December 31, 2008 and 2007, and the consolidated
results of their operations and their cash flows for the years then ended in
conformity with accounting principles generally accepted in the United States of
America.
The
accompanying consolidated financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note 2 to the
consolidated financial statements, the Company has had recurring losses from
operations, negative cash flows from operating activities and has an accumulated
deficit. Management’s plans in regard to these matters are also described in
Note 2. These conditions raise substantial doubt about the Company’s ability to
continue as a going concern. These consolidated financial statements do not
include any adjustments to reflect the possible future effects on the
recoverability and classification of assets or the amounts and classification of
liabilities that may result from the outcome of this uncertainty.
/s/
WHITLEY PENN LLP
Dallas,
Texas
March 31,
2009
F-2
Access
Pharmaceuticals, Inc. and Subsidiaries
CONSOLIDATED
BALANCE SHEETS
ASSETS
|
December 31, 2008
|
December 31, 2007
|
Current
assets
Cash and cash
equivalents
Receivables
Receivables due from MacroChem
Corp.
Receivables due from Somanta
Pharmaceuticals, Inc.
Prepaid
expenses and other current assets
Total
current assets
|
$ 2,663,000
147,000
635,000
-
105,000
3,550,000
|
$ 6,921,000
35,000
-
931,000
410,000
8,297,000
|
Property
and equipment, net
|
87,000
|
130,000
|
Patents,
net
|
542,000
|
710,000
|
Other
assets
|
78,000
|
12,000
|
Total
assets
|
$ 4,257,000
|
$ 9,149,000
|
LIABILITIES
AND STOCKHOLDERS' EQUITY (DEFICIT)
|
||
Current
liabilities
Accounts
payable
Accrued
expenses
Dividends
payable
Accrued
interest payable
Current
portion of deferred revenue
Current
portion of convertible long-term debt
Total
current liabilities
|
$ 1,970,000
748,000
1,896,000
128,000
164,000
-
4,906,000
|
$ 1,506,000
30,000
260,000
130,000
68,000
64,000
2,058,000
|
Long-term
deferred revenue
Long-term
convertible debt
|
2,245,000
5,500,000
|
910,000
5,500,000
|
Total
liabilities
|
12,651,000
|
8,468,000
|
Commitments
and contingencies
|
||
Stockholders'
equity (deficit)
Convertible
preferred stock - $.01 par value; authorized 2,000,000
shares;
3,242.8617
issued at December 31, 2008; 3,227.3617 issued at
December
31, 2007
Common
stock - $.01 par value; authorized 100,000,000 shares;
issued,
6,967,474 at December 31, 2008; issued 3,585,458
at
December 31, 2007
Additional
paid-in capital
Notes
receivable from stockholders
Treasury
stock, at cost – 163 shares
Accumulated
deficit
Total
stockholders' equity (deficit)
|
-
70,000
127,482,000
(1,045,000)
(4,000)
(134,897,000)
(8,394,000)
|
-
36,000
116,018,000
(1,045,000)
(4,000)
(114,324,000)
681,000
|
Total
liabilities and stockholders' equity (deficit)
|
$ 4,257,000
|
$ 9,149,000
|
The
accompanying notes are an integral part of these consolidated
statements.
F-3
Access
Pharmaceuticals, Inc. and Subsidiaries
CONSOLIDATED
STATEMENTS OF OPERATIONS
December
31,
|
||||||||
2008
|
2007
|
|||||||
Revenues
|
||||||||
License
revenues
|
$ | 118,000 | $ | 23,000 | ||||
Sponsored research and
development
|
173,000 | 34,000 | ||||||
Total revenues
|
291,000 | 57,000 | ||||||
Expenses
|
||||||||
Research and
development
|
12,613,000 | 2,602,000 | ||||||
General and
administrative
|
4,340,000 | 4,076,000 | ||||||
Depreciation and
amortization
|
253,000 | 279,000 | ||||||
Total expenses
|
17,206,000 | 6,957,000 | ||||||
Loss
from operations
|
(16,915,000 | ) | (6,900,000 | ) | ||||
Interest
and miscellaneous income
|
178,000 | 125,000 | ||||||
Interest
and other expense
|
(478,000 | ) | (3,514,000 | ) | ||||
Loss
on extinguishment of debt
|
- | (11,628,000 | ) | |||||
(300,000 | ) | (15,017,000 | ) | |||||
Loss
before discontinued operations and before tax benefit
|
(17,215,000 | ) | (21,917,000 | ) | ||||
Income
tax benefit
|
- | 61,000 | ||||||
Loss
from continuing operations
|
(17,215,000 | ) | (21,856,000 | ) | ||||
Less
preferred stock dividends
|
(3,358,000 | ) | (14,908,000 | ) | ||||
Loss
from continuing operations allocable to common
stockholders
|
(20,573,000 | ) | (36,764,000 | ) | ||||
Discontinued
operations, net of taxes of $0 in 2008 and
$61,000
in 2007
|
- | 112,000 | ||||||
Net
loss allocable to common stockholders
|
$ | (20,573,000 | ) | $ | (36,652,000 | ) | ||
Basic
and diluted loss per common share
|
||||||||
Loss
from continuing operations allocable to common
stockholders
|
$ | (3.51 | ) | $ | (10.35 | ) | ||
Discontinued
operations
|
- | 0.03 | ||||||
Net
loss allocable to common stockholders
|
$ | (3.51 | ) | $ | (10.32 | ) | ||
Weighted
average basic and diluted common shares
Outstanding
|
5,854,031 | 3,552,006 | ||||||
The
accompanying notes are an integral part of these consolidated
statements.
F-4
Access
Pharmaceuticals, Inc. and Subsidiaries
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
Notes
|
|||||||||||||||||||||||||||||||||
Additional | receivable | ||||||||||||||||||||||||||||||||
Common
Stock
|
Preferred Stock
|
paid-in
|
from
|
Treasury | Accumulated | ||||||||||||||||||||||||||||
Shares
|
Amount
|
Shares
|
Amount
|
capital
|
stockholders | stock |
deficit
|
Balance,
December 31,
2006
|
3,535,000 | $ | 35,000 | - | $ | - | $ | 68,799,000 | $ | (1,045,000 | ) | $ | (4,000 | ) | $ | (77,672,000 | ) | ||||||||||||||||
Common
stock issued for
services
|
19,000 | - | - | - | 83,000 | - | - | - | |||||||||||||||||||||||||
Options
exercised
|
31,000 | 1,000 | - | - | 35,000 | - | - | - | |||||||||||||||||||||||||
Stock
option
compensation
expense
|
- | - | - | - | 1,048,000 | - | - | - | |||||||||||||||||||||||||
Preferred
stock issuances
|
- | - | 954.0001 | - | 5,560,000 | - | - | - | |||||||||||||||||||||||||
Warrants
issued with
preferred
stock
|
- | - | - | - | 3,980,000 | - | - | - | |||||||||||||||||||||||||
Costs
of stock issuances
|
(868,000 | ) | - | - | - | ||||||||||||||||||||||||||||
Beneficial
conversion
feature
|
- | - | - | - | 14,648,000 | - | - | - | |||||||||||||||||||||||||
Preferred
stock dividend
beneficial
conversion
feature
|
- | - | - | - | - | - | - | (14,648,000 | ) | ||||||||||||||||||||||||
Conversion
of convertible
debt
into preferred stock
|
- | - | 2,273.3616 | - | 6,472,000 | - | - | - | |||||||||||||||||||||||||
Warrants
issued with
preferred
stock
|
- | - | - | - | 4,633,000 | - | - | - | |||||||||||||||||||||||||
Loss
on extinguishment
of
debt – preferred stock
|
- | - | - | - | 6,777,000 | - | - | - | |||||||||||||||||||||||||
Loss
on extinguishment
of
debt – warrants
|
- | - | - | - | 4,851,000 | - | - | - | |||||||||||||||||||||||||
Preferred
dividends
|
- | - | - | - | - | - | - | (260,000 | ) | ||||||||||||||||||||||||
Net
loss
|
- | - | - | - | - | - | - | (21,744,000 | ) | ||||||||||||||||||||||||
Balance,
December 31,
2007
|
3,585,000 | 36,000 | 3,227.3617 | - | 116,018,000 | (1,045,000 | ) | (4,000 | ) | (114,324,000 | ) |
Common
stock issued for
services
|
10,000 | - | - | - | 27,000 | - | - | - | |||||||||||||||||||||||||
Warrants
issued for
services
|
- | - | - | - | 350,000 | - | - | - | |||||||||||||||||||||||||
Options
exercised
|
25,000 | - | - | - | 15,000 | - | - | - | |||||||||||||||||||||||||
Stock
option
compensation
expense
|
- | - | - | - | 415,000 | - | - | - | |||||||||||||||||||||||||
Preferred
stock issuances
|
- | - | 272.5000 | - | 1,687,000 | - | - | - | |||||||||||||||||||||||||
Warrants
issued with
preferred
stock
|
- | - | - | - | 1,142,000 | - | - | - | |||||||||||||||||||||||||
Costs
of stock issuances
|
- | - | - | - | (385,000 | ) | - | - | - | ||||||||||||||||||||||||
Preferred
stock dividend
beneficial
conversion
feature
|
- | - | - | - | 1,308,000 | - | - | (1,308,000 | ) | ||||||||||||||||||||||||
Common
stock and
warrants
issued to
Somanta
shareholders
|
1,500,000 | 15,000 | - | - | 4,916,000 | - | - | - | |||||||||||||||||||||||||
Common
stock and
warrants
issued to
Somanta
creditors
|
538,000 | 5,000 | - | - | 1,571,000 | - | - | - | |||||||||||||||||||||||||
Preferred
stock converted
into
common stock
|
857,000 | 9,000 | (257.0000 | ) | - | (9,000 | ) | - | - | - | |||||||||||||||||||||||
Common
stock issued for
preferred
dividends
|
452,000 | 5,000 | - | - | 427,000 | - | - | - | |||||||||||||||||||||||||
Preferred
dividends
|
- | - | - | - | - | - | - | (2,050,000 | ) | ||||||||||||||||||||||||
Net
loss
|
- | - | - | - | - | - | - | (17,215,000 | ) |
Balance,
December 31,
2008
|
6,967,000 | $ | 70,000 | 3,242.8617 | $ | - | $ | 127,482,000 | $ | (1,045,000 | ) | $ | (4,000 | ) | $ | (134,897,000 | ) |
The
accompanying notes are an integral part of these consolidated
statements.
F-5
Access
Pharmaceuticals, Inc. and Subsidiaries
|
||||||||
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
||||||||
Year
ended December 31,
|
||||||||
2008
|
2007
|
|||||||
Cash
flows from operating activities:
|
||||||||
Net
loss
|
$ | (17,215,000 | ) | $ | (21,744,000 | ) | ||
Adjustments
to reconcile net loss to net cash used
|
||||||||
in
operating activities:
|
||||||||
Loss
on extinguishment of debt
|
- | 11,628,000 | ||||||
Stock
option expense
|
415,000 | 1,048,000 | ||||||
Stock
and warrants issued for services
|
377,000 | 83,000 | ||||||
Acquired
in-process research & development
|
8,879,000 | - | ||||||
Depreciation
and amortization
|
253,000 | 279,000 | ||||||
Amortization
of debt costs and discounts
|
- | 2,316,000 | ||||||
Loss
on sale of assets
|
- | 2,000 | ||||||
Change
in operating assets and liabilities:
|
||||||||
Receivables
|
(747,000 | ) | (607,000 | ) | ||||
Prepaid
expenses and other current assets
|
(80,000 | ) | (127,000 | ) | ||||
Other
assets
|
(66,000 | ) | 14,000 | |||||
Accounts
payable and accrued expenses
|
176,000 | 310,000 | ||||||
Dividends
payable
|
19,000 | - | ||||||
Accrued
interest payable
|
(2,000 | ) | 1,150,000 | |||||
Deferred
revenue
|
1,431,000 | 805,000 | ||||||
Net
cash used in operating activities
|
(6,560,000 | ) | (4,843,000 | ) | ||||
Cash
flows from investing activities:
|
||||||||
Capital
expenditures
|
(28,000 | ) | (18,000 | ) | ||||
Somanta
acquisition, net of cash acquired
|
(65,000 | ) | - | |||||
Proceeds
from sale of asset
|
- | 13,000 | ||||||
Net
cash used in investing activities
|
(93,000 | ) | (5,000 | ) | ||||
Cash
flows from financing activities:
|
||||||||
Payments
of notes payable
|
(64,000 | ) | (1,327,000 | ) | ||||
Proceeds
from preferred stock issuances, net of costs
|
2,444,000 | 8,672,000 | ||||||
Proceeds
from exercise of stock options
|
15,000 | 35,000 | ||||||
Net
cash provided by financing activities
|
2,395,000 | 7,380,000 | ||||||
Net
increase (decrease) in cash and cash equivalents
|
(4,258,000 | ) | 2,532,000 | |||||
Cash
and cash equivalents at beginning of year
|
6,921,000 | 4,389,000 | ||||||
Cash
and cash equivalents at end of year
|
$ | 2,663,000 | $ | 6,921,000 | ||||
Supplemental
cash flow information:
|
||||||||
Cash
paid for interest
|
$ | 435,000 | $ | 34,000 | ||||
Supplemental
disclosure of noncash transactions
|
||||||||
Shares
issued for payables
|
1,576,000 | - | ||||||
Preferred
stock dividends in dividends payable
|
1,896,000 | 260,000 | ||||||
Accrued
interest capitalized
|
- | 511,000 | ||||||
Warrants
issued for placement agent fees
|
104,000 | 523,000 | ||||||
Beneficial
conversion feature -
|
||||||||
February
2008 preferred stock dividends
|
857,000 | - | ||||||
November
2007 preferred stock dividends
|
451,000 | 14,648,000 | ||||||
Preferred
stock issuance costs paid in cash
|
281,000 | 345,000 | ||||||
Debt
exchanged for preferred stock
|
- | 10,015,000 | ||||||
Accrued
interest exchanges for preferred stock
|
- | 1,090,000 | ||||||
Stock
issued for preferred dividends
|
432,000 | - | ||||||
The
accompanying notes are an integral part of these consolidated
statements.
|
F-6
Access Pharmaceuticals, Inc. and
Subsidiaries
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Two years
ended December 31, 2008
NOTE
1 - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Nature of
Operations
Access
Pharmaceuticals, Inc. is an emerging pharmaceutical company engaged in the
development of novel therapeutics for the treatment of cancer and supportive
care of cancer patients. This development work is based primarily on the
adaptation of existing therapeutic agents using the Company’s proprietary drug
delivery technology. Our efforts have been principally devoted to research and
development, resulting in significant losses since inception on February 24,
1988.
A summary
of the significant accounting policies applied in the preparation of the
accompanying consolidated financial statements follows.
Principles of
Consolidation
The
consolidated financial statements include the financial statements of Access
Pharmaceuticals, Inc. and our wholly-owned subsidiaries. All intercompany
balances and transactions have been eliminated in consolidation.
Reclassifications
Certain
reclassifications to the Consolidated Financial Statements for all prior periods
presented have been made to conform to the 2008 presentation.
Use of
Estimates
The
preparation of consolidated financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amount of
assets and disclosure of contingent assets and liabilities at the date of the
consolidated financial statements and the reported amounts of revenue and
expenses during the reported period. Our significant estimates include primarily
those required in the valuation of impairment analysis of intangible assets,
property and equipment, revenue recognition, allowances for doubtful accounts,
stock-based compensation and valuation of other equity instruments, valuation
allowances for deferred tax assets and tax accruals. Although we believe that
adequate accruals have been made for unsettled issues, additional gains or
losses could occur in future years from resolutions of outstanding matters.
Actual results could differ materially from original estimates.
Segments
The
Company operates in a single segment.
Cash and Cash
Equivalents
We
consider all highly liquid investments with a maturity of three months or less
when purchased to be cash equivalents. At December 31, 2008 and 2007, we
had no such investments. We maintain deposits primarily in one financial
institution, which may at times exceed amounts covered by insurance provided by
the U.S. Federal Deposit Insurance Corporation ("FDIC"). We have not
experienced any losses related to amounts in excess of FDIC
limits.
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. Expenditures for major renewals and betterments that extend the useful
lives are capitalized. Expenditures for normal maintenance and repairs are
expensed as incurred. The cost of assets sold or abandoned and the related
accumulated depreciation are eliminated from the accounts and any gains or
losses are recognized in the accompanying consolidated statements of operations
of the respective period.
F-7
Research and Development
Expenses
Pursuant
to SFAS No. 2, “Accounting for Research and
Development Costs,” our research and development costs are expensed as
incurred. Research and development expenses include, but are not limited to,
payroll and personnel expense, lab supplies, preclinical, development cost,
clinical trial expense, outside manufacturing and consulting. The cost of
materials and equipment or facilities that are acquired for research and
development activities and that have alternative future uses are capitalized
when acquired.
Fair Value of Financial
Instruments
The
carrying value of cash, cash equivalents, receivables, accounts payable and
accruals approximate fair value due to the short maturity of these items. The
carrying value of the convertible long-term debt is at book value which
approximates the fair value as the interest rate is at market
value.
Income
Taxes
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. A valuation allowance is provided for deferred tax assets to the
extent their realization is in doubt.
As of
January 1, 2007, we adopted FASB Interpretation No. 48, Accounting for Uncertainty in Income
Taxes, an Interpretation of FASB Statement No. 109, Accounting for Income Taxes
(“FIN 48”). The adoption did not have a material impact on our
consolidated financial statements or effective tax rate and did not result in
any unrecognized tax benefits. Interest costs and penalties related to income
taxes are classified as interest expense and general and administrative costs,
respectively, in our consolidated financial statements. For the years ended
December 31, 2008 and 2007, we did not recognize any interest or penalty expense
related to income taxes. It is determined not to be reasonably likely for the
amounts of unrecognized tax benefits to significantly increase or decrease
within the next 12 months. We are currently subject to a three year statute of
limitations by major tax jurisdictions. We and our subsidiaries file income tax
returns in the U.S. federal jurisdiction.
Loss Per
Share
We have
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. Potential common
shares result from stock options, vesting of restricted stock grants,
convertible notes and warrants. However, for all years presented, all
outstanding stock options, restricted stock grants, convertible notes and
warrants are anti-dilutive due to the losses for the periods. Anti-dilutive
common stock equivalents of 22,051,685 and 20,623,072 were excluded from the
loss per share computation for 2008 and 2007, respectively.
Patents
We
expense internal patent and application costs as incurred because, even though
we believe the patents and underlying processes have continuing value, the
amount of future benefits to be derived therefrom are uncertain. Purchased
patents are capitalized and amortized over the life of the patent.
F-8
Intangible
assets consist of the following (in thousands):
December 31, 2008
|
December 31, 2007
|
|||
Gross
carrying
value
|
Accumulated
amortization
|
Gross
carrying
value
|
Accumulated
amortization
|
|
Amortizable
intangible assets - Patents
|
$ 1,680
|
$1,138
|
$ 1,680
|
$ 970
|
Amortization
expense related to intangible assets totaled $168,000 and $193,000 for the years
ended December 31, 2008 and 2007, respectively. The aggregate estimated
amortization expense for intangible assets remaining as of December 31, 2008 is
as follows (in thousands):
2009 |
$ 168
|
2010 |
168
|
2011 |
168
|
2012 |
38
|
Total |
$ 542
|
Revenues
Our
revenues are generated from licensing and research and development agreements.
We recognize revenue in accordance with SEC Staff Accounting Bulletin No. 104
(SAB 104), Revenue
Recognition. License revenue is recognized over the remaining life of the
underlying patent. Research and development revenues are recognized as services
are performed.
Stock-Based
Compensation
On
January 1, 2006, we adopted SFAS No. 123 (revised 2004), “Share-Based Payment,” (“SFAS
123(R)”), which requires the measurement and recognition of all share-based
payment awards made to employees and directors including stock options based on
estimated fair values. SFAS 123(R) supersedes the Company’s previous accounting
under Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to
Employees” (“APB 25”), for periods beginning in fiscal year
2006.
We used
the Black-Scholes Option Pricing Model (“BSOPM”) to determine the fair value of
option grants made during 2008 and 2007. Commencing on January 1, 2007, we
elected to use the “simplified” method per SEC Staff Accounting Bulletins No.
107 (“SAB 107”), “Share Based
Payment,” to calculate the estimated life of options granted to
employees. The use of the “simplified” method under SAB 107 was extended beyond
December 31, 2007 in accordance with Staff Accounting Bulletin 110 (“SAB 110”),
“Share Based Payment,”
issued on December 21, 2007, until such time when we have sufficient
information to make more refined estimates on the estimated life of our options.
The expected stock price volatility was calculated by averaging the historical
volatility of our common stock over a term equal to the expected life of the
options.
SAB 110
expressed the views of the staff regarding the use of the “simplified” method,
as discussed in SAB No. 107, in developing an estimate of expected term of
“plain vanilla” share options in accordance with Statement of Financial
Accounting Standards No. 123R, “Share-Based Payment”. SAB 110
allows public companies which do not have historically sufficient experience to
provide a reasonable estimate to continue use of the “simplified” method for
estimating the expected term of “plain vanilla” share options grants after
December 31, 2007. We will continue to use the “simplified” method until we have
enough historical experience to provide a reasonable estimate of expected term
in accordance with SAB 110.
F-9
We
adopted SFAS 123(R) using the modified prospective transition method, which
requires the application of the accounting standard as of January 1, 2006,
the first day of the Company’s 2006 fiscal year. Our consolidated financial
statements for the years ended December 31, 2008 and 2007, reflect the
impact of SFAS 123(R). In accordance with the modified prospective transition
method, our consolidated financial statements for prior periods have not been
restated to include the impact of SFAS 123(R). Stock-based compensation expense
recognized under SFAS 123(R) for the year ended December 31, 2008 was
approximately $415,000 and $1,048,000 for the year ended December 31,
2007.
SFAS
123(R) requires companies to estimate the fair value of share-based payment
awards on the date of grant using an option-pricing model. The value of the
portion of the award that is ultimately expected to vest is recognized as
expense over the requisite service period. Prior to the adoption of SFAS 123(R),
we accounted for stock-based awards to employees and directors using the
intrinsic value method in accordance with APB No. 25 as allowed under SFAS
No. 123, “Accounting for
Stock-Based Compensation” (“SFAS 123”). Under the intrinsic value method,
no stock-based compensation expense for stock option grants was recognized
because the exercise price of our stock options granted to employees and
directors equaled the fair market value of the underlying stock at the date of
grant.
We used
the Black-Scholes option-pricing model (“Black-Scholes”) as our method of
valuation under SFAS 123(R) in fiscal year 2008 and 2007 and a single option
award approach. This fair value is then amortized on a straight-line basis over
the requisite service periods of the awards, which is generally the vesting
period. The fair value of share-based payment awards on the date of grant as
determined by the Black-Scholes model is affected by our stock price as well as
other assumptions. These assumptions include, but are not limited to the
expected stock price volatility over the expected term of the awards, and actual
and projected employee stock option exercise behaviors.
