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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
/X/ Annual Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended December 31, 2000
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 0-9314
ACCESS PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
Delaware 83-0221517
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(State of Incorporation) (I.R.S. Employer I.D. No.)
2600 Stemmons Freeway, Suite 176, Dallas, TX 75207
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (214) 905-5100
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, One Cent ($0.01)
Par Value Per Share American Stock Exchange
- ------------------------------ ----------------------------------------
(Title of Class) (Name of each exchange on which
registered)
Securities registered pursuant to Section 12(g) of the Act: None
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 __P___ No _____
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. ___
The aggregate market value of the outstanding voting stock held by non-
affiliates of the registrant as of March 29, 2001 was approximately
$27,757,000.
As of March 29, 2001 there were 12,850,478 shares of Access
Pharmaceuticals, Inc. Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE: Portions of
Registrant's Definitive Proxy Statement filed with the Commission pursuant
to Regulation 14A in connection with the 2001 Annual Meeting are
incorporated herein by reference into Part III of this report. Other
references incorporated are listed in the exhibit list in Part IV of this
report.
PART I
ITEM 1. BUSINESS
Business
Access Pharmaceuticals 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. 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 Aphthasol R, a drug jointly developed, the first U.S.
Food and Drug Administration, or FDA, 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 of the rights to amlexanox for the treatment of canker
sores from GlaxoSmithKline for certain countries excluding the U.S. and
the worldwide rights for certain additional indications including mucositis
and oral diseases in certain territories.
Access was founded in 1974 as Chemex Corporation, a Wyoming
corporation, and in 1983 changed its name to Chemex Pharmaceuticals, Inc.
Chemex changed its state of incorporation from Wyoming to Delaware on
June 30, 1989. In connection with the merger of Access Pharmaceuticals,
Inc., a Texas corporation, with and into Chemex on January 25, 1996, we
changed our name to Access Pharmaceuticals, Inc. Our principal executive
office is at 2600 Stemmons Freeway, Suite 176, Dallas, Texas 75207; our
telephone number is (214) 905-5100.
We are an emerging pharmaceutical company developing drug delivery
systems and advanced polymer technology for application in cancer
treatment, dermatology and oral diseases. In addition, we have developed
a drug to treat canker sores that was sold to GlaxoSmithKline and which
GlaxoSmithKline currently is marketing in the United States under the name
Aphthasol TM, subject to a royalty agreement with us. Our lead compounds
and the potential markets for those compounds are as follows.
Marketed Product
Amlexanox 5% Paste (Aphthasol TM)
This product currently is the only compound approved by the FDA for the
treatment of canker sores. Independent market research sponsored by us
indicates that more than 7 million patients visit doctors or dentists per year
in the United States with complaints of canker sores. Current estimates
indicate that approximately 20% of the U.S. adult population suffers from
canker sores, of which 15 million patients claim that their canker sores
recur.
We completed a Phase IV study in Ireland in November 2000 to determine
if the application of amlexanox 5% paste at the first sign or symptom of
canker sores can abort ulcer formation or further accelerate healing. The
results confirmed that amlexanox 5% paste was effective in preventing the
formation of an ulcer when used at the first sign or symptom of the disease.
If this label extension is approved by regulatory authorities it could provide
a major marketing opportunity to expand use of the product and to attract
sufferers of canker sores to contact medical practitioners to request the
product.
In 1995, we sold our rights to amlexanox to Block, subject to a retained
royalty. On June 8, 1998, we entered into an agreement to license these
rights back from Block for certain international markets and indications.
Pursuant to this agreement, on August 18, 1998 we executed a license
agreement for the United Kingdom and Ireland with Strakan Limited, or
Strakan, to license amlexanox for the treatment of canker sores. Under the
terms of this agreement, Strakan is responsible for and will bear all costs
associated with the regulatory approval process for amlexanox in the United
Kingdom and the European Union, will pay milestones based on cumulative
sales revenue and will pay a royalty on sales of amlexanox. Strakan has
filed a product license application for amlexanox 5% paste for treatment of
canker sores with regulatory authorities in the United Kingdom. We
anticipate that the amlexanox 5% paste product will be registered
throughout Europe in the second quarter of 2001.
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An international outlicensing program for amlexanox is ongoing. In addition
to the agreement with Strakan, licensing agreements have been executed
with Meda AB for Scandinavia, the Baltic states and Iceland; Laboratorios
Esteve for Spain, Portugal and Greece; Mipharm S.p.A. for Italy,
Switzerland, Turkey and Lebanon; and Paladin Labs Inc. for Canada.
The Therapeutic Products Programme, the Canadian equivalent of the FDA,
has issued a notice of compliance permitting the sale of amlexanox 5%
paste, called Apthera, Registerd Mark, or R, in Canada to Paladin Labs Inc.
Products in Development Status
Polymer Platinate (AP 5280)
Chemotherapy, surgery and radiation are the major components in the
clinical management of cancer patients. Chemotherapy is usually the
primary treatment of hematologic malignancies, which cannot be excised by
surgery. Chemotherapy is increasingly used as an adjunct to radiation and
surgery to improve their effectiveness and serves as the primary therapy for
some solid tumors and metastases. 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 that 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, neuropathy, or
irreversible cardiotoxicity, is another limitation of current anti-cancer drugs
that can prevent their administration in curative doses.
Currently, platinum compounds are one of the largest selling categories of
chemotherapeutic agents, with annual sales in excess of $800 million. As
is the case with all chemotherapeutic drugs, the use of such compounds is
associated with serious systemic side effects. The drug delivery goal
therefore is to enhance delivery of the drug to the tumor and minimize the
amount of drug affecting normal organs in the body.
AP5280 is a chemotherapeutic agent that we believe has the potential to
have significantly superior effectiveness in treating numerous cancers
compared to platinum compounds currently in use. Our patented AP5280
product seeks to achieve this goal by attaching a large polymer to a small
platinum molecule. This method exploits the usually leaky or
hyperpermeable nature of the cells that line the walls of blood vessels that
feed tumors by allowing the large AP5280 molecule to enter the tumor in
preference to other tissue, which do not have leaky or hyperpermeable
blood vessels. In addition, the capillary/lymphatic drainage system of
tumors is not well developed and limited, so the drug gets trapped in the
tumor. This dual effect is called enhanced permeability and retention, or
EPR. In addition, the polymer is designed to shield the platinum from
interactions with normal cells while the drug circulates within the body,
thereby reducing toxicity. The proposed mechanism of how AP5280 is
taken up by tumor cells bypasses known membrane-associated mechanisms
for development of tumor resistance, a common cause of failure of chemo-
therapeutic drugs over the course of treatment.
In animal models, our AP5280 compounds have delivered up to 70 times
the amount of platinum to tumors compared with cisplatin, the standard
platinum formulation, at the maximum tolerated dose. AP5280 was
approximately as effective in inhibiting tumor growth as cisplatin alone at
doses up to 10 times less toxic. In terms of dosing, in animal studies, up
to 70 times more platinum has been injected using our AP5280, which
could be clinically significant as platinum has a steep dose response curve.
Consequently, clinical outcome could be greatly improved as a result of the
ability to deliver additional amounts of the drug to the tumor.
We have developed the AP5280 clinical formulation, defined the
manufacturing and analytical methods for AP5280 and produced material
for clinical trials. We commenced Phase I human clinical trails for AP5280
in September 2000 and estimate completion of the trial in the third quarter
of 2001. The initial Phase I study protocol is designed
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to determine the maximum tolerated dose of AP5280, where the dose-limiting
toxicity is identified using the standard once every three weeks platinum
dosing regimen. This study is being conducted at two European sites.
We also have gained extensive experience and have intellectual property,
including both issued patents and applications, protecting the use of
polymers to deliver platinum compounds. Oxaliplatin which was initially
approved in France and in Europe in 1999 for the treatment of colorectal
cancer is now generating sales of approximately $150 million annually.
Carboplatin and Cisplatin, the most widely prescribed drug, are not
indicated for the treatment of colorectal cancer which is a significant market
opportunity as there are over 500,000 new cases in the developed world
annually. We have commenced the development of a prodrug of oxaliplatin,
AP5286. A number of formulations have been developed, and initial in
vitro, acute toxicity and efficacy data has been generated. We believe that
this initial data is encouraging and we are proceeding to develop numerous
formulations with the objective of maximizing the therapeutic benefit of the
clinical development candidate.
OraDisc TM (Amlexanox)
We are working to develop a mucoadhesive disc that adheres to canker
sores and slowly erodes over time locally releasing amlexanox at the site
of the canker sore.
The OraDisc TM formulation is potentially an improved delivery vehicle
for the oral delivery of amlexanox which potentially overcomes the
difficulties encountered in using conventional paste and gel formulations for
conditions in the mouth, that is, applying the drug and keeping it in place
over time.
