Oncotelic Therapeutics (OTLC) 10-Q 2016 Q2 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2016

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                    to                    

Commission File Number: 0-21990

Mateon Therapeutics, Inc.

(Exact name of registrant as specified in its charter)

Delaware	13-3679168
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

701 Gateway Blvd, Suite 210

South San Francisco, CA 94080

(Address of principal executive offices, including zip code)

(650) 635-7000

(Registrant’s telephone number, including area code)

Not applicable

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

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.

Large accelerated filer	¨	Accelerated filer	¨
Non-accelerated filer	¨  (Do not check if a smaller reporting company)	Smaller reporting company	x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

As of July 29, 2016, there were 26,544,934 shares of the Registrant’s Common Stock issued and outstanding.

Mateon Therapeutics, Inc.

Cautionary Factors that May Affect Future Results

This report contains “forward-looking statements,” which give management’s current expectations or forecasts of future events. You can identify these statements by the fact that they do not relate strictly to historic or current facts. They use words, such as “may,” “will,” “should,” “would,” “expect,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “contemplate,” “believe,” “estimate,” “predict,” “potential,” “seek,” “indicate,” or “continue” or the negative of these terms and other words and terms of similar meaning.

Any or all of our forward-looking statements in this report may turn out to be wrong. They can be affected by inaccurate assumptions we might make or by known or unknown risks and uncertainties. Consequently, no forward-looking statement can be guaranteed. Actual results may vary materially from those set forth in forward-looking statements. Forward-looking statements include, but are not limited to, statements regarding our or our management’s expectations, hopes, beliefs, intentions or strategies regarding the future, such as our estimates regarding anticipated operating losses, future performance, future revenues and projected expenses; our liquidity and our expectations regarding our needs for and ability to raise additional capital; our ability to select and capitalize on commercially desirable product opportunities as a result of limited financial resources; our ability to manage our expenses effectively and raise the funds needed to continue our business; our ability to maintain the listing of our common stock on The NASDAQ Capital Market; our ability to retain the services of our current executive officers, directors and principal consultants; the competitive nature of our industry and the possibility that our product candidates may become obsolete; our ability to obtain and maintain regulatory approval of our product candidates and any future products we may develop; the clinical development of and the process of commercializing CA4P (combretastatin A4 phosphate or fosbretabulin) and OXi4503, the initiation, timing, progress and results of our preclinical and clinical trials, research and development programs; regulatory and legislative developments in the United States and foreign countries; the timing, costs and other limitations involved in obtaining regulatory approval for any product candidate; the further preclinical or clinical development and commercialization of our product candidates; our ability to obtain orphan drug exclusivity for some of our product candidates; the potential benefits of our product candidates over other therapies; our ability to enter into any collaboration with respect to product candidates; the performance of third parties; our ability to obtain and maintain intellectual property protection for our product candidates and any future products we may develop and operate our business without infringing upon the intellectual property rights of others; the potential liability exposure related to our product candidates and any future products we may develop and our insurance coverage for such exposure; the size and growth of the potential markets for our products and our ability to serve those markets; the rate and degree of market acceptance of any future products; the sufficiency of potential proceeds from any financing; the volatility of the price of our common stock; the dilutive effects of potential future equity issuances; our ability to maintain an effective system of internal controls; the payment and reimbursement methods used by private or governmental third-party payers, and other factors discussed in our Annual Report on Form 10-K for the year ended December 31, 2015 filed with the Securities and Exchange Commission (the SEC) on March 25, 2016 or any document incorporated by reference herein or therein.

We will not update forward-looking statements, whether as a result of new information, future events or otherwise, unless required by law. You are advised to consult any further disclosures we make in our reports to the SEC, including our reports on
Form 10-Q, 8-K and 10-K. Our filings list various important factors that could cause actual results to differ materially from expected results. We note these factors for investors as permitted by the Private Securities Litigation Reform Act of 1995. You should understand that it is not possible to predict or identify all such factors. Consequently, you should not consider any such list to be a complete set of all potential risks or uncertainties.

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INDEX

	Page No.
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements		4
Condensed Balance Sheets		4
Condensed Statements of Comprehensive Loss		5
Condensed Statements of Cash Flows		6
Notes to Condensed Financial Statements		7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		10
Item 3. Quantitative and Qualitative Disclosures about Market Risk		14
Item 4. Controls and Procedures		15
PART II—OTHER INFORMATION
Item 1. Legal Proceedings		15
Item 1A. Risk Factors		15
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		16
Item 3. Defaults Upon Senior Securities		16
Item 4. Mine Safety Disclosures		16
Item 5. Other Information		16
Item 6. Exhibits		17
SIGNATURES		18

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PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

Mateon Therapeutics, Inc.

Condensed Balance Sheets

(in thousands, except per share data)

	June 30, 2016			December 31, 2015
	(Unaudited)			(See Note 1)
ASSETS
Current assets:
Cash and cash equivalents	$	7,939		$	27,285
Short-term investments		11,402			—
Prepaid expenses and other current assets		1,035			105
Total current assets		20,376			27,390
Property and equipment, net		19			30
Other assets		33			33
Total assets	$	20,428		$	27,453
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	501		$	287
Accrued compensation and employee benefits		474			636
Accrued clinical trial expenses		236			918
Other accrued liabilities		406			262
Total current liabilities		1,617			2,103
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $0.01 par value, 15,000 shares authorized; No shares issued and outstanding		—			—
Common stock, $0.01 par value, 70,000 shares authorized; 26,545 shares issued and outstanding		265			265
Additional paid-in capital		290,321			289,894
Accumulated deficit		(271,775	)		(264,809	)
Total stockholders’ equity		18,811			25,350
Total liabilities and stockholders’ equity	$	20,428		$	27,453

See accompanying notes.