During
2008 and 2007, 305,000 stock options and 230,000 stock options, respectively,
were granted under the 2005 Equity Incentive Plan. Assumptions for 2008 and 2007
are:
2008
|
2007
|
|
Expected
volatility assumption was based upon a combination of historical stock
price volatility measured on a twice a month basis and is a reasonable
indicator of expected volatility.
|
133%
|
136%
|
Risk-free
interest rate assumption is based upon U.S. Treasury bond interest rates
appropriate for the term of the Company’s employee stock
options.
|
2.97%
|
4.65%
|
Dividend
yield assumption is based on our history and expectation of dividend
payments.
|
None
|
None
|
Estimated
expected term (average of number years) is based on the simplified method
as prescribed by SAB 107/110.
|
6.2
years
|
5.7
years
|
At
December 31, 2008, the balance of unearned stock-based compensation to be
expensed in future periods related to unvested share-based awards, as adjusted
for expected forfeitures, is approximately $665,000. The period over which the
unearned stock-based compensation is expected to be recognized is approximately
three years. We anticipate that we will grant additional share-based awards to
employees in the future, which will increase our stock-based compensation
expense by the additional unearned compensation resulting from these grants. The
fair value of these grants is not included in the amount above, because the
impact of these grants cannot be predicted at this time due to the dependence on
the number of share-based payments granted. In addition, if factors change and
different assumptions are used in the application of SFAS 123(R) in future
periods, stock-based compensation expense recorded under SFAS 123(R) may
differ significantly from what has been recorded in the current
period.
F-10
Our
Employee Stock Option Plans have been deemed compensatory in accordance with
SFAS 123(R). Stock-based compensation relating to this plan was computed using
the Black-Scholes model option-pricing formula with interest rates, volatility
and dividend assumptions as of the respective grant dates of the purchase rights
provided to employees under the plan. The weighted-average fair value of options
existing under all plans during 2008 was $3.12.
The
following table summarizes stock-based compensation in accordance with SFAS
123(R) for the year ended December 31, 2008 and 2007 which was allocated as
follows (in thousands):
Year
ended
December 31, 2008
|
Year
ended
December 31, 2007
|
|||||||
Research
and development
|
$ | 108 | $ | 91 | ||||
General
and administrative
|
307 | 957 | ||||||
Stock-based
compensation expense included in operating expense
|
415 | 1,048 | ||||||
Total
stock-based compensation expense
|
415 | 1,048 | ||||||
Tax
benefit
|
- | - | ||||||
Stock-based
compensation expense, net of tax
|
$ | 415 | $ | 1,048 | ||||
Recent Accounting
Pronouncements
In
September 2006, the FASB issued Statement of Financial Accounting Standard
(“SFAS”) No. 157, “Fair Value Measurements” (“SFAS 157”). SFAS 157 defines
fair value, establishes a market-based framework or hierarchy for measuring fair
value, and expands disclosures about fair value measurements. SFAS 157 is
applicable whenever another accounting pronouncement requires or permits assets
and liabilities to be measured at fair value. SFAS 157 does not expand or
require any new fair value measures; however the application of this statement
may change current practice. The requirements of SFAS 157 became effective for
our fiscal year 2008. However, in February 2008 the FASB decided that an
entity need not apply this standard to nonfinancial assets and liabilities that
are recognized or disclosed at fair value in the financial statements on a
nonrecurring basis until the subsequent year. Accordingly, our adoption of this
standard on January 1, 2008 was limited to financial assets and liabilities
and did not have a material effect on our financial condition or results of
operations. We are still in the process of evaluating this standard with respect
to its effect on nonfinancial assets and liabilities and therefore have not yet
determined the impact that it will have on our financial statements upon full
adoption.
In
December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business
Combinations” (“SFAS 141(R)”) and
SFAS No. 160,
“Noncontrolling Interests in Consolidated Financial Statements—an amendment of ARB
No. 51” (“SFAS 160”). SFAS 141(R) will significantly change current
practices regarding business combinations. Among the more significant changes,
SFAS 141(R) expands the definition of a business and a business combination;
requires the acquirer to recognize the assets acquired, liabilities assumed and
noncontrolling interests (including goodwill), measured at fair value at the
acquisition date; requires acquisition-related expenses and restructuring costs
to be recognized separately from the business combination; requires assets
acquired and liabilities assumed from contractual and noncontractual
contingencies to be recognized at their acquisition-date fair values with
subsequent changes recognized in earnings; and requires in-process research and
development to be capitalized at fair value as an indefinite-lived intangible
asset. SFAS 160 will change the accounting and reporting for minority interests,
reporting them as equity separate from the parent entity’s equity, as well as
requiring expanded disclosures. SFAS 141(R) and SFAS 160 are effective for
financial statements issued for fiscal years beginning after December 15,
2008. We are currently assessing the impact that SFAS 141(R) and SFAS 160 will
have on our results of operations and financial position.
F-11
NOTE
2 – LIQUIDITY
The
accompanying consolidated financial statements have been prepared assuming that
the Company is a going concern. The Company incurred a net loss in the years
ended December 31, 2008 and 2007.
Management
believes that our current cash and expected license fees should fund the
Company’s expected burn rate into the first quarter of 2010. The Company will
require additional funds to fund operations. These funds are expected to come
from the future sales of equity and/or license agreements.
NOTE
3 - RELATED PARTY TRANSACTIONS
On
February 12, 2008, the Board of Directors of the Company elected Steven H.
Rouhandeh as director and Chairman of the Board effective as of March 4, 2008.
Mr. Rouhandeh is Chief Investment Officer of SCO Capital Partners,
L.P.
In the
event SCO Capital Partners LLC (“SCO”) and its affiliates were to convert all of
their shares of Series A Cumulative Convertible Preferred Stock and exercise all
of their warrants, they would own approximately 59.0% of the voting securities
of Access. During 2008 SCO and affiliates were paid $191,000 in placement agent
fees relating to the issuance of preferred stock and were issued warrants to
purchase our 39,667 shares of our common stock. During 2007 SCO and affiliates
were paid $240,000 in placement agent fees relating to the issuance of preferred
stock and were issued warrants to purchase our 100,000 shares of our common
stock. SCO and affiliates also were paid $232,000 in investor relations fees in
2008 and $150,000 in investor relations fees in 2007.
On
November 7, 2007, we entered into securities purchase agreements (the “Purchase
Agreements”) with accredited investors whereby we agreed to sell 954.0001 shares
of a newly created series of our preferred stock, designated “Series A
Cumulative Convertible Preferred Stock”, par value $0.01 per share, for an issue
price of $10,000 per share, (the “Series A Preferred Stock”) and agreed to issue
warrants to purchase 1,589,999 shares of our common stock at an exercise price
of $3.50 per share, for an aggregate purchase price for the Series A Preferred
Stock and Warrants of $9,540,001. The shares of Series A Preferred Stock are
convertible into common stock at the initial conversion price of $3.00 per
share.
On
November 7, 2007, as a condition to closing our sale of Series A Preferred
Stock, SCO Capital Partners LLC and affiliates, along with the other holders of
an aggregate of $6,000,000 Secured Convertible Notes, also exchanged their notes
and accrued interest for an additional 1,836.0512 shares of Series A Preferred
Stock and were issued warrants to purchase 1,122,031 shares of our common stock
at an exercise price of $3.50 per share, and Oracle Partners LP and affiliates,
along with the other holders of an aggregate of $4,015,000 Convertible Notes
also exchanged their notes and accrued interest for 437.3104 shares of the
Series A Preferred Stock and were issued warrants to purchase 728,850 shares of
our common stock at an exercise price of $3.50 per share. In
connection with the exchange of the notes, all security interests and liens
relating thereto were terminated.
On
November 7, 2007, as a condition to closing our sale of Series A Preferred
Stock, we entered into an Investor Rights Agreement with each of the investors
purchasing shares of Series A Preferred Stock and our Board of Directors
approved with respect to the shareholder rights plan any action necessary under
our shareholder rights plan to accommodate the issuance of the Series A
Preferred Stock and warrants without triggering the applicability of the
shareholder rights plan. In addition, we entered into an Investor Rights
Agreement with the holders of Series A Preferred Stock. The Investor Rights
Agreement grants certain registration and other rights to each of the
investors.
In
connection with the sale and issuance of Series A Preferred Stock and warrants,
we entered into a Director Designation Agreement whereby we agreed to continue
SCO’s right to designate two individuals to serve on the Board of Directors of
Access.
Lake End
Capital LLC is known to beneficially own 335,575 shares of Access’ Common Stock,
warrants to purchase an aggregate of 777,026 shares of Access’ Common Stock and
Series A Preferred Stock which may be converted into an aggregate of 793,067
shares of Access’ Common Stock. Jeffrey B. Davis, in his capacity as managing
member of Lake End Capital LLC, has the power to direct the vote and disposition
of the shares owned by Lake End Capital LLC. Mr. Davis is President of SCO
Securities LLC, a wholly-owned subsidiary of SCO Financial Group LLC. Mr. Davis
is also our CEO.
F-12
David P.
Luci, one of our directors, participated in the February 2008 sale of our
preferred stock. Mr. Luci purchased 2.5 preferred shares for $25,000 and
warrants to purchase 4,167 shares of our common stock. In addition, Mr. Luci was
the President & Chief Business Officer of MacroChem, with which we acquired
on February 25, 2009 pursuant to the Merger Agreement dated July 9,
2008.
Dr.
Esteban Cvitkovic, a Director, has served as a consultant and Senior Director,
Oncology Clinical Research & Development, since August 2007. Dr. Cvitkovic
receives payments for consulting expenses, office expenses and reimbursement of
direct expenses. Dr. Cvitkovic also has received the following warrants and
options for his consulting. In January 2008, Dr. Cvitkovic received warrants to
purchase 200,000 shares of our Common Stock at $3.15 per share that can be
exercised until January 4, 2012. The warrants vest over two years in 50,000
share blocks with vesting on July 4, 2008, January 4, 2009, July 4, 2009, and
the remaining shares on January 4, 2010. In July 2007, Dr. Cvitkovic also
received options to purchase 25,000 shares of our Common Stock at $4.35 per
share with all options currently vested. Dr. Cvitkovic’s payments for consulting
services and expense reimbursements are as follows:
Fair
Value
|
||||||||||||||||
of
exercisable
|
||||||||||||||||
Consulting
|
Office
|
Expense
|
Options
/
|
|||||||||||||
Year |
Fees
|
Expenses
|
Reimbursement |
Warrants
|
||||||||||||
2008 | $ | 320,000 | $ | 30,000 | $ | 71,000 | $ | 164,000 | ||||||||
2007 | $ | 153,000 | $ | 15,000 | $ | 12,000 | $ | 76,000 |
Stephen
B. Howell, M.D., a Director, received payments for consulting services and
reimbursement of direct expenses. His consulting agreement expired in March 1,
2008. Dr. Howell’s payments for consulting services and expense reimbursements
are as follows:
Consulting
|
Expense
|
|||||||
Year |
Fees
|
Reimbursement
|
||||||
2008 | $ | 31,000 | $ | 3,000 | ||||
2007 | $ | 70,000 | $ | 2,000 |
See Note 9 for a discussion of our
Restricted Stock Purchase Program.
NOTE
4 - PROPERTY AND EQUIPMENT
Property and equipment consists of the following: |
December
31,
|
|||||||
2008
|
2007
|
|||||||
Laboratory equipment | $ | 831,000 | $ | 824,000 | ||||
Laboratory and building improvements | 58,000 | 58,000 | ||||||
Furniture and equipment | 75,000 | 40,000 | ||||||
964,000 | 922,000 | |||||||
Less accumulated depreciation and amortization | 877,000 | 792,000 | ||||||
Net property and equipment | $ | 87,000 | $ | 130,000 |
Depreciation
and amortization on property and equipment was $85,000 and $86,000 for the years
ended December 31, 2008 and 2007, respectively.
NOTE
5 – 401(k) PLAN
We have a
tax-qualified employee savings and retirement plan (the “401(k) Plan”) covering
all our employees. Pursuant to the 401(k) Plan, employees may elect to reduce
their current compensation by up to the statutorily prescribed annual limit
($15,500 in 2008 and 2007) and to have the amount of such reduction contributed
to the 401(k) Plan. We have a 401(k) matching program whereby we contribute for
each dollar a participant contributes a like amount, with a maximum contribution
of 4% of a participant’s earnings in 2008 and 2007. The 401(k) Plan is intended
to qualify under Section 401 of the Internal Revenue Code so that contributions
by employees or by us to the 401(k) Plan, and income earned on 401(k) Plan
contributions, are not taxable to employees until withdrawn from the 401(k)
Plan, and so that contributions by us, if any, will be deductible by us when
made. At the direction of each participant, we invest the assets of the 401(k)
Plan in any of 62 investment options. Company contributions under the 401(k)
Plan were approximately $39,000 in 2008 and $50,000 in 2007.
F-13
NOTE
6 – DEBT
$5,500,000 due on September
13, 2011. The unsecured convertible note bears interest at 7.7% per annum
with $423,500 of interest due annually on September 13th. During
2007, this investor amended this note’s due date until 2011 and delayed his
interest payments which were due in 2005, 2006 and 2007 until September 13, 2008
or earlier if the Company raised more than $5.0 million in funds. The
capitalized interest was $1,391,000 and interest on the capitalized interest was
at 10%. We raised $9,540,000 in November 2007, and entered into an agreement
with the investor to pay capitalized interest of $1,327,000 plus interest. At
December 31, 2008, $5,500,000 was due. At December 31, 2007 in addition to the
note of $5,500,000 an additional $64,000 of capitalized interest was due. This
note has a fixed conversion price of $27.50 per share of common stock and may be
converted by the note holder or us under certain circumstances as defined in the
note. If the notes are not converted we will have to repay the notes on the due
dates.
$4,015,000 due on November
16, 2007 and $6,000,000 due on November 15, 2007 exchanged for preferred
stock.
On
November 7, 2007, we entered into securities purchase agreements (the “Purchase
Agreements”) with accredited investors whereby we agreed to sell 954.0001 shares
of a newly created series of our preferred stock, designated “Series A
Cumulative Convertible Preferred Stock”, par value $0.01 per share, for an issue
price of $10,000 per share, (the “Series A Preferred Stock”) and agreed to issue
warrants to purchase 1,589,999 shares of our common stock at an exercise price
of $3.50 per share, for an aggregate purchase price for the Series A Preferred
Stock and Warrants of $9,540,000. The shares of Series A Preferred Stock are
convertible into common stock at the initial conversion price of $3.00 per
share.
As a
condition to closing, SCO Capital Partners LLC and affiliates, along with the
other holders of an aggregate of $6,000,000 Secured Convertible Notes, also
exchanged their notes and accrued interest for an additional 1,836.0512 shares
of Series A Preferred Stock and were issued warrants to purchase 1,122,031
shares of our common stock at an exercise price of $3.50 per share, and Oracle
Partners LP and affiliates, along with the other holders of an aggregate of
$4,015,000 Convertible Notes also exchanged their notes and accrued interest for
437.3104 shares of the Series A Preferred Stock and were issued warrants to
purchase 728,850 shares of our common stock at an exercise price of $3.50 per
share. SCO Capital Partners LLC currently has two designees serving
on our Board of Directors. In connection with the exchange of the notes, all
security interests and liens relating thereto were terminated.
The
conversion of debt into equity resulted in a loss on extinguishment of debt of
$11,628,000 in 2007. This represents the difference between the fair value of
the equity interest granted, based on recent sales of identical equity
instruments, and the carrying amount of the debt and interest
settled.
NOTE
7 – COMMITMENTS AND CONTINGENCIES
Future
maturities of the note payable and other obligations are as
follows:
Future
|
||
Maturities
|
Debt
|
|
2011
|
5,500,000
|
F-14
Operating
Leases
At
December 31, 2008, we have commitments under non-cancelable operating leases for
office and research and development facilities until December 31, 2009 totaling
$77,000. Rent expense for the years ended December 31, 2008 and 2007 was
$107,000 and $94,000, respectively. We also have one non-cancelable
operating lease – for a copier with future obligations totaling $29,000 ending
in 2011 (with $9,600 expensed each year).
Legal
The
Company is not currently subject to any material pending legal
proceedings.
NOTE
8 – PREFERRED STOCK
On
February 4, 2008, we entered into securities purchase agreements (the “Purchase
Agreements”) with accredited investors whereby we agreed to sell 272.50 shares
of our preferred stock, designated “Series A Cumulative Convertible Preferred
Stock”, par value $0.01 per share, for an issue price of $10,000 per share, (the
“Series A Preferred Stock”) and agreed to issue warrants to purchase 454,167
shares of our common stock at an exercise price of $3.50 per share, for an
aggregate purchase price for the Series A Preferred Stock and Warrants of
$2,725,000. Proceeds, net of cash issuance costs from the sale were $2,444,000.
The shares of Series A Preferred Stock are convertible into common stock at the
initial conversion price of $3.00 per share.
In
connection with the preferred stock offering, we issued warrants for placement
agent fees to purchase a total of 45,417 shares of common stock. All of the
warrants are exercisable immediately and expire six years from the date of
issue. The fair value of the warrants was $2.29 per share on the date of grant
using the Black-Scholes pricing model with the following assumptions: expected
dividend yield 0.0%, risk-free interest rate 2.75%, expected volatility 110% and
an expected term of 6 years.
Emerging
Issues Task Force (EITF) Issue 00-19, Accounting for Derivative Financial
Instruments Indexed to and Potentially Settled in, a Company’s Own Stock,
to determine whether the instruments should be accounted for as equity or
as liabilities.” EITF 00-19 requires the separation of single financial
instruments into components. For example, common stock issued with warrants
should be accounted for as equity, and the associated warrants could be
classified as either equity or liability. We determined that the warrants issued
along with the preferred stock and debt conversion are separate financial
instruments and separately exercisable and, therefore, are within the scope of
EITF 00-19. Both the preferred stock and warrants were classified as equity. The
warrants were measured at their fair value.
The
shares of Series A Preferred Stock are initially convertible into common stock
at $3.00 per share. Based on the price of our common stock on February 4, 2008
and the fair value attributed to the attached warrants, a new conversion price
was calculated for accounting purposes. As a result of the change in conversion
price for accounting purposes the preferred stock was considered to be “in the
money”. This resulted in a beneficial conversion feature. The preferred
stockholder has the right at any time to convert all or any lesser portion of
the Series A Preferred Stock into common stock. This resulted in an intrinsic
value of the preferred stock. The difference between the implied value of the
preferred stock and the beneficial conversion option was treated as preferred
stock dividends of $857,000.
An
additional $451,000 in preferred stock dividends was recorded in the first
quarter of 2008 as a result of a prior year correction. The change was due to
preferred stock dividends and the beneficial conversion features associated with
the warrants issued in connection with the November 2007 preferred stock
agreement. The Company determined that the adjustment would have an immaterial
effect to the Company’s consolidated financial statements for the years ended
December 31, 2008 and 2007, based on management’s qualitative and quantitative
analysis relative to its materiality consistent with the applicable accounting
guidance.
Pursuant
to the terms of an Investor Rights Agreement with the Purchasers of Series A
Preferred Stock, the Company is required to maintain an effective registration
statement. The Securities and Exchange Commission declared the registration
statement effective November 13, 2008 relating to a portion of such securities,
and as a result, the Company accrued $675,000 in potential liquidated damages as
of December 31, 2008. We may incur additional liquidated damages of 1% of the
total Series A Preferred Stock proceeds for each 30 day period that the
Registration Statement is not declared effective for all the shares. Potential
liquidated damages are capped at 10% of the total subscription
amount. However, pursuant to the terms of the Investor Rights
Agreement, we may not be required to pay such liquidated damages if such shares
are saleable without restriction pursuant to Rule 144 of the Securities Act of
1933.
F-15
Preferred
stock dividends of $1,896,000 were accrued through December 31, 2008, including
interest. Dividends are required to be paid semi-annually in either cash or
common stock.
On
November 7, 2007, we entered into securities purchase agreements (the “Purchase
Agreements”) with accredited investors whereby we agreed to sell 954.0001 shares
of a newly created series of our preferred stock, designated “Series A
Cumulative Convertible Preferred Stock”, par value $0.01 per share, for an issue
price of $10,000 per share, (the “Series A Preferred Stock”) and agreed to issue
warrants to purchase 1,589,999 shares of our common stock at an exercise price
of $3.50 per share, for an aggregate purchase price for the Series A Preferred
Stock and Warrants of $9,540,001. The shares of Series A Preferred Stock are
convertible into common stock at the initial conversion price of $3.00 per
share.
As a
condition to closing, SCO Capital Partners LLC and affiliates, along with the
other holders of an aggregate of $6,000,000 Secured Convertible Notes, also
exchanged their notes and accrued interest for an additional 1,836.0512 shares
of Series A Preferred Stock and were issued warrants to purchase 1,122,031
shares of our common stock at an exercise price of $3.50 per share, and Oracle
Partners LP and affiliates, along with the other holders of an aggregate of
$4,015,000 Convertible Notes also exchanged their notes and accrued interest for
437.3104 shares of the Series A Preferred Stock and were issued warrants to
purchase 728,850 shares of our common stock at an exercise price of $3.50 per
share. SCO Capital Partners LLC currently has two designees serving
on our Board of Directors. In connection with the exchange of the
notes, all security interests and liens relating thereto were
terminated.
As a
condition to closing, we entered into an Investor Rights Agreement with each of
the investors purchasing shares of Series A Preferred Stock, and our Board of
Directors approved with respect to the shareholder rights plan any action
necessary under our shareholder rights plan to accommodate the issuance of the
Series A Preferred Stock and warrants without triggering the applicability of
the shareholder rights plan. Potential liquidated damages addressed in the
Investor Rights Agreement are discussed above.
In
connection with the sale and issuance of Series A Preferred Stock and warrants,
we entered into a Director Designation Agreement whereby we agreed to continue
SCO’s right to designate two individuals to serve on the Board of Directors of
Access.
The
issued and outstanding shares of Series A Preferred Stock grants the holders of
such preferred stock anti-dilution, dividend and liquidations rights that are
superior to those held by the holders of our common stock. Should
Access issue additional shares of common stock for a price below $3.00 per
share, the conversion price of the Series A Preferred Stock shall be lowered to
the lowest issue price below $3.00 per share which will have the effect of
diluting the holders of our common stock.
In
connection with the preferred stock offering, we issued warrants for placement
agent fees, to purchase a total of 209,000 shares of common stock. All of the
warrants are exercisable immediately and expire six years from date of issue.
The fair value of the warrants was $2.50 per share on the date of the grant
using the Black-Scholes pricing model with the following assumptions: expected
dividend yield 0.0%, risk-free interest rate 3.84%, expected volatility 114% and
a term of 6 years.
The
conversion of debt into equity resulted in a loss on extinguishment of debt of
$11,628,000. This represents the difference between the fair value of the equity
interest granted, based on recent sales of identical equity instruments, and the
carrying amount of the debt and interest settled.
Based on
the loss on extinguishment of debt and the fair value allocated to the attached
warrants for accounting purposes a new conversion price was calculated for the
preferred stock and considered to be “in the money” at the time of the agreement
to exchange the convertible notes for preferred stock. This resulted in a
beneficial conversion feature. The preferred stockholder has the right at any
time to convert all or any lesser portion of the Series A Preferred Stock into
Common Stock. This resulted in an intrinsic value of the preferred stock. The
difference between the implied value of the preferred stock and the beneficial
conversion option was treated as preferred stock dividends of
$14,648,000.