A Phase I tolerance study to evaluate skin irritation of this formulation was
successfully completed in 1999 and a pilot Phase II study evaluating the oral
wound healing capacity of OraDisc TM was completed in January 2000 and
generated positive results.
An Investigational New Drug Application, or IND, was filed with the FDA
in April 2000 and a 400 patient placebo-controlled multi-center study
evaluating OraDisc TM for the treatment of established canker sores was
completed in December 2000. In the study, three groups were evaluated;
approximately 160 patients were treated with active OraDisc TM, while 160
patients received a placebo disc and 80 patients received no treatment. The
primary clinical endpoint which evaluated complete healing on day 5 was
achieved, with accelerated healing with OraDisc TM being statistically
significant, compared with both the placebo and no treatment groups. The
full statistical analysis of this study has not been completed. Additional
efficacy parameters, including the measurement of ulcer size and the
subjective evaluation of pain by patients will be evaluated.
A second Phase III study evaluating the ability of OraDisc TM to prevent
the onset of the ulcerative phase of the disease is 80% enrolled with
completion of enrollment anticipated within the next 60 days.
Utilizing this technology, we anticipate that higher drug concentrations will
be achieved at the disease site increasing the effectiveness of the product.
OraRinse TM (Amlexanox)
In 1998 we executed a license agreement with Block Drug Company, now
GlaxoSmithKline, for the rights to develop amlexanox for use in
chemotherapy and radiation induced mucositis. Mucositis is a debilitating
condition involving extensive inflammation of mouth tissue that affects an
estimated 550,000 cancer patients in the United States undergoing
chemotherapy and radiation treatment. Any treatment that would accelerate
healing and/or diminish the rate of appearance would have a significant
beneficial impact on the quality of life of these patients and may allow for
more aggressive chemotherapy. The potential worldwide market size for
products to treat mucositis is estimated to be in excess of $1.5 billion.
We filed an IND with the FDA and developed a Phase II protocol
developed to investigate a mouthwash formulation, OraRinse TM, for the
prevention and treatment of mucositis in head and neck cancer patients
treated with radiation with or without chemotherapy. This study commenced
in the first quarter of 2000. Over 90% of head and neck cancer patients
treated with radiation and chemotherapy experience mucositis. We plan to
enroll 56 patients in the initial study which is being performed at multiple
sites throughout the United States. This study was planned to provide the
necessary information to design the Phase III clinical protocols and
determine the appropriate primary
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clinical endpoint to be evaluated in such studies. Results of this study
will direct the future clinical development plans for OraRinse TM.
On February 26, 2001, we announced preliminary interim data on the Phase II
randomized clinical study. This interim analysis was performed to
provide us with the necessary information to plan for future development
activities of OraRinse TM. Due to this being an assessment of only 23
evaluable patients, at this juncture, the interim analysis did not disclose a
statistically significant difference between the two arms of the study at any
point in time.
In comparison to published historical data on mucositis, the mucoadhesive
vehicle arm of the study provided interesting results. The surprise finding
of the interim analysis was that 4 of the 11 evaluable patients receiving this
novel mucoadhesive vehicle had only minimal evidence of mucositis (a
score less than 0.5 on a scale of 0-5) at any time during their course of
treatment. We have taken the necessary actions to file the appropriate
patents to protect this technology. In addition to having protected the active
ingredient in the study drug, we filed a patent to cover the use of this
mucoadhesive vehicle, incorporating a drug or independent of a drug, for
the treatment of radiation and chemotherapy - induced mucositis and as an
oral drug delivery system for mucosal disorders.
The final patient in the trial was to be enrolled in March 2001, which
should enable us to report the final data on this study in May 2001.
Amlexanox Cream
Studies support the concept that allergen exposure may be linked to the
clinical expression of atopic dermatitis. Amlexanox is a potent anti-allergic
compound. Our product is a nonsteroidal approach to the treatment of
atopic dermatitis which afflicts infants and children where steroid use is
often not recommended. This atopic dermatitis condition is prevalent in
three percent of the adult population and 10% of the pediatric population.
A Phase I irritancy and sensitization study is scheduled to commence in the
first quarter 2001. A pilot Phase II study is scheduled for the third quarter
2001.
Amlexanox Gel
In conjunction with the University of Kentucky we have developed an
aqueous based mucoadhesive gel. Alcohol based products cause local
irritation and stinging which is undesirable for the indications being
evaluated. We plan to evaluate this formulation for the treatment of oral
lichen planus, a chronic condition afflicting up to 2% of the population,
which would project a potential $100 million market in the U.S. Potential
product advantages include reduced pain, enhanced healing and reduced
disease re-occurrence rates.
An IND was filed in March 2001 and we anticipate the pilot Phase II study
will start in the second quarter 2001.
Residerm R A gel - Zindaclin TM (Zinc Clindamycin)
The complexing of zinc to a drug has the effect of enhancing the
penetration of the drug into the skin and the retention of the drug in the
skin. This phenomenon is called the "reservoir effect," and it makes zinc
potentially effective for the delivery of dermatological drugs. We have a
broad patent covering the use of zinc for such purposes.
The first zinc drug that we are developing, in conjunction with Strakan, our
licensing partner, is zinc clindamycin for the treatment of acne. Topical
acne drugs constitute an approximately $750 million per year market and
clindamycin is a widely prescribed drug for the treatment of acne. We
believe that the addition of zinc potentially could increase the effectiveness
of clindamycin through the reservoir effect of zinc, the activity of zinc and
clindamycin, the improved stability of the product and the potential for zinc
to overcome certain bacterial resistance.
A Phase III study of Zindaclin TM (Residerm R A gel) was completed in
November 2000. The study was designed to determine whether Zindaclin
TM is equally effective compared to treatment with the market leading
clindamycin containing product. The primary clinical endpoint of the study,
which was the change in total facial inflammatory lesion counts from the
baseline visit to the end of 16 weeks of treatment, was achieved. Also,
Zindaclin TM applied once a day was as effective as Dalacin R T topical
lotion used twice daily. Zindaclin TM was well tolerated in the
4
study. A pharmacokinetics study that was conducted indicated that at equal
clindamycin dosing, 30-50% less clindamycin was absorbed into the
bloodstream from the application of Zindaclin TM than from the compared
application of the market leading clindamycin product.
Strakan filed a Product License Application in the United Kingdom with the
Medicines Control Agency for Zindaclin TM in December 2000. We
believe Zindaclin TM, the first product developed utilizing the ResiDerm
TM technology, could provide a broad development platform for improved
delivery of many topically applied products.
We have entered into a license agreement with Strakan relating to our zinc
technology. Strakan has agreed to fund the development costs of zinc
clindamycin and any additional compounds developed utilizing the zinc
patent, and we will share equally in all milestone payments received from
the sublicensing of the compound. In addition, we will receive a royalty on
sales of products based on this technology. Strakan signed a Letter of Intent
in August 2000, for an Option and License Agreement with Healthpoint,
Ltd., which would grant a license to Healthpoint for rights to both
ResiDerm TM A and the ResiDerm TM technology for the U.S., Canada,
Mexico and the Carribean.
Bioerodeable Hydrogel Technology
We have filed patent applications for our bioerodeable hydrogel technology,
which is one of our priority internal development focuses. Our bioerodeable
hydrogel technology has the following properties:
* contains a network polymer that swells in water,
* it has cleavable bonds in a linear polymer backbone,
* breakdown occurs in a biological or aqueous environment,
* controlled degradation rates ranging from hours to months can be
achieved, and
* offers the ability to control drug incorporation and release by the choice
of polymer, crosslink density and link degradation rate.
A number of possible drug delivery systems could be developed using the
Access bioerodible hydrogel technology, ranging from nanoparticles for
intravenous administration, to larger devices which may be taken orally or
implanted, wound packaging materials medicated and non-medicated for
decubitus and vascular ulcers, medicated films and gels for topical
applications for use as burn dressing and dressing for skin donor sites.
Viral Disease Technology
We acquired our viral disease technology through our acquisition of
Virologix. This technology is targeted for the prevention and treatment of
viral diseases, including HIV. These compounds target a critical enzyme
involved in viral infection and replication. Analogous to reverse
transcriptase and protease inhibitors that have shown effectiveness against
HIV. A Phase I/II study will be designed to study this product candidate in
HIV patients. Positive clinical data would provide important validation for
this new class of HIV therapeutics. We also have technology for treating
HTLV type I and II infection. We acquired a part of this technology
through a licensing agreement with the National Institute of Health.
Other Technology
We own additional patented advanced polymer technologies designed to
deliver drug in response to specific diseases or take advantage of biological
mechanisms. These technologies are designed to provide our next advanced
drug delivery product development candidates.
Drug Development Strategy
A part of our integrated drug development strategy is to form creative
alliances with centers of excellence in order to obtain alternative lead
compounds while minimizing the overall cost of research. We have signed
agreements with The University of Kentucky for the formulation of an
amlexanox gel, Strakan for the delivery of topical therapeutic
5
agents which exploit our zinc patent and the University of Missouri for polymer
research. Additionally, our polymer platinate technology has resulted in part
from a research collaboration with The School of Pharmacy, University of London.