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Mateon Therapeutics, Inc.

Condensed Statements of Comprehensive Loss

(in thousands, except per share data)

(unaudited)

	Three months ended June 30,						Six months ended June 30,
	2016			2015			2016			2015
Operating expenses:
Research and development	$	2,374		$	1,981		$	4,354		$	3,650
General and administrative		1,296			1,347			2,668			2,455
Total operating expenses		3,670			3,328			7,022			6,105
Loss from operations		(3,670	)		(3,328	)		(7,022	)		(6,105	)
Interest income		29			5			57			8
Other income (expense), net		—			(1	)		(1	)		1
Net loss and comprehensive loss	$	(3,641	)	$	(3,324	)	$	(6,966	)	$	(6,096	)
Basic and diluted net loss per share attributable to common stock	$	(0.14	)	$	(0.13	)	$	(0.26	)	$	(0.26	)
Weighted-average number of common shares outstanding		26,545			26,545			26,545			23,835

See accompanying notes.

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Mateon Therapeutics, Inc.

Condensed Statements of Cash Flows

(in thousands)

(unaudited)

	Six months ended June 30,
	2016			2015
Operating activities:
Net loss	$	(6,966	)	$	(6,096	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation		11			10
Stock-based compensation		427			370
Changes in operating assets and liabilities:
Prepaid expenses and other current assets		(930	)		(149	)
Accounts payable and accrued expenses		(486	)		(253	)
Net cash used in operating activities		(7,944	)		(6,118	)
Investing activities:
Purchase of short-term investments		(15,604	)		—
Sale of short-term investments		4,202			—
Purchase of property and equipment		—			(15	)
Net cash used in investing activities		(11,402	)		(15	)
Financing activities:
Proceeds from issuance of common stock, net of issuance costs		—			9,195
Net cash provided by financing activities		—			9,195
(Decrease) increase in cash and cash equivalents		(19,346	)		3,062
Cash and cash equivalents at beginning of period		27,285			30,031
Cash and cash equivalents at end of period	$	7,939		$	33,093

See accompanying notes.

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Mateon Therapeutics, Inc.

Notes to Condensed Financial Statements

June 30, 2016

(Unaudited)

1. Summary of Significant Accounting Policies

Description of Business

Mateon Therapeutics, Inc. (“Mateon” or the “Company”) is a clinical-stage biopharmaceutical company seeking to realize the full potential of vascular targeted therapy in oncology. Vascular targeted therapy includes vascular disrupting agents (VDAs), such as the investigational drugs that Mateon is developing, and anti-angiogenic agents (AAs), a number of which are approved and widely used in oncology indications. Mateon’s VDAs selectively obstruct a tumor’s blood supply without obstructing the blood supply to normal tissues, and treatment with Mateon’s VDAs has been shown to lead to significant central tumor necrosis. The Company believes that the treatment of cancer would be significantly improved if VDAs and AAs were used together, due to their complementary mechanisms of action. In combination, the VDA would occlude the blood vessels in the interior of a tumor while the AA would prevent the formation of new tumor blood vessels. The Company has two VDA drug candidates currently being tested in clinical trials, CA4P (combretastatin A4 phosphate, or fosbretabulin) and OXi4503. The Company was originally incorporated under the name OXiGENE, Inc. in 1988 in the state of New York and reincorporated in 1992 in the state of Delaware. Effective June 17, 2016, the Company amended its Certificate of Incorporation to change its name to Mateon Therapeutics, Inc. and, in connection with the name change, on June 20, 2016, the trading symbol for the Company’s common stock changed from “OXGN” to “MATN”.

Basis of Presentation

The accompanying unaudited condensed financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. The financial statements do not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. In the opinion of management, however, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three and six months ended June 30, 2016 are not necessarily indicative of the results that may be expected for any other interim period or for the year ending December 31, 2016.

The balance sheet at December 31, 2015 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. For further information, refer to the financial statements and footnotes thereto included in the Annual Report on Form 10-K for the Company for the year ended December 31, 2015.

Use of Estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles 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 financial statements and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates.

Cash Equivalents

Highly liquid investments with original maturities of three months or less at the date of purchase are considered to be cash equivalents. Cash equivalents are stated at fair value.

Short-term Investments

All marketable securities have been classified as “available for sale” and are carried at fair value, based upon quoted market prices. The Company considers its available-for-sale portfolio to be available for use in current operations. Accordingly, the Company classifies certain investments as short-term marketable securities, even though the stated maturity date may be one year or more beyond the current balance sheet date. Unrealized gains and losses, net of any related tax effects, are excluded from earnings and are included in other comprehensive income and reported as a separate component of stockholders’ deficit until realized. Realized gains and losses and declines in value judged to be other than temporary, if any, on available-for-sale securities are included in other income (expense), net. The cost of securities sold is based on the specific-identification method.

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Recent Accounting Pronouncements

In February 2016, the FASB issued ASU No. 2016-2, “Leases.” This ASU requires substantially all leases, including operating leases, to be recognized by lessees on their balance sheet as a right-of-use asset and corresponding lease liability. This ASU is effective for the Company’s interim and annual reporting periods beginning January 1, 2019 and early adoption is permitted. The Company is currently evaluating the impact that the adoption of this ASU will have on its financial statements.