F-16
NOTE
9 – STOCKHOLDERS’ EQUITY
Restricted Stock Purchase
Program
On
October 12, 2000, the Board of Directors authorized a Restricted Stock Purchase
Program. Under the Program, the Company’s executive officers and corporate
secretary were given the opportunity to purchase shares of common stock in an
individually designated amount per participant determined by the Compensation
Committee of the Board of Directors. A total of 38,000 shares were purchased
under the Program by four eligible
participants at $27.50 per share, the fair market value of the common stock on
October 12, 2000, for an aggregate consideration of $1,045,000. The purchase
price was paid through the participants’ delivery of a 50%-recourse promissory
note payable to the Company for three executive officer participants and a
full-recourse promissory note payable to the Company for one participant. Each
note bears interest at 5.87% compounded semi-annually and has a maximum term of
ten years. The notes are secured by a pledge of the purchased shares to the
Company. The Company recorded the notes receivable from participants in this
Program of $1,045,000 as a reduction of equity in the Consolidated Balance
Sheet. Interest on the notes is neither being collected nor accrued. The stock
granted under the Program is fully vested.
Warrants
There
were warrants to purchase a total of 9,687,326 shares of common stock
outstanding at December 31, 2008. All warrants were exercisable at December 31,
2008, except for 175,000 warrants. The warrants had various prices and terms as
follows:
Warrants
|
Exercise
|
Expiration
|
|||||
Summary
of Warrants
|
Outstanding
|
Price
|
Date
|
||||
2008
preferred stock offering (a)
|
499,584
|
$
|
3.50
|
2/24/14
|
|||
2008
Somanta accounts payable (b)
|
246,753
|
3.50
|
1/04/14
|
||||
2008
Warrants assumed on acquisition (c)
|
191,991
|
18.55-69.57
|
6/9/10-1/31/12
|
||||
2008
investor relations advisor (d)
|
50,000
|
3.15
|
1/3/13
|
||||
2008
investor relations advisor (e)
|
40,000
|
3.00
|
9/1/13
|
||||
2008
scientific consultant (f)
|
200,000
|
3.15
|
1/4/12
|
||||
2007
preferred stock offering (g)
|
3,649,880
|
3.50
|
11/10/13
|
||||
2006
convertible note (h)
|
3,863,634
|
1.32
|
2/16/12
|
||||
2006
convertible note (h)
|
386,364
|
1.32
|
10/24/12
|
||||
2006
convertible note (h)
|
386,364
|
1.32
|
12/06/12
|
||||
2006
investor relations advisor (i)
|
50,000
|
2.70
|
12/27/11
|
||||
2004
offering (j)
|
89,461
|
35.5
|
2/24/09
|
||||
2004
offering (j)
|
31,295
|
27.00
|
2/24/09
|
||||
2002
scientific consultant (k)
|
2,000
|
24.80
|
2/01/09
|
||||
Total
|
9,687,326
|
a)
|
In
connection with the preferred stock offering in February 2008, warrants to
purchase a total of 499,584 shares of common stock were issued. All of the
warrants are exercisable immediately and expire six years from date of
issue. The fair value of the warrants was $2.29 per share on the date of
the grant using the Black-Scholes pricing model with the following
assumptions: expected dividend yield 0.0%, risk-free interest rate 2.75%,
expected volatility 110% and a term of 6
years.
|
b)
|
In
exchange for $1,576,000 due Somanta vendors, the vendors were given
538,508 shares of common stock and warrants to purchase 246,753 shares of
common stock at $3.50. The warrants expire January 4,
2014.
|
F-17
c)
|
We
assumed three warrants in the Somanta
acquisition:
|
-Warrant #1 - 323 shares of our common stock at $69.57 per share and expires
June 9, 2010.
|
-Warrant
#2 – 31,943 shares of our common stock at $18.55 per share and expires
January 31, 2012.
|
|
-Warrant
#3 – 159,725 shares of our common stock at $23.19 per share and expires
January 31, 2012.
|
d)
|
During
2008, an investor relations advisor received warrants to purchase 50,000
shares of common stock at an exercise price of $3.15 per share at any time
until January 3, 2013, for investor relations consulting services to be
rendered in 2008. 25,000 of the warrants were exercisable on July 3, 2008
and 25,000 of the warrants will be exercisable January 3, 2009. The fair
value of the warrants was $2.24 per share on the date of the grant using
the Black-Scholes pricing model with the following assumptions: expected
dividend yield 0.0%, risk-free interest rate 3.13%, expected volatility
127% and a term of 5 years.
|
e)
|
During
2008, an investor relations advisor received warrants to purchase 40,000
shares of common stock at an exercise price of $3.00 per share at any time
until September 1, 2013, for investor relations consulting services. All
of the warrants are exercisable. The fair value of the warrants was $2.61
per share on the date of the grant using the Black-Scholes pricing model
with the following assumptions: expected dividend yield 0.0%, risk-free
interest rate 2.37%, expected volatility 132% and a term of 5
years.
|
f)
|
During
2008, a director who is also a scientific advisor received warrants to
purchase 200,000 shares of common stock at an exercise price of $3.15 per
share at any time until January 4, 2012, for scientific consulting
services rendered in 2008. The warrants vest over two years in 50,000
share blocks with vesting on July 4, 2008, January 4, 2009, July 4, 2009
and the remaining shares on January 4, 2010. The fair value of the
warrants was $1.78 per share on the date of the grant using the
Black-Scholes pricing model with the following assumptions: expected
dividend yield 0.0%, risk-free interest rate 2.01%, expected volatility
92% and a term of 4 years.
|
g)
|
In
connection with the preferred stock offering in November 2007, warrants to
purchase a total of 3,649,880 shares of common stock were issued. All of
the warrants are exercisable immediately and expire six years from date of
issue. The fair value of the warrants was $2.50 per share on the date of
the grant using the Black-Scholes pricing model with the following
assumptions: expected dividend yield 0.0%, risk-free interest rate 3.84%,
expected volatility 114% and a term of 6
years.
|
h)
|
In
connection with the convertible note offerings in 2006, warrants to
purchase a total of 4,636,362 shares of common stock were issued. All of
the warrants are exercisable immediately and expire six years from date of
issue.
|
i)
|
During
2006, an investor relations advisor received warrants to purchase 50,000
shares of common stock at an exercise price of $2.70 per share at any time
from December 27, 2006 until December 27, 2011, for investor relations
consulting services rendered in 2007. All of the warrants are
exercisable.
|
j)
|
In
connection with offering of common stock in 2004, warrants to purchase a
total of 120,756 shares of common stock were issued. All of the warrants
are exercisable and expire five years from date of
issuance.
|
k)
|
During
2002, a director who is also a scientific advisor received warrants to
purchase 2,000 shares of common stock at an exercise price of $24.55 per
share at any time until February 1, 2009, for scientific consulting
services rendered in 2002.
|
2001 Restricted Stock
Plan
We have a
restricted stock plan, the 2001 Restricted Stock Plan, as amended, under which
80,000 shares of our authorized but unissued common stock were reserved for
issuance to certain employees, directors, consultants and advisors. The
restricted stock granted under the plan generally vests, 25% two years after the
grant date with additional 25% vesting every anniversary date. All stock is
vested after five years. At December 31, 2008 there were 27,182 shares issued
and 52,818 shares available for grant under the 2001 Restricted Stock Plan. All
the issued shares are vested.
F-18
NOTE
10 - STOCK OPTION PLANS
We have various stock-based employee
compensation plans described below:
2005 Equity Incentive
Plan
We have a
stock awards plan, (the “2005 Equity Incentive Plan”), under which 3,150,000
shares of our authorized but unissued common stock were reserved for issuance to
employees of, or consultants to, one or more of the Company and its affiliates,
or to non-employee members of the Board or of any board of directors (or similar
governing authority) of any affiliate of the Company. The 2005 Equity Incentive
Plan replaced the previously approved stock option plan (the 1995 Stock Awards
Plan").
For the
2005 Equity Incentive Plan, the fair value of options was estimated at the date
of grant using the Black-Scholes option pricing model with the following
weighted average assumptions used for grants in fiscal 2008: dividend yield of
0%; volatility of 133%; risk-free interest rate of 2.97%; and expected lives of
6.2 years. The weighted average fair value of options granted was $2.73 per
share during 2008. The assumptions for grants in fiscal 2007 were: dividend
yield of 0%; volatility of 136%; risk-free interest rate of 4.65%; and expected
lives of 5.7 years. The weighted average fair value of options granted was $3.27
per share during 2007.
Summarized
information for the 2005 Equity Incentive Plan is as follows:
Weighted-
|
||||||||
average
|
||||||||
exercise
|
||||||||
Options
|
price
|
|||||||
Outstanding
options at January 1, 2007
|
802,672 | $ | 1.04 | |||||
Granted,
fair value of $ 3.27 per share
|
230,000 | 3.62 | ||||||
Exercised
|
(31,286 | ) | 1.11 | |||||
Expired
|
(75,000 | ) | 2.14 | |||||
Outstanding
options at December 31, 2007
|
926,386 | 1.59 | ||||||
Granted,
fair value of $ 2.73 per share
|
305,000 | 3.00 | ||||||
Exercised
|
(25,250 | ) | 0.63 | |||||
Expired
|
(69,316 | ) | 3.17 | |||||
Outstanding
options at December 31, 2008
|
1,136,820 | 1.90 | ||||||
Exercisable
at December 31, 2008
|
859,112 | 1.53 |
The
intrinsic value of options under this plan related to the outstanding and
exercisable options were $229,000 at December 31, 2008. The intrinsic value of
options under this plan related to the outstanding and exercisable options were
$1,805,000 and $1,504,000, respectively, at December 31, 2007.
The total
intrinsic value of options exercised during 2008 was $60,000 and during 2007 was
$113,000.
Further
information regarding options outstanding under the 2005 Equity Incentive Plan
at December 31, 2008 is summarized below:
F-19
Number
of
|
Weighted-average
|
Number
of
|
Weighted-average
|
|||||||||||||||||||||||
options
|
Remaining
|
Exercise
|
options
|
Remaining
|
Exercise
|
|||||||||||||||||||||
Range
of exercise prices
|
outstanding
|
life
in years
|
price
|
exercisable
|
life
in years
|
price
|
||||||||||||||||||||
$ | 0.63 - 0.85 | 641,500 | 8.0 | $ | 0.63 | 641,500 | 8.0 | $ | 0.63 | |||||||||||||||||
$ | 2.90 - 7.23 | 495,320 | 9.2 | $ | 3.53 | 217,612 | 8.5 | $ | 4.16 | |||||||||||||||||
1,136,820 | 859,112 |
2007 Special Stock Option
Plan
In
January 2007 we adopted the 2007 Special Stock Option Plan and Agreement (the
“Plan”). The Plan provides for the award of options to purchase 450,000 shares
of the authorized but unissued shares of common stock of the Company. At
December 31, 2008, there were 350,000 additional shares available for grant
under the Plan.
Under the
2007 Special Stock Option Plan, 450,000 options were issued in 2007 and 350,000
were forfeited. 100,000 options were outstanding at December 31, 2008 and 2007.
100,000 options in the 2007 Special Stock Option Plan were exercisable at
December 31, 2008 and 2007. All of the options had an exercise price of $2.90
per share and expire March 12, 2010.
For the
2007 Special Stock Option Plan, the fair value of options was estimated at the
date of grant using the Black-Scholes option pricing model with the following
weighted average assumptions used for grants in fiscal 2007: dividend yield of
0%; volatility of 138%; risk-free interest rate of 4.66%; and expected lives of
5.0 years. The weighted average fair value of options granted was $2.70 per
share during 2007.
1995 Stock Awards
Plan
Under the
1995 Stock Awards Plan, as amended, 500,000 shares of our authorized but
unissued common stock were reserved for issuance to optionees including
officers, employees, and other individuals performing services for us. At
December 31, 2008, there were no additional shares available for grant under the
1995 Stock Awards Plan. A total of 118,000 options were outstanding under this
plan at December 31, 2008.
Options
granted under all the plans generally vest ratably over a four to five year
period and are generally exercisable over a ten-year period from the date of
grant. Stock options were generally granted with an exercise price equal to the
market value at the date of grant.
Summarized
information for the 1995 Stock Awards Plan is as follows:
Weighted-
|
||||||||
average
|
||||||||
exercise
|
||||||||
Options
|
price
|
|||||||
Outstanding
options at January 1, 2007
|
360,917 | $ | 18.03 | |||||
Expired
|
(198,500 | ) | 20.07 | |||||
Outstanding
options at December 31, 2007
|
162,417 | 15.53 | ||||||
Expired
|
(44,417 | ) | 16.57 | |||||
Outstanding
options at December 31, 2008
|
118,000 | 15.14 | ||||||
Exercisable
at December 31, 2008
|
116,558 | 15.18 |
There was
no intrinsic value related to outstanding or exercisable options under this plan
at December 31, 2008 or 2007.
Further
information regarding options outstanding under the 1995 Stock Awards Plan at
December 31, 2008 is summarized below:
F-20
Number
of
|
Weighted
average
|
Number
of
|
Weighted-average
|
|||||||||||||||||||||||
Options
|
Remaining
|
Exercise
|
options
|
Remaining
|
Exercise
|
|||||||||||||||||||||
Range of exercise prices |
outstanding
|
life
in years
|
price
|
exercisable
|
life
in years
|
price
|
||||||||||||||||||||
$ | 10.00 - 12.50 | 75,640 | 4.2 | $ | 11.39 | 74,198 | 4.1 | $ | 11.39 | |||||||||||||||||
$ | 14.05 - 18.65 | 22,800 | 3.9 | $ | 17.76 | 22,800 | 3.9 | $ | 17.76 | |||||||||||||||||
$ | 20.25 – 29.25 | 19,560 | 5.3 | $ | 26.58 | 19,560 | 5.3 | $ | 26.58 | |||||||||||||||||
118,000 | 116,558 |
Two
directors, who retired from our board of directors May 21, 2008, were granted
two years until May 21, 2010 to exercise their vested stock options. This
modification resulted in $100,000 in stock option expense that was recognized in
year ending December 31, 2008.
NOTE
11 - SOMANTA ACQUISITION
On
January 4, 2008, we acquired all the outstanding shares of Somanta
Pharmaceuticals, Inc (“Somanta”). Somanta was engaged in the pharmaceutical
development business. We anticipate that the acquisition will add additional
product pipelines and complement our existing product pipelines. Total
consideration paid in connection with the acquisition included:
·
|
Approximately
1.5 million shares of Access common stock were issued to the common and
preferred shareholders of Somanta as consideration having a value of
approximately $4,650,000 (the value was calculated using Access’ stock
price on January 4, 2008, times the number of shares
issued);
|
·
|
exchange
of all outstanding warrants for Somanta common stock for warrants to
purchase 191,991 shares of Access common stock at exercise prices ranging
between $18.55 and $69.57 per share. The warrants were valued at
approximately $281,000. All of the warrants are exercisable immediately
and expire approximately four years from date of issue. The weighted
average fair value of the warrants was $1.46 per share on the date of the
grant using the Black-Scholes pricing model with the following
assumptions: expected dividend yield 0.0%, risk-free interest rate 3.26%,
expected volatility 114% and an expected term of approximately 4
years;
|
·
|
paid
an aggregate of $475,000 in direct transaction costs;
and
|
·
|
cancelled
receivable from Somanta of
$931,000.
|
The
following table summarizes the initial fair values of the assets acquired and
liabilities assumed at the date of the acquisition (in thousands) based on a
preliminary valuation. Subsequent adjustments may be recorded upon the
completion of the valuation and the final determination of the purchase price
allocation.
Cash
|
$ | 1 | ||
Prepaid
expenses
|
25 | |||
Office
equipment
|
14 | |||
Accounts
payable
|
(2,582 | ) | ||
In-process
research & development
|
8,879 | |||
$ | 6,337 |
Approximately
$8,879,000 of the purchase price represents the estimated fair value of the
acquired in-process research and development projects that have no alternative
future use. Accordingly this amount was immediately expensed as
research and development in the consolidated statement of operations upon the
acquisition date.
Operating
results of Somanta have been included in our consolidated financial statements
since January 4, 2008.
The
following unaudited pro forma information presents the 2008 and 2007 results of
the Company as if the acquisition had occurred on January 1, 2007. The unaudited
pro forma results are not necessarily indicative of results that would have
occurred had the acquisition been in effect for the periods presented, nor are
they necessarily indicative of future results. Net loss for Somanta for the 2007
period is for nine months ended October 31, 2007, based on its fiscal year. No
significant operations occurred after October 31, 2008 until the acquisition on
January 4, 2008. Amounts are shown in thousands.
F-21
Twelve
months ended
December 31,
|
||||||||
2008
|
2007
|
|||||||
Net
loss allocable to common stockholders
|
$ | (20,573 | ) | $ | (33,902 | ) | ||
Net
loss per common shares (basic and diluted)
|
$ | (3.51 | ) | $ | (6.71 | ) | ||
Weighted
average common shares outstanding
(basic
and diluted)
|
5,854 | 5,052 |
NOTE
12 - INCOME TAXES
Income
tax expense differs from the statutory amounts as follows:
2008
|
2007
|
|||||||
Income
taxes at U.S. statutory rate
|
$ | (6,995,000 | ) | $ | (7,393,000 | ) | ||
Change
in valuation allowance
|
2,155,000 | 3,015,000 | ||||||
Change
in miscellaneous items
|
- | - | ||||||
Benefit
of foreign losses not recognized
|
59,000 | 56,000 | ||||||
Expenses
not deductible
|
4,224,000 | 3,957,000 | ||||||
Expiration
of net operating loss and general
|
||||||||
business
credit carryforwards, net of revisions
|
557,000 | 365,000 | ||||||
Total
tax expense
|
$ | - | $ | - |
Deferred
taxes are provided for the temporary differences between the financial reporting
bases and the tax bases of our assets and liabilities. The temporary differences
that give rise to deferred tax assets were as follows:
December
31,
|
||||||||
2008
|
2007
|
|||||||
Deferred
tax assets
|
||||||||
Net
operating loss carryforwards
|
$ | 26,289,000 | $ | 25,693,000 | ||||
General
business credit carryforwards
|
3,217,000 | 2,469,000 | ||||||
Property,
equipment and goodwill
|
54,000 | 87,000 | ||||||
Deferred
revenue
|
310,000 | - | ||||||
Other
|
534,000 | - | ||||||
Gross
deferred tax assets
|
30,404,000 | 28,249,000 | ||||||
Valuation
allowance
|
(30,404,000 | ) | (28,249,000 | ) | ||||
Net
deferred taxes
|
$ | - | $ | - |
At
December 31, 2008, we had approximately $77,320,000 of net operating loss
carryforwards and approximately $3,217,000 of general business credit
carryforwards. These carryforwards expire as follows:
F-22
Net
operating
|
General
business
|
|||||||
loss
carryforwards
|
credit
carryforwards
|
|||||||
2009
|
$ | 1,661,000 | $ | 193,000 | ||||
2010
|
2,171,000 | 157,000 | ||||||
2012
|
4,488,000 | 30,000 | ||||||
2013
|
4,212,000 | 94,000 | ||||||
2014
|
3,324,000 | 129,000 | ||||||
Thereafter
|
61,464,000 | 2,614,000 | ||||||
$ | 77,320,000 | $ | 3,217,000 |
As a
result of a merger on January 25, 1996, a change in control occurred for federal
income tax purposes, which limits the utilization of pre-merger net operating
loss carryforwards of approximately $3,100,000 to approximately $530,000 per
year.
As of
January 1, 2007, we adopted FASB Interpretation No. 48, Accounting for Uncertainty in Income
Taxes, an Interpretation of FASB Statement No. 109, Accounting for Income Taxes
(“FIN 48”). The adoption did not have a material impact on our
consolidated financial statements or effective tax rate and did not result in
any unrecognized tax benefits. Interest costs and penalties related to income
taxes are classified as interest expense and general and administrative costs,
respectively, in our consolidated financial statements. For the years ended
December 31, 2008 and 2007, we did not recognize any interest or penalty expense
related to income taxes. It is determined not to be reasonably likely for the
amounts of unrecognized tax benefits to significantly increase or decrease
within the next 12 months. We are currently subject to a three year statute of
limitations by major tax jurisdictions. We and our subsidiaries file income tax
returns in the U.S. federal jurisdiction.
NOTE
13 – QUARTERLY FINANCIAL DATA (UNAUDITED)
Our
results of operations by quarter for the years ended December 31, 2008 and 2007
were as follows (in thousands, except per share amounts):
2008
Quarter Ended
|
||||||||||||||||
March 31
|
June 30
|
September 30
|
December 31
|
|||||||||||||
Loss
from continuing operations
|
$ | (10,595 | ) | $ | (2,243 | ) | $ | (2,806 | ) | $ | (1,571 | ) | ||||
Preferred
stock dividends
|
(1,833 | ) | (517 | ) | (523 | ) | (485 | ) | ||||||||
Net
loss allocable to common
Stockholder
|
$ | (12,428 | ) | $ | (2,760 | ) | $ | (3,329 | ) | $ | (2,056 | ) | ||||
Basic
and diluted loss per
common
share
|
$ | (2.31 | ) | $ | (0.49 | ) | $ | (0.57 | ) | $ | (0.31 | ) | ||||
2007
Quarter Ended
|
||||||||||||||||
March 31
|
June 30
|
September 30
|
December 31
|
|||||||||||||
Loss
from continuing operations
|
$ | (4,127 | ) | $ | (2,109 | ) | $ | (1,957 | ) | $ | (13,663 | ) | ||||
Preferred
stock dividends
|
- | - | - | (14,908 | ) | |||||||||||
Discontinued
operations, net
of
tax
|
- | - | - | 112 | ||||||||||||
Net
loss allocable to common
Stockholder
|
$ | (4,127 | ) | $ | (2,109 | ) | $ | (1,957 | ) | $ | (28,459 | ) | ||||
Basic
and diluted loss per
common
share
|
$ | (1.17 | ) | $ | (0.60 | ) | $ | (0.55 | ) | $ | (8.00 | ) |
F-23
NOTE
14 – SUBSEQUENT EVENTS (UNAUDITED)
On
February 25, 2009 we closed the acquisition of MacroChem Corporation. In
connection with the merger, Access issued an aggregate of approximately 2.5
million shares of Access Pharmaceuticals, Inc. common stock to the holders of
MacroChem common stock and in-the-money warrant holders as consideration, having
a value of approximately $3,500,000 (the value was calculated using Access’
stock price on February 25, 2009, times the number of shares issued). We
anticipate that the acquisition will add additional product pipelines and
complement our existing product pipelines. The purchase price allocation has not
been completed as of the filing date of this Form 10-K.
In
addition, on February 25, 2009, we issued 859,172 shares of our unregistered
common stock to the holders of $825,000 of MacroChem notes and interest in
exchange for cancellation of those notes. Additionally, on February 25, 2009 we
issued 95,000 shares of our unregistered common stock in exchange for the
cancellation of employment agreements to three former executives of MacroChem.
The securities issued to the former MacroChem noteholders and the former
executives were issued under section 4(2) of the Securities Act, as
amended.