Our strategy is to initially focus on utilizing our technology in combination
with approved drug substances to develop novel patentable formulations of
existing therapeutic and diagnostic products. We believe that this will
expedite product development, both preclinical and clinical, and ultimately
product approval. To reduce financial risk and equity financing
requirements, we are directing our resources to the preclinical and early
clinical phases of development and plan to outlicense to, or co-develop
with, marketing partners our current product candidates to finance the later
clinical development phases.
We will continue to expand our internal core capabilities of chemistry,
formulation, analytical methods development, clinical development and
project management to maximize product opportunities in a timely manner.
We will, however, contract the manufacturing scaleup, preclinical testing
and product production to research organizations, contract manufacturers
and strategic partners. Given the current cost containment and managed care
environment both in the United States and overseas and the difficulty for a
small company to effectively market its products, we do not currently plan
to become a fully integrated pharmaceutical company.
Consequently, we expect to form strategic alliances for product
development and to outlicense the commercial rights to development
partners. By forming strategic alliances with major pharmaceutical and
diagnostic companies, we believe that our technology can be more rapidly
developed and successfully introduced into the marketplace.
Scientific Background
The ultimate criterion of effective drug delivery is to control and optimize
the localized release of drug at the target site and rapidly clear the non-
targeted fraction. Conventional drug delivery systems such as controlled
release, sustained release, transdermal systems, 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 that our drug delivery technology platforms are differentiated
from conventional drug delivery systems in that they seek to apply a disease
specific approach to improve the drug delivery process with formulations
to significantly enhance the therapeutic efficacy and reduce toxicity of a
broad spectrum of products.
Core Drug Delivery Technology Platforms
Our current drug delivery technology platforms that we are using to
selectively deliver drugs to target sites for use in cancer chemotherapy,
dermatology and oral disease are:
* Synthetic Soluble Polymer Drug Delivery Technology
* Topical Delivery Technology
* Bioerodeable Hydrogels
* Carbohydrate Polymer Drug Delivery Technology
Each of these platforms is discussed below:
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Synthetic Soluble Polymer Drug Delivery Technology
In collaboration with The School of Pharmacy, University of London, we
have developed a synthetic polymer technology, which utilizes
hydroxypropylmethacrylamide with platinate, designed to exploit enhanced
permeability and retention, or EPR, at tumor sites to selectively accumulate
drug and control drug release. Many solid tumor cells 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. The drug is released inside the
tumor mass while polymer/drug not trapped in tumors is renally cleared
from the body. Data generated in animal studies have shown that the
polymer/drug complexes are far less toxic than free drug alone and that
greater efficacy can be achieved. Thus, these polymer complexes have
demonstrated significant improvement in the therapeutic index of anti-cancer
drugs, including, for example, platinum.
Topical Delivery Technology
We have granted a license to Strakan for the development of compounds
that utilize our zinc technology. The use of zinc ions to formulate topical
products produces a reservoir of drug in the skin to increase the
effectiveness of topically applied products and to reduce toxicity. There are
many localized disease conditions, which are effectively treated by topical
application of suitable pharmaceutical agents. In order for such treatments
to be maximally effective, it is necessary that as much of the active agent
as possible be absorbed into the skin where it can make contact with the
disease condition in the dermal tissue without being lost by rubbing off on
clothing or evaporation. At the same time, the agent must not penetrate so
effectively through the skin that it is absorbed into the systemic circulation.
This latter factor is especially important in order to minimize unwanted
side-effects of the pharmacologically active agent. The ideal vehicle for
topically applied pharmaceuticals is one which can rapidly penetrate the skin
and produce a "reservoir effect" in the skin or mucous membranes. Such
a reservoir effect can be produced by complexing of suitable pharmaceutical
agents with zinc ions, by an as yet unknown mechanism. This "reservoir
effect" is defined as an enhancement of the skin or membrane's ability to
both absorb and retain pharmacological agents, that is:
* to increase skin or membrane residence time;
* to decrease drug transit time; and
* to reduce transdermal flux.
A number of compounds are known to enhance the ability of
pharmacologically active agents to penetrate the skin, but have the
disadvantage of allowing rapid systemic dispersion away from the site of
disease. Many topical agents, such as the retinoids used in the treatment of
acne, and methotrexate, used in the treatment of psoriasis, are systemically
toxic. There is, therefore, a need for a method of enhancing the ability of
such agents to penetrate the skin so that a lesser total dosage may be used,
while at the same time their ability to move from the skin to the systemic
circulation is minimized.
Bioerodeable Hydrogels
Our scientists have developed a novel series of bioerodeable hydrogels
which have the potential to be utilized in a number of drug delivery
applications as well as several non-pharmaceutical applications. Hydrogels
are very large molecules with complex three-dimensional structures capable
of storing either small molecule drugs or much larger peptide and protein
therapeutics. These molecules are stored within the matrix of the hydrogel.
Most hydrogels are not bioerodeable, therefore they deliver their payload
of drug by diffusion of these molecules through the interconnecting
chambers of the hydrogel. Once all the drug has been delivered, non-
bioerodible hydrogels remain in the body (unless surgically removed) as
they cannot be broken down and eliminated. By comparison, the Access
hydrogels possess bioerodeable linking groups with well-defined rates of
degradation in biological systems, and so release their payload of drugs by
both diffusion and erosion of the gel. By selecting linkers with appropriate
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degradation rates, much greater control of drug release rates can be
achieved. Once the drug has been released, erosion of the hydrogel
continues until no solid hydrogel remains, eliminating the need to use an
additional procedure to remove the drug delivery device. The hydrogel
erodes to form much smaller water-soluble fractions which are readily
eliminated from the body.
A number of possible drug delivery systems can be developed using the
Access bioerodible hydrogel technology, ranging from nanoparticles for
intravenous administration, to larger devices which may be implanted,
wound packaging materials, medicated and non-medicated for decubitus and
vascular ulcers, medicated films and gels for topical applications, burn
dressing and dressing for skin donor sites. We have filed a U.S. patent
application relating to this technology.
Carbohydrate Polymer Drug Delivery Technology
Our carbohydrate polymer drug delivery technology exploits specific
changes in the vascular endothelium that occur during disease processes.
These carriers mimic disease-specific, carbohydrate recognition by vascular
endothelium cells and underlying tissue. It has been well established that
white blood cells can recognize, target and permeate disease sites by means
of surface carbohydrates which bind to cytokine-induced endothelium plus
underlying tissue and cells. A number of receptors on the endothelium and
on underlying tissue are known to bind sulfated glycosaminoglycans, such
as heparin and dermatan sulfate. We have developed glycosaminoglycan
carriers to selectively image and treat diseases involving the neovascular
endothelium. We believe that our glycosaminoglycan technology has broad
potential in a number of therapeutic applications including cancer,
inflammation and infection.
Research Projects, Products and Products in Development
ACCESS DRUG PORTFOLIO
Clinical
Compound Originator Indication FDA Filing Stage (1)
- ----------------------------- ---------- ---------- ---------- ---------
Cancer
- ------
Polymer Platinate (AP5280) (2) Access Anti-tumor Development Phase I
Polymer Platinate (AP5286) (2) Access Colorectal Development Pre-Clinical
cancer
OraRinse TM Amlexanox (3) Takeda Mucositis IND Phase II
Topical Delivery
- ----------------
Amlexanox (4) Takeda Oral ulcers NDA Approved
OraDisc TM Amlexanox (4)
Biodegradable Polymer Disc Takeda Oral ulcers IND Phase III
Residerm R A
Zinc Compound (5) Access Acne CTX (9) PLA
filed (10)
Amlexanox Cream (6) Takeda Atopic Development Phase I
Dermatitis
Amlexanox Gel (6) Takeda Oral Lichen IND Pre-Clinical
Planus
Antiviral
- ---------
Anti viral compound (7) (8) NIH HIV Development Pre-Clinical
Anti viral compound (8) Rockefeller HTLV type I Development Pre-Clinical
and II
(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 GlaxoSmithKline subject to milestone payments.
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(4) Sold to GlaxoSmithKline. Subject to a Royalty Agreement.
International rights (except Japan and Israel) licensed from GlaxoSmithKline
subject to royalty and milestone payments.
(5) Licensed to Strakan.
(6) Licensed from GlaxoSmithKline subject to royalty and milestone
payments.
(7) Licensed from NIH subject to royalty and milestone payments.
(8) Licensed from The Rockefeller University
(9) United Kingdom ("U.K.") equivalent of an IND.
(10)Filed Product License Application in the U.K. with the Medicines
Control Agency.
We begin the product development effort by screening and formulating
potential product candidates, selecting an optimal active and formulation
approach and developing the processes and analytical methods. Pilot
stability, toxicity and efficacy testing are conducted prior to advancing the
product candidate into formal preclinical development. Specialized skills
are required to produce these product candidates utilizing our technology.