In March 2016, the FASB issued ASU No. 2016-09, “Improvements to Employee Share-Based Payment Accounting,” which simplifies several aspects of the accounting for share-based payments, including immediate recognition of all excess tax benefits and deficiencies in the income statement, changing the threshold to qualify for equity classification up to the employees’ maximum statutory tax rates, allowing an entity-wide accounting policy election to either estimate the number of awards that are expected to vest or account for forfeitures as they occur, and clarifying the classification on the statement of cash flows for the excess tax benefit and employee taxes paid when an employer withholds shares for tax-withholding purposes. This ASU is effective for the Company’s interim and annual reporting periods beginning January 1, 2017 and early adoption is permitted. The Company is currently evaluating the impact that the adoption of this ASU will have on its financial statements.

2. Cash, Cash Equivalents, and Short-Term Investments

Cash, cash equivalents and short-term investments consisted of the following (in thousands):

	June 30, 2016
	Amortized Cost		Unrealized Gain		Unrealized (Loss)		Estimated Fair Value
Cash	$	2,313	$	—	$	—	$	2,313
Money market funds		5,626		—		—		5,626
U.S. government treasury bills		2,407		—		—		2,407
Corporate bonds and commercial paper		8,995		—		—		8,995
	$	19,341	$	—	$	—	$	19,341
Reported as:
Cash and cash equivalents							$	7,939
Short-term investments								11,402
Total cash, cash equivalents and short-term investments							$	19,341

As of June 30, 2016, the Company’s cash equivalents and short-term investments had a weighted-average time to maturity of less than one year and the Company has the ability to hold its investments through their maturity dates. There have been no significant realized gains or losses on investments for the period presented.

3. Fair Value Measurements

Fair value is defined as the price at which an asset could be exchanged or a liability transferred in a transaction between knowledgeable, willing parties in the principal or most advantageous market for the asset or liability. Where available, fair value is based on observable market prices or parameters or derived from such prices or parameters. Where observable prices or parameters are not available, valuation models are applied.

Assets and liabilities recorded at fair value are categorized based upon the level of judgment associated with the inputs used to measure their fair value. Hierarchical levels directly related to the amount of subjectivity associated with the inputs to fair valuation of these assets and liabilities, are as follows:

Level 1—Inputs are unadjusted, quoted prices in active markets for identical assets at the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide reasonably accurate pricing information on an ongoing basis.

Level 2—Inputs, other than quoted prices included in Level 1, that are either directly or indirectly observable for the asset or liability through correlation with market data at the reporting date and for the duration of the instrument’s anticipated life.

The Company utilizes third party pricing services in developing fair value measurements where fair value is based on observable market inputs, including benchmark yields, reported trades, broker/dealer quotes, bids, offers and other reference data. The Company uses quotes from external pricing service providers and other on-line quotation systems to verify the fair value of investments provided by third party pricing service providers.

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Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities reflect management’s best estimate of what market participants would use in pricing the asset or liability at the reporting date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model.

Financial assets measured at fair value on a recurring basis are categorized in the tables below based upon the lowest level of significant input to the valuations (in thousands):

	June 30, 2016
	Level 1		Level 2		Level 3		Total
Money market funds	$	5,626	$	—	$	—	$	5,626
U.S. government treasury bills		—		2,407		—		2,407
Corporate bonds and commercial paper		—		8,995		—		8,995
Total	$	5,626	$	11,402	$	—	$	17,028

4. Stockholders’ Equity

The following is a summary of the Company’s outstanding common stock warrants:

	Exercise Price		June 30, 2016		December 31, 2015
Expiration Date			(in thousands)
04/16/18	$	3.40		1,460		1,460
09/23/18	$	2.80		147		147
02/18/19	$	2.75		1,872		1,872
02/11/19	$	2.56		293		293
08/28/19	$	2.90		2,700		2,700
06/14/17	$	3.70		216		216
03/25/20	$	1.71		2,920		2,920
03/20/20	$	2.13		234		234
Total Warrants Outstanding				9,842		9,842

The following is a summary of the Company’s stock option activity under its equity incentive plans:

	Options Available for Grant			Options Outstanding			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life		Aggregate Intrinsic Value
	(in thousands)								(years)		(in thousands)
Balance at December 31, 2015		2,695			2,031		$	2.01		8.44
Options granted		(2,223	)		2,223		$	0.72
Options forfeited		115			(115	)	$	3.27
Balance at June 30, 2016		587			4,139		$	1.53		8.55	$	14
Vested and exercisable at June 30, 2016					864		$	2.40		6.79	$	—
Vested and expected to vest at June 30, 2016					2,973		$	1.41		8.30	$	11
Unvested at June 30, 2016					3,275		$	1.30

As of June 30, 2016, there was approximately $1.4 million of unrecognized compensation cost related to stock option awards that is expected to be recognized as expense over a weighted average period of approximately 2.8 years.

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The fair values for the stock options granted were estimated at the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions for the periods indicated:

	Six months ended June 30,
	2016			2015
Risk-free interest rate		1.5	%		1.7	%
Expected life (years)		6.0			6.0
Expected volatility		89	%		92	%
Dividend yield		0	%		0	%

5. Net Loss Per Share

Basic and diluted net loss per share was calculated by dividing the net loss per share attributed to the Company’s common shares by the weighted-average number of common shares outstanding during the period. Diluted net loss per share includes the effect of all dilutive, potentially issuable common equivalent shares as defined using the treasury stock method. All of the Company’s common stock equivalents are anti-dilutive due to the Company’s net loss position for all periods presented. Accordingly, common stock equivalents of approximately 4,139,000 stock options and 9,842,000 warrants at June 30, 2016 and 1,905,000 stock options and 9,842,000 warrants at June 30, 2015, were excluded from the calculation of weighted average shares for diluted net loss per share.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read together with the audited financial statements and notes, as well as our “Management’s Discussion and Analysis of Financial Condition and Results of Operations” that are included in our Annual Report on Form 10-K for the year ended December 31, 2015, and also with the unaudited financial statements set forth in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Overview

We are a biopharmaceutical company seeking to realize the full potential of vascular targeted therapy in oncology. Vascular targeted therapy includes vascular disrupting agents, or VDAs, such as the investigational drugs that we are developing, and anti-angiogenic agents, or AAs, a number of which are approved and widely used in oncology indications. Our VDAs selectively obstruct a tumor’s blood supply without obstructing the blood supply to normal tissues, and treatment with our VDAs has been shown to lead to significant central tumor necrosis. We believe that the treatment of cancer would be significantly improved if VDAs and AAs were used together, due to their complementary mechanisms of action. In combination, the VDA would occlude the blood vessels in the interior of a tumor while the AA would prevent the formation of new tumor blood vessels. We have two VDA drug candidates currently being tested in clinical trials, CA4P (combretastatin A4 phosphate, or fosbretabulin) and OXi4503.

