UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
/x/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2001
Commission File Number 0-9314
ACCESS PHARMACEUTICALS, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 83-0221517
- ------------------------ --------------------------
(State of Incorporation) (I.R.S. Employer I.D. No.)
2600 Stemmons Frwy, Suite 176, Dallas, TX 75207
-----------------------------------------------
(Address of principal executive offices)
Telephone Number (214) 905-5100
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to
such filing requirement for the past 90 days.
Yes X No
--- ---
The number of shares outstanding of each of the issuer's classes of common
stock, as of August 14, 2001 was 12,856,569 shares of common stock, $0.01 par
value per share.
Total No. of Pages 12
----
PART I -- FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
The response to this Item is submitted as a separate section of this report.
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
Access Pharmaceuticals, Inc. is a Delaware corporation in the development stage.
We are an emerging pharmaceutical company focused on developing both novel
low development risk product candidates and technologies with longer-term major
product opportunities. Together with our subsidiaries, we have proprietary
patents or rights to five technology platforms: synthetic polymers,
bioerodible hydrogels, Residerm TM, carbohydrate targeting technology and
agents for the prevention and treatment of viral disease, including HIV. In
addition, our partner, GlaxoSmithKline (formerly Block Drug Company), is
marketing in the United States a product, Aphthasol R, a drug jointly
developed, the first U.S. Food and Drug Administration (or FDA) approved
product for the treatment of canker sores. We are developing new formulations
and delivery forms to evaluate this product in additional clinical indications.
We have licensed certain rights for the use of amlexanox in additional
indications from GlaxoSmithKline for numerous markets excluding the U. S. and
the worldwide rights for mucositis.
Except for the historical information contained herein, the following
discussions and certain statements in this Form 10-Q are forward-looking
statements that involve risks and uncertainties. In addition to the risks and
uncertainties set forth in this Form 10-Q, other factors could cause actual
results to differ materially, including but not limited to our research and
development focus, uncertainties associated with research and development
activities, clinical trials, uncertainty associated with preclinical and
clinical testing, the timing of regulatory approvals, future cash flow, timing
and receipt of licensing revenues, collaborations, dependence on others, and
other risks detailed in our reports filed under the Securities Exchange Act of
1934, as amended, including but not limited to our Annual Report on Form 10-K
for the year ended December 31, 2000.
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. As of June 30, 2001, our accumulated deficit was $34,569,000, of
which $8,894,000 was the result of the write-off of excess purchase price of
mergers.
LIQUIDITY AND CAPITAL RESOURCES
Working capital as of June 30, 2001 was $22,025,000 representing a decrease in
working capital of $2,372,000 as compared to the working capital as of December
31, 2000 of $24,397,000. The
2
decrease in working capital was due to the loss from operations for the first
six months of 2001.
Since inception, our expenses have significantly exceeded revenues, resulting
in an accumulated deficit as of June 30, 2001 of $34,569,000. We have funded
our operations primarily through private sales of common stock and convertible
notes. Contract research payments from corporate alliances and mergers have
also provided funding for operations.
We have 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. We expect that our existing
capital resources will be adequate to fund our current level of operations
through the year 2003.
We will require substantial funds to conduct research and development programs,
preclinical studies and clinical trials of potential products. Our future
capital requirements and adequacy of available funds will depend on many
factors, including:
* the successful commercialization of amlexanox;
* the ability to establish and maintain collaborative arrangements 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;
* competing technological developments;
* the cost of manufacturing and scale-up;
* the ability to establish and maintain effective commercialization
arrangements and activities; and
* successful regulatory filings.
SECOND QUARTER 2001 COMPARED TO SECOND QUARTER 2000
Revenue in the second quarter of 2001 was $10,000, as compared to no revenue
in the same period of 2000. Revenue in the second quarter of 2001 is
recognized over the period of the performance obligation of several licensing
agreements, including various amlexanox projects.
Total research spending for the second quarter of 2001 was $1,032,000, as
compared to $1,069,000 for the same period in 2000, a decrease of $37,000.
The decrease in expenses was the result of:
* lower clinical development costs ($221,000) for amlexanox product
development projects for OraDisc TM. Costs for this project were incurred in
the second quarter 2000 and minimal costs were incurred in the second quarter
2001 due to the completion of OraDisc TM trials in 2000 and early 2001; and
* other net decreases ($34,000).
3
The decrease in expenses was partially offset by:
* higher clinical development costs ($131,000) for amlexanox cream and gel
projects due to the start of clinical trials in 2001; and
* higher scientific salary cost ($87,000) due to additional employees on staff.
We expect research spending to increase in future quarters and remain higher
than in prior quarters as we intend to hire additional scientific and clinical
staff, commence additional clinical trials and accelerate preclinical
development activities as we continue to develop our product candidates.