We have a core internal development capability with significant experience
in these formulations.
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. 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.
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 $4,007,000, $1,608,000 and $1,756,000 on
research and development during the years 2000, 1999 and 1998,
respectively.
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.
One U.S. and two European patents have issued and one European patent
is pending for the use of zinc as a pharmaceutical vehicle for enhancing the
penetration and retention of drug in the skin. These patents cover the
method of inducing a reservoir effect in skin and mucous membranes to
enhance penetration and retention of topically applied therapeutic and
cosmetic pharmacologically active agents. These patents also relate to
topical treatment methods including such reservoir effect enhancers and to
pharmaceutical compositions containing them.
We acquired in 1998 the license to one U.S. and one European patent
application for polymer platinum compounds. This patent and application
are the result of a collaboration with The School of Pharmacy, University
of London, from which the technology has been licensed. This patent and
application includes a synthetic polymer, hydroxypropylmethacrylamide
incorporating platinates, that can be used to exploit enhanced permeability
and retention in tumors and control drug release. This patent and
application include a pharmaceutical composition for use in tumor treatment
comprising a polymer-platinum compound through linkages which are
designed to be cleaved under selected conditions to yield a platinum which
is selectively released at a tumor site. This patent and application also
include methods for improving the pharmaceutical properties of platinum
compounds. Recently additional patent applications have been filed to cover
additional discoveries related to the linking of polymers to platinum
compounds.
9
We have filed one U.S. and one PCT patent application for our
bioerodeable hydrogel technology. A number of possible drug delivery
systems can be developed using the Access bioerodible hydrogel
technology, ranging from nanoparticles for intravenous administration, to
larger devices which may be implanted, wound packaging materials,
medicated and non-medicated for decubitus and vascular ulcers, medicated
films and gels for topical applications, burn dressing and dressing for skin
donor sites.
Under our various license agreements with GlaxoSmithKline, we have the
worldwide rights for the use of amlexanox for the treatment of mucositis in
patients undergoing chemotherapy and radiation treatment for cancer, and
the worldwide rights excluding Japan, the United States and Israel for the
use of amlexanox for oral and dermatological use. GlaxoSmithKline has the
rights to market any product developed for oral or dermatological use in the
U.S.
Through our Virologix subsidiary, we have two patents licensed from the
National Institute of Health, or NIH, and four additional U.S. patent
applications licensed from the Rockefeller University for our viral disease
technology for the prevention and treatment of viral diseases including HIV.
The licensed patents' compounds target a critical enzyme involved in viral
infection and replication. The other patents include vaccines in HTLV type
I and II infection, and other applications of the proprietary technology being
used in the HIV therapeutic program.
We hold U.S. and European patents with broad composition of matter
claims encompassing glycosaminoglycan, acidic saccharide, carbohydrate
and other endothelial binding and targeting carriers in combination with
drugs and diagnostic agents formulated by both physical and chemical
covalent means. Twelve patents have issued commencing in 1990, ten U.S.
and two European, and an additional two European patent applications are
pending. These patents and applications relate to the in vivo medical uses
of drugs and diagnostic carrier formulations which bind and cross
endothelial and epithelial barriers at sites of disease, including but not
limited to treatment and medical imaging of tumor, infarct, infection and
inflammation. They further disclose the body's induction of endothelial,
epithelial, tissue and blood adhesins, selectins, integrins, chemotaxins and
cytotaxins at sites of disease as a mechanism for selective targeting, and
they claim recognized usable carrier substances which selectively bind to
these induced target determinants.
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.
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 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 NDA prior to commercial sale.
10
Preclinical tests are conducted in the laboratory, usually involving animals,
to evaluate the safety and efficacy of the potential product. The results of
preclinical tests are submitted as part of the IND application and are fully
reviewed by the FDA prior to granting the sponsor permission to commence
clinical trials in humans. Clinical trials typically involve a three-phase
process. Phase I, the initial clinical evaluations, consists of administering
the drug and testing for safety and tolerated dosages as well as preliminary
evidence of efficacy in humans. Phase II involves a study to evaluate the
effectiveness of the drug for a particular indication and to determine optimal
dosage and dose interval 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 II, it is then evaluated in Phase III clinical
trials. Phase III trials consist of expanded multi-location testing for efficacy
and safety to evaluate the overall benefit 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 doing the requisite testing, data collection, analysis and
compilation of an IND and an NDA is labor intensive and costly and may
take a protracted time period. In some cases, tests may have to be redone
or new tests instituted to comply with FDA requests. Review by the FDA
may also take a considerable time period and there is no guarantee 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.
The principal competitors in the polymer area are Cell Therapeutics,
Daiichi, Enzon and Pharmacia which are developing alternate drugs in
combination with polymers. We believe we are the only company
conducting clinical studies in the polymer drug delivery of platinum
compounds. We believe that the principal current competitors to our
polymer targeting technology fall into two categories: monoclonal antibodies
and liposomes. We believe that our technology potentially represents a
significant advance over these older technologies because our technology
provides a system with a favorable pharmacokinetic profile which has been
shown to effectively bind and cross neovascular barriers and to penetrate
the major classes of deep tissue and organ disease, which remain partially
inaccessible to other technologies.
A number of companies are developing or may in the future engage in the
development of products competitive with the Access delivery system.
Several companies are working on targeted monoclonal antibody therapy
including Bristol-Myers Squibb, Centocor, GlaxoSmithKline, Imclone and
Xoma. Currently, liposomal formulations being developed by Nexstar
(acquired by Gilead Sciences), The Liposome Company (acquired by Elan
Corporation) and
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Sequus Pharmaceuticals (acquired by Alza Corporation), are the major
competing intravenous drug delivery formulations which deliver similar drug
substances. 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.
A number of companies are developing products to treat mucositis. Some
of the products are in clinical trials that are further advanced than our
product. These companies are Intrabiotics, Human Genome Sciences and
Amgen. There is no current treatment to modify the symptoms of mucositis.
There is a market to treat this disease.
Products developed from the Residerm R technology will compete for a
share of the existing market with numerous products which have become
standard treatments recommended or prescribed by dermatologists.
Residerm A, which is the first product being developed utilizing the
Residerm R technology, would compete with products including
Benzamycin, marketed by a subsidiary of Aventis; Cleocin-T and a generic
topical clindamycin, marketed by Pharmacia & Upjohn; Benzac, marketed
by a subsidiary of L'Oreal; and Triaz, marketed by Medicis Pharmaceutical
Corp.
Aphthasol R is the only clinically proven product to accelerate the healing
of canker sores. There are numerous products, including prescription
steroids such as Kenalog in OraBase, and many over-the-counter pain relief
formulations which incorporate a local anesthetic used for the treatment of
this condition.
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.
Employees
As of March 28, 2001, we had 16 full time employees, seven of whom
have advanced scientific degrees. We believe 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.
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Risk Factors
With the exception of the historical information contained herein, the
discussions herein contain forward-looking statements within the meaning
of Section 27a of the Securities Act of 1933, as amended, that involve risks
and uncertainties. Our actual results could differ from those discussed
herein. Factors that could cause or contribute to such differences include,
but are not limited to, risks discussed below as well as those discussed
elsewhere herein and in documents incorporated herein by reference.
We have experienced a history of losses and we expect to incur future
losses.
We have recorded minimal revenue to date and we have incurred a
cumulative operating loss of approximately $31.9 million through December
31, 2000. Our losses have resulted principally from costs incurred in
research and development activities related to our efforts to develop clinical
candidates and from the associated administrative costs. We expect to incur
significant additional operating losses over the next several years. We also
expect cumulative losses to increase due to expanded research and
development efforts and preclinical and clinical trials.
We do not have significant operating revenue and we may never attain
profitability.
Our ability to achieve significant revenue or profitability depends upon our
ability to successfully complete the development of drug candidates, to
develop and obtain patent protection and regulatory approvals for our drug
candidates and to manufacture and commercialize the resulting drugs. We
have not received significant royalties for sales of our amlexanox products
to date and we may not receive significant revenues or profits from the sale
of these products in the future. Furthermore, we may not be able to ever
successfully identify, develop, commercialize, patent, manufacture, market
and obtain required regulatory approvals for any additional products.
Moreover, even if we do identify, develop, commercialize, patent,
manufacture, market and obtain required regulatory approvals for additional
products, we may not receive revenues or royalties from commercial sales
of these products for a significant number of years, if at all. Therefore, our
proposed operations are subject to all the risks inherent in the establishment
of a new business enterprise. In the next few years, our revenues may be
limited to any amounts that we receive under strategic partnerships and
research or drug development collaborations that we may establish and we
cannot assure you that we will be able to establish any such relationships
on terms acceptable to us. We cannot assure you that we will achieve or
maintain profitability in the future and our failure to receive significant
revenues or to achieve profitable operations would impair our ability to
sustain operations.