Recent Developments

On June 17, 2016, we changed our name from OXiGENE, Inc. to Mateon Therapeutics, Inc. OXiGENE was named for our original founding technology of oxygen-mediated radiosensitizers. The new company name is derived from our location in San Mateo County, the birthplace of biotechnology.

On June 20, 2016, we announced new analyses from the GOG-0186I Study in recurrent ovarian cancer. This study compared the combination of CA4P and bevacizumab (CA4P-treated patients) to bevacizumab (control patients). Key new analyses, with an updated dataset as of November 2015, included median overall survival (OS), in the intent-to-treat (ITT) population of 3.2 months longer for the CA4P-treated patients compared to the control patients (25.2 vs. 22.0 months, respectively; HR=0.83, not statistically significant). The GOG-0186I Study included 81 patients (75.7% of study patients) with recurrent ovarian cancer that was deemed “measurable”, a pre-specified covariate defined by RECIST criteria, and 26 patients (24.3%) with tumors deemed “non-measurable.” Measurable disease is generally defined as primary tumor sizes greater than 1 cm in diameter, while non-measurable tumors are generally identified and monitored by increased serum CA-125 antigen levels, ascites, or other clinical signs of disease. Patients with measurable disease treated with CA4P had a 5.6 month improvement in median OS (26.8 vs. 21.2 months; 22% reduction in the risk of death; HR=0.78, not statistically significant), and a 3.7 month improvement in progression free survival, or PFS (9.8 vs. 6.1 months; HR=0.60, p=0.027), compared to control patients with measurable disease.

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CA4P

Our lead investigational drug, CA4P, is a reversible tubulin binding agent that selectively targets endothelial cells that make up the blood vessel walls in most solid cancer tumors, causing the endothelial cells to swell and thus obstruct the flow of blood to the tumor, which starves the tumor of vital nutrients including oxygen. This deprivation, also known as tumor hypoxia, results in rapid downstream tumor cell death.

Our primary focus for 2016 is the development of CA4P for platinum-resistant ovarian cancer. Approximately 22,000 women in the U.S. are diagnosed with ovarian cancer each year. More than 60% of women diagnosed with ovarian cancer are in stage III or IV at the time of their diagnosis, making ovarian cancer difficult to treat and often fatal, with a five-year survival rate of approximately 45% — a rate which is largely unchanged since the 1990s. Overall, approximately 80% of patients diagnosed with ovarian cancer will relapse after first-line platinum-based and taxane-based chemotherapy. One quarter of those who relapse after initial treatment, or more than 4,300 women, will have platinum-resistant cancer, the most difficult-to-treat form of the disease. Additionally, a majority of patients who are not initially platinum-resistant and who may achieve a full remission following first-line therapy will also develop recurrent disease. There are relatively few cancer therapies that have been approved for the treatment of ovarian cancer, including platinum-resistant ovarian cancer, and new treatments are needed. We have been granted orphan drug designation in both the U.S. and the European Union for the use of CA4P in the treatment of ovarian cancer and have received Fast Track designation in the U.S. for use in the treatment of platinum-resistant ovarian cancer.

    CA4P in Combination with Bevacizumab – Completed Phase 2 Clinical Trial with Positive Results

Genentech’s bevacizumab (Avastin^®) is an anti-vascular endothelial growth factor, or VEGF, monoclonal antibody which has been approved for the treatment of ovarian cancer in the United States and elsewhere. The approval of bevacizumab in the United States in combination with chemotherapy (paclitaxel, pegylated liposomal doxorubicin, or topotecan) for the treatment of women with platinum-resistant ovarian cancer was based in part upon results from the phase 3 AURELIA trial, which had a primary endpoint of PFS. Bevacizumab is also currently approved in the EU in combination with different chemotherapy regimens for platinum-resistant and platinum-sensitive ovarian cancer. These EU approvals were also based primarily upon PFS.

The GOG-0186I clinical trial was conducted by Gynecologic Oncology Group (GOG), part of NRG Oncology, under the sponsorship of the Cancer Therapy Evaluation Program (CTEP) of the National Cancer Institute (NCI), and was a randomized, two-arm phase 2 clinical trial evaluating CA4P plus bevacizumab compared to bevacizumab alone in patients with recurrent ovarian cancer.

The GOG-0186I clinical trial enrolled a total of 107 patients with both platinum-sensitive and platinum-resistant recurrent ovarian cancer at 67 clinical sites in the United States. The results indicated a statistically significant increase in progression-free survival (PFS) in the combination arm, which was the primary endpoint of the trial, with a p-value of 0.049 (pre-specified analysis using a one-sided test; 10% level of significance). The hazard ratio was 0.685, with a 90% 2-sided confidence interval (CI) of 0.47 ~1.00. Median PFS was 7.3 months for CA4P plus bevacizumab (n=54), compared to 4.8 months for bevacizumab alone (n= 53). Patients in both arms were treated until disease progression or adverse effects prohibited further therapy.