F-24
Access
Pharmaceuticals, Inc. and Subsidiaries
Condensed
Consolidated Balance Sheets
ASSETS
|
September 30, 2009
|
December 31, 2008
|
|
(unaudited)
|
(unaudited)
(See
Note 4)
|
||
Current
assets
Cash and cash
equivalents
Receivables
Prepaid expenses and other
current assets
|
$ 1,672,000
23,000
45,000
|
$ 2,677,000
147,000
175,000
|
|
Total
current assets
|
1,740,000
|
2,999,000
|
|
Property
and equipment, net
|
59,000
|
95,000
|
|
Patents,
net
|
840,000
|
999,000
|
|
Other
assets
|
66,000
|
78,000
|
|
Total
assets
|
$ 2,705,000
|
$ 4,171,000
|
|
LIABILITIES
AND STOCKHOLDERS' DEFICIT
|
|||
Current
liabilities
Accounts
payable
Accrued
expenses
Dividends
payable
Accrued
interest payable
Notes
payable
Current
portion of deferred revenue
|
$ 3,692,000
1,208,000
2,294,000
446,000
-
352,000
|
$ 3,287,000
1,295,000
1,896,000
145,000
825,000
164,000
|
|
Total current liabilities |
7,992,000
|
7,612,000
|
|
Long-term
deferred revenue
Long-term
debt
|
4,812,000
5,500,000
|
2,245,000
5,500,000
|
|
Total
liabilities
|
18,304,000
|
15,357,000
|
|
Commitments
and contingencies
|
|||
Stockholders'
deficit
Convertible
Series A preferred stock - $.01 par value; authorized
2,000,000
shares; 2,992.3617 issued and outstanding at
September 30, 2009
and 3,242.8617 at December 31, 2008
Common
stock - $.01 par value; authorized 100,000,000 shares;
issued,
13,111,545 at September 30, 2009 and 9,467,474 at
December
31, 2008
Additional
paid-in capital
Notes
receivable from stockholders
Treasury
stock, at cost – 163 shares
Accumulated
deficit
|
-
131,000
231,106,000
(1,045,000)
(4,000)
(245,787,000)
|
-
95,000
225,753,000
(1,045,000)
(4,000)
(235,985,000)
|
|
Total stockholders' deficit |
(15,599,000)
|
(11,186,000)
|
|
Total
liabilities and stockholders' deficit
|
$ 2,705,000
|
$ 4,171,000
|
The
accompanying notes are an integral part of these consolidated
statements.
F-25
Access
Pharmaceuticals, Inc. and Subsidiaries
Condensed
Consolidated Statements of Operations
(unaudited)
Three months ended
September 30,
|
Nine months ended
September 30,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
(See
Note 4)
|
(See
Note 4)
|
(See
Note 4)
|
||||||||||||||
Revenues
|
||||||||||||||||
License
revenues
|
$ | 124,000 | $ | 38,000 | $ | 228,000 | $ | 77,000 | ||||||||
Royalties
|
20,000 | - | 20,000 | - | ||||||||||||
Sponsored research and
development
|
- | 9,000 | - | 140,000 | ||||||||||||
Total revenues
|
144,000 | 47,000 | 248,000 | 217,000 | ||||||||||||
Expenses
|
||||||||||||||||
Research and
development
|
561,000 | 1,670,000 | 1,830,000 | 22,682,000 | ||||||||||||
General and
administrative
|
3,458,000 | 2,167,000 | 6,212,000 | 6,285,000 | ||||||||||||
Depreciation and
amortization
|
65,000 | 80,000 | 197,000 | 246,000 | ||||||||||||
Total expenses
|
4,084,000 | 3,917,000 | 8,239,000 | 29,213,000 | ||||||||||||
Loss
from operations
|
(3,940,000 | ) | (3,870,000 | ) | (7,991,000 | ) | (28,996,000 | ) | ||||||||
Interest
and miscellaneous income
|
2,000 | 32,000 | 18,000 | 173,000 | ||||||||||||
Interest
and other expense
|
(133,000 | ) | (183,000 | ) | (395,000 | ) | (512,000 | ) | ||||||||
(131,000 | ) | (151,000 | ) | (377,000 | ) | (339,000 | ) | |||||||||
Net
loss
|
(4,071,000 | ) | (4,021,000 | ) | (8,368,000 | ) | (29,335,000 | ) | ||||||||
Less
preferred stock dividends
|
471,000 | 523,000 | 1,434,000 | 2,873,000 | ||||||||||||
Net
loss allocable to common stockholders
|
$ | (4,542,000 | ) | $ | (4,544,000 | ) | $ | (9,802,000 | ) | $ | (32,208,000 | ) | ||||
Basic
and diluted loss per common share
Net
loss allocable to common shareholders
|
$ | (0.37 | ) | $ | (0.55 | ) | $ | (0.86 | ) | $ | (3.97 | ) | ||||
Weighted
average basic and diluted
common shares
outstanding
|
12,204,696 | 8,303,457 | 11,375,793 | 8,107,247 | ||||||||||||
The
accompanying notes are an integral part of these consolidated
statements.
F-26
Access
Pharmaceuticals, Inc. and Subsidiaries
Condensed
Consolidated Statement of Stockholders' Deficit
(unaudited)
Common Stock
|
Preferred Stock
|
Additional
paid-in
capital
|
Notes
receivable from
stockholders
|
Treasury
stock
|
Accumulated
deficit
|
|||
Shares
|
Amount
|
Shares
|
Amount
|
Access-MacroChem,
as
if combined at
December
31, 2008
(See
Note 4)
|
9,467,000 | $ | 95,000 | 3,242.8617 | $ | - | $ | 225,753,000 | $ | (1,045,000 | ) | $ | (4,000 | ) | $ | (235,985,000 | ) | |||||||||||||||
Common
stock issued for
preferred
dividends
|
894,000 | 9,000 | - | - | 847,000 | - | - | - | ||||||||||||||||||||||||
Warrants
issued for
services
|
- | - | - | - | 24,000 | - | - | - | ||||||||||||||||||||||||
Stock
option
compensation
expense
|
- | - | - | - | 56,000 | - | - | - | ||||||||||||||||||||||||
Common
stock issued to
MacroChem
noteholders
for notes
and accrued
interest
|
859,000 | 8,000 | - | - | 851,000 | - | - | - | ||||||||||||||||||||||||
Common
stock issued to
former
MacroChem
executives
|
95,000 | 1,000 | - | - | 132,000 | - | - | - | ||||||||||||||||||||||||
Preferred
dividends
|
- | - | - | - | - | - | - | (480,000 | ) | |||||||||||||||||||||||
Net
loss
|
- | - | - | - | - | - | - | (2,089,000 | ) | |||||||||||||||||||||||
Balance at
March 31, 2009
|
11,315,000 | 113,000 | 3,242.8617 | - | 227,663,000 | (1,045,000 | ) | (4,000 | ) | (238,554,000 | ) | |||||||||||||||||||||
Warrants
issued for
services
|
- | - | - | - | 27,000 | - | - | - | ||||||||||||||||||||||||
Stock
option
compensation
expense
|
- | - | - | - | 252,000 | - | - | - | ||||||||||||||||||||||||
Preferred
stock converted
into
common stock
|
117,000 | 1,000 | (35.0000 | ) | - | (1,000 | ) | - | - | - | ||||||||||||||||||||||
Common
stock issued to
former
MacroChem
executives
|
30,000 | - | - | - | 64,000 | - | - | - | ||||||||||||||||||||||||
Common
stock issued
for
cash exercise of
options
|
25,000 | - | - | - | 14,000 | - | - | - | ||||||||||||||||||||||||
Restricted
common stock
issued
for services
|
127,000 | 2,000 | - | - | 314,000 | - | - | - | ||||||||||||||||||||||||
Preferred
dividends
|
- | - | - | - | - | - | - | (483,000 | ) | |||||||||||||||||||||||
Net
loss
|
- | - | - | - | - | - | - | (2,208,000 | ) | |||||||||||||||||||||||
Balance at
June 30, 2009
|
11,614,000 | 116,000 | 3,207.8617 | - | 228,333,000 | (1,045,000 | ) | (4,000 | ) | (241,245,000 | ) | |||||||||||||||||||||
Warrants
issued for
services
|
- | - | - | - | 503,000 | - | - | - | ||||||||||||||||||||||||
Stock
option
compensation
expense
|
- | - | - | - | 285,000 | - | - | - | ||||||||||||||||||||||||
Preferred
stock converted
into
common stock
|
719,000 | 8,000 | (215.5000 | ) | - | (8,000 | ) | - | - | - | ||||||||||||||||||||||
Common
stock issued for
preferred
dividends
|
21,000 | - | - | - | 71,000 | - | - | - | ||||||||||||||||||||||||
Common
stock issued
for
cash exercise of
options
|
210,000 | 2,000 | - | - | 142,000 | - | - | - | ||||||||||||||||||||||||
Common
stock issued
for
warrant exercises
|
33,000 | - | - | - | - | - | - | - | ||||||||||||||||||||||||
Restricted
common stock
issued
for services
|
515,000 | 5,000 | - | - | 1,780,000 | - | - | - | ||||||||||||||||||||||||
Preferred
dividends
|
- | - | - | - | - | - | - | (471,000 | ) | |||||||||||||||||||||||
Net
loss
|
- | - | - | - | - | - | - | (4,071,000 | ) | |||||||||||||||||||||||
Balance at
September 30, 2009
|
13,112,000 | $ | 131,000 | 2,992.3617 | $ | - | $ | 231,106,000 | $ | (1,045,000 | ) | $ | (4,000 | ) | $ | (245,787,000 | ) | |||||||||||||||
The
accompanying notes are an integral part of these consolidated
statements.
F-27
Access
Pharmaceuticals, Inc. and Subsidiaries
Condensed
Consolidated Statements of Cash Flows
(unaudited)
Nine
Months ended September 30,
|
||||||||
2009
|
2008
|
|||||||
Cash
flows from operating activities:
|
||||||||
Net
loss
|
$ | (8,368,000 | ) | $ | (29,335,000 | ) | ||
Adjustments to
reconcile net loss to net cash used
in
operating activities:
|
||||||||
Depreciation and
amortization
|
197,000 | 245,000 | ||||||
Stock option
expense
|
593,000 | 899,000 | ||||||
Stock and warrants issued for
services
|
2,852,000 | 427,000 | ||||||
Acquired in-process research
and development
|
- | 18,536,000 | ||||||
Change in operating assets and
liabilities:
|
||||||||
Receivables
|
124,000 | (295,000 | ) | |||||
Prepaid expenses and other current assets
|
130,000 | (121,000 | ) | |||||
Other assets
|
12,000 | - | ||||||
Accounts payable and accrued expenses
|
318,000 | 317,000 | ||||||
Dividends
payable
|
(109,000 | ) | (25,000 | ) | ||||
Accrued interest
payable
|
334,000 | 315,000 | ||||||
Deferred
revenue
|
2,755,000 | 1,475,000 | ||||||
Net cash used in operating
activities
|
(1,162,000 | ) | (7,562,000 | ) | ||||
Cash
flows from investing activities:
|
||||||||
Capital
expenditures
|
(2,000 | ) | (31,000 | ) | ||||
Proceeds from sale of
asset
|
1,000 | - | ||||||
Redemptions of short-term
investments and certificate
of
deposits
|
- | 3,104,000 | ||||||
Virium acquisition by
MacroChem, net of cash acquired
|
- | (240,000 | ) | |||||
Somanta acquisition, net
of cash acquired
|
- | (65,000 | ) | |||||
Net cash provided by (used in)
investing activities
|
(1,000 | ) | 2,768,000 | |||||
Cash
flows from financing activities:
|
||||||||
Proceeds from debt
issuance
|
- | 625,000 | ||||||
Payments
of notes payable
|
- | (639,000 | ) | |||||
Proceeds from exercise of
common stock options
|
158,000 | 15,000 | ||||||
Proceeds
from preferred stock issuances, net of costs
|
- | 2,444,000 | ||||||
Net cash provided by financing
activities
|
158,000 | 2,445,000 | ||||||
Net
decrease in cash and cash equivalents
|
(1,005,000 | ) | (2,349,000 | ) | ||||
Cash
and cash equivalents at beginning of period
|
2,677,000 | 2,582,000 | ||||||
Cash
and cash equivalents at end of period
|
$ | 1,672,000 | $ | 233,000 | ||||
Supplemental
cash flow information:
|
||||||||
Cash
paid for interest
|
$ | - | $ | 9,000 | ||||
Supplemental
disclosure of noncash transactions:
|
||||||||
Shares issued for payables,
notes payable and accrued interest
|
859,000 | 1,576,000 | ||||||
Shares issued for dividends on
preferred stock
|
927,000 | - | ||||||
Preferred
stock dividends in dividends payable
|
1,434,000 | 2,873,000 | ||||||
Beneficial
conversion feature –
February
2008 preferred stock dividends
November
2007 preferred stock dividends correction
|
- - | 857,000 451,000 | ||||||
Preferred
stock issuance costs paid in cash
|
- | 281,000 | ||||||
Debt
discount related to MacroChem convertible debt issuance
|
- | 93,000 |
The
accompanying notes are an integral part of these consolidated
statements.
F-28
Access Pharmaceuticals, Inc. and
Subsidiaries
Notes to
Condensed Consolidated Financial Statements
Three and
Nine Months Ended September 30, 2009 and 2008
(unaudited)
(1)
|
Interim
Financial Statements
|
The
consolidated balance sheet as of September 30, 2009, and the consolidated
statements of operations and cash flows for the three and nine months ended
September 30, 2009, and 2008, were prepared by management without audit. In the
opinion of management, all adjustments, consisting only of normal recurring
adjustments, except as otherwise disclosed, necessary for the fair presentation
of the financial position, results of operations, and changes in financial
position for such periods, have been made.
Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with accounting principles generally accepted in the
United States of America have been condensed or omitted. It is suggested that
these interim financial statements be read in conjunction with the consolidated
financial statements and notes thereto included in our Annual Report on Form
10-K for the year ended December 31, 2008. The results of operations for the
period ended September 30, 2009 are not necessarily indicative of the operating
results which may be expected for a full year. The consolidated balance sheet as
of December 31, 2008, contains financial information taken from the audited
Access financial statements as of that date and is combined with the unaudited
financial data from MacroChem, as discussed further in Note 4.
The
report of our independent registered public accounting firm for the fiscal year
ended December 31, 2008, contained a fourth explanatory paragraph to reflect its
significant doubt about our ability to continue as a going concern as a result
of our history of losses and our liquidity position, as discussed herein and in
this Form 10-Q. We expect that our capital resources and expected receipts due
under our license agreements will be adequate to fund our current level of
operations into the first quarter of 2010. If we are unable to obtain adequate
capital funding in the future or enter into future license agreements for our
products, we may not be able to continue as a going concern, which would have an
adverse effect on our business and operations, and investors’ investment in us
may decline.
On
February 25, 2009, we closed our acquisition of MacroChem Corporation through
the issuance of an aggregate of approximately 2.5 million shares of our common
stock. Prior to our acquisition of MacroChem, SCO, an investment company, held a
majority of Access’ and MacroChem’s voting stock. Specifically, SCO
owned 53% of the voting stock of Access and 63% of the voting stock of
MacroChem. A non-controlling interest of 37% existed at the merger date of
MacroChem. In addition, certain members of SCO’s management serve on the board
of directors of both Access and MacroChem. Based on these facts, Access and
MacroChem were deemed under the common control of SCO. As the entities were
deemed under common control, the acquisition was recorded using the
pooling-of-interest method and the financial information for all periods
presented reflects the financial statements of the combined companies in
accordance with Financial Accounting Standards Board standards on business
combinations for entities under common control. See also Note 4.
F-29
(2) Intangible Assets
Intangible
assets consist of the following (in thousands):
September
30, 2009
|
December
31, 2008
|
|||
Gross
carrying
value
|
Accumulated
amortization
|
Gross
carrying
value
|
Accumulated
Amortization
|
|
Amortizable
intangible assets
Patents
|
$ 2,624
|
$ 1,784
|
$ 2,624
|
$1,625
|
Amortization
expense related to intangible assets totaled $53,000 and $159,000 for each of
the three and nine months ended September 30, 2009 and totaled $53,000 and
$159,000 for each of the three and nine months ended September 30, 2008. The
aggregate estimated amortization expense for intangible assets remaining as of
September 30, 2009 is as follows (in thousands):
2009 |
$ 53
|
|
2010 |
212
|
|
2011 |
212
|
|
2012 |
82
|
|
2013 |
44
|
|
over 5 years |
237
|
|
Total |
$ 840
|
(3) Liquidity
The
Company incurred significant losses allocable to common stockholders of
$9,802,000 for the nine months ended September 30, 2009 and $32,208,000 for the
year ended December 31, 2008. At September 30, 2009, our working capital deficit
was $6,252,000. We expect that our capital resources and receipts due under our
license agreements will be adequate to fund our current level of operations into
the first quarter of 2010. However, our ability to fund operations over this
time could change significantly depending upon changes to future operational
funding obligations or capital expenditures. As a result we will be required to
seek additional financing sources and enter into future licensing agreements for
our products. If we are unable to obtain adequate capital funding in the future
or enter into future license agreements for our products, we may not be able to
continue as a going concern, which would have an adverse effect on our business
and operations, and investors’ investment in us may decline.
(4) MacroChem
Acquisition
On
February 25, 2009, the Company issued approximately 2,500,000 shares of its
common stock in exchange for 100% of the outstanding stock and warrants of
MacroChem Corporation (“MacroChem”). MacroChem’s principal activities are to
develop and seek to commercialize pharmaceutical products using its proprietary
drug delivery technologies. Its portfolio of proprietary product candidates is
based on its drug delivery technologies: Soft Enhancement of Percutaneous
Absorption (SEPA), MacroDerm and DermaPass. Its SEPA topical drug delivery
technology enhances the efficiency and rate of diffusion of drugs into and
through the skin. Currently, it has two clinical stage investigational new
drugs: EcoNail, for the treatment of fungal infections of the nails and
Pexiganan, for the treatment of mild diabetic foot infection (DFI).
F-30
Prior to
our acquisition of MacroChem, SCO, an investment company, held a majority of
Access’ and MacroChem’s voting stock. Specifically, SCO owned 53% of
the voting stock of Access and 63% of the voting stock of MacroChem. A
non-controlling interest of 37% existed at the merger date of MacroChem. In
addition, certain members of SCO’s management serve on the board of directors of
both Access and MacroChem. Based on these facts, Access and MacroChem were
deemed under the common control of SCO. As the entities were deemed under common
control, the acquisition was recorded using the pooling-of-interest method and
the financial information for all periods presented reflects the financial
statements of the combined companies in accordance with Financial Accounting
Standards Board standards on business combinations for entities under common
control.
Upon
acquisition, all outstanding warrants and any other dilutive instruments in
MacroChem’s stock were cancelled. The in-the-money warrants converted with the
common stock. In addition to the merger, the noteholders of MacroChem agreed to
exchange their notes and interest due on the notes in the total amount of
$859,000 for 859,000 restricted shares of the Access’ common stock. The value of
the shares issued was determined based on the carrying value of the debt, which
was established to be the more readily determinable fair value.
In
addition, we issued 125,000 shares of Access common stock to former executives
of MacroChem for the settlement of employment agreements.
In
connection with the exchange of equity interests, $106,000 in merger costs were
expensed.
The
income statement for all periods presented reflects the combined carrying amount
of revenue and expenses. Below is a reconciliation of summary financial data for
the period ended September 30, 2009 and the combined MacroChem financial data
for the nine months ended September 30, 2008 and the twelve months ended
December 31, 2008. The balance sheet as of December 31, 2008 also reflects the
combined entities.
Following
is a summary balance sheet at December 31, 2008:
Access
Pharmaceuticals
|
MacroChem
Corporation
|
Combined
|
||||||||||
Current
assets
|
$ | 3,550,000 | $ | 84,000 | $ | 2,999,000 | ||||||
Total
assets
|
4,257,000 | 549,000 | 4,171,000 | |||||||||
Current
liabilities
|
4,906,000 | 3,346,000 | 7,612,000 | |||||||||
Long-term
deferred revenue
|
2,245,000 | 24,000 | 2,245,000 | |||||||||
Long-term
debt
|
5,500,000 | - | 5,500,000 | |||||||||
Stockholders’
deficit
|
(8,394,000 | ) | (2,925,000 | ) | (11,186,000 | ) |
Intercompany
receivables/payables of $635,000 and intercompany deferred revenue of $29,000
were eliminated.