Total general and administrative expenses were $463,000 for the second quarter
of 2001, a decrease of $24,000 as compared to the same period in 2000. The
decrease in spending was due primarily to lower compensation expenses ($99,000).
These general and administrative expenses decreases were partially offset by:
* higher patent costs ($21,000);
* higher shareholder expenses ($21,000); and
* other net increases ($33,000).
Depreciation and amortization was $99,000 for the second quarter of 2001 as
compared to $112,000 for the same period in 2000 reflecting a decrease of
$13,000. The decrease in amortization is due to lower depreciation reflecting
that some major assets have been fully depreciated.
Total operating expenses in the second quarter of 2001 were $1,594,000 as
compared to total operating expenses of $1,668,000 for the same period in 2000.
Loss from operations in the second quarter of 2001 was $1,584,000 as compared to
a loss of $1,668,000 for the same period in 2000.
Interest and miscellaneous income was $350,000 for the second quarter of 2001
as compared to $223,000 for the same period in 2000, an increase $127,000. The
increase in interest income was due to higher cash balances in 2001 resulting
from our private placements of common stock and convertible note offering
in 2000.
Interest expense was $283,000 for the second quarter of 2001 as compared to
$1,000 for the same period in 2000, an increase of $282,000. The increase in
interest expense was due to interest accrued in 2001 on the $13.5 million
convertible notes that were issued in 2000 and amortization of debt issuance
costs.
Net loss in the second quarter of 2001 was $1,517,000, or a $0.12 basic and
diluted loss per common share, compared with a loss of $1,446,000, or a $0.13
basic and diluted loss per common share for the same period in 2000.
4
SIX MONTHS ENDED JUNE 30, 2001 COMPARED TO SIX MONTHS ENDED JUNE 30, 2000
Revenue in the first six months of 2001 was $221,000, as compared to no revenue
in the same period of 2000. Revenue in the first six months of 2001 is
recognized over the period of the performance obligation of several licensing
agreements, including various amlexanox projects and ResiDerm TM.
Total research spending for the first six months of 2001 was $2,035,000, as
compared to $1,672,000 for the same period in 2000, an increase of $363,000.
The increase in expenses was the result of:
* higher clinical development costs ($262,000) for amlexanox product
development projects for OraDisc TM, cream and gel projects. The first
Phase III study evaluating OraDisc TM was completed and a second Phase III
study is scheduled to commence in 2001. During the first six months of 2001
we also commenced Phase I amlexanox gel and cream studies; and
* higher scientific salary costs ($146,000) due to additional employees;
The increase in expenses was partially offset by:
* lower moving expenses for scientific personal ($42,000); and
* other net decreases ($3,000).
We expect research spending to increase in future quarters and remain higher
than in prior quarters as we intend to hire additional scientific and clinical
staff, commence additional clinical trials and accelerate preclinical
development activities as we continue to develop our product candidates.
Total general and administrative expenses were $899,000 for the first six months
of 2001, a decrease of $17,000 as compared to the same period in 2000. The
decrease in spending was due primarily to the following:
* lower compensation expenses ($81,000);
* lower listing fees in 2001 due to our initial listing on the American Stock
Exchange in 2000 ($32,000); and
* other net decreases ($2,000).
These general and administrative expense decreases were partially offset by:
* higher shareholder expenses ($56,000); and
* higher patent costs ($42,000).
Depreciation and amortization was $201,000 for the first six months of 2001 as
compared to $223,000 for the same period in 2000 reflecting a decrease of
$22,000. The decrease in amortization was due to lower depreciation reflecting
that some major assets have been fully depreciated.
Total operating expenses in the first six months of 2001 were $3,135,000 as
compared to total
5
operating expenses of $2,811,000 for the same period in 2000.
Loss from operations in the first six months of 2001 was $2,914,000 as compared
to a loss of $2,811,000 for the same period in 2000.
Interest and miscellaneous income was $792,000 for the first six months of 2001
as compared to $288,000 for the same period in 2000, an increase of $504,000.
The increase in interest income was due to higher cash balances in 2001
resulting from our private placements of common stock and convertible note
offering in 2000.
Interest expense was $566,000 for the first six months of 2001 as compared to
$3,000 for the same period in 2000, an increase of $563,000. The increase is
interest expense is due to interest accrued on the $13.5 million convertible
notes issued in 2000 and amortization of debt issuance costs.
Net loss in the first six months of 2001 was $2,688,000, or a $0.21 basic and
diluted loss per common share, compared with a loss of $2,526,000, or a $0.26
basic and diluted loss per common share for the same period in 2000.
PART II -- OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings.
ITEM 2 CHANGES IN SECURITIES
None.