In a post-hoc subgroup analysis, data showed that patients who were platinum-resistant had an even greater improvement in PFS with the combination. Among the 27 patients who were platinum-resistant, median PFS was 6.7 months for those receiving CA4P plus bevacizumab compared to 3.4 months for those receiving bevacizumab alone, and the results were statistically significant with a p-value of 0.01 and a hazard ratio of 0.57. These findings suggest that adding CA4P to bevacizumab has a greater effect in the difficult-to-treat platinum-resistant patient group than it does for platinum-sensitive patients. Although the results were stronger for the platinum-resistant patients, a post-hoc subgroup analysis among the 80 patients who were platinum-sensitive still showed a numerical improvement in PFS for the combination therapy, with a median PFS of 7.6 months for those receiving CA4P plus bevacizumab compared to 6.1 months for those receiving bevacizumab alone, although the results were not statistically significant, with a p-value of 0.139 and a hazard ratio of 0.67.

In the clinical trial, patients with measurable disease who received the combination of CA4P and bevacizumab also achieved a higher objective response rate, or ORR, a secondary endpoint in the clinical trial, measured according to RECIST criteria. Although not a statistically significant result, patients receiving the combination had an ORR of 35.7% (n=42; CI 90% 23.5 ~ 49.5%) compared to 28.2% for patients on bevacizumab alone (n=39; CI 90% 16.7 ~ 42.3%). In the subgroup of platinum-resistant patients, the addition of CA4P to bevacizumab increased ORR to 40.0% (n=10) compared to 12.5% (n=8) for bevacizumab alone.

All adverse events in the clinical trial were manageable, with one Grade 4 event occurring in each treatment arm. Consistent with prior clinical experience with CA4P, patients in the combination arm experienced an increased incidence of Grade 3 hypertension compared to the control arm (18 cases for the combination compared to 10 cases for bevacizumab alone). One patient on the combination regimen had a Grade 3 thromboembolic event. All cases of hypertension were managed with anti-hypertensive treatments, as specified in the clinical trial protocol.

Follow-up data on OS was collected by the GOG through November 2015. Among all patients enrolled in the study (Intent-to-Treat group, or ITT), the median overall survival was 3.2 months longer for the CA4P and bevacizumab treated group than for the bevacizumab only treated group (25.2 months vs. 22.0 months, respectively; HR=0.83, not statistically significant).

The GOG-0186I clinical trial included 81 patients (75.7% of study patients) with recurrent ovarian cancer that was deemed “measurable”, a pre-specified covariate defined by RECIST criteria, and 26 patients (24.3%) deemed “non-measurable.” Measurable disease is generally defined as primary tumor sizes greater than 1 cm in diameter, while non-measurable tumors are generally identified and monitored by increased serum CA-125 antigen levels, ascites, or other clinical signs of disease.

Patients with measurable disease treated with CA4P had a 5.6 month improvement in median OS (26.8 vs. 21.2 months; 22% reduction in the risk of death; HR=0.78, not statistically significant), and a 3.7 month improvement in progression free survival (PFS) (9.8 vs. 6.1 months; HR=0.60, p=0.027) compared to control patients with measurable disease.

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Additional analyses were conducted on patients with measurable disease whose tumors were larger than the median baseline tumor size (tumor size³5.7 cm; n=41). CA4P-treated patients with these tumor sizes experienced a 48% reduction in the risk of death (HR=0.52; p=0.095) and a 6.2 month improvement in median PFS (10.5 vs. 4.3 months; HR=0.55, p=0.071) compared to control patients.

    CA4P in Combination with Bevacizumab and Physician’s Choice Chemotherapy – Current Phase 2/3 Clinical Trial

Based on the positive overall results from the GOG-0186I clinical trial in recurrent ovarian cancer and also the statistically significant results among the subgroup of platinum-resistant patients, we have initiated the FOCUS Study, a phase 2/3 clinical trial of CA4P seeking to demonstrate whether CA4P improves the current standard of care for platinum-resistant ovarian cancer. The current standard of care for platinum-resistant ovarian cancer is treatment with bevacizumab and chemotherapy. The clinical trial is designed with two stages – in the first stage we plan to enroll up to 80 patients and conduct regular interim analyses in order to verify efficacy and confirm powering assumptions for the second stage. In the second stage, we plan to enroll up to 356 additional patients and do not plan to conduct any interim analyses. The primary endpoint of our phase 2/3 clinical trial will be PFS, and we will also evaluate objective response rate, OS and other parameters. If results from the second stage of the clinical study meet the primary endpoint, we intend to submit a New Drug Application, or NDA, to the U.S. Food and Drug Administration, or FDA. We began enrolling patients into this clinical trial in June 2016.

    CA4P in Combination with Pazopanib – Current Phase 2 Clinical Trial

Pazopanib is an anti-angiogenic oral tyrosine kinase inhibitor that is currently approved by the FDA for the treatment of renal cell carcinoma (RCC) and soft tissue sarcoma (STS). Pazopanib is also approved for ovarian and other cancers in the European Union, and was initially developed by GlaxoSmithKline, then sold to Novartis in 2015. We believe that using CA4P in combination with pazopanib may provide a clinically active yet potentially better tolerated alternative to the current standard of care, cytotoxic chemotherapy, for relapsed ovarian cancer.

In October 2014, the first patient was enrolled in a phase 1b/2 trial of pazopanib with and without CA4P in advanced recurrent ovarian cancer. We will incur limited costs for this trial, which is sponsored by The Christie Hospital NHS Foundation Trust and coordinated by the Manchester Academic Health Science Centre, Trials Coordination Unit, or MAHSC-CTU, with additional support from The University of Manchester, the Royal Marsden NHS Foundation Trust and Mount Vernon Cancer Centre (part of the East and North Hertfordshire NHS Trust).