We may not successfully commercialize our drug candidates.
Our drug candidates are subject to the risks of failure inherent in the
development of pharmaceutical products based on new technologies. These
risks include the possibilities that some or all of our drug candidates will
be found to be unsafe or ineffective or otherwise fail to meet applicable
regulatory standards or receive necessary regulatory clearances; that these
drug candidates, if safe and effective will be difficult to develop into
commercially viable drugs or to manufacture on a large scale or will be
uneconomical to market; that proprietary rights of third parties will
preclude us from marketing such drugs; or that third parties will market
superior or equivalent drugs. Our failure to develop safe, commercially
viable drugs would have a material adverse effect on our business,
operating results and financial condition.
The success of our research and development activities, upon which we
primarily focus, is uncertain.
Our primary focus is on our research and development activities and the
commercialization of compounds covered by proprietary biopharmaceutical
patents. 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 our research and development effort and our business
could ultimately suffer. We anticipate that we will remain principally
engaged in research and development activities for an indeterminate, but
substantial, period of time.
13
We may be unable to obtain necessary additional capital to fund operations
in the future.
We require substantial capital for our development programs and operating
expenses, to pursue regulatory clearances and to prosecute and defend our
intellectual property rights. Although we believe that our existing capital
resources, interest income and revenue from possible licensing agreements
and collaborative agreements will be sufficient to fund our currently
expected operating expenses and capital requirements for approximately
three years, we may need to raise substantial additional capital during that
period because our actual cash requirements may vary materially from those
now planned and will depend upon numerous factors, including :
* the results of our research and development programs,
* the timing and results of preclinical and clinical trials,
* our ability to maintain existing and establish new collaborative agreements
with other companies to provide funding to us,
* technological advances, and
* activities of competitors and other factors.
If we do raise additional funds by issuing equity securities, further dilution
to existing stockholders may result and future investors may be granted
rights superior to those of existing stockholders. If adequate funds are not
available to us through additional equity offerings, we may be required to
delay, reduce the scope of or eliminate one or more of our research and
development programs or to obtain funds by entering into arrangements
with collaborative partners or others that require us to issue additional
equity securities or to relinquish rights to certain technologies or drug
candidates that we would not otherwise issue or relinquish in order to
continue independent operations.
The success of our business may depend, in part, upon relationships with
other companies.
Our strategy for the research, development and commercialization of our
potential pharmaceutical products may require us to enter into various
arrangements with corporate and academic collaborators, licensors,
licensees and others, in addition to our existing relationships with other
parties. Specifically, if we successfully develop any commercially
marketable pharmaceutical products, we may seek to enter joint venture,
sublicense or other marketing arrangements with parties that have an
established marketing capability or we may choose to pursue the
commercialization of such products on our own. We may, however, be
unable to establish additional collaborative arrangements or license
agreements as we may deem necessary to develop and commercialize our
potential pharmaceutical products on acceptable terms. Furthermore, if we
maintain and establish arrangements or relationships with third parties, our
business may depend upon the successful performance by these third parties
of their responsibilities under those arrangements and relationships.
We may depend upon contract manufacturers to assist us with the
commercialization of any new products that we may develop.
We have no experience in the manufacture of pharmaceutical products in
clinical quantities or for commercial purposes and we may not be able to
manufacture any new pharmaceutical products that we may develop, so we
intend 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 our potential products are approved for
commercialization. If we are unable to contract for a sufficient supply of
our potential pharmaceutical products on acceptable terms, our preclinical
and human clinical testing schedule may be delayed, resulting in the delay
of our submission of products for regulatory approval and initiation of new
development programs, which could cause our business to suffer. Delays
or difficulties in establishing relationships with manufacturers to produce,
package, label and distribute our finished pharmaceutical or other medical
products, if any, market introduction and subsequent sales of such products
could cause our business to suffer. Moreover, contract manufacturers that
we 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 after the manufacturing facility
passes a pre-approval plant inspection. If we are unable to obtain or retain
third party manufacturing on commercially acceptable terms, we may not
be able to commercialize our products as planned. Our potential dependence
upon third parties for the manufacture of our products may adversely affect
our profit margins and our ability to develop and deliver such products on
a timely and competitive basis.
14
We are subject to extensive governmental regulation which increases our
cost of doing business and may affect our ability to commercialize any new
products that we 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 their safety and
efficacy. All of our drug candidates will require governmental approvals for
commercialization, none of which have been obtained. Preclinical and
clinical trials and manufacturing of our 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. We cannot assure you
when we, independently or with our collaborative partners, might submit
a New Drug Application, or NDA, for FDA or other regulatory review.
Government regulation also affects the manufacturing and marketing of
pharmaceutical products.
Government regulations may delay marketing of our potential drugs for a
considerable or indefinite period of time, impose costly procedural
requirements upon our 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
our marketing as well as our ability to generate significant revenues from
commercial sales. We cannot assure you that the FDA or other regulatory
approvals for any drug candidates will be granted on a timely basis or at
all. Moreover, if regulatory approval of a drug candidate is granted, such
approval may impose limitations on the indicated use for which such drug
may be marketed. Even if we obtain initial regulatory approvals for our
drug candidates, we, or our drugs and our 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 we can obtain regulatory approvals for the commercial sale of any
of our potential drugs, the drug candidates will be subject to extensive
preclinical and clinical trials to demonstrate their safety and efficacy in
humans. We cannot assure you that preclinical or clinical trials of any
future drug candidates will demonstrate the safety and efficacy of such drug
candidates at all or to the extent necessary to obtain regulatory approvals.
In this regard, for example, adverse side effects can occur during the
clinical testing of a new drug on humans or animals which may delay
ultimate FDA approval or even lead us to terminate our 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. The failure to adequately
demonstrate the safety and efficacy of a drug candidate under development
could delay or prevent regulatory approval of the drug candidate and could
cause our business, operating results and financial condition to suffer. For
more information, see "Business-Government Regulation."
We may incur substantial product liability expenses due to the use or misuse
of our products for which we may be unable to obtain complete insurance
coverage.
Our business exposes us to potential liability risks that are inherent in the
testing, manufacturing and marketing of pharmaceutical products. These
risks will expand with respect to our drug candidates, if any, that receive
regulatory approval for commercial sale and we may face substantial
liability for damages in the event of adverse side effects or product defects
identified with any of our products that are used in clinical tests or
marketed to the public. We have product liability insurance for drug
candidates that are undergoing human clinical trials. Product liability
insurance for the biotechnology industry is generally expensive, however,
if available at all, and we cannot assure you that in the future we will be
able to obtain insurance coverage at acceptable costs or in a sufficient
amount, if at all. We may be unable to satisfy any claims for which we may
be held liable as a result of the use or misuse of products which we have
developed, manufactured or sold and any such product liability claim could
adversely affect our business, operating results or financial condition.
15
We may incur significant liabilities if we fail to comply with stringent
environmental regulations or if we did not comply with these regulations in
the past.
Our research and development processes involve the controlled use of
hazardous materials. We are 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
we believe that our activities and our 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, we could be held liable for any
damages that result and any such liability could exceed our 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. Our 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. Many of these competitors have and employ greater financial
and other resources, including larger research and development staffs and
more effective marketing and manufacturing organizations, than us or our
collaborative partners. We cannot assure you that our competitors will not
succeed in developing 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.
We cannot assure you that drugs resulting from our research and
development efforts or from our joint efforts with collaborative partners
will be able to compete successfully with our competitors' existing products
or products under development.
Our ability to successfully develop and commercialize our 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 our drug candidates
will 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. We cannot assure you that
reimbursement in the United States or elsewhere will be available for any
drugs that we may develop or, if available, will not be decreased in the
future, or that reimbursement amounts will not reduce the demand for, or
the price of, our drugs, thereby adversely affecting our business. If
reimbursement is not available or is available only to limited levels, we
cannot assure you that we will be able to obtain collaborative partners to
commercialize our drugs, or be able to obtain a sufficient financial return
on our own manufacture and commercialization of any future drugs.
The market may not accept any pharmaceutical products that we
successfully develop.
The drugs that we are 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 us will depend on a number of factors, including the
establishment and demonstration of the clinical efficacy and safety of our
drug candidates, the potential advantage of our 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 we may develop independently or with our
collaborative partners and if they do not, our 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:
16
* 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.
The cost containment measures that healthcare providers are instituting,
including practice protocols and guidelines and clinical pathways, and the
effect of any health care reform, could limit our ability to profitably sell
any drugs that we may successfully develop. Moreover, any future
legislation or regulation, if any, relating to the healthcare industry or third-
party coverage and reimbursement, may cause our business to suffer.
We may not be successful in protecting our intellectual property and
proprietary rights.