Following
is a summary statement of operations for the nine months ended September 30,
2009 and September 30, 2008 and for the year ended December 31,
2008:
F-31
For the nine months ended September 30,
2009
|
For the year ended December 31,
2008
|
|||||
Access
Pharmaceuticals
|
MacroChem
Corporation
|
Combined
|
Access
Pharmaceuticals
|
MacroChem
Corporation
|
Combined
|
Total
revenues
|
$ | 248,000 | $ | - | $ | 248,000 | $ | 291,000 | $ | 4,000 | $ | 295,000 | ||||||||||||
Expenses
|
||||||||||||||||||||||||
Research
and development
|
1,830,000 | - | 1,830,000 | 12,613,000 | 10,622,000 | 23,235,000 | ||||||||||||||||||
General
and administrative
|
6,020,000 | 192,000 | 6,212,000 | 4,340,000 | 3,123,000 | 7,463,000 | ||||||||||||||||||
Depreciation
and
amortization
|
156,000 | 41,000 | 197,000 | 253,000 | 71,000 | 324,000 | ||||||||||||||||||
Total
expenses
|
8,006,000 | 233,000 | 8,239,000 | 17,206,000 | 13,816,000 | 31,022,000 | ||||||||||||||||||
Loss
from operations
|
(7,758,000 | ) | (233,000 | ) | (7,991,000 | ) | (16,915,000 | ) | (13,812,000 | ) | (30,727,000 | ) | ||||||||||||
Interest
and miscellaneous
income
|
18,000 | - | 18,000 | 178,000 | 33,000 | 211,000 | ||||||||||||||||||
Interest
and other expense
|
(369,000 | ) | (26,000 | ) | (395,000 | ) | (478,000 | ) | (433,000 | ) | (911,000 | ) | ||||||||||||
Gain
on change in value of
warrant
liability
|
- | - | - | - | 3,972,000 | 3,972,000 | ||||||||||||||||||
(351,000 | ) | (26,000 | ) | (377,000 | ) | (300,000 | ) | 3,572,000 | 3,272,000 | |||||||||||||||
Loss
from operations
|
(8,109,000 | ) | (259,000 | ) | (8,368,000 | ) | (17,215,000 | ) | (10,240,000 | ) | (27,455,000 | ) | ||||||||||||
Less
preferred stock
dividends
|
(1,434,000 | ) | - | (1,434,000 | ) | (3,358,000 | ) | - | (3,358,000 | ) | ||||||||||||||
Net
loss allocable to
common
stockholders
|
$ | (9,543,000 | ) | $ | (259,000 | ) | $ | (9,802,000 | ) | $ | (20,573,000 | ) | $ | (10,240,000 | ) | $ | (30,813,000 | ) | ||||||
Basic
and diluted loss per
common
share
|
||||||||||||||||||||||||
Net
loss allocable to
common
stockholders
|
- | - | $ | (0.86 | ) | - | - | $ | (3.69 | ) | ||||||||||||||
Weighted
average basic
and
diluted common
shares
outstanding
|
- | - | 11,375,793 | - | - | 8,354,031 |
For the nine months ended September 30,
2008
|
For the three months ended September 30,
2008
|
|||||
Access
Pharmaceuticals
|
MacroChem
Corporation
|
Combined
|
Access
Pharmaceuticals
|
MacroChem
Corporation
|
Combined
|
Total
revenues
|
$ | 217,000 | $ | 3,000 | $ | 220,000 | $ | 47,000 | $ | 1,000 | $ | 48,000 | ||||||||||||
Expenses
|
||||||||||||||||||||||||
Research
and development
|
12,108,000 | 10,574,000 | 22,682,000 | 1,284,000 | 386,000 | 1,670,000 | ||||||||||||||||||
General
and administrative
|
3,372,000 | 2,913,000 | 6,285,000 | 1,439,000 | 728,000 | 2,167,000 | ||||||||||||||||||
Depreciation
and
amortization
|
197,000 | 49,000 | 246,000 | 66,000 | 14,000 | 80,000 | ||||||||||||||||||
Total
expenses
|
15,677,000 | 13,536,000 | 29,213,000 | 2,789,000 | 1,128,000 | 3,917,000 | ||||||||||||||||||
Loss
from operations
|
(15,460,000 | ) | (13,533,000 | ) | (28,993,000 | ) | (2,742,000 | ) | (1,127,000 | ) | (3,869,000 | ) | ||||||||||||
Interest
and miscellaneous
income
|
167,000 | 6,000 | 173,000 | 62,000 | - | 62,000 | ||||||||||||||||||
Interest
and other expense
|
(351,000 | ) | (161,000 | ) | (512,000 | ) | (126,000 | ) | (86,000 | ) | (212,000 | ) | ||||||||||||
Gain
(loss) on change in
warrant
value
|
- | 3,886,000 | 3,886,000 | - | 419,000 | 419,000 | ||||||||||||||||||
(184,000 | ) | 3,731,000 | 3,547,000 | (64,000 | ) | 333,000 | 269,000 | |||||||||||||||||
Loss
from operations
|
(15,644,000 | ) | (9,802,000 | ) | (25,446,000 | ) | (2,806,000 | ) | (794,000 | ) | (3,600,000 | ) | ||||||||||||
Less
preferred stock
dividends
|
(2,873,000 | ) | - | (2,873,000 | ) | (523,000 | ) | - | (523,000 | ) | ||||||||||||||
Net
loss allocable to
common
stockholders
|
$ | (18,517,000 | ) | $ | (9,802,000 | ) | $ | (28,319,000 | ) | $ | (3,329,000 | ) | $ | (794,000 | ) | $ | (4,123,000 | ) | ||||||
Basic
and diluted loss per
common
share
|
||||||||||||||||||||||||
Net
loss allocable to
common
stockholders
|
- | - | $ | (3.49 | ) | - | - | $ | (0.50 | ) | ||||||||||||||
Weighted
average basic
and
diluted common
shares
outstanding
|
- | - | 8,107,242 | - | - | 8,303,457 |
F-32
(5) Stock
Based Compensation
For the
three and nine months ended September 30, 2009 we recognized stock-based
compensation expense of $285,000 and $593,000. For the three and nine months
ended September 30, 2008 we recognized stock-based compensation expense of
$226,000 and $899,000.
The
following table summarizes stock-based compensation for the three and nine
months ended September 30, 2009, and 2008:
Three months
ended
September 30,
|
Nine months ended
September 30,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Research
and development
|
$ | 130,000 | $ | 39,000 | $ | 250,000 | $ | 78,000 | ||||||||
General
and administrative
|
155,000 | 187,000 | 343,000 | 821,000 | ||||||||||||
Stock-based
compensation expense
included
in operating expense
|
$ | 285,000 | $ | 226,000 | $ | 593,000 | $ | 899,000 |
We
granted no stock options during the third quarter of 2009 and granted no stock
options in the same period of 2008. MacroChem options were cancelled upon
acquisition by Access and are no longer outstanding.
Our
weighted average Black-Scholes fair value assumptions used to value the 2009 and
2008 first nine months grants are as follows:
9/30/09
|
9/30/08
|
|||
Expected
life
|
5.5
yrs
|
6.2
yrs
|
||
Risk
free interest rate
|
2.4
|
%
|
3.0
|
%
|
Expected
volatility(a)
|
114
|
%
|
133
|
%
|
Expected
dividend yield
|
0.0
|
%
|
0.0
|
%
|
(a)
|
Reflects
movements in our stock price over the most recent historical period
equivalent to the expected life.
|
(6) Fair
Value of Financial Instruments
FASB
accounting standards require disclosure about the fair value of all financial
assets and liabilities for which it is practicable to estimate. The carrying
value of cash, cash equivalents, receivables, accounts payable and accruals
approximate fair value due to the short maturity of these items. The carrying
value of the convertible long-term debt is at book value which approximates the
fair value as the interest rate is at market value.
(7) Subsequent
Events
In
preparing these financial statements, the Company has evaluated events and
transactions for potential recognition or disclosure through November 13, 2009,
the date the financial statements were issued.
F-33
MacroChem
Corporation and Subsidiary
INDEX
|
||
Page No.
|
||
Report
of Independent Public Accounting Firm
|
F-35
|
|
Consolidated
Balance Sheet at December 31, 2008
|
F-36
|
|
Consolidated
Statement of Operations for Year Ended December 31, 2008
|
F-37
|
|
Consolidated
Statement of Stockholders’ Deficit for Year Ended December 31,
2008
|
F-38
|
|
Consolidated
Statement of Cash Flows Year ended December 31, 2008
|
F-39
|
|
Notes
to Consolidated Financial Statements
|
F-40
|
|
F-34
REPORT
OF INDEPENDENT AUDITORS
To the
Board of Directors and Stockholders of
MacroChem
Corporation
We have
audited the accompanying consolidated balance sheet of MacroChem Corporation and
subsidiary (the “Company”) as of December 31, 2008 and the related consolidated
statements of operations, stockholders’ deficit and cash flows for the year then
ended. 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 audit.
We
conducted our audit in accordance with auditing standards generally accepted in
the United States of America. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. The Company is not required to, nor have we
been engaged to perform, an audit of its internal control over financial
reporting. An audit includes consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Company's internal control over financial reporting.
Accordingly, we express no such opinion. An audit also 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 audit provides a
reasonable basis for our opinion.
In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the consolidated financial position of MacroChem
Corporation and subsidiary as of December 31, 2008, and the results of their
operations and their cash flows for the year then ended in conformity with
accounting principles generally accepted in the United States of
America.
The
accompanying consolidated financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Company has had recurring losses from
operations, negative cash flows from operating activities, and has an
accumulated deficit. Management’s plans in regard to these matters
are also described in Note 1. These conditions raise substantial doubt about the
Company’s ability to continue as a going concern. These consolidated financial
statements do not include any adjustments to reflect the possible future effects
on the recoverability and classification of assets or the amounts and
classification of liabilities that may result from the outcome of this
uncertainty.
/s/
WHITLEY PENN LLP
Dallas,
Texas
August
25, 2009
F-35
MacroChem
Corporation and Subsidiary
CONSOLIDATED
BALANCE SHEET
ASSETS
|
December 31, 2008
|
Current
assets
Cash and cash
equivalents
|
$ 14,000
|
Prepaid
expenses and other current assets
|
70,000
|
Total
current assets
|
84,000
|
Property
and equipment, net
|
8,000
|
Patents,
net
|
457,000
|
Total
assets
|
$ 549,000
|
LIABILITIES
AND STOCKHOLDERS' DEFICIT
|
|
Current
liabilities
Accounts
payable
Accrued
expenses and other liabilities
Accrued
interest payable
Current
portion of deferred revenue
Note
payable – Access Pharmaceuticals, Inc.
Note
payable – related party
Notes
payable
|
$ 1,317,000
547,000
17,000
5,000
635,000
225,000
600,000
|
Total
current liabilities
|
3,346,000
|
Long-term
deferred revenue
Warrants
liability
|
24,000
104,000
|
Total
liabilities
|
3,474,000
|
Commitments
and contingencies
|
|
Stockholders'
deficit
Common
stock - $.01 par value; authorized 100,000,000 shares;
45,873,412
issued at December 31, 2008; 22,500,026 issued
at
December 31, 2007
Additional
paid-in capital
Treasury
stock, at cost – 529 shares
Accumulated
deficit
|
459,000
97,763,000
(59,000)
(101,088,000)
|
Total
stockholders' deficit
|
(2,925,000)
|
Total
liabilities and stockholders' deficit
|
$ 549,000
|
The
accompanying notes are an integral part of these consolidated
statements.
F-36
MacroChem
Corporation and Subsidiary
CONSOLIDATED
STATEMENT OF OPERATIONS
Year
Ended
December
31,
2008
|
||||
Revenues:
|
||||
License
revenues
|
$ | 4,000 | ||
Total revenues
|
4,000 | |||
Expenses:
|
||||
Research and
development
|
10,622,000 | |||
General and
administrative
|
3,123,000 | |||
Depreciation and
amortization
|
71,000 | |||
Total expenses
|
13,816,000 | |||
Loss
from operations
|
(13,812,000 | ) | ||
Interest
and other income
|
26,000 | |||
Interest
and other expense
|
(433,000 | ) | ||
Gain
on change in value of warrants liability
|
3,972,000 | |||
Gain
on sale of equipment
|
7,000 | |||
3,572,000 | ||||
Net
loss
|
$ | (10,240,000 | ) | |
Basic
and diluted loss per common share
|
$ | (0.26 | ) | |
Weighted
average basic and diluted common shares
outstanding
|
38,934,207 | |||
The
accompanying notes are an integral part of these consolidated
statements.
F-37
MacroChem
Corporation and Subsidiary
CONSOLIDATED
STATEMENT OF STOCKHOLDERS' DEFICIT
For the
year ended December 31, 2008
Common Stock Shares
|
||||||||||||||||||||||||||||
Issued
|
Treasury
|
Common
Stock
|
Additional
Paid-In
Capital
|
Accumulated
Deficit
|
Treasury
Stock,
at
cost
|
Total
Stockholders’
Deficit
|
||||||||||||||||||||||
Balance,
December
31, 2007
|
22,500,026 | (529 | ) | $ | 225,000 | $ | 90,054,000 | $ | (90,848,000 | ) | $ | (59,000 | ) | $ | (628,000 | ) | ||||||||||||
Common
stock and
warrants
issued to
Virium
shareholders
|
22,898,386 | - | 229,000 | 6,788,000 | - | - | 7,017,000 | |||||||||||||||||||||
Common
stock
issued
for services
|
400,000 | - | 4,000 | 116,000 | - | - | 120,000 | |||||||||||||||||||||
Warrants
issued with
debt
|
- | - | - | 75,000 | - | - | 75,000 | |||||||||||||||||||||
Warrants
issued for
services
|
- | - | - | 36,000 | - | - | 36,000 | |||||||||||||||||||||
Convertible
notes
beneficial
conversion
feature
|
- | - | - | 188,000 | - | - | 188,000 | |||||||||||||||||||||
Stock-based
compensation
expense
|
75,000 | - | 1,000 | 506,000 | - | - | 507,000 | |||||||||||||||||||||
Net
loss
|
- | - | - | - | (10,240,000 | ) | - | (10,240,000 | ) | |||||||||||||||||||
Balance,
December
31, 2008
|
45,873,412 | (529 | ) | $ | 459,000 | $ | 97,763,000 | $ | (101,088,000 | ) | $ | (59,000 | ) | $ | (2,925,000 | ) |
The
accompanying notes are an integral part of these consolidated
statements.
F-38
MacroChem
Corporation and Subsidiary
CONSOLIDATED
STATEMENT OF CASH FLOWS
Year
ended December 31,
|
||
2008 | ||
Cash
flows from operating activities:
|
||
Net
loss
|
$
|
(10,240,000)
|
Adjustments
to reconcile net loss to net cash used
|
||
in
operating activities:
|
||
Stock
based compensation expense
|
507,000
|
|
Stock
and warrants issued for services
|
156,000
|
|
Acquired
in-process research and development
|
9,661,000
|
|
Depreciation
and amortization
|
71,000
|
|
Amortization
of debt discount and beneficial conversion feature
|
263,000
|
|
Gain
on change in value of warrants liability
|
(3,972,000)
|
|
Gain
on sale of equipment
|
(7,000)
|
|
Change
in operating assets and liabilities:
|
||
Prepaid
expenses and other current assets
|
61,000
|
|
Accounts
payable and accrued expenses
|
84,000
|
|
Accrued
interest payable
|
17,000
|
|
Net
cash used in operating activities
|
(3,399,000)
|
|
Cash
flows from investing activities:
|
||
Sales
of short-term investments
|
759,000
|
|
Expenditures
for property and equipment
|
(3,000)
|
|
Proceeds
from sale of asset
|
13,000
|
|
Payments
for acquisition of Virium, net of cash acquired
|
(240,000)
|
|
Net
cash provided by investing activities
|
529,000
|
|
Cash
flows from financing activities:
|
||
Proceeds
from debt issuance
|
400,000
|
|
Proceeds
from note payable – Access Pharmaceuticals, Inc.
|
635,000
|
|
Repayment
of debt
|
(575,000)
|
|
Net
cash provided by financing activities
|
460,000
|
|
Net
decrease in cash and cash equivalents
|
(2,410,000)
|
|
Cash
and cash equivalents at beginning of year
|
2,424,000
|
|
Cash
and cash equivalents at end of year
|
$
|
14,000
|
Supplemental
cash flow information:
|
||
Cash
paid for interest
|
$ |
133,000
|
The
accompanying notes are an integral part of these consolidated
statements.
F-39
MACROCHEM
CORPORATION AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
1.
|
Nature
of Business and Summary of Significant Accounting
Policies.
|
MacroChem
Corporation (the “Company”) is a specialty pharmaceutical company that develops
and seeks to commercialize pharmaceutical products using its proprietary drug
delivery technologies.
The
Company has been engaged primarily in research and development since its
inception in 1981 and has derived limited revenues from the commercial sale of
its products, licensing of certain technology and feasibility studies. The
Company has had minimal revenues relating to the sale of any products currently
under development. The Company has incurred losses from operations every year
since its inception and the Company anticipates that operating losses may
continue for the foreseeable future. At December 31, 2008 the Company’s
accumulated deficit was approximately $101.1 million. The audit report of
Whitley Penn LLP, our independent public accounting firm on our 2008 financial
statements includes an explanatory paragraph concerning our ability to continue
as a going concern. The inclusion of this explanatory paragraph may materially
and adversely affect our ability to raise new capital. To continue to operate,
the Company will require significant additional funding. The consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
The
Company was acquired by Access Pharmaceuticals, Inc. (“Access”) on February 25,
2009 per the agreement and plan of merger entered into on July 10, 2008. The
impact of this transaction is not reflected in these consolidated financial
statements. See Note 11.
The
Company organizes itself as one segment reporting to the chief executive
officer. Products and services consist primarily of research and development
activities in the pharmaceutical industry.
Principles of
Consolidation - The consolidated financial statements include the
financial statements of MacroChem Corporation and our wholly-owned subsidiary.
All intercompany balances and transactions have been eliminated in
consolidation.
Accounting Estimates
– The preparation of the consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the consolidated financial statements and the
reported amounts of revenues and expenses during the reporting period. The
primary estimates underlying the Company’s consolidated financial statements
include the fair market value of warrants included in liabilities, the carrying
value and useful lives of the Company’s patents and property and equipment, the
valuation allowance established for the Company’s deferred tax assets, and the
underlying assumptions to apply the pricing model to value stock options under
Statement of Financial Accounting Standards (“SFAS”) No. 123 (revised
2004), “Share-Based
Payment,”. Management bases its estimates on certain assumptions, which
it believes are reasonable in the circumstances, and while actual results could
differ from those estimates, management does not believe that any change in
those assumptions in the near term would have a significant effect on the
consolidated financial position or the results of operations.
Fair Value of Financial
Instruments – The carrying amounts of cash, cash equivalents, accounts
payable, notes payable and accrued expenses approximate their fair value because
of their short-term nature.
Cash and Cash
Equivalents – Cash and cash equivalents at December 31, 2008 are
primarily comprised of highly liquid investments with a maturity of three months
or less when purchased. There were no short-term investments at December 31,
2008. During the year we maintained deposits primarily in one financial
institution, which may at times exceed amounts covered by insurance provided by
the U.S. Federal Deposit Insurance Corporation ("FDIC"). We have not
experienced any losses related to amounts in excess of FDIC
limits.
F-40
Property and
Equipment – Property and equipment are stated at cost. Depreciation and
amortization are provided on the straight-line method over the estimated useful
lives of the related assets, which range from three to ten years.
Patents – The Company
has filed applications for United States and foreign patents covering aspects of
its technology. Costs and expenses incurred in connection with pending patent
applications are deferred. Costs related to successful patent applications are
amortized over the estimated useful lives of the patents, not exceeding 20
years, using the straight-line method. Accumulated patent costs and deferred
patent application costs related to patents that are considered to have limited
future value are charged to expense. Accumulated amortization aggregated
approximately $487,000 at December 31, 2008. On an on-going basis, the Company
evaluates the recoverability of the net carrying value of various patents by
reference to the patent’s expected use in drug and other research activities as
measured by outside interest in the Company’s patented technologies and
management’s determination of potential future uses of such technologies. At
December 31, 2008:
Gross
carrying value
|
$ | 944,000 | ||
Accumulated
amortization
|
(487,000 | ) | ||
Net
asset value
|
$ | 457,000 |
The
aggregate estimated amortization expense for intangible assets remaining as of
December 31, 2008 is as follows (in thousands):
2009
|
$ | 45 | ||
2010
|
45 | |||
2011
|
45 | |||
2012
|
45 | |||
2013
and thereafter
|
277 | |||
Total
|
$ | 457 |
For the
year ended December 31, 2008, amortization expense was $61,000.
Long-lived Assets –
The Company reviews its long-lived assets for impairment when events or changes
in circumstances indicate that the carrying amount of a long-lived asset may not
be recoverable. Recoverability of such assets to be held and used is measured by
a comparison of the carrying amount of the asset to future undiscounted 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 exceeds the fair value of the assets. No
impairment charges were recorded for the year ended December 31,
2008.
Research and
Development – Research and development costs are charged to operations as
incurred. Such costs include proprietary research and development activities and
expenses associated with research and development contracts, whether performed
by the Company or contracted with independent third parties. Research and
development also includes in-process research and development of $9,661,000 from
the acquisition of Virium in 2008.
Revenues - Our
revenues are generated from licensing and research and development agreements.
We recognize revenue in accordance with SEC Staff Accounting Bulletin No. 104
(SAB 104), “Revenue
Recognition”. License revenue is recognized over the remaining life of
the underlying patent. Research and development revenues are recognized as
services are performed.
Stock Based
Compensation – Adoption
of SFAS 123(R)
Prior to
January 1, 2006, the Company accounted for stock-based compensation issued
to employees using the intrinsic value method, which follows the recognition and
measurement principles of Accounting Principles Board (“APB”) Opinion
No. 25, “Accounting for
Stock Issued to Employees,” and Financial Accounting Standards Board
(“FASB”) Interpretation (‘‘FIN’’) No. 44, ‘‘Accounting for Certain
Transactions Involving Stock Compensation.’’
F-41
Generally,
no stock-based employee compensation cost related to stock options was reflected
in net income, as all options granted under stock-based compensation plans had
an exercise price equal to the market value of the underlying common stock on
the grant date. Compensation cost related to restricted stock units granted to
non-employee directors and certain key employees was reflected as an expense as
services were rendered.
On
January 1, 2006, the Company adopted SFAS No. 123(R), “Share-Based Payment,” using
the modified prospective method, which requires measurement of compensation cost
for all stock awards at fair value on the date of grant and recognition of
compensation over the requisite service period for awards expected to vest. The
fair value of stock options is estimated using the Black-Scholes valuation
model, and the fair value of restricted stock units is determined based on the
number of shares granted and the quoted price of the Company’s common stock on
the date of grant. Such value is recognized as expense over the requisite
service period, net of estimated forfeitures, using the straight-line
attribution method. The estimate of awards that will ultimately vest requires
significant judgment, and to the extent actual results or updated estimates
differ from the Company’s current estimates, such amounts will be recorded as a
cumulative adjustment in the period estimates are revised. The Company considers
many factors when estimating expected forfeitures, including types of awards,
employee class and historical employee attrition rates. Actual results, and
future changes in estimates, may differ substantially from the Company’s current
estimates.
Stock
based compensation expense for the year ended December 31, 2008 is as
follows:
Year
Ended
December
31,
2008
|
||||
General
and administrative
|
$
|
507,000
|
Income Taxes – 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. A valuation allowance is provided for deferred tax assets to the
extent their realization is in doubt.
As of
January 1, 2007, we adopted FASB Interpretation No. 48, “Accounting for Uncertainty in Income
Taxes, an Interpretation of FASB Statement No. 109, Accounting for Income Taxes”
(“FIN 48”). The adoption did not have a material impact on our
consolidated financial statements or effective tax rate and did not result in
any unrecognized tax benefits. Interest costs and penalties related to income
taxes are classified as interest expense and general and administrative costs,
respectively, in our consolidated financial statements. For the year ended
December 31, 2008, we did not recognize any interest or penalty expense related
to income taxes. It is determined not to be reasonably likely for the amounts of
unrecognized tax benefits to significantly increase or decrease within the next
12 months. We are currently subject to a three year statute of limitations by
major tax jurisdictions. We and our subsidiary file income tax returns in the
U.S. federal jurisdiction.
Basic and Diluted (Loss)
Income Per Share – Basic earnings per share is computed using the
weighted average number of common shares outstanding during each year. For the
year ended December 31, 2008, potential common shares are not included in the
per share calculations for diluted EPS, because the effect of their inclusion
would be anti-dilutive. Anti-dilutive potential shares from stock options,
warrants and convertible debt not included in per share calculations under the
treasury stock method for 2008 were 25,768,998.
F-42
Basic
and Diluted Income (Loss) Per Share
|
Year
Ended
December
31,
2008
|
|||
Basic
net (loss) income attributable to common stockholders
|
$
|
(10,240,000
|
)
|
|
Basic
and diluted net (loss) income per common share
|
$
|
(0.26
|
)
|
|
Weighted
average shares used to compute basic and diluted net (loss) income per
common share
|
38,934,207
|
Recent Accounting
Pronouncement– In
September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”
(“SFAS 157”). SFAS 157 defines fair value, establishes a market-based framework
or hierarchy for measuring fair value, and expands disclosures about fair value
measurements. SFAS 157 is applicable whenever another accounting pronouncement
requires or permits assets and liabilities to be measured at fair value. SFAS
157 does not expand or require any new fair value measures; however the
application of this statement may change current practice. The requirements of
SFAS 157 became effective for our fiscal year 2008. However, in
February 2008 the FASB decided that an entity need not apply this standard
to nonfinancial assets and liabilities that are recognized or disclosed at fair
value in the financial statements on a nonrecurring basis until the subsequent
year. Accordingly, our adoption of this standard on January 1, 2008 was
limited to financial assets and liabilities and did not have a material effect
on our financial condition or results of operations. The financial assets and
liabilities as reported in the Company’s financial statements approximate their
respective fair value. The Company’s warrant liability is included in level 2 of
the fair value hierarchy contained in SFAS 157. We are still in the process of
evaluating this standard with respect to its effect on nonfinancial assets and
liabilities and therefore have not yet determined the impact that it will have
on our financial statements upon full adoption.