The trial design consists of a phase 1b dose escalation portion with the combination of pazopanib and CA4P, which has been completed, and then a randomized phase 2 portion comparing pazopanib alone versus pazopanib plus CA4P in patients with relapsed ovarian cancer. The clinical trial is expected to enroll approximately 128 patients at sites in the U.K. The primary endpoint of the trial is PFS, and secondary endpoints include safety, OS, objective response rate, and CA125 response rate. The phase 2 portion began enrolling patients in July 2016.

OXi4503 Development Program

In addition to pursuing development of CA4P, we are also pursuing the development of a second product candidate, OXi4503, a novel, dual-mechanism VDA, which has not only been shown to reduce tumor blood flow but which also forms a potentially anti-proliferative metabolite. We believe that this dual mechanism of OXi4503 may result in enhanced anti-tumor activity in certain tumor types. Based on preclinical data, we believe that OXi4503 may be particularly active in hepatocellular carcinoma, melanoma, and leukemias of the myeloid lineage, all of which have relatively high levels of the enzymes that facilitate the conversion of OXi4503 into a metabolite that directly kills tumor cells. Similar to CA4P, OXi4503 has shown potent anti-tumor activity in preclinical studies of solid tumors and AML, and in two clinical studies in advanced solid tumors and liver tumors, both as a single agent and in combination with other anti-proliferative agents.

We are currently developing OXi4503 for Acute Myelogenous Leukemia, or AML, which is a relatively rare cancer of the myeloid blood cells, with approximately 10,500 new cases each year in the United States, accounting for approximately 1.2% of cancer deaths. AML is characterized by the rapid growth of abnormal white blood cells that pollute bone marrow and interfere with the production of normal blood cells. We have been granted orphan drug designation in the United States and European Union for the use of OXi4503 for the treatment of AML.

Prior to October 2015, OXi4503 had been in development in an investigator-sponsored phase 1 clinical trial of patients with AML or MDS, a disorder of the normal blood formation process. In October 2015, the investigator-sponsored clinical trial was closed, and we brought the clinical trial under our direct management and expanded the number of sites to four, with the goal of enrolling patients faster than had occurred at the single site. In December 2015, we moved this clinical trial into its second stage, whereby OXi4503 is being used in combination with cytarabine, an FDA-approved drug for the treatment of AML

Data from the investigator-sponsored trial was presented at the December 2013 annual meeting of the American Society of Hematology, or ASH, in New Orleans, Louisiana. Among the first 13 patients treated at the two lowest dose levels, two patients showed stable disease, one patient had a partial remission and one patient achieved a complete bone marrow response. Side effects included increases in D-dimer (a substance in the blood that is released when a blood clot breaks up), bone pain, fever, chills and flu-like symptoms. Accordingly, OXi4503 appears to be reasonably well-tolerated based on these results to date in patients with relapsed and refractory AML and MDS. Biological activity associated with OXi4503 includes temporary increases in D-dimer which may be related to anti-leukemic activity of the drug.

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Results of Operations

Three and Six Months Ended June 30, 2016 and June 30, 2015

Research and development expenses

Research and development expenses increased for the three and six month periods ended June 30, 2016 compared to the same periods in 2015 due primarily to our initiation of the FOCUS Study, a phase 2/3 clinical trial evaluating whether our lead drug candidate, CA4P, improves upon the standard of care for women with platinum-resistant ovarian cancer. The table below summarizes the most significant components of our research and development expenses for the periods indicated, in thousands, and provides the amount and percentage change in these components:

	Three months ended June 30,				Change						Six months ended June 30,				Change
	2016		2015		Amount			%			2016		2015		Amount			%
Clinical studies	$	1,306	$	666	$	640			96	%	$	2,124	$	1,298	$	826			64	%
Employee compensation and related		633		551		82			15	%		1,342		999		343			34	%
Employee stock-based compensation		100		205		(105	)		-51	%		188		258		(70	)		-27	%
Drug manufacturing		110		89		21			24	%		163		238		(75	)		-32	%
Consulting and professional services		162		320		(158	)		-49	%		391		548		(157	)		-29	%
Other		63		150		(87	)		-58	%		146		309		(163	)		-53	%
Total research and development	$	2,374	$	1,981	$	393			20	%	$	4,354	$	3,650	$	704			19	%

The increase in research and development expenses for the three and six month periods ended June 30, 2016 compared to the same periods in 2015 is primarily due to additional clinical trial activity for our investigational drugs, which is included in “Clinical studies,” above. Clinical study expenses include costs incurred by contract research organizations who conduct clinical trials on our behalf, patient and clinical site costs, laboratory costs and other services directly related to clinical trials. In 2016, we initiated a new clinical trial for CA4P, called FOCUS, in platinum-resistant ovarian cancer and completed patient visits for our phase 2 study in neuroendocrine tumors. During 2015, our only significant clinical work was related to the study in neuroendocrine tumors. OXi4503, our second investigational drug, is currently being studied in a phase 1b/2 clinical trial in AML, and we expanded this trial in late 2015, increasing costs for the 2016 periods compared to the 2015 periods. The increased clinical trial activity also caused our increase in employee compensation because we hired additional personnel to support the clinical programs. Partially offsetting this increase in employee compensation is a decrease in consulting and professional services, as the additional employees reduced our need for certain outside consulting services.

Drug manufacturing expenses decreased for the six month period ended June 30, 2016 and increased for the three month period ended June 30, 2016, compared to the same periods in 2015, due to timing of stability testing and process validation requirements. Timing of our drug manufacturing costs can be highly variable and is impacted by the timing of when drug product is needed for clinical trials, product expiration or re-test requirements, potential regulatory filings and scheduling of production batches based on the drug manufacturer’s generally long lead time requirements.