Our success depends, in part, on our ability to obtain U.S. and foreign
patent protection for our drug candidates and processes, preserve our trade
secrets and operate our business without infringing the proprietary rights of
third parties. Although Access is either the owner or licensee of technology
to 13 U.S. patents and to 3 U.S. patent applications now pending, and 5
European and 7 European patent applications we cannot assure you that any
additional patents will issue from any of the patent applications owned by,
or licensed to, us. Furthermore, we cannot assure you that any rights we
may have under issued patents will provide us with significant protection
against competitive products or otherwise be commercially viable. Legal
standards relating to the validity of patents covering pharmaceutical and
biotechnological inventions and the scope of claims made under such patents
are still developing 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. We cannot assure you that any existing or future patents
issued to, or licensed by, us will not subsequently be challenged, infringed
upon, invalidated or circumvented by others. In addition, patents may have
been granted to third parties or may be granted covering products or
processes that are necessary or useful to the development of our drug
candidates. If our drug candidates or processes are found to infringe upon
the patents or otherwise impermissibly utilize the intellectual property of
others, our development, manufacture and sale of such drug candidates
could be severely restricted or prohibited. In such event, we may be
required to obtain licenses from third parties to utilize the patents or
proprietary rights of others. We cannot assure you that we will be able to
obtain such licenses on acceptable terms, if at all. If we become involved
in litigation regarding our intellectual property rights or the intellectual
property rights of others, the potential cost of such litigation, regardless of
the strength of our legal position, and the potential damages that we could
be required to pay could be substantial.
Our business could suffer if we lose the services of, or fail to attract, key
personnel.
We are highly dependent upon the efforts of our senior management and
scientific team, including our President and Chief Executive Officer. The
loss of the services of one or more of these individuals could seriously
impede our success. We do not maintain any "key-man" insurance policies
on any of our key employees and we do not intend to obtain such insurance.
In addition, due to the specialized scientific nature of our business, we are
highly dependent upon our ability to attract and retain qualified scientific
and technical personnel. In view of the stage of our development and our
research and development programs, we have restricted our hiring to
research scientists and a small administrative staff and we have made no
investment in manufacturing, production, marketing, product sales or
regulatory compliance resources. If we develop pharmaceutical products
that we will commercialize ourselves, however, we will need to hire
additional personnel skilled in the clinical testing and regulatory compliance
process and in marketing and product sales. 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 our activities, however, and we may be
unsuccessful in attracting and retaining these personnel.
Ownership of our shares is concentrated, to some extent, in the hands of a
few individual investors.
Larry N. Feinberg (Oracle Partners LP, Oracle Institutional Partners LP
and Oracle Investment Management Inc.), Richard B. Stone and Howard
P. Milstein currently beneficially own approximately 9.1%, 6.2% and 5.8%
respectively, of our issued and outstanding common stock.
17
Provisions of our charter documents could discourage an acquisition of our
company that would benefit our stockholders.
Provisions of our Certificate of Incorporation and By-laws may make it
more difficult for a third party to acquire control of our company, even if
a change of in control would benefit our stockholders. In particular, shares
of our 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 our Board of Directors may
determine, including, for example, rights to convert into our common
stock. The rights of the holders of our common stock will be subject to,
and may be adversely affected by, the rights of the holders of any of our
preferred stock that may be issued in the future. The issuance of our
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 us. This
could limit the price that certain investors might be willing to pay in the
future for shares of our common stock and discourage these investors from
acquiring a majority of our common stock.
Substantial sales of our common stock could lower our stock price.
The market price for our common stock could drop as a result of sales of
a large number of our presently outstanding shares. Currently, most of the
outstanding shares of our common stock are unrestricted and freely tradable
or tradable under Rule 144 or pursuant to a resale registration statement.
Special Note Regarding Forward-Looking Statements
This Form 10-K contains forward-looking statements that involve risks and
uncertainties. 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. These statements are only predictions and involve known and
unknown risks, uncertainties and other factors, including the risks outlined
under "Risk Factors," that may cause our or our industry's actual results,
levels of activity, performance or achievements to be materially different
from any future results, levels or activity, performance or achievements
expressed or implied by such forward-looking statements.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. We are under no duty to update any
of the forward-looking statements after the date of this Form 10-K to
conform such statements to actual results.
ITEM 2. PROPERTIES
We maintain one facility of approximately 12,000 square feet for
administrative offices and laboratories in Dallas, Texas. We have a lease
agreement for the facility, which terminates in March 2005. However, we
have an option for early termination. Adjacent space is available for
expansion which we believe would accommodate growth for the foreseeable
future.
ITEM 3. LEGAL PROCEEDINGS
We are not a party to any material legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
18
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDERS MATTERS
Price Range of Common Stock and Dividend Policy
Our common stock has traded on the American Stock Exchange, or AMEX,
since March 30, 2000 under the trading symbol AKC. From February 1,
1996 through March 29, 2000, our Common Stock traded on the OTC
Bulletin Board, or OTCBB, under the trading symbol AXCS. The following
table sets forth, for the periods indicated, the high and low closing prices
for our common stock as reported by AMEX and the OTCBB for fiscal
years 2000 and 1999. 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 Ended December 31, 2000
- ------------------------------------
First quarter $ 13.88 $ 1.63
Second quarter 7.31 3.00
Third quarter 7.25 2.50
Fourth quarter 9.00 4.88
Fiscal Year Ended December 31, 1999
- -----------------------------------
First quarter $ 3.63 $ 2.27
Second quarter 4.06 1.88
Third quarter 2.31 1.44
Fourth quarter 2.38 1.25
We have never declared or paid any cash dividends on our preferred stock
or common stock and we do not anticipate paying any cash dividends in the
foreseeable future. The payment of dividends, if any, in the future is within
the discretion of our board of directors and will depend on our earnings,
capital requirements and financial condition and other relevant facts. We
currently intend to retain all future earnings, if any, to finance the
development and growth of our business.
The number of record holders of Access common stock at March 29, 2001
was approximately 4,200. On March 29, 2001, the closing price for the
common stock as quoted on the AMEX was $2.75. There were
12,850,478 shares of common stock outstanding at March 29, 2001.
Recent Sales of Unregistered Securities
None.
19
ITEM 6. SELECTED FINANCIAL DATA (In Thousands, Except for Net
Loss Per Share) (1)
The following data, insofar as it relates to each of the years in the five year
period ended December 31, 2000, has been derived from the audited
consolidated financial statements of Access and notes thereto appearing
elsewhere herein and prior audited consolidated financial statements of
Access and notes thereto. The data should be read in conjunction with the
Financial Statements and Notes thereto and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" appearing
elsewhere in this Form 10-K.
For the Year Ended December 31,
---------------------------------
2000 1999 1998 1997 1996
-------- -------- -------- -------- --------
Consolidated Statement of Operations Data:
Total revenues $ 107 $ 15 $ - $ 435 $ 167
Operating loss (6,058) (3,364) (3,433) (4,524) (11,613)
Interest and
miscellaneous income 972 53 58 119 196
Interest expense 342 12 22 36 45
Net loss (5,428) (3,308) (3,397) (4,441) (11,462)
Common Stock Data:
Net loss per basic and diluted
common share $ (0.49) $ (0.72) $ (1.28) $ (2.80) $ (7.68)
Weighted average basic and
diluted common shares
outstanding 11,042 4,611 2,650 1,584 1,492
December 31,
------------------------------------------------
2000 1999 1998 1997 1996
-------- -------- -------- -------- --------
Consolidated Balance Sheet Data:
Cash, cash equivalents and
short term investments $25,809 $ 869 $ 1,487 $ 438 $ 4,428
Total assets 30,526 4,600 2,351 1,447 4,928
Deferred revenue 551 155 - - 110
Convertible notes 13,530 - - - -
Total liabilities 15,522 986 556 848 868
Total stockholders' equity $15,004 $ 3,614 $ 1,795 $ 599 $ 4,060
1) All share and per share amounts have been adjusted to reflect the one for
twenty reverse stock split in June 1998.
On July 20, 1999, our wholly-owned subsidiary Access Holdings, Inc.
merged with and into Virologix Corporation, a Delaware corporation
("Virologix"). As a result, Virologix became a wholly-owned subsidiary
and each outstanding share of Virologix' common stock was converted into
0.231047 shares of our common stock, representing 999,963 shares of
common stock. The transaction has been accounted for as a purchase. We
assumed total assets of $107,000 and trade and accrued payables of
$469,000. The aggregate purchase price has been allocated to the net assets
acquired based on management's estimates of the fair values of assets
acquired and liabilities assumed. The excess purchase price over the fair
value of Virologix' net identifiable liabilities of $2,464,000 was recorded
as goodwill and is being amortized over ten years. Operations have been
included in our consolidated financial statements since the date of
acquisition.