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of stockholders was held on May 21, 2001 in New York, NY.
At that meeting the following matters were submitted to a vote of the
stockholders of record. The proposals were approved by the stockholders,
as follows:
6
* Three directors were reelected for three year terms with the following votes:
Herbert H. McDade, Jr., 7,348,123 - For; and 42,828 - Withheld Authority
Kerry P. Gray; 7,348,121 - For; and 42,830 - Withheld Authority
J. Michael Flinn; 6,948,117 - For; and 442,834 - Withheld Authority
* The terms of office as a director of Access of each of Stephen B. Howell,
Max Link, John J. Meakam, Jr. and Preston Tsao continued after the meeting.
* A proposal to amend our 1995 stock option plan, as amended, to adjust the
number of options to be granted annually to non-employee directors from 5,000
to 10,000 shares of common stock was approved with 6,887,955 - For; 494,316 -
Against; and 8,680 - Abstain.
* A proposal to approve the 2001 Access Pharmaceuticals, Inc. restricted stock
plan was approved with 7,305,848 - For; 78,421 - Against; and 6,682 -
Abstain.
* A proposal to ratify the appointment of Grant Thornton LLP as independent
certified public accountants for the Company for the fiscal year ending
December 31, 2001 was approved with 6,953,025 - For; 434,438 - Against;
and 3,487 - Abstain.
ITEM 5 OTHER INFORMATION
None
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
Exhibits: 10.19 Supplemental Lease Agreement between Pollock Realty
Corporation and us dated February 9, 2001
Reports on Form 8-K:
None
7
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.
ACCESS PHARMACEUTICALS, INC.
Date: August 14, 2001 By:/s/ Kerry P. Gray
---------------------
Kerry P. Gray
President and Chief Executive Officer
Date: August 14, 2001 By:/s/ Stephen B. Thompson
-------------------------
Stephen B. Thompson
Vice President and Chief Financial Officer
8
Access Pharmaceuticals, Inc. and Subsidiaries
(a development stage company)
Condensed Consolidated Balance Sheets
June 30, 2001 December 31, 2000
-------------- --------------
ASSETS (unaudited)
Current assets
Cash and cash equivalents $ 5,615,000 $ 8,415,000
Short term investments, at cost 18,174,000 17,394,000
Accounts receivable 1,000 251,000
Accrued interest receivable 68,000 196,000
Prepaid expenses and other current assets 68,000 133,000
------------- -------------
Total current assets 23,926,000 26,389,000
Property and equipment, net 128,000 116,000
Debt issuance costs, net 770,000 861,000
Licenses, net 831,000 887,000
Goodwill, net 1,992,000 2,115,000
Other assets 159,000 158,000
------------- -------------
Total assets $ 27,806,000 $ 30,526,000
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued expenses $ 615,000 $ 1,158,000
Accrued interest payable 756,000 283,000
Deferred revenues 530,000 551,000
------------- -------------
Total current liabilities 1,901,000 1,992,000
Convertible notes 13,530,000 13,530,000
------------- -------------
Total liabilities 15,431,000 15,522,000
Commitments and contingencies - -
Stockholders' equity
Preferred stock - $.01 par value;
authorized 2,000,000 shares;
none issued or outstanding - -
Common stock - $.01 par value;
authorized 50,000,000 shares;
issued, 12,856,569 at June 30, 2001
and 12,844,669 at December 31,2000 133,000 132,000
Additional paid-in capital 47,860,000 47,802,000
Notes receivable from stockholders (1,045,000) (1,045,000)
Treasury stock, at cost - 819 shares (4,000) (4,000)
Deficit accumulated during
the development stage (34,569,000) (31,881,000)
------------- -------------
Total stockholders' equity 12,375,000 15,004,000
------------- -------------
Total liabilities and stockholders' equity $ 27,806,000 $ 30,526,000
============= =============
The accompanying notes are an integral part of these statements.