Other expenses include facility related expenses and licensing fees which decreased for the three and six month periods ended June 30, 2016 compared to the same periods in 2015 due to lower licensing fees paid for rights to our drug product candidates.

We expect research and development expenses to increase for the balance of 2016 as compared to 2015 due to our planned additional clinical trial activity, primarily related to the FOCUS Study, and the employees required to support our additional clinical work.

General and administrative expenses

The table below summarizes the most significant components of our general and administrative expenses for the periods indicated, in thousands, and provides the amount and percentage changes in these components:

	Three months ended June 30,				Change						Six months ended June 30,				Change
	2016		2015		Amount			%			2016		2015		Amount			%
Employee compensation and related	$	511	$	554	$	(43	)		-8	%	$	1,099	$	957	$	142			15	%
Stock-based compensation		135		58		77			133	%		239		90		149			166	%
Consulting and professional services		509		598		(89	)		-15	%		1,086		1,117		(31	)		-3	%
Other		141		137		4			3	%		244		291		(47	)		-16	%
Total general and administrative	$	1,296	$	1,347	$	(51	)		-4	%	$	2,668	$	2,455	$	213			9	%

General and administrative expenses decreased for the three months ended June 30, 2016 compared to the three months ended June 30, 2015, but increased for the six months ended June 30, 2016 compared to the six months ended June 30, 2015. For the three-month periods,

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employee compensation and related expenses were lower in 2016 because of a severance payment made to a former employee in 2015 and our lower use of outside consultants and professional service providers. These lower areas of expenditure were partially offset by higher stock-based compensation costs related to option grants made in mid-2015 following stockholder approval of a new stock option plan.

For the six month period ended June 30, 2016, employee compensation and related costs increased as a result of several positions converting from part time to full time for the 2016 period, as well as higher temporary housing costs associated with employee relocations and increased travel, partially offset by severance recorded in 2015 due to the departure of a former employee. Stock-based compensation expense also increased for the six month period ended June 30, 2016 due to stock option grants made following stockholder approval of a new stock option plan in mid-2015. Consulting and professional services declined in 2016 compared to 2015 due to lower overall usage of outside consultants, partially offset by specific market research costs incurred during the first three months of 2016.

Other expenses, which include facility related expenses and insurance expenses, were similar for the three month periods ending on June 30, 2016 and 2015, and decreased for the six month period ending June 30, 2016 due to lower fees paid in several different areas, none of which were individually significant.

We expect general and administrative expenses for 2016 to continue at increased levels compared to 2015 in order to support our planned increase in research and development activities as well as additional business development and investor relations efforts.

LIQUIDITY AND CAPITAL RESOURCES

Our business is developing drugs for the treatment of cancer and we currently have no sources of revenue. We measure liquidity by the cash and other capital we have available to fund our operations, which are primarily focused on the advancement of our VDAs. To date, we have financed our operations principally through proceeds received from the sale of equity and at one point through a strategic development arrangement which concluded in 2009. We have experienced net losses in each year since our inception, and negative cash flow from operations in nearly every year also. As of June 30, 2016, we had an accumulated deficit of over $271 million, including a net loss of approximately $7.0 million for the first six months of 2016 and approximately $13.7 million for the year ended December 31, 2015. At June 30, 2016, we had cash, cash equivalents and short-term investments of approximately $19.3 million, which we expect to be sufficient to fund our operations into the third quarter of 2017. We expect to continue to incur expenses, resulting in losses and negative cash flows from operations, over at least the next several years as we continue to develop our candidate drugs for the treatment of cancer.

We expect to incur significant additional costs over at least the next several years as a result of our plans to develop VDAs for the treatment of cancer, including continuing our existing clinical trials as well as conducting new, additional clinical trials and anticipated research and development expenditures.

We will require additional capital before we can complete all planned clinical trials and development of CA4P and OXi4503. Additional funding may not be available to us on acceptable terms, or at all. If we are unable to access additional funds when needed, we may not be able to continue the development of our product candidates or we could be required to delay, scale back or eliminate some or all of our development programs and operations. Any additional equity financing, if available, may not be available on favorable terms, would most likely be dilutive to our current stockholders and debt financing, if available, may involve restrictive covenants. If we are able to access funds through collaborative or licensing arrangements, we may be required to relinquish rights to some of our technologies or product candidates that we would otherwise seek to develop or commercialize on our own, on terms that are not favorable to us.

We have filed a shelf registration statement on Form S-3 with the SEC, covering the sale from time to time of shares of our common stock and other securities, which may provide us the opportunity to raise funds when we consider it necessary or appropriate, at prices and on terms to be determined at the time of any such offering. However, pursuant to the instructions toForm S-3, we only have the ability to sell shares under the shelf registration statement, during any 12-month period, in an amount less than or equal to one-third of the aggregate market value of our common stock held by non-affiliates. Our ability to access capital when needed is not assured and, if not achieved on a timely basis, will materially harm our business, financial condition and results of operations. Our ability to raise additional capital could also be further impaired if we are unable to comply with the listing standards of The NASDAQ Capital Market.

We currently do not comply with the NASDAQ requirement to have a minimum $1.00 per share closing bid price. At our annual meeting held on June 1, 2016, our stockholders did not approve a proposal authorizing a reverse split of our common stock. This reverse split could have rectified our noncompliance with the NASDAQ bid-price requirement. If our common stock is delisted by NASDAQ and accordingly no longer trades on a recognized national stock exchange, both the price of our common stock and our ability to raise additional capital are likely to be significantly and negatively impacted. NASDAQ has provided us with a grace period through November 28, 2016 to regain compliance with the minimum bid price requirement.