In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial
Assets and Financial Liabilities — including an amendment of FASB 115”
(“SFAS 159”) which allows an entity to choose to measure certain financial
instruments and liabilities at fair value. Subsequent measurements for the
financial instruments and liabilities an entity elects to fair value will be
recognized in earnings and this election is irrevocable. SFAS 159 also
establishes additional disclosure requirements. SFAS 159 is effective for the
Company beginning January 1, 2008. The Company has not elected to apply the
fair value option to any of its financial instruments.
In
December 2007, the FASB issued SFAS No.141 (revised 2007), “Business Combinations”
(“SFAS 141R”). SFAS 141R establishes principles and requirements for how an
acquirer recognizes and measures in its financial statements the identifiable
assets acquired, the liabilities assumed, any non controlling interest in the
acquiree and the goodwill acquired. SFAS 141R also establishes disclosure
requirements to enable the evaluation of the nature and financial effects of the
business combination. SFAS 141R is effective beginning January 1, 2009. The
Company is currently evaluating the potential impact of the adoption of SFAS
141R on its financial position, results of operations or cash
flows.
In
December 2007, the FASB issued SFAS No.160, “Non Controlling Interests in
Consolidated Financial Statements-an amendment of Accounting Research
Bulletin No. 51” (“SFAS 160”). SFAS 160 establishes accounting and
reporting standards for ownership interests in subsidiaries held by the parties
other than parent, the amount of the consolidated net income attributable to the
parent and to the non controlling interest, changes in parent’s ownership
interest, and the valuation of retained non controlling equity investments when
a subsidiary is deconsolidated. SFAS 160 also establishes disclosure
requirements that clearly identify and distinguish between the interests of the
parent and interests of the non controlling owners. SFAS 160 is effective for
the Company beginning January 1, 2009. The Company is currently evaluating
the potential impact of the adoption of FAS 160 on its financial position,
results of operations or cash flows.
F-43
In
March 2008, the FASB issued SFAS No. 161 “Disclosures about Derivative
Instruments and Hedging Activities-an amendment of FASB Statement
No. 133” (“SFAS 161”). SFAS 161 enhances disclosures about the
Company’s derivative and hedging activities and thereby improves the
transparency of financial reporting. SFAS 161 is effective for financial
statements issued for fiscal years and interim periods beginning after
November 15, 2008. The Company is currently evaluating the potential impact
of the adoption of SFAS 161 on its financial position, results of operations or
cash flows.
On
October 10, 2008, the FASB issued FSP No. SFAS 157-3, ”Determining the Fair Value of a
Financial Asset When the Market for That Asset Is Not Active.” (“FSP SFAS
157-3”) clarifies the application of SFAS No. 157, “Fair Value Measurements,” in
a market that is not active and provides an example to illustrate key
considerations in determining the fair value of a financial asset when the
market for that financial asset is not active. FSP SFAS 157-3 is effective
immediately, including prior periods for which financial statements have not
been issued. The adoption of FSP SFAS 157-3 did not have a material impact on
the Company’s consolidated financial statements.
2.
|
Property
and Equipment.
|
Property
and equipment consists of the following as of December 31:
2008
|
||||
Office
equipment
|
$ | 493,000 | ||
Less:
accumulated depreciation
|
(485,000 | ) | ||
Property
and equipment, net
|
$ | 8,000 | ||
3.
|
Accrued
Expenses and Other Liabilities.
|
Accrued
expenses and other liabilities consists of accrued patent expenses of $300,000
and other accrued expenses of $247,000 as of December 31, 2008.
4.
Debt
On August
27, 2008, the Company entered into a Note Purchase Agreement with Access
Pharmaceuticals, Inc., pursuant to which Access has loaned us in aggregate the
amount of $635,000 at December 31, 2008 and agreed to loan additional funds to
us as required to operate our business until the date of termination of the
agreement or until the merger transaction is completed. We have agreed to pay
interest to Access at the rate of 10% per annum.
See also
Note 8 – Virium Pharmaceuticals, Inc. Acquisition for details of the notes
related to the acquisition. Of the $825,000 outstanding at December 31, 2008,
$225,000 was held by SCO and related parties.
As
described at Note 8, default status of one of these notes at December 31, 2008
resulted in a beneficial conversion feature with a value of $188,000 recorded to
interest expense and additional paid-in capital.
All of
MacroChem’s outstanding debt and accrued interest was cancelled in exchange for
Access common stock upon acquisition, see Note 11.
5.
Stock-Based
Compensation
Stock Incentive Plans
– The Company has granted options to purchase the Company’s common stock to
employees and directors under various stock incentive plans. Under the plans,
employees and non-employee directors are eligible to receive awards of various
forms of equity-based incentive compensation, including stock options,
restricted stock, and performance awards, among others. The plans are
administered by the Board of Directors or the Compensation Committee of the
Board of Directors, which determine the terms of the awards granted. Stock
options are generally granted with an exercise price equal to the market value
of a share of common stock on the date of grant, have a term of ten years or
less, and vest over terms of two to three years from the date of
grant.
F-44
Stock Option Plans –
The Company has three stock option plans, the 1994 Equity Incentive Plan (the
“1994 Plan”) and the 2001 Incentive Plan (the “2001 Plan”) and the 2008 Stock
Incentive Plan ( the “2008 Plan”).
Under the
terms of the 1994 Plan, the Company may no longer award any options. All options
previously granted under the 1994 Plan may be exercised at any time up to ten
years from the date of award.
Under the
terms of the 2001 Plan, the Company may grant options to purchase up to a
maximum of 2,373,809 shares of common stock to certain employees, directors and
consultants. The options may be awarded as incentive stock options (employees
only) and non-incentive stock options (certain employees, directors and
consultants).
The 2008
Plan, 2001 Plan and the 1994 Plan state that the exercise price of options shall
not be less than fair market value at the date of grant. As of December 31,
2008, there were outstanding options under all plans to purchase 4,126,232
shares of common stock with 4,373,768 shares remaining available for future
grants under the 2001 and 2008 Plan.
Stock-Based
Compensation–
Effective January 1, 2006, the Company adopted FAS No. 123(R),
“Accounting for Stock-Based
Compensation,” (“FAS 123(R)”) using the modified prospective method,
which results in the provisions of FAS 123(R) being applied to the financial
statements on a going-forward basis. FAS 123(R) requires companies to recognize
stock-based compensation awards granted to its employees as compensation expense
on a fair value method. Under the fair value recognition provisions of FAS
123(R), stock-based compensation cost is measured at the grant date based on the
fair value of the award and is recognized as expense over the service period,
which generally represents the vesting period. The grant date fair value of
stock options is calculated using the Black-Scholes option-pricing model and the
grant date fair value of restricted stock is based on intrinsic value. The
expense recognized over the service period is required to include an estimate of
the awards that will be forfeited.
All
stock-based awards to non-employees are accounted for at their fair market value
in accordance with FAS 123(R) and Emerging Issues Task Force No. 96-18,
“Accounting for Equity
Instruments That Are Issued to Other Than Employees for Acquiring, or in
Conjunction with Selling, Goods or Services.” Under this method, the
equity-based instrument was valued at either the fair value of the consideration
received or the equity instrument issued on the date of grant. The resulting
compensation cost was recognized and charged to operations over the service
period, which was usually the vesting period.
For
purposes of recording stock based compensation expense as required by Statement
No. 123(R), the fair values of each stock option granted under the
Company’s stock option plan for the fiscal year ended December 31, 2008,
was estimated as of the date of grant using the Black-Scholes option-pricing
model.
The fair
values of all 2008 stock option grants issued were determined using the
following weighted average assumptions:
Year
Ended
December
31,
2008
|
|
Risk-free
interest rate
|
2.96
%
|
Expected
life of option grants
|
6.0
years
|
Expected
volatility of underlying stock
|
111
%
|
Expected
dividend payment rate, as a percentage of the stock price on the date of
grant
|
0
%
|
The
dividend yield assumption is based on the Company’s history and expectation of
future dividend payouts. The Company estimated stock price volatility using the
historical volatility in the market price of its common stock for the expected
term of the options. The risk-free interest rate assumption is based upon the
U.S. Treasury yield curve in effect at the time of grant for periods
corresponding with the expected life of the option.
F-45
As
share-based compensation expense is recognized based on awards ultimately
expected to vest, it must be reduced for estimated forfeitures. FAS 123(R)
requires forfeitures to be estimated at the time of grant and revised, if
necessary, in subsequent periods if actual forfeitures differ from those
estimates. Forfeiture rates are calculated based on actual historical
forfeitures. The Company assumed a 100% forfeiture rate for all unvested options
at December 31, 2008 due to the acquisition by Access on February 25, 2009. See
Note 11.
The
expected term of the options represents the estimated period of time until
exercise and is based on historical experience of similar awards. The expected
life of employee stock options is, in part, a function of the options’ remaining
contractual life and the extent to which the option is in-the-money (i.e., the
average stock price during the period is above the strike price of the stock
option). We use the “simplified method” until we have enough historical
experience to provide a reasonable estimate of expected term.
Stock
Option Activity–
During the year ended December 31, 2008, the Company granted stock options to
existing employees and Directors, as part of the Company’s yearly review
process. All such options were granted with exercise prices equal to the current
market value of the underlying common stock on the date of grant. Stock option
activity was as follows:
Number
of
Shares
|
Weighted
Average
Exercise
Price
Per
Share
|
Weighted-Average
Remaining
Contractual
Term
|
||||||
Balance,
December 31, 2007
|
3,020,249
|
$
|
3.90
|
|||||
Granted
|
4,840,000
|
0.30
|
||||||
Exercised
|
——
|
|||||||
Canceled
|
(3,734,017
|
)
|
$
|
2.66
|
||||
Outstanding at,
December 31,
2008
|
4,126,232
|
$
|
0.58
|
8.92
|
||||
Exercisable,
December 31, 2008
|
1,939,417
|
$
|
2.58
|
8.63
|
There was
no intrinsic value of options at December 31, 2008.
The
following table summarizes information relating to currently outstanding and
exercisable options as of December 31, 2008 as follows:
Outstanding
|
Weighted
|
Weighted
|
|||
Weighted-Average
|
Average
|
Exercisable
|
Average
|
||
Number
of
|
Remaining
|
Exercise
|
Number
|
Exercise
|
|
Exercise Price
|
Shares
|
Contractual Life (in Yrs)
|
Price
|
of Shares
|
Price
|
$0.24
- $0.30
|
2,540,000
|
9.39
|
$0.29
|
927,498
|
$3.40
|
$0.60
- $1.62
|
1,575,000
|
8.18
|
$0.88
|
1,000,687
|
$1.60
|
$10.50
- $69.30
|
11,232
|
6.19
|
$22.76
|
11,232
|
$22.76
|
4,126,232
|
1,939,417
|
Stock
based compensation expense for the year ended December 31, 2008 related to stock
options was $485,000. As of December 31, 2008, there was no expected
unrecognized compensation cost related to unvested stock options granted under
the Company’s stock-based compensation plans as forfeitures were estimated at
100%.
F-46
All
outstanding options at December 31, 2008 were canceled February 25, 2009 with
the acquisition by Access Pharmaceuticals, Inc.
Stock and Stock Option
Issuances to Non-Employees – During 2008, no stock options were granted
to non-employees or consultants.
Restricted
Stock Activity
On
March 7, 2008, the Company issued 400,000 shares of common stock to a
consultant to the Company for services to be performed in the first three
quarters of 2008. The common shares vested immediately and were not
subject to forfeiture. The common shares had a fair value of $120,000 on
the grant date.
Stock and Stock Option
Issuances to Employees Outside the Stock Option Plans –
On
April 22, 2008, the Company issued 75,000 shares of common stock to the
Company’s Chairman Robert DeLuccia. The common shares vested immediately and
were not subject to forfeiture. The common shares had a fair value of $22,500
and was recorded to stock-based compensation expense.
During
2006, 75,000 shares of restricted stock were granted to Robert J. DeLuccia, the
Company’s Chief Executive Officer. The restricted stock vests if and when the
Company’s common stock trades at or above $4.00 per share for thirty consecutive
trading days. None of these awards had vested as of December 31, 2008 and all
were cancelled upon acquisition by Access in 2009.
6.
|
Stockholders’
Equity.
|
Authorized
Capital Stock
Authorized
capital stock consists of 100,000,000 shares of $.01 par value common stock of
which 45,873,412 shares are issued (45,872,883 are outstanding) and 30,142,767
are reserved for issuance upon exercise of common stock options and warrants at
December 31, 2008. Authorized preferred stock totals 6,000,000 shares, of
which 500,000 shares have been designated Series A Preferred Stock, 600,000
shares have been designated Series B Preferred Stock and 1,500 shares have
been designated Series C Cumulative Convertible Preferred Stock. On
December 31, 2008, there were no shares of Series A, B or C Cumulative
Preferred Stock outstanding.
Stock
Sales
On
October 10, 2007, the Company entered into a Securities Purchase Agreement,
pursuant to which the Company issued in a private placement 5,891,667 shares of
its common stock and five-year warrants to purchase 1,767,500 shares of the
Company’s common stock at an exercise price of $0.60 per share, for aggregate
gross proceeds of $3,535,000. In connection with the private placement, all of
the 752.25 then outstanding shares of the Company’s Series C Cumulative
Convertible Preferred Stock were converted into a total of 12,571,850 shares of
common stock. In addition, outstanding warrants to purchase 8,648,102 shares of
common stock previously issued with the Series C Preferred have been reset
to purchase 17,885,848 shares of common stock at an exercise price of $0.60 per
share, pursuant to anti-dilution provisions of those warrants.
In
connection with the private placement, the Company entered into a Director
Designation Agreement dated as of October 1, 2007 with SCO Capital
Partners, LLC (“SCO”), a current stockholder and a purchaser in the private
placement, pursuant to which, for so long as SCO holds 20% of the Company’s
outstanding common stock, SCO has the right to designate two individuals to
serve on the Company’s Board of Directors. SCO previously held the right to
designate two individuals to serve on the Company’s Board of Directors for so
long as it held 20% of the Company’s outstanding Series C Preferred. SCO
was paid $150,000 in investor relations fees in 2008.
F-47
Warrants
As
discussed at note 8, on June 23, 2008, the Company entered into a $425,000
Convertible Note agreement with new holders of convertible promissory notes
whose notes mature on December 12, 2008, subject to certain conditions. The
note holders received warrants to purchase 212,500 shares of common stock at an
exercise price of $.01 per share for a period of five years. These warrants were
valued at $51,000 using the Black Scholes model and are being amortized over the
term of the debt. As of December 31, 2008, none of the warrants had been
exercised.
As
discussed at Note 8, on June 23, 2008, the Company entered into a $400,000
Convertible Note agreement with new holders of convertible promissory notes
whose notes mature on December 6, 2008, subject to certain conditions. The
note holders received warrants to purchase 100,000 shares of common stock at an
exercise price of $.01 per share for a period of five years. These warrants were
valued at $24,000 using the Black Scholes model and are being amortized over the
term of the debt. As of December 31, 2008, none of the warrants had been
exercised.
On March
5, 2008, the Company entered into an agreement with a consultant for consulting
services, with the consultant receiving warrants to purchase 150,000 shares of
common stock at an exercise price of $0.38 for a period of five years. These
warrants were valued at $36,000 using the Black Scholes model. As of December
31, 2008, none of the warrants had been exercised.
On
October 10, 2007, in connection with the conversion of its Series C
Preferred Stock to shares of common stock, warrants to purchase 8,648,102 shares
of common stock previously issued with the Series C Preferred Stock have
been reset to purchase 17,885,847 shares with an exercise price of $.60 per
share pursuant to anti-dilution provisions in the warrants. On February 13,
2006, the Company closed a private placement in which institutional investors
received six-year warrants to purchase 11,510,018 shares of the Company’s common
stock at an exercise price of $0.60 per share (“Investor Warrants”). As of
December 31, 2008, none of the $0.60 Investor Warrants had been exercised. The
placement agent in the transaction received a warrant to purchase approximately
959,166 shares of common stock at a purchase price of $0.60 for a period of six
years (“Placement Agent Warrants”). As of December 31, 2008, none of these $0.60
Placement Agent Warrants had been exercised. On December 23, 2005, the
Company closed a private placement in which institutional investors received
warrants to purchase 4,999,997 shares of common stock at an exercise price of
$0.60 per share for a period of six years (“Investor Warrants”). As of December
31, 2008, 37,500 of these $0.60 Investor Warrants had been exercised. The
placement agent in this transaction received a warrant to purchase approximately
416,666 shares of common stock at a purchase price of $0.60 for a period of six
years (“Placement Agent Warrants”). As of December 31, 2008, none of the
$0.60 Placement Agent Warrants had been exercised. In accordance with EITF
00-19, “Accounting for Derivative Financial Instruments Indexed to, and
Potentially Settled in, a Company’s Own Stock” (“EITF 00-19”), the Investor
Warrants and the Placement Agent Warrants are included as a liability and valued
at fair market value until the Company meets the criteria under EITF 00-19 for
permanent equity due to a put option in the agreement. Changes in the fair value
of such warrants are recorded as a charge or credit to operations each reporting
period. The Company valued the Investor Warrants and the Placement Agent
Warrants at $104,000 on December 31, 2008 using the Black-Scholes model with the
following assumptions: a risk-free interest rate of 1.0%, volatility of 115%,
expected life of 3 years and a dividend yield of 0%. The change in the value of
the warrants liability from the prior year resulted in a gain of
$3,972,000.
On
October 10, 2007, the Company closed a private placement in which
institutional investors received warrants to purchase 1,767,500 shares of common
stock for a period of five years. The exercise price of the warrants is $0.60
per share. The placement agent also received warrants to purchase 589,166 shares
of common stock for a period of five years. The exercise price of these warrants
is $0.60. At December 31, 2008, none of these warrants had been
exercised.
On
April 19, 2005, the Company closed a private placement in which
institutional investors and certain executive officers and directors of the
Company received warrants to purchase 32,520 shares of common stock for a period
of five years. The exercise price of the warrants is $14.70 per share for the
institutional investors and $21.84 for the participating executive officers and
directors. As of December 31, 2008, 6,012 of the $14.70 warrants issued to the
institutional investors had been exercised and none of the $21.84 warrants
issued to participating executive officers and directors had been exercised. The
placement agent in this transaction received a warrant to purchase 1,190 shares
of common stock at a purchase price of $14.70 for a period of five years. As of
December 31, 2008, none of the $14.70 warrants issued to the placement agent had
been exercised.
F-48
During
2004, the Company conducted a private placement in which primarily institutional
investors received warrants to purchase an aggregate of 25,723 shares of common
stock at a purchase price of $87.78 per share for a period of five years. As of
December 31, 2008, none of the $87.78 warrants had been exercised.
Shareholder
Rights Plan
The
Company has adopted a shareholder rights plan. The Company declared a dividend
consisting of one Right for each share of common stock outstanding on September
10, 1999. Stock issued after that date will be issued with an attached
Right.
Each
Right entitles the holder, upon the occurrence of certain events, to purchase
42/100th of a
share of Series B Preferred Stock of the Company at an initial exercise price of
$2,100, subject to adjustments for stock dividends, splits and similar events.
The Rights are exercisable only if a person or group acquires 20% or more of the
Company’s outstanding common stock, or announces an intention to commence a
tender or exchange offer, the consummation of which would result in ownership by
such person or group of 20% or more of the Company’s outstanding common
stock.
On
December 23, 2005, the shareholder rights plan was amended to provide that the
acquisition of the Company’s Series C Cumulative Convertible Preferred Stock and
warrants to acquire shares of its common stock by the purchasers in the
Company’s recent private placement, and any subsequent acquisition by the
purchasers of common stock upon the conversion or exercise of those securities,
would not result in the Rights becoming exercisable.
The Board
of Directors may, at its option after the occurrence of one of the events
described above, exchange all of the then outstanding and exercisable Rights for
shares of common stock at an exchange ratio of one share of common stock per
Right.
The Board
of Directors may redeem the Rights at the redemption price of $0.01 per Right at
any time prior to the expiration of the rights plan on August 13, 2009.
Distribution of the Rights is not a taxable event to shareholders.
7.
|
Commitments
and Contingencies.
|
At
December 31, 2008, the Company had no long-term contractual
obligations.
RAI
Merger
On
April 17, 2008, the REIT Americas Inc. (“RAI”) and Virium
Pharmaceuticals agreed to terminate the Merger Agreement that had been entered
into on May 25, 2007 by and among RAI and Virium Pharmaceuticals. Upon
completion of a qualified financing, the Company will be obligated to pay RAI
$535,000 in consideration for agreeing to terminate the Merger
Agreement.
8.
|
Virium
Pharmaceuticals, Inc. Acquisition.
|
On
April 18, 2008, the Company acquired Virium Pharmaceuticals Inc.
(“Virium”), a privately held biotechnology company focused primarily on oncology
based technology, pursuant to the terms of an Agreement and Plan of Merger (the
“Merger Agreement”) dated as of April 18, 2008 by and among the Company,
VRM Acquisition, LLC, a Delaware limited liability company and a direct
wholly-owned subsidiary of the Company (“VRM Acquisition”), Virium and Virium
Holdings, Inc., a non-public Delaware corporation (“Holdings”) and the
parent of Virium. On the Effective Date, VRM Acquisition merged with and
into Virium with Virium continuing as the surviving company and a wholly-owned
subsidiary of the Company (the “Merger”). Pursuant to the Merger
Agreement, each share of Virium common stock outstanding at the Effective Time
was converted into the right to receive 0.89387756 shares of the Company’s
common stock (the “Merger Consideration”) resulting in an aggregate of
22,898,386 shares of MacroChem common stock being issued in the Merger. The
fair value of the shares issued on the closing date to the stockholders of
Virium was $6,870,000.
F-49
Virium
has a pipeline of oncology products that target a variety of niche cancer
indications. Virium’s product pipeline included a next generation
nucleoside analogue (small molecule) which it had licensed from the Southern
Research Institute in August 2007. This class of compounds has
demonstrated proven efficacy in certain hematological cancer indications.
Upon completing the merger, management has commenced a process of conducting a
strategic evaluation of each drug candidate in the Company’s newly constituted
product portfolio.
In
addition, all outstanding warrants to purchase shares of Virium common stock
were converted into warrants to purchase MacroChem common
stock. After giving effect to the Merger, these vested warrants,
which expire at various dates from 2012 to 2013, are exercisable to
purchase 446,938 shares of MacroChem common stock at an exercise price
of $0.671 and 223,469 shares of MacroChem common stock at an exercise price
of $1.119 per share. As described in more detail below, MacroChem also
assumed convertible notes of Virium.
On
April 23, 2008, MacroChem assumed all obligations under the convertible
promissory note in the aggregate principal amount of $500,000 issued to
Strategic Capital Resources, Inc. by Virium on May 30, 2007 (the
“First Convertible Note”). The First Convertible Note was due to mature on
April 25, 2008. The First Convertible Note had a 12% annual interest
rate until November 30, 2007, which increased to 15%
thereafter. MacroChem paid to Strategic Capital Resources, Inc.