On December 9, 1997, a wholly-owned subsidiary of the Company merged
with Tacora Corporation ("Tacora"), a Delaware corporation. As a result,
Tacora became our wholly-owned subsidiary. The transaction has been
accounted for as a purchase. The aggregate purchase price was $739,000,
payable $124,000 in cash, $192,000 in stock (representing 20,900 shares
of Company common stock) and assumption of $239,000 in trade and
accrued payables and $184,000 of Tacora's capital lease obligations.
Certain milestones were met up to June 30, 2000 and an aggregate of 6,752
shares of our common stock were issued to certain former liability holders
of Tacora as a result. There are no further milestones to be met. The
aggregate purchase price has been allocated to the net assets acquired
20
based on management's estimates of the fair values of assets acquired and
liabilities assumed. The excess purchase price over the fair value of
Tacora's net identifiable assets of $579,544 was recorded and written off
in the fourth quarter of 1997 due to an impairment of the excess purchase
price based on estimated future cash flows.
ITEM 7. 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 Form 10-K.
Overview
We are an emerging pharmaceutical company focused on developing both
novel low development risk product candidates and technologies with
longer-term major product opportunities. We were incorporated in
Wyoming in 1974 as Chemex Corporation, and in 1983 changed our name
to Chemex Pharmaceuticals, Inc. We changed our state of incorporation
from Wyoming to Delaware on June 30, 1989. In 1996, we merged with
Access Pharmaceuticals, Inc. and changed our name to Access
Pharmaceuticals, Inc. 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 named Aphthasol R, a drug jointly developed, the
first 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 of the rights for
amlexanox from GlaxoSmithKline for certain countries excluding the U.S.
and the worldwide rights for certain additional indications including
mucositis and oral diseases in certain territories.
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 December 31, 2000, our accumulated deficit
was $31,881,000, of which $8,894,000 was the result of the write-off of
excess purchase price.
Recent Developments
We filed an IND with the FDA and developed a Phase II protocol
developed to investigate a mouthwash formulation, OraRinse TM, for the
prevention and treatment of mucositis in head and neck cancer patients
treated with radiation with or without chemotherapy. This study commenced
in the first quarter of 2000. Over 90% of head and neck cancer patients
treated with radiation and chemotherapy experience mucositis. We plan to
enroll 56 patients in the initial study which is being performed at multiple
sites throughout the United States. This study was planned to provide the
necessary information to design the Phase III clinical protocols and
determine the appropriate primary clinical endpoint to be evaluated in such
studies. Results of this study will direct the future clinical development
plans for OraRinse TM.
On February 26, 2001, we announced preliminary interim data on the Phase
II randomized clinical study. This interim analysis was performed to
provide us with the necessary information to plan for future development
activities. Due to this being as assessment of only 23 evaluable patients, at
this juncture, the interim analysis did not disclose a statistically significant
difference between the two arms of the study at any point in time.
In comparison to published historical data on mucositis, the mucoadhesive
vehicle arm of the study provided interesting results. The surprise finding
of the interim analysis was that 4 of the 11 evaluable patients receiving this
novel mucoadhesive vehicle had only minimal evidence of mucositis (a
score less than 0.5 on a scale of 0-5) at any time during their course of
treatment. We have taken the necessary actions to file the appropriate
patents to protect this technology. In addition to having protected the active
ingredient in the study drug, we filed a patent to cover the use of this
mucoadhesive vehicle, incorporating a drug or independent of a drug, for
the treatment of radiation and chemotherapy - induced mucositis and as an
oral drug delivery system for mucosal disorders.
21
An IND was filed with the FDA and a 400 patient placebo-controlled multi-
center study evaluating OraDisc TM for the treatment of established canker
sores was completed in December 2000. In the study, three groups were
evaluated; approximately 160 patients were treated with active OraDisc
TM, while 160 patients received a placebo disc and 80 patients received no
treatment. The primary clinical endpoint which evaluated complete healing
on day 5 was achieved, with accelerated healing with OraDisc TM being
statistically significant, compared with both the placebo and no treatment
groups. The full statistical analysis of this study has not been completed.
Additional efficacy parameters, including the measurement of ulcer size and
the subjective evaluation of pain by patients will be evaluated.
A Phase III study of Zindaclin TM (Residerm R A gel) was completed in
November 2000. The study was designed to determine whether Zindaclin
TM is equally effective compared to treatment with the market leading
clindamycin containing product. The primary clinical endpoint of the study,
which was the change in total facial inflammatory lesion counts from the
baseline visit to the end of 16 weeks of treatment, was achieved. Also,
Zindaclin TM applied once a day was as effective as Dalacin R T topical
lotion used twice daily. Zindaclin TM was well tolerated in the study. A
pharmacokinetics study conducted indicated that at equal clindamycin dosing
30-50% less clindamycin was absorbed into the bloodstream compared to
the market leading clindamycin product.
Strakan filed a Product License Application in the United Kingdom with the
Medicines Control Agency for Zindaclin TM in December 2000. We
believe Zindaclin TM, the first product developed utilizing the ResiDerm
TM technology, could provide a broad development platform for improved
delivery of many topically applied products.
Strakan, our UK and Ireland marketing partner, completed a Phase IV study
in Ireland in November 2000 to determine if the application of amlexanox
5% paste at the first sign or symptom of canker sores can abort ulcer
formation or further accelerate healing. The results confirmed that
amlexanox 5% paste was effective in preventing the formation of an ulcer
when used at the first sign or symptom of the disease. This will provide a
major marketing opportunity to expand usage of the product and to attract
sufferers of canker sores to contact medical practitioners to request the
product.
Other Developments
On November 30, 2000, we completed a voluntary odd-lot stock buy-back
program through which stockholders who owned 25 or fewer shares of our
common stock, or Small-lot Stockholders, were able to elect to tender their
shares for sale to Access. Under this program, we repurchased the shares
held by Small-lot Stockholders who validly tendered their shares pursuant
to the terms of the odd-lot stock buy-back program. We purchased 819
shares at a total cost of $3,500.
On September 20, 2000, we completed a $13.5 million convertible note
offering. The offering was placed with three investors. The notes have a
fixed conversion price of $5.50 per share of common stock and are not
convertible for the first twelve months. The note pays 7.0% interest per
annum for the first twelve months and if not converted at that time the
notes will be adjusted to 7.7% interest per annum. The notes are due
September 13, 2005.
In addition, on September 13, 2000 we completed a transaction offering
250,000 shares of treasury stock to an individual at $5.50 share. We
received gross proceeds of $1.4 million from this sale.
We initiated a Phase I study to determine the dosing levels of the Polmer
Platinante, AP5280, in September 2000. AP5280, is a chemotherapeutic
agent incorporating platinum bound to a polymer designed to improve the
clinical benefit of platinum therapy in cancer patients by concentrating the
drug in the tumor and reducing the side effects. The study is expected to be
completed in the third quarter 2001, depending on the number of patients
required to determine maximum dosing levels.
During the second quarter of 2000 we completed two self-managed private
placement sales of our common stock, pursuant to which we sold 250,000
and 507,750 shares of our common stock at per share prices of $3.00 and
$5.00, respectively. We received gross proceeds of $3.3 million from these
sales. In addition, on March 1, 2000, with the assistance of an investment
bank, we completed the closing of a separate private placement offering of
4.8 million shares of common stock, at a per share price of $2.50, for
which we received gross proceeds of $12.0 million. In accordance with the
offering terms of this $12.0 million private placement, the placement agent
for the offering received warrants to purchase 382,315 shares of our
common stock at $2.50 per share, and elected to receive
22
520,905 shares of common stock in lieu of certain sales commissions. The funds
from the private placements will be used principally for general corporate
purposes to support our operations and to fund clinical development of our
portfolio of product candidates.
On March 28, 2000, our application for listing on the American Stock
Exchange, or AMEX, was approved and we began trading on AMEX on
March 30, 2000 under the symbol AKC.
On February 25, 2000 we signed licensing agreements with Mipharm
S.p.A. Pursuant to these agreements, we granted to Mipharm marketing and
manufacturing rights for amlexanox for numerous indications including the
prevention and treatment of canker sores and mucositis, oral lichen planus
and atopic dermatitis. We also granted manufacturing rights for Europe to
Mipharm for the products covered by the agreements. These licensing
agreements cover Italy, Switzerland, Turkey and Lebanon and relate to:
* the 5% paste formulation, approved in the United States for the treatment
of canker sores, which is in the regulatory process in Europe;
* the OraDisc R formulation which just completed a Phase III clinical study
for the prevention and treatment of canker sores;
* OraRinse R which is in Phase II clinical evaluation for the prevention and
treatment of mucositis;
* the 5% amlexanox cream formulation for the treatment for atopic
dermatitis which is scheduled to commence a Phase I irritancy and
sensitization study in the first quarter 2001; and
* a 5% amlexanox gel for the treatment of oral lichen planus for which a
pilot Phase II study will start in the second quarter 2001.
Mipharm also has the option to license other Access product developments
in the fields of Dermatology and Gynecology in the territory covered by the
license agreements. In addition, under the terms of the agreements,
Mipharm paid up-front licensing fees and will make milestone payments and
Access will receive a percentage of the product sales made in the territory.