Critical Accounting Policies and Significant Judgments and Estimates

There have been no changes to our critical accounting policies and significant judgments and estimates from our Annual Report on Form 10-K for the year ended December 31, 2015.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

There have been no changes to our market risks from our Annual Report on Form 10-K for the year ended December 31, 2015.

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Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

The SEC requires that as of the end of the period covered by this Quarterly Report on Form 10-Q, the Chief Executive Officer (CEO) and the Chief Financial Officer (CFO) evaluate the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, and report on the effectiveness of the design and operation of our disclosure controls and procedures. Based upon that evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective, as of June 30, 2016 to ensure that we record, process, summarize and report the information we must disclose in reports that we file or submit under the Exchange Act, within the time periods specified in the SEC’s rules and forms, and is accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting, identified in connection with the evaluation of such control that occurred during the last fiscal quarter, which have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Important Considerations

The effectiveness of our disclosure controls and procedures and our internal control over financial reporting is subject to various inherent limitations, including cost limitations, judgments used in decision making, assumptions about the likelihood of future events, the soundness of our systems, the possibility of human error, and the risk of fraud. Moreover, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions and the risk that the degree of compliance with policies or procedures may deteriorate over time. Because of these limitations, there can be no assurance that any system of disclosure controls and procedures or internal control over financial reporting will be successful in preventing all errors or fraud or in making all material information known in a timely manner to the appropriate levels of management.

PART II—OTHER INFORMATION

Item 1. Legal Proceedings

Not applicable.

Item 1A. Risk Factors

Except as set forth below, there have been no other material changes to the risk factors as described in our Annual Report on Form 10-K for the year ended December 31, 2015.

We currently do not meet the continued listing standards of The NASDAQ Capital Market, which require a minimum closing bid price of $1.00 per share, and on June 1, 2016, our stockholders did not approve a reverse stock split which could have enabled us to regain compliance with these continued listing standards. Our failure to meet NASDAQ’s continued listing standards could result in the delisting of our common stock, negatively impact the price of our common stock and negatively impact our ability to raise additional capital.

Our common stock is listed on The NASDAQ Capital Market. NASDAQ provides various continued listing requirements that a company must meet in order for its stock to continue trading on The NASDAQ Capital Market. Among these requirements is the requirement that the Company’s stock trades at a minimum closing bid price of $1.00 per share. Our stock has recently and consistently traded below $1.00 per share, including closing bid prices below $1.00 per share. On December 1, 2015, we received a deficiency letter from The NASDAQ Stock Market which provided us a grace period of 180 calendar days, or until May 31, 2016, to regain compliance with the minimum bid price requirement, which would require a closing bid price of at least $1.00 per share for a minimum of ten consecutive business days. We did not meet the minimum bid requirement prior to the expiration of the grace period on May 31, 2016. At our annual stockholders’ meeting held on June 1, 2016, our stockholders failed to approve a proposal authorizing our Board of Directors to consummate a reverse stock split of our common stock in the range of 1:5 and 1:10, and there can be no assurance that our stockholders will approve a proposal authorizing a reverse split of our common stock in the future. On June 1, 2016, we received notice that NASDAQ granted us an additional 180-day grace period (until November 28, 2016) to regain compliance with NASDAQ’s $1.00 per share minimum bid price requirement under Nasdaq Marketplace Listing Rule 5810(c)(3)(A). We may achieve compliance during this additional 180-day period if the closing bid price of our common stock is at least $1.00 per share for a minimum of 10 consecutive business days before November 28, 2016. If we fail to regain compliance on or prior to November 28, 2016, our stock will be subject to delisting by NASDAQ. Additionally, if we fail to comply with any other continued listing standards of NASDAQ, our common stock will also be subject to delisting. If that were to occur, our common stock would be subject to rules that impose additional sales practice requirements on broker-dealers who sell our securities. The additional burdens imposed upon broker-dealers by these requirements could discourage broker-dealers from effecting transactions in our common stock. This would significantly negatively affect the ability of investors to trade our securities and would significantly negatively affect the value and liquidity of our common stock. These factors could contribute to lower

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prices and larger spreads in the bid and ask prices for our common stock. If we seek again to implement a reverse stock split in order to remain listed on The NASDAQ Capital Market, the announcement and/or implementation of a reverse stock split could significantly negatively affect the price of our common stock.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

None.

Item 5. Other Information

None.

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Item 6. Exhibits

			Incorporated by Reference
Exhibit Number		Description	Form	Filing Date	Exhibit Number		Filed Herewith
	3.1	Certificate of Amendment to Restated Certificate of Incorporation.	8-K	6/17/2016		3.1
	3.2	Amended and Restated By-laws.	8-K	6/17/2016		3.2
	4.1	Specimen Common Stock Certificate.						x
	31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and15d-14(a).						x
	31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and15d-14(a).						x
	32.1	Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.						x
	101	The following materials from Mateon Therapeutics, Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2016, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Balance Sheets at June 30, 2016 and December 31, 2015, (ii) Condensed Statements of Comprehensive Loss for the three and six months ended June 30, 2016 and 2015, (iii) Condensed Statements of Cash Flows for the six months ended June 30, 2016 and 2015, and (iv) Notes to Condensed Financial Statements						x

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	Mateon Therapeutics, Inc. (Registrant)
Date: August 2, 2016	By:	/s/William D. Schwieterman
		William D. Schwieterman
		Chief Executive Officer (Principal Executive Officer)
Date: August 2, 2016	By:	/s/Matthew M. Loar
		Matthew M. Loar
		Chief Financial Officer (Principal Financial Officer)

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