$45,000 in cash which represents all accrued and unpaid interest on such note
through the date of consummation of the Merger plus $10,000. MacroChem made
this payment in consideration of Strategic Capital Resources, Inc.’s prior
agreement with Virium to extend the maturity date on its note from
March 26, 2008 to April 25, 2008. Upon closing
of MacroChem’s next round of equity financing, if any, the principal amount
of the First Convertible Note and all accrued interest may be converted into
MacroChem common stock at the discretion of each First Convertible Note holder
such that each holder will be entitled to acquire shares of MacroChem common
stock at $0.8950 per share, subject to anti-dilution adjustments.
On
June 6, 2008, the Company repaid a principal amount of $400,000 to the
holder of the First Convertible Note together with accrued and unpaid interest
thereon. Further, on June 23, 2008, the Company repaid the unpaid principal
balance of $100,000 together with accrued and unpaid interest thereon to the
remaining holder of the First Convertible Note. Additionally, the First
Convertible Note was repaid, in part, with funds from new holders of convertible
promissory notes whose notes mature on December 6, 2008. The new promissory
notes have a principal amount of $400,000 and a warrant to purchase 100,000
shares of common stock at $.01. The fair value of the warrants issued of
$24,000 is recorded as debt discount and is being amortized to interest expense
over the term of the debt. The notes have a 12% interest rate with accrued
interest due on or prior to the 5th day of each calendar month. These notes are
due to mature on the earlier of 1) closing of the next financing by the
Company or 2) December 6, 2008. The default status of these notes triggered
the convertibility of 50% of the principal at a rate of $0.018, which is 50% of
the average market price for five days preceding the triggering event. This
resulted in a beneficial conversion feature with a value of $188,000 recorded to
interest expense and additional paid-in capital. The principal amount of
$400,000 in notes was outstanding at December 31, 2008 and continued to accrue
interest until February 25, 2009, the date of the acquisition by
Access.
MacroChem
also assumed on the Effective Date all obligations under convertible promissory
notes in the aggregate principal amount of $500,000 issued by Virium on
December 12, 2007 (the “Second Convertible Notes”). The Second
Convertible Notes were to mature on the earlier of (a) the closing of any
equity financing by MacroChem or (b) June 12, 2008. The
Second Convertible Notes have a 12% annual interest rate with all accrued
interest due at maturity. Upon written consent to the borrower,
simultaneously with the next round of financing, the holders have the ability to
convert the entire outstanding principal and all accrued interest into shares.
The conversion price will be equal to 50% of the qualified offering
price.
F-50
In
June 2008, a principal amount of $425,000 of the Second Convertible Notes
were extended to a maturity of December 31, 2008, subject to certain
conditions and the Company repaid holders of the Second Convertible Notes a
principal amount of $75,000 and accrued interest of $5,000. To induce the
holders to extend the maturity, the Company issued 212,500 warrants to purchase
common stock at $.01. The fair value of the warrants issued of $51,053 is
recorded as debt discount and will be amortized to interest expense over the
term of the debt. The principal amount of $425,000 in notes was outstanding at
December 31, 2008 and continued to accrue interest until February 25, 2009, the
date of the acquisition by Access.
Prior to
the merger agreement, SCO Capital Partners, LLC (“SCO LLC”) together with its
affiliates Beach Capital LLC, SCO Securities LLC and SCO Capital Partners, L.P.
(collectively with SCO LLC, “SCO”) was the owner of the outstanding common stock
of MacroChem, including warrants to purchase certain shares, and also held a
majority of the outstanding stock of Holdings and warrants to purchase 112,500
shares of Virium common stock. Pursuant to a Director Designation Agreement
dated as of October 1, 2007 between MacroChem and SCO LLC, SCO LLC has the
right to designate two individuals to serve on MacroChem’s board of directors
for so long as SCO holds 20% of MacroChem’s outstanding common stock. The
current SCO director designees are Jeffrey B. Davis and Mark J. Alvino.
Mr. Davis is currently the president of SCO Securities LLC and Chief
Executive Officer of Access Pharmaceuticals, Inc. Prior to the Effective Date,
Mr. Davis was a director of Virium. Mr. Alvino is a former Managing
Director of SCO Financial Group LLC and currently an officer of Griffin
Securities, Inc. SCO Securities LLC acted as placement agent in
connection with MacroChem’s 2006 private placement.
Pursuant
to the terms of the Merger Agreement, at the Effective Time , all members
of the Special Committee, namely, John L. Zabriskie, Michael A. Davis, Paul S.
Echenberg, and Peter G. Martin resigned from the board of directors of
MacroChem.
Immediately
following these resignations, David P. Luci and Dr. James Pachence were
appointed to the board of directors of MacroChem. Dr. Pachence and
Mr. Luci will be entitled to the standard compensation payable to our
directors which as of April 22, 2008, is now applicable to all directors
and includes compensation of $12,000 annually, $1,000 per regular board meeting
attended, $500 for each special, telephone or committee meeting attended and the
stock option grants that our Compensation Committee from time to time deems
appropriate. On June 26, 2008, Dr. James Pachence resigned from the office of
Chief Executive Officer of the Company and resigned from his position as a
member of our board of directors, in each case, effective
immediately.
The
acquisition of Virium on April 18, 2008 was accounted for by the Company
under the purchase method of accounting in accordance with SFAS No. 141
“Business
Combinations”. Under the purchase method, assets acquired and liabilities
assumed by the Company were recorded at their estimated fair values at the date
of acquisition and the results of operations of the acquired company were
consolidated with those of the Company from the date of acquisition. Virium is
included in the Statement of Operations from the acquisition date on April 18,
2008.
The total
purchase price of $9,661,000, has been primarily allocated to be in-process
research and development and is comprised of $6,870,000 related to the
calculated value of the Company’s common stock issued of $0.30 per share,
$2,404,000 of liabilities the Company assumed in addition to $147,000 of
warrants issued to certain debt holders. Additionally, the Company incurred
$240,000 in professional fees.
The
components of the purchase price, which the Company has allocated to in-process
research and development, are summarized as follows:
F-51
Common
stock issued
|
$
|
6,870,000
|
||
Liabilities
assumed
|
2,404,000
|
|||
Warrants
related to debt assumed
|
147,000
|
|||
Transaction
costs
|
240,000
|
|||
Total
purchase price
|
$
|
9,661,000
|
The
following unaudited pro forma information presents the 2008 results of the
Company as if the acquisition had occurred on January 1, 2008. The unaudited pro
forma results are not necessarily indicative of results that would have occurred
had the acquisition been in effect for the periods presented, nor are they
necessarily indicative of future results.
2008
|
||||
(unaudited)
|
||||
Net
income (loss)
|
$
|
(10,564,000
|
)
|
|
Net
income (loss) per common share (basic and diluted)
|
$
|
(0.23
|
)
|
|
Weighted
average common shares outstanding (basic and diluted)
|
45,754,492
|
9.
|
Income
Taxes.
|
Income
tax expense differs from the statutory amounts as follows:
2008
|
||||
Income
taxes at U.S. statutory rate
|
$ | (3,482,000 | ) | |
Change
in valuation allowance
|
4,832,000 | |||
Expenses
not deductible
|
(1,350,000 | ) | ||
Total
tax expense
|
$ | - |
Deferred
taxes are provided for the temporary differences between the financial reporting
bases and the tax bases of our assets and liabilities. The temporary differences
that give rise to deferred tax assets were as follows:
December
31,
|
||||
2008
|
||||
Deferred
tax assets
|
||||
Net
operating loss carryforwards
|
$ | 33,650,000 | ||
State
credit
|
2,393,000 | |||
Intangible
assets
|
383,000 | |||
Accrued
interest
|
253,000 | |||
Deferred
revenue
|
14,000 | |||
Other
|
231,000 | |||
Gross
deferred tax assets
|
36,924,000 | |||
Valuation
allowance
|
(36,924,000 | ) | ||
Net
deferred taxes
|
$ | - |
No income
tax provision or benefit has been provided for federal or state income tax
purposes as the Company has incurred losses in all periods reported and
recoverability of these losses in future tax filings is uncertain. As of
December 31, 2008, the Company has available net operating loss carryforwards of
approximately $98,972,000 for federal income tax purposes, expiring through 2028
The use of the federal net operating loss may also be restricted due to changes
in ownership in accordance with definitions as stated in the Internal Revenue
Code.
F-52
As of
January 1, 2007, we adopted FASB Interpretation No. 48, Accounting for Uncertainty in Income
Taxes, an Interpretation of FASB Statement No. 109, Accounting for Income Taxes
(“FIN 48”). The adoption did not have a material impact on our
consolidated financial statements or effective tax rate and did not result in
any unrecognized tax benefits. Interest costs and penalties related to income
taxes are classified as interest expense and general and administrative costs,
respectively, in our consolidated financial statements. For the year ended
December 31, 2008, we did not recognize any interest or penalty expense related
to income taxes. It is determined not to be reasonably likely for the amounts of
unrecognized tax benefits to significantly increase or decrease within the next
12 months. We are currently subject to a three year statute of limitations by
major tax jurisdictions. We and our subsidiaries file income tax returns in the
U.S. federal jurisdiction.
10.
|
Employee
Benefit Plan.
|
The
Company sponsors a qualified 401(k) Retirement Plan (the “Plan”) under which
employees are allowed to contribute certain percentages of their pay, up to the
maximum allowed under Section 401(k) of the Internal Revenue Code. Company
contributions to the Plan are at the discretion of the Board of Directors. The
Company did not make any matching contributions for the year ended December 31,
2008.
11.
|
Subsequent
Event - Merger with Access Pharmaceuticals, Inc.
(Unaudited)
|
On
February 25, 2009 the Company closed its merger with Access Pharmaceuticals,
Inc. On July 10, 2008, Access Pharmaceuticals, Inc. (OTC BB: ACCP.OB)
announced it had signed an agreement and plan of merger with MacroChem, pursuant
to which MacroChem was merged with and into a wholly-owned subsidiary of Access.
Holders of MacroChem common shares and in-the money MacroChem warrants receive
approximately an aggregate of 2,500,000 shares of common stock of Access as
merger consideration at the closing of the merger. All other options and
warrants of MacroChem which were unexercised at the Effective Time of the merger
were automatically cancelled and void.
In
addition to the merger, the noteholders of MacroChem agreed to exchange their
notes and interest due on the notes in the total amount of $859,000 for 859,000
restricted shares of the Access’ common stock. The value of the shares issued
was determined based on the carrying value of the debt, which was established to
be the more readily determinable fair value.
In
addition, 125,000 shares of Access common stock were issued to former executives
of MacroChem for the settlement of employment agreements.
F-53
UNAUDITED
PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The
following unaudited pro forma condensed combined financial statements apply to
the merger between MacroChem and Access, by which MacroChem became a wholly
owned subsidiary of Access, and are based upon the historical condensed
consolidated financial statements and notes thereto (as applicable) of Access
and MacroChem. The unaudited pro forma condensed combined balance sheet gives
pro forma effect to the merger as if the merger had been completed on December
31, 2008 and combines Access’s December 31, 2008 audited consolidated balance
sheet with MacroChem’s December 31, 2008 audited consolidated balance
sheet. The unaudited pro forma condensed combined statement of operations gives
pro forma effect to the merger as if it had been completed on January 1, 2008
and combines Access’ audited consolidated statement of operations for the
year ended December 31, 2008, with MacroChem’s audited consolidated statement of
operations for the year ended December 31, 2008.
On February
25, 2009, we closed our acquisition of MacroChem Corporation through the
issuance of an aggregate of approximately 2.5 million shares of our common
stock. Prior to our acquisition of MacroChem, SCO, an investment company, held a
majority of Access’ and MacroChem’s voting stock. Specifically, SCO
owned 53% of the voting stock of Access and 63% of the voting stock of
MacroChem. A non-controlling interest of 37% existed at the merger date of
MacroChem. In addition, certain members of SCO’s management serve on the board
of directors of both Access and MacroChem. Based on these facts, Access and
MacroChem were deemed under the common control of SCO. As the entities were
deemed under common control, the acquisition was recorded using the
pooling-of-interest method and beginning in 2009, the financial information for
all periods presented will reflect the financial statements of the combined
companies in accordance with Financial Accounting Standards Board
standards on business combinations for entities under common
control.
Upon
acquisition, all outstanding warrants and any other dilutive instruments in
MacroChem’s stock were cancelled. The in-the-money warrants converted with the
common stock. In addition to the merger, the noteholders of MacroChem agreed to
exchange their notes and interest due on the notes in the total amount of
$859,000 for 859,000 restricted shares of the Access’ common stock. The value of
the shares issued was determined based on the carrying value of the debt, which
was established to be the more readily determinable fair value.
In
addition, we issued 125,000 shares of Access common stock valued at $197,000 to
former executives of MacroChem for the settlement of employment
agreements.
In
connection with the exchange of equity interests, $106,000 in merger costs were
expensed.
The pro
forma adjustments are based upon available information and certain assumptions
that Access believes are reasonable under the circumstances.
Total
consideration paid in connection with the acquisition included:
·
|
Approximately
2.5 million shares of Access common stock was issued to the common
shareholders and the in-the-money ($0.01) warrant holders of MacroChem as
consideration having a value of approximately $3.5 million (the value was
calculated using Access’ stock price on February 25, 2009 times the shares
issued);
|
·
|
an
aggregate of $106,000 in direct transaction costs;
and
|
·
|
cancelled
receivable from MacroChem of
$635,000.
|
These
unaudited pro forma condensed combined financial statements should be read in
conjunction with the historical consolidated financial statements and related
notes contained in the annual, quarterly and other reports filed by Access and
MacroChem with the Securities and Exchange Commission.
F-54
Pro
Forma Condensed Combined Balance Sheet
As
of December 31, 2008
(Unaudited)
Historical
Access
|
MacroChem
|
Pro
Forma
Adjustments
|
Pro
Forma
Combined
|
|||||||||||||
ASSETS
|
||||||||||||||||
Current
assets
|
||||||||||||||||
Cash
and cash equivalents
|
$
|
2,663,000
|
$
|
14,000
|
$
|
2,677,000
|
||||||||||
Receivables
|
147,000
|
-
|
147,000
|
|||||||||||||
Receivables
due from MacroChem
|
635,000
|
-
|
(635,000
|
)
|
(f)
|
-
|
||||||||||
Prepaid
expenses and other current expenses
|
105,000
|
70,000
|
175,000
|
|||||||||||||
Total
current assets
|
3,550,000
|
84,000
|
2,999,000
|
|||||||||||||
Property
and equipment, net
|
87,000
|
8,000
|
95,000
|
|||||||||||||
Patents
net
|
542,000
|
457,000
|
999,000
|
|||||||||||||
Other
assets
|
78,000
|
-
|
78,000
|
|||||||||||||
Total
assets
|
$
|
4,257,000
|
$
|
549,000
|
$
|
4,171,000
|
||||||||||
LIABILITIES
AND STOCKHOLDERS’ DEFICIT
|
||||||||||||||||
Current
liabilities
|
||||||||||||||||
Accounts
payable
|
$
|
1,970,000
|
$
|
1,317,000
|
106,000
|
(e)
|
$
|
3,393,000
|
||||||||
Accrued
expenses
|
748,000
|
547,000
|
1,295,000
|
|||||||||||||
Dividends
payable
|
1,896,000
|
-
|
1,896,000
|
|||||||||||||
Accrued
interest payable
|
128,000
|
17,000
|
(17,000
|
)
|
(b)
|
128,000
|
||||||||||
Current
portion of deferred revenue
|
164,000
|
5,000
|
(5,000
|
)
|
(d)
|
164,000
|
||||||||||
Notes
payable
|
-
|
825,000
|
(825,000
|
)
|
(b)
|
-
|
||||||||||
Payables
due Access
|
-
|
635,000
|
(635,000
|
)
|
(f)
|
-
|
||||||||||
Total
current liabilities
|
4,906,000
|
3,346,000
|
6,876,000
|
|||||||||||||
Long-term
deferred revenue
|
2,245,000
|
24,000
|
(24,000
|
)
|
(d)
|
2,245,000
|
||||||||||
Warrants
liability
|
-
|
104,000
|
(104,000
|
)
|
(d)
|
-
|
||||||||||
Long-term
debt
|
5,500,000
|
-
|
5,500,000
|
|||||||||||||
Total
liabilities
|
12,651,000
|
3,474,000
|
14,621,000
|
|||||||||||||
Stockholders’
equity (deficit)
|
||||||||||||||||
Preferred
stock
|
-
|
-
|
-
|
|||||||||||||
Common
stock
|
70,000
|
459,000
|
25,000
8,000
1,000
(459,000
|
)
|
(a)
(b)
(c)
(d)
|
104,000
|
||||||||||
Additional
paid-in capital
|
127,482,000
|
97,763,000
|
508,000
834,000
196,000
|
(a)
(b)
(c)
|
226,783,000
|
|||||||||||
Notes
receivable from stockholders
|
(1,045,000
|
)
|
(1,045,000
|
)
|
||||||||||||
Treasury
stock, at cost
|
(4,000
|
)
|
(59,000
|
)
|
59,000
|
(d)
|
(4,000
|
)
|
||||||||
Accumulated
deficit
|
(134,897,000
|
)
|
(101,088,000
|
)
|
(197,000
|
)
|
(c)
|
(236,288,000
|
)
|
|||||||
(106,000
|
)
|
(e)
|
||||||||||||||
Total
stockholders’ equity (deficit)
|
(8,394,000
|
)
|
(2,925,000
|
)
|
(10,450,000
|
)
|
||||||||||
Total
liabilities and stockholders’ equity (deficit)
|
$
|
4,257,000
|
$
|
549,000
|
$
|
4,171,000
|
See
accompanying Notes to Pro Forma Condensed Combined Balance Sheet
F-55
Notes
to Pro Forma Condensed Combined Balance Sheet
Note1:
The above statement gives effect to the following pro forma adjustments
necessary to reflect the merger of Access and MacroChem,
entities deemed under common control, as if the transaction had occurred
December 31, 2008.
a)
|
To
record the exchange, for accounting purposes, by MacroChem shareholders of
their common stock and in-the-money warrants for 2,500,000 shares of
Access and $508,000 impact of pro-forma adjustments to additional paid-in
capital.
|
b)
|
To
record Access common stock exchanged for notes payable of $825,000 and
accrued interest of $17,000.
|
c)
|
To
record Access common stock issued to former executives of MacroChem for
the settlement of employment
agreements.
|
d)
|
To
eliminate the common stock, treasury stock, warrant liabilities and
deferred revenue of MacroChem.
|
e)
|
To
record $106,000 in merger costs.
|
f)
|
To
eliminate intercompany notes payable/receivable of
$635,000.
|
After the
consummation of the transactions described herein, Access had 100,000,000 common
shares authorized, approximately 10,434,474 common shares issued and
outstanding, 2,000,000 preferred shares authorized with approximately 3,242.8617
shares of Series A cumulative Convertible Preferred Stock issued and
outstanding, convertible into 10,809,539 shares of Access common
stock.
F-56
Pro
Forma Condensed Combined Statement of Operations
For
the Twelve Months Ended December 31, 2008
(Unaudited)
Historical
Access
|
MacroChem
|
Pro
Forma
Combined
|
||||||||
Revenues
|
$
|
291,000
|
$
|
4,000
|
$
|
295,000
|
||||
Expenses
|
||||||||||
Research
and development
|
12,613,000
|
10,622,000
|
23,235,000
|
|||||||
General
and administrative
|
4,340,000
|
3,123,000
|
7,463,000
|
|||||||
Depreciation
and amortization
|
253,000
|
71,000
|
324,000
|
|||||||
Total
expenses
|
17,206,000
|
13,816,000
|
31,022,000
|
|||||||
Loss
from operations
|
(16,915,000
|
)
|
(13,812,000
|
)
|
(30,727,000
|
)
|
||||
Interest
and other income
|
178,000
|
33,000
|
211,000
|
|||||||
Interest
and other expenses
|
(478,000
|
)
|
(433,000
|
)
|
(911,000
|
)
|
||||
Change
in fair value of warrants liability
|
-
|
3,972,000
|
3,972,000
|
|||||||
(300,000
|
)
|
3,572,000
|
3,272,000
|
|||||||
Net
loss
|
(17,215,000
|
)
|
(10,240,000)
|
(27,455,000
|
)
|
|||||
Less
preferred stock dividends
|
(3,358,000
|
)
|
-
|
(3,358,000
|
)
|
|||||
Net
loss allocable to common stockholders
|
$
|
(20,573,000
|
)
|
$
|
(10,240,000
|
)
|
$
|
(30,813,000
|
)
|
|
Basic
and diluted loss per common share
Loss
from operations allocable to
all
common stockholders
|
$
|
(3.51
|
)
|
$
|
(0.26
|
)
|
$
|
(3.31
|
)
|
|
Weighted
average basic and diluted common shares outstanding
|
5,854,031
|
38,934,207
|
9,321,031
|
Notes to
Pro Forma Condensed Combined Statement of Operations
Note 1:
The above statement gives effect to the merger of Access and MacroChem, as if
the merger had occurred on January 1, 2008.
Note 2:
The pro forma combined-weighted average number of common outstanding shares is
based on the weighted average number of shares of common stock of Access during
the period plus those shares to be issued in conjunction with the merger. A
reconciliation between Access' historical weighted average shares outstanding
and pro forma weighted average shares outstanding and pro forma weighted average
shares outstanding is as follows:
Historical
|
5,854,031
|
|
MacroChem
equivalent shares giving effect to the merger
|
2,500,000
|
|
Shares
issued to former MacroChem executives
|
125,000
|
|
Shares
issued for notes payable and interest
|
842,000
|
|
Total
|
9,321,031
|
F-57
$
_________
Units
PROSPECTUS
_________________________________
,
2009
F-58
PART
II
INFORMATION
NOT REQUIRED IN PROSPECTUS
Item
13. Other Expenses of Issuance and Distribution
Expenses
of the Registrant in connection with the issuance and distribution of the
securities being registered, are estimated as follows:
SEC
Registration Fee
|
$
|
1,395
|
|
Printing
and Engraving Expenses
|
$
|
1,000
|
|
Legal
Fees and Expenses
|
$
|
15,000
|
|
Accountants'
Fees and Expenses
|
$
|
10,000
|
|
Miscellaneous
Costs
|
$
|
10,000
|
|
Total
|
$
|
37,395
|
Item
14. Indemnification of Directors and Officers
Section 145
of the Delaware General Corporation law empowers a Delaware corporation to
indemnify its officers and directors and certain other persons to the extent and
under the circumstances set forth therein.
The
Registrant’s Certificate of Incorporation, as amended, and By-laws, as amended,
provide for indemnification of officers and directors of the Registrant and
certain other persons against liabilities and expenses incurred by any of them
in certain stated proceedings and under certain stated conditions.
The above
discussion of the Registrant's Certificate of Incorporation, as amended,
By-laws, as amended, and Section 145 of the Delaware General Corporation
Law is not intended to be exhaustive and is qualified in its entirety by such
Certificate of Incorporation, By-Laws and statute.
Item
15: Recent Sales of Unregistered Securities
In
January 2010, we issued 66,667 shares Access common stock to a consultant for
his consulting expenses. The issuance of shares of our common stock in
settlement of these accounts was made pursuant to Section 4(2) and Rule 506 of
the Securities Act of 1933, as amended
In
December 2009, we issued 120,000 shares Access common stock to an individual for
his expenses and to a new employee for their employment agreement. The issuance
of shares of our common stock in settlement of these accounts was made pursuant
to Section 4(2) and Rule 506 of the Securities Act of 1933, as
amended.