9
Access Pharmaceuticals, Inc. and Subsidiaries
(a development stage company)
Condensed Consolidated Statements of Operations
(unaudited)
Three months ended Six months ended February 24,
June 30, June 30, 1988
-------------------------- -------------------------- (inception) to
2001 2000 2001 2000 June 30, 2001
------------ ------------ ------------ ------------ --------------
Revenues
Research and development $ - $ - $ - $ - $ 2,711,000
Option income - - - - 2,164,000
Licensing revenues 10,000 - 221,000 - 653,000
------------ ------------ ------------ ------------ --------------
Total revenues 10,000 - 221,000 - 5,528,000
Expenses
Research and development 1,032,000 1,069,000 2,035,000 1,672,000 18,015,000
General and administrative 463,000 487,000 899,000 916,000 12,560,000
Depreciation and amortization 99,000 112,000 201,000 223,000 2,177,000
Write-off of excess purchase price - - - - 8,894,000
------------ ------------ ------------ ------------ --------------
Total expenses 1,594,000 1,668,000 3,135,000 2,811,000 41,646,000
------------ ------------ ------------ ------------ --------------
Loss from operations (1,584,000) (1,668,000) (2,914,000) (2,811,000) (36,118,000)
Other income (expense)
Interest and miscellaneous income 350,000 223,000 792,000 288,000 2,649,000
Interest and debt expense (283,000) (1,000) (566,000) (3,000) (1,100,000)
------------ ------------ ------------ ------------ --------------
67,000 222,000 226,000 285,000 1,549,000
------------ ------------ ------------ ------------ --------------
Net loss $(1,517,000) $(1,446,000) $(2,688,000) $(2,526,000) $ (34,569,000)
============ ============ ============ ============ ==============
Basic and diluted loss per
common share $(0.12) $(0.13) $(0.21) $(0.26)
============ ============ ============ ============
Weighted average basic and diluted
common shares outstanding 12,853,923 11,479,207 12,851,149 9,547,679
============ ============ ============ ============
The accompanying notes are an integral part of these statements.
10
Access Pharmaceuticals, Inc. and Subsidiaries
(a development stage company)
Condensed Consolidated Statements of Cash Flows
(unaudited)
February 24,
Six months ended June 30, 1988
-------------------------- (inception) to
2001 2000 June 30, 2001
------------ ------------ -------------
Cash flows form operating activities:
Net loss $(2,688,000) $(2,526,000) $(34,569,000)
Adjustments to reconcile net loss to
cash used in operating activities:
Write-off of excess purchase price - - 8,894,000
Warrants issued in payment of
consulting expenses 41,000 - 970,000
Research expenses related to
common stock granted - - 100,000
Depreciation and amortization 201,000 223,000 2,177,000
Amortization of debt costs 91,000 - 145,000
Deferred revenue (21,000) 428,000 420,000
Change in operating assets and
liabilities:
Accounts receivable 250,000 48,000 (2,000)
Accrued interest receivable 128,000 (100,000) (68,000)
Prepaid expenses and other
current assets 65,000 46,000 (69,000)
Licenses - (100,000) (525,000)
Other assets (1,000) - (7,000)
Accounts payable and accrued expenses (543,000) 88,000 (147,000)
Accrued interest payable 473,000 - 756,000
------------ ------------ -------------
Net cash used in operating activities (2,004,000) (1,893,000) (21,925,000)
------------ ------------ -------------
Cash flows from investing activities:
Capital expenditures (34,000) (63,000) (1,279,000)
Sales of capital equipment - - 15,000
Purchases of short term investments
and certificates of deposit (780,000) (12,519,000) (18,174,000)
Purchase of businesses, net of
cash acquired - - (226,000)
Other investing activities - - (150,000)
------------ ------------ -------------
Net cash used in investing activities (814,000) (12,582,000) (19,814,000)
------------ ------------ -------------
Cash flows from financing activities:
Proceeds from notes payable - - 721,000
Payments of principal on obligations
under capital leases - (26,000) (750,000)
Purchase of treasury stock - (750,000) (754,000)
Cash acquired in merger with Chemex - - 1,587,000
Notes receivable from shareholders - - (1,045,000)
Proceeds from convertible note, net - - 12,615,000
Proceeds from stock issuances, net 18,000 15,381,000 34,980,000
------------ ------------ -------------
Net cash provided by financing activities 18,000 14,605,000 47,354,000
------------ ------------ -------------
Net increase (decrease) in cash and
cash equivalents (2,800,000) 130,000 5,615,000
Cash and cash equivalents at
beginning of period 8,415,000 869,000 -
------------ ------------ -------------
Cash and cash equivalents at
end of period $ 5,615,000 $ 999,000 $ 5,615,000
============ ============ =============
The accompanying notes are an integral part of these statements.
11
Access Pharmaceuticals, Inc. and Subsidiaries
(a development stage company)
Notes to Condensed Consolidated Financial Statements
Six Months Ended June 30, 2001 and 2000
(unaudited)
(1) Interim Financial Statements
The consolidated balance sheet as of June 30, 2001 and the consolidated
statements of operations and cash flows for the three and six months ended
June 30, 2001 and 2000 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 amounts have been reclassified to conform with current period
classification.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. It is suggested that these financial statements
be read in conjunction with the financial statements and notes thereto included
in our Annual Report on Form 10-K for the year ended December 31, 2000. The
results of operations for the period ended June 30, 2001 are not necessarily
indicative of the operating results which may be expected for a full year. The
consolidated balance sheet as of December 31, 2000 contains financial
information taken from the audited financial statements as of that date.