In
September 2009, we issued 275,500 shares Access common stock to several
consultants for their consulting expenses. The issuance of shares of our common
stock in settlement of these accounts was made pursuant to Section 4(2) and Rule
506 of the Securities Act of 1933, as amended
In August
2009, we issued 170,000 shares Access common stock to several consultants for
their consulting expenses. The issuance of shares of our common stock in
settlement of these accounts was made pursuant to Section 4(2) and Rule 506 of
the Securities Act of 1933, as amended
In July
2009, we issued 70,000 shares Access common stock to several consultants for
their consulting expenses. The issuance of shares of our common stock in
settlement of these accounts was made pursuant to Section 4(2) and Rule 506 of
the Securities Act of 1933, as amended
On June
9, 2009, we issued 30,000 shares of Access common stock to a former executive of
MacroChem for the settlement of his employment agreement. The settlement
agreements specify that a portion of the settlement be paid in common stock. The
issuance of shares of our common stock in settlement of these accounts was made
pursuant to Section 4(2) and Rule 506 of the Securities Act of 1933, as
amended.
In June
2009, we issued 126,667 shares Access common stock to several consultants for
their consulting expenses. The issuance of shares of our common stock in
settlement of these accounts was made pursuant to Section 4(2) and Rule 506 of
the Securities Act of 1933, as amended.
On
February 25, 2009, we issued 859,172 shares of Access common stock to cancel
approximately $859,000 of notes and accrued interest due to holders of MacroChem
notes. The value of the shares issued was determined based on the carrying value
of the debt, which was established to be the more readily determinable fair
value. The issuance of shares of our common stock in settlement of these
accounts was made pursuant to Section 4(2) and Rule 506 of the Securities Act of
1933, as amended.
II-1
In
addition, we issued 95,000 shares of Access common stock to former executives of
MacroChem for the settlement of employment agreements. The settlement agreements
specify that a portion of the settlement be paid in common stock. The issuance
of shares of our common stock in settlement of these accounts was made pursuant
to Section 4(2) and Rule 506 of the Securities Act of 1933, as
amended.
On
February 4, 2008, we entered into securities purchase agreements (the “Purchase
Agreements”) with accredited investors whereby we agreed to sell 272.50 shares
of our “Series A Cumulative Convertible Preferred Stock”, par value $0.01 per
share, for an issue price of $10,000 per share, (the “Series A Cumulative
Convertible Preferred Stock”) and agreed to issue warrants to purchase 499,584
shares of our common stock at an exercise price of $3.50 per share, for an
aggregate purchase price for the Series A Cumulative Convertible Preferred Stock
and Warrants of $2,725,000. Proceeds, net of issuance costs from the sale were
$2,444,000. The shares of Series A Cumulative Convertible Preferred Stock are
convertible into common stock at the initial conversion price of $3.00 per share
subject to adjustment.
In
addition, $1,576,000 of Somanta Pharmaceuticals’ acquired accounts payable were
settled by issuing 538,508 shares of Access common stock and warrants to
purchase 246,753 shares of Access common stock at an exercise price of $3.50 per
share. The value of the shares and warrants issued was determined based on the
fair value of the accounts payable. The issuance of shares of our common stock
in settlement of these accounts was made pursuant to Section 4(2) and Rule 506
of the Securities Act of 1933, as amended.
On
November 7, 2007, we entered into securities purchase agreements (the “Purchase
Agreements”) with accredited investors whereby we agreed to sell 954.0001 shares
of a newly created series of our preferred stock, designated “Series A
Cumulative Convertible Preferred Stock”, par value $0.01 per share, for an issue
price of $10,000 per share, (the “Series A Cumulative Convertible Preferred
Stock”) and agreed to issue warrants to purchase 1,589,999 shares of our common
stock at an exercise price of $3.50 per share, subject to adjustment, for an
aggregate purchase price for the Series A Cumulative Convertible Preferred Stock
and Warrants of $9,540,001. The shares of Series A Cumulative Convertible
Preferred Stock are convertible into common stock at the initial conversion
price of $3.00 per share subject to adjustment.
All of
the above-described issuances were exempt from registration pursuant to
Section 4(2) of the Securities Act or Rule 506 of Regulation D
promulgated thereunder, as transactions not involving a public
offering.
Item
16. Exhibits
The
following is a list of exhibits filed as a part of this registration
statement:
Exhibit
Number
|
Description of
Document
|
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 our
Registration Statement on Form S-4 dated December 21, 1995, Commission
File No. 33-64031)
|
2.2
|
Agreement
and Plan of Merger, by and among Access Pharmaceuticals, Inc., Somanta
Acquisition Corporation, Somanta Pharmaceuticals, Inc. Somanta
Incorporated and Somanta Limited, dated April 18, 2007. (Incorporated by
reference to Exhibit 2.1 to our Form 8-K dated April 18,
2007)
|
2.3
|
Agreement
and Plan of Merger, by and among Access Pharmaceuticals, Inc., MACM
Acquisition Corporation and MacroChem Corporation, dated July 9, 2008.
(Incorporated by reference to Exhibit 2.3 of our Form 10-Q for the quarter
ended June 30, 2008)
|
3.1
|
Certificate
of Incorporation (Incorporated by Reference to Exhibit 3(a) of our Form
8-B dated July 12, 1989, Commission File Number
9-9134)
|
3.2 Certificate
of Amendment of Certificate of Incorporation filed August 21, 1992
II-2
3.3
|
Certificate
of Merger filed January 25, 1996. (Incorporated by reference to Exhibit E
of our Registration Statement on Form S-4 dated December 21, 1995,
Commission File No. 33-64031)
|
3.4
|
Certificate
of Amendment of Certificate of Incorporation filed January 25, 1996.
(Incorporated by reference to Exhibit E of our 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 July 18, 1996.
(Incorporated by reference to Exhibit 3.8 of our Form 10-K for the year
ended December 31, 1996)
|
3.6
|
Certificate
of Amendment of Certificate of Incorporation filed June 18, 1998.
(Incorporated by reference to Exhibit 3.8 of our Form 10-Q for the quarter
ended June 30, 1998
|
3.7
|
Certificate
of Amendment of Certificate of Incorporation filed July 31, 2000.
(Incorporated by reference to Exhibit 3.8 of our Form 10-Q for the quarter
ended March 31, 2001)
|
3.8
|
Certificate
of Designations of Series A Junior Participating Preferred Stock filed
November 7, 2001 (Incorporated by reference to Exhibit 4.1.h of our
Registration Statement on Form S-8, dated December 14, 2001, Commission
File No. 333-75136)
|
3.9
|
Amended
and Restated Bylaws (Incorporated by reference to Exhibit 3.1 of our Form
10-Q for the quarter ended June 30,
1996)
|
3.10
|
Certificate
of Designation of Series A Cumulative Convertible Preferred Stock filed
November 9, 2007 (Incorporated by reference
to Exhibit 3.10 to our Form 10-K for the year ended December 31,
2007)
|
3.11
|
Certificate
of Amendment to Certificate of Designations, Rights and Preferences of
Series A Cumulative Convertible Preferred Stock filed June 11, 2008
(Incorporated by reference to Exhibit 3.11 of our Form 10-Q for the
quarter ended June 30, 2008)
|
5.1
|
Opinion
of Bingham McCutchen LLP
|
10.1*
|
1995
Stock Option Plan (Incorporated by reference to Exhibit F of our
Registration Statement on Form S-4 dated December 21, 1995, Commission
File No. 33-64031
|
10.2*
|
Amendment
to 1995 Stock Option Plan (Incorporated by reference to Exhibit 10.25 of
our Form 10-K for the year ended December 31,
2001)
|
10.3
|
Lease
Agreement between Pollock Realty Corporation and us dated July 25, 1996
(Incorporated by reference to Exhibit 10.19 of our Form 10-Q for the
quarter ended September 30, 1996)
|
10.4
|
Platinate
HPMA Copolymer Royalty Agreement between The School of Pharmacy,
University of London and the Company dated November 19, 1996 (Incorporated
by reference to Exhibit 10.11 of our Form 10-K for the year ended December
31, 1996)
|
10.5*
|
Employment
Agreement of David P. Nowotnik, PhD (Incorporated by reference to Exhibit
10.19 of our Form 10-K for the year ended December 31,
1999)
|
10.6*
|
401(k)
Plan (Incorporated by reference to Exhibit 10.20 of our Form 10K for the
year ended December 31, 1999)
|
10.7
|
Form
of Convertible Note (Incorporated by reference to Exhibit 10.24 of our
Form 10-Q for the quarter ended September 30,
2000)
|
10.8
|
Rights
Agreement, dated as of October 31, 2001 between the us and American Stock
Transfer & Trust Company, as Rights Agent (incorporated by reference
to Exhibit 99.1 of our Current Report on Form 8-K dated October 19,
2001)
|
10.9
|
Amendment
to Rights Agreement, dated as of February 16, 2006 between us and American
Stock Transfer & Trust Company, as Rights Agent
(2)
|
10.10
|
Amendment
to Rights Agreement, dated as of November 9, 2007 between us and American
Stock Transfer & Trust Company as Rights
Agent
|
10.11*
|
2001
Restricted Stock Plan (Incorporated by reference to Appendix A of our
Proxy Statement filed on April 16,
2001)
|
10.12*
|
2005
Equity Incentive Plan (Incorporated by reference to Exhibit 1 of our Proxy
Statement filed on April 18, 2005
(2)
|
10.13*
|
Employment
Agreement, dated as of June 1, 2005 by and between us and Stephen B.
Thompson (1)
|
10.14 Asset
Sale Agreement, dated as of October 12, 2005, between us and Uluru, Inc.
(1)
10.15
|
Amendment
to Asset Sale Agreement, dated as of December 8, 2006, between us and
Uluru, Inc. (3)
|
10.16 License
Agreement, dated as of October 12, 2005, between us and Uluru, Inc.
(1)
10.17
|
Form
of Warrant, dated February 16, 2006, issued by us to certain Purchasers
(2)
|
10.18
|
Form
of Warrant, dated October 24, 2006, issued by us to certain Purchasers
(3)
|
10.19
|
Form
of Warrant, December 6, 2006, issued by us to certain Purchasers
(3)
|
II-3
10.20*
|
2007
Special Stock Option Plan and Agreement, dated January 4, 2007, by and
between us and Stephen R. Seiler, President and Chief Executive Officer
(4)
|
10.21
|
Note
Purchase Agreement dated April 26, 2007 between us and Somanta
Pharmaceuticals, Inc. (Incorporated by reference to Exhibit 10.42 of our
Form 10-Q for the quarter ended June 30,
2007)
|
10.22
|
Preferred
Stock and Warrant Purchase Agreement, dated November 7, 2007, between us
and certain Purchasers (5)
|
10.23
|
Investor
Rights Agreement, dated November 10, 2007, between us and certain
Purchasers (5)
|
10.24
|
Form
of Warrant Agreement dated November 10, 2007, between us and certain
Purchasers (5)
|
10.25
|
Board
Designation Agreement, dated November 15, 2007, between us and SCO Capital
Partners LLC (5)
|
10.26
|
Amendment
and Restated Purchase Agreement, dated February 4, 2008 between us and
certain Purchasers (5)
|
10.27
|
Amended
and Restated Investor Rights Agreement, dated February 4, 2008 between us
and certain Purchasers (5)
|
10.28*
|
Employment
Agreement, dated January 4, 2008 between us and Jeffrey B. Davis
(5)
|
10.29
|
Form
of Securities Purchase Agreement
|
10.30 |
Form
of Warrant
|
23.1 Consent
of Whitley Penn LLP
23.2
Consent of Whitley Penn LLP
23.3 Consent
of Bingham McCutchen LLP (Included in Exhibit 5.1)
*
|
Management
contract or compensatory plan required to be filed as an Exhibit to this
Form pursuant to Item 15(c) of the
report.
|
(1)
|
Incorporated
by reference to our Form 10-K for the year ended December 31,
2005.
|
(2)
|
Incorporated
by reference to our Form 10-Q for the quarter ended March 31,
2006.
|
(3)
|
Incorporated
by reference to our Form 10-K for the year ended December 31,
2006.
|
(4)
|
Incorporated
by reference to our Form 10-Q for the quarter ended March 31,
2007.
|
(5)
|
Incorporated
by reference to our Form S-1,
333-149633.
|
II-4
Item
17. Undertakings
The
undersigned Registrant hereby undertakes:
1. For
purposes of determining any liability under the Securities Act of 1933, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b) (1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
2. For
the purpose of determining any liability under the Securities Act of 1933, each
post-effective amendment that contains a form of prospectus shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
Insofar
as indemnification for liabilities arising under the Securities Act of 1933 may
be permitted to directors, officers and controlling persons of the registrant
pursuant to the foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-5
SIGNATURES
Pursuant
to the requirements of the Securities Act of 1933, as amended, the Registrant
has duly caused this Registration Statement on Form S-1 to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Dallas,
State of Texas, on this 20th day of January, 2010.
ACCESS PHARMACEUTICALS,
INC.
Date
January
20,
2010 By: /s/ Jeffrey B.
Davis
Jeffrey B. Davis
Chief Executive Officer
(Principal Executive
Officer)
Date
January
20,
2010
By: /s/ Stephen
B. Thompson
Stephen B. Thompson
Vice President, Chief
Financial
Officer
and Treasurer
(Principal
Accounting Officer)
POWER
OF ATTORNEY
We, the
undersigned directors of Access Pharmaceuticals, Inc., hereby severally
constitute and appoint Jeffrey B. Davis and Stephen B. Thompson, and both or
either one of them, our true and lawful attorneys-in-fact and agents, with full
power of substitution and re-substitution in for him and in his name, place and
stead, and in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this Registration Statement, and any subsequent
registration statements pursuant to Rule 462 of the Securities Act, and to file
the same, with all exhibits thereto and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that each of said
attorneys-in-fact or his substitute or substitutes, may lawfully do or cause to
be done by virtue hereof.
Pursuant
to the requirements of the Securities Act of 1933, this registration statement
has been signed by the following persons in the capacities and on the dates
indicated.
Date
|
January
20, 2010
|
By:
|
/s/
Jeffrey B. Davis
|
|
Jeffrey
B. Davis, Director,
|
||||
Chief
Executive Officer
|
||||
Date
|
January
20, 2010
|
By:
|
*
|
|
Mark
J. Ahn, Director
|
||||
Date
|
January
20, 2010
|
By:
|
*
|
|
Mark
J. Alvino, Director
|
||||
Date
|
January
20, 2010
|
By:
|
*
|
|
Esteban
Cvitkovic, Director
|
||||
Date
|
January
20, 2010
|
By:
|
*
|
|
Stephen
B. Howell, Director
|
||||
Date
|
January
20, 2010
|
By:
|
*
|
|
David
P. Luci, Director
|
||||
Date
|
January
20, 2010
|
By:
|
*
|
|
Steven
H. Rouhandeh, Chairman of
|
||||
the
Board
|
Date
January 20,
2009 By: /s/ Stephen B.
Thompson
Stephen B.
Thompson
Attorney-in-fact
* - Executed January 20, 2010 by Stephen B. Thompson as attorney-in-fact under power of attorney granted in Registration Statement previously filed on October 26, 2009.
II-7
Exhibit
Number
|
Description of
Document
|
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 our
Registration Statement on Form S-4 dated December 21, 1995, Commission
File No. 33-64031)
|
2.2
|
Agreement
and Plan of Merger, by and among Access Pharmaceuticals, Inc., Somanta
Acquisition Corporation, Somanta Pharmaceuticals, Inc. Somanta
Incorporated and Somanta Limited, dated April 18, 2007. (Incorporated by
reference to Exhibit 2.1 to our Form 8-K dated April 18,
2007)
|
2.3
|
Agreement
and Plan of Merger, by and among Access Pharmaceuticals, Inc., MACM
Acquisition Corporation and MacroChem Corporation, dated July 9, 2008.
(Incorporated by reference to Exhibit 2.3 of our Form 10-Q for the quarter
ended June 30, 2008)
|
3.1
|
Certificate
of Incorporation (Incorporated by Reference to Exhibit 3(a) of our Form
8-B dated July 12, 1989, Commission File Number
9-9134)
|
3.2 Certificate
of Amendment of Certificate of Incorporation filed August 21, 1992
3.3
|
Certificate
of Merger filed January 25, 1996. (Incorporated by reference to Exhibit E
of our Registration Statement on Form S-4 dated December 21, 1995,
Commission File No. 33-64031)
|
3.4
|
Certificate
of Amendment of Certificate of Incorporation filed January 25, 1996.
(Incorporated by reference to Exhibit E of our 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 July 18, 1996.
(Incorporated by reference to Exhibit 3.8 of our Form 10-K for the year
ended December 31, 1996)
|
3.6
|
Certificate
of Amendment of Certificate of Incorporation filed June 18, 1998.
(Incorporated by reference to Exhibit 3.8 of our Form 10-Q for the quarter
ended June 30, 1998
|
3.7
|
Certificate
of Amendment of Certificate of Incorporation filed July 31, 2000.
(Incorporated by reference to Exhibit 3.8 of our Form 10-Q for the quarter
ended March 31, 2001)
|
3.8
|
Certificate
of Designations of Series A Junior Participating Preferred Stock filed
November 7, 2001 (Incorporated by reference to Exhibit 4.1.h of our
Registration Statement on Form S-8, dated December 14, 2001, Commission
File No. 333-75136)
|
3.9
|
Amended
and Restated Bylaws (Incorporated by reference to Exhibit 3.1 of our Form
10-Q for the quarter ended June 30,
1996)
|
3.10
|
Certificate
of Designation of Series A Cumulative Convertible Preferred Stock filed
November 9, 2007 (Incorporated by reference
to Exhibit 3.10 to our Form 10-K for the year ended December 31,
2007)
|
3.11
|
Certificate
of Amendment to Certificate of Designations, Rights and Preferences of
Series A Cumulative Convertible Preferred Stock filed June 11, 2008
(Incorporated by reference to Exhibit 3.11 of our Form 10-Q for the
quarter ended June 30, 2008)
|
5.1
|
Opinion
of Bingham McCutchen LLP
|
10.1*
|
1995
Stock Option Plan (Incorporated by reference to Exhibit F of our
Registration Statement on Form S-4 dated December 21, 1995, Commission
File No. 33-64031
|
10.2*
|
Amendment
to 1995 Stock Option Plan (Incorporated by reference to Exhibit 10.25 of
our Form 10-K for the year ended December 31,
2001)
|
10.3
|
Lease
Agreement between Pollock Realty Corporation and us dated July 25, 1996
(Incorporated by reference to Exhibit 10.19 of our Form 10-Q for the
quarter ended September 30, 1996)
|
10.4
|
Platinate
HPMA Copolymer Royalty Agreement between The School of Pharmacy,
University of London and the Company dated November 19, 1996 (Incorporated
by reference to Exhibit 10.11 of our Form 10-K for the year ended December
31, 1996)
|
10.5*
|
Employment
Agreement of David P. Nowotnik, PhD (Incorporated by reference to Exhibit
10.19 of our Form 10-K for the year ended December 31,
1999)
|
10.6*
|
401(k)
Plan (Incorporated by reference to Exhibit 10.20 of our Form 10K for the
year ended December 31, 1999)
|
10.7
|
Form
of Convertible Note (Incorporated by reference to Exhibit 10.24 of our
Form 10-Q for the quarter ended September 30,
2000)
|
10.8
|
Rights
Agreement, dated as of October 31, 2001 between the us and American Stock
Transfer & Trust Company, as Rights Agent (incorporated by reference
to Exhibit 99.1 of our Current Report on Form 8-K dated October 19,
2001)
|
10.9
|
Amendment
to Rights Agreement, dated as of February 16, 2006 between us and American
Stock Transfer & Trust Company, as Rights Agent
(2)
|
10.10
|
Amendment
to Rights Agreement, dated as of November 9, 2007 between us and American
Stock Transfer & Trust Company as Rights
Agent
|
10.11*
|
2001
Restricted Stock Plan (Incorporated by reference to Appendix A of our
Proxy Statement filed on April 16,
2001)
|
10.12*
|
2005
Equity Incentive Plan (Incorporated by reference to Exhibit 1 of our Proxy
Statement filed on April 18, 2005
(2)
|
10.13*
|
Employment
Agreement, dated as of June 1, 2005 by and between us and Stephen B.
Thompson (1)
|
10.14 Asset
Sale Agreement, dated as of October 12, 2005, between us and Uluru, Inc.
(1)
10.15
|
Amendment
to Asset Sale Agreement, dated as of December 8, 2006, between us and
Uluru, Inc. (3)
|
10.16 License
Agreement, dated as of October 12, 2005, between us and Uluru, Inc.
(1)
10.17
|
Form
of Warrant, dated February 16, 2006, issued by us to certain Purchasers
(2)
|
10.18
|
Form
of Warrant, dated October 24, 2006, issued by us to certain Purchasers
(3)
|
10.19
|
Form
of Warrant, December 6, 2006, issued by us to certain Purchasers
(3)
|
10.20*
|
2007
Special Stock Option Plan and Agreement, dated January 4, 2007, by and
between us and Stephen R. Seiler, President and Chief Executive Officer
(4)
|
10.21
|
Note
Purchase Agreement dated April 26, 2007 between us and Somanta
Pharmaceuticals, Inc. (Incorporated by reference to Exhibit 10.42 of our
Form 10-Q for the quarter ended June 30,
2007)
|
10.22
|
Preferred
Stock and Warrant Purchase Agreement, dated November 7, 2007, between us
and certain Purchasers (5)
|
10.23
|
Investor
Rights Agreement, dated November 10, 2007, between us and certain
Purchasers (5)
|
10.24
|
Form
of Warrant Agreement dated November 10, 2007, between us and certain
Purchasers (5)
|
10.25
|
Board
Designation Agreement, dated November 15, 2007, between us and SCO Capital
Partners LLC (5)
|
10.26
|
Amendment
and Restated Purchase Agreement, dated February 4, 2008 between us and
certain Purchasers (5)
|
10.27
|
Amended
and Restated Investor Rights Agreement, dated February 4, 2008 between us
and certain Purchasers (5)
|
10.28*
|
Employment
Agreement, dated January 4, 2008 between us and Jeffrey B. Davis
(5)
|
10.29
|
Form
of Securities Purchase Agreement
|
10.30
|
Form
of Warrant
|
23.1
Consent of Whitley Penn LLP
23.2 Consent
of Whitley Penn LLP
23.3 Consent
of Bingham McCutchen LLP (included in Exhibit 5.1)
*
|
Management
contract or compensatory plan required to be filed as an Exhibit to this
Form pursuant to Item 15(c) of the
report.
|
(1)
|
Incorporated
by reference to our Form 10-K for the year ended December 31,
2005.
|
(2)
|
Incorporated
by reference to our Form 10-Q for the quarter ended March 31,
2006.
|
(3)
|
Incorporated
by reference to our Form 10-K for the year ended December 31,
2006.
|
(4)
|
Incorporated
by reference to our Form 10-Q for the quarter ended March 31,
2007.
|
(5)
|
Incorporated
by reference to our Form S-1,
333-149633.
|