Moreover, pursuant to an investment agreement with Mipharm, Mipharm
made equity investments in Access in August 2000 and February 2001 and
has the right to make an additional equity investments in Access up to
February 2002.
Liquidity and Capital Resources
As of March 29, 2001 our principal source of liquidity is $24,845,000 of
cash and cash equivalents. Working capital as of December 31, 2000 was
$24,397,000, representing a increase in working capital of $24,309,000 as
compared to the working capital as of December 31, 1999 of $88,000. The
increase in working capital at December 31, 2000 was due to the funds
received from our March, May and September private placements, our
September 2000 issuance of convertible notes and licensing revenues.
Since inception, our expenses have significantly exceeded revenues,
resulting in an accumulated deficit as of December 31, 2000 of
$31,881,000. We have funded our operations primarily through private
sales of common stock and convertible notes. Contract research payments,
licensing fees and milestone 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 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 newly acquired and
developed technology. 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;
23
* 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.
Results of Operations
Comparison of Years Ended December 31, 2000 and 1999
Revenue in 2000 was $107,000, as compared to $15,000 in 1999, an
increase of $92,000. Licensing revenue is recognized over the period of the
performance obligation. Licensing revenue recognized in 2000 is from
several agreements. Revenues in 1999 were for an option payment on our
carbohydrate polymer technology as applied to the field of selectively
replicating viruses.
Total research spending for the year ended December 31, 2000 was
$4,007,000, as compared to $1,608,000 in 1999, an increase of
$2,399,000. The increase in expenses was the result of:
* higher clinical development, product development costs for the following
amlexanox projects: OraDisc TM ($792,000), OraRinse TM ($497,000),
amlexanox cream ($159,000) and amlexanox gel ($113,000);
* higher external development costs for our polymer platinate project
($376,000);
* higher salary and salary related expenses due to additional staff
($223,000);
* higher development costs for our new hydrogel project ($72,000);
* additional travel expenses ($52,000)
* moving expenses for scientific personal ($56,000); and
* recruitment expenses ($59,000).
We expect research spending to increase and remain higher than prior years
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 $1,736,000 for 2000 and
$1,471,000 in 1999. Expenses increased in 2000 due to:
* higher salary and bonus expenses ($307,000);
* higher legal and accounting expenses ($107,000).
* higher listing fees due to our listing on the American Stock Exchange
($49,000);
* foreign taxes paid on licensing fees received ($43,000);
* lease expenses for office rent, office equipment and computers and office
and equipment maintenance ($41,000); and
* other net increases ($22,000).
These increases were offset by:
* a reduction in warrant costs ($249,000) due to fewer warrants granted to
consultants in 2000; and
24
* lower patent expenses ($55,000).
Depreciation and amortization was $422,000 in 2000 as compared to
$285,000 in 1999, an increase of $137,000. The increase in amortization
is due to:
* additional amortization of goodwill of $143,000 recorded in 2000 versus
1999 as a result of the purchase of Virologix Corporation in July 1999; and
* additional amortization of licenses totaling $58,000 due to additional
licenses purchased and a full twelve months amortization in 2000 of the
licenses acquired in 1999.
These increases were offset by lower depreciation ($64,000), reflecting that
a number of our major assets have been fully depreciated.
Loss from operations in 2000 was a loss of $6,058,000 as compared to a
loss of $3,349,000 in 1999.
Interest and miscellaneous income was $972,000 for 2000 as compared to
$53,000 for 1999, an increase of $919,000. The increase in interest income
was due to higher cash balances in 2000 resulting from our private
placements of common stock and our convertible note offering in 2000.
Interest expense was $342,000 for 2000 as compared to $12,000 for the
same period in 1999, an increase of $330,000. The increase in interest
expense is due to interest accrued on the $13.5 million convertible notes
issued in September 2000 and amortization of debt issuance costs.
Net loss for 2000 was $5,428,000, or a $0.49 basic and diluted loss per
common share compared with a loss of $3,308,000, or a $0.72 basic and
diluted loss per common share, for 1999.
Comparison of Years Ended December 31, 1999 and 1998
We had $15,000 in revenues for 1999 as compared to no revenues in 1998.
1999 revenues were for a twelve month option payment on our
carbohydrate polymer drug technology as applied to the field of selectively
replicating viruses.
Total research spending for 1999 was $1,608,000 as compared to
$1,756,000 for the same period in 1998, a decrease of $148,000. The
decrease in expenses was due to:
* $354,000 less external development costs due to the completion of
university research contracts in 1998.
This decrease was partially offset by the following increases:
* $94,000 for scientific consulting costs;
* $64,000 for salary and related costs;
* $40,000 for clinical development costs, and
* other net increases totaling $8,000.
General and administrative expenses were $1,471,000 for 1999, an increase
of $7,000 as compared to the same period in 1998. The increase was
primarily due to the following:
* $249,000 increased business consulting expense due to the issuance of
warrants issued in connection with consulting agreements;
* $41,000 additional shareholder expenses due primarily to increased
investor relation expenses; and
* other net increases totaling $17,000.
25
These increases were partially offset by a reduction of:
* $119,000 in patent expenses due to the filing of four patents and the
prosecution of European patents in 1998 compared with one patent filing in
1999;
* $81,000 in salary and related expenses due primarily to our Vice
President of Business Development leaving in the third quarter of 1998 and
not being replaced;
* $69,000 in other professional costs; and
* $31,000 in travel and entertainment expenses.
Depreciation and amortization for 1999 was $285,000 as compared to
$213,000 for the same period in 1998, an increase of $72,000. The increase
in amortization is due to amortization of goodwill of $103,000 recorded as
a result of the purchase of Virologix Corporation offset by lower
depreciation reflecting that some major assets have been fully depreciated.
Interest income decreased to $53,000 in 1999 from $58,000 in 1998 due to
lower average cash balances in 1999. Interest expense decreased to $12,000
in 1999 from $22,000 in 1998 due to lower average obligations under
capital leases during 1999.
Accordingly, these expenses resulted in a loss for the twelve months ended
December 31, 1999 of $3,308,000, or a $0.72 basic and diluted loss per
common share compared with a loss of $3,397,000, or a $1.28 basic and
diluted loss per common share for the twelve months ended December 31,
1998.
ITEM 7(a). QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
We invest our excess cash and short-term investments in certificates of
deposit, corporate securities with high quality ratings, and U.S. government
securities. These investments are not held for trading or other speculative
purposes. These financial investment securities all mature in 2001 and their
estimated fair value approximates cost. Changes in interest rates affect the
investment income we earn on our investments and, therefore, impact our
cash flows and results of operations. A hypothetical 50 basis point decrease
in interest rates would result in a decrease in annual interest income and a
corresponding increase in net loss of approximately $70,000. The estimated
effect assumes no changes in our short-term investments at December 31,
2000. We do not believe that we are exposed to any market risks, as
defined. We are not exposed to risks for changes in foreign currency
exchange rates, commodity prices, or any other market risks.
ITEM 8. FINANCIAL AND SUPPLEMENTARY DATA
Financial statements are included at Item 14.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
26
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The information requested by this item will be contained in the Company's
definitive Proxy Statement ("Proxy Statement") for its 2001 Annual Meeting
of Stockholders to be held on May 21, 2001 and is incorporated herein by
reference. Such Proxy Statement will be filed with the Securities and
Exchange Commission not later than 120 days subsequent to December 31,
2000.
ITEM 11. EXECUTIVE COMPENSATION
The information requested by this item will be contained in the Company's
definitive Proxy Statement and is incorporated herein by reference. Such
Proxy Statement will be filed with the Securities and Exchange Commission
not later than 120 days subsequent to December 31, 2000.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information requested by this item will be contained in the Company's
definitive Proxy Statement and is incorporated herein by reference. Such
Proxy Statement will be filed with the Securities and Exchange Commission
not later than 120 days subsequent to December 31, 2000.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information requested by this item will be contained in the Company's
definitive Proxy Statement and is incorporated herein by reference. Such
Proxy Statement will be filed with the Securities and Exchange Commission
not later than 120 days subsequent to December 31, 2000.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
a. Financial Statements and Exhibits Page
1. Financial Statements. The following financial statements are submitted
as part of this report:
Report of Grant Thornton LLP F-1
Consolidated Balance Sheets at December 31, 2000 and 1999 F-2
Consolidated Statements of Operations for 2000, 1999 and 1998
and the period from February 24, 1988 (Inception) to
December 31, 2000 F-3
Consolidated Statements of Stockholders' Equity (Deficit)
for the period from February 24, 1988 (Inception) to
December 31, 2000 F-4
Consolidated Statements of Cash Flows for 2000, 1999 and 1998
and the period from February 24, 1988 (Inception) to
December 31, 2000 F-7
Notes to Consolidated Financial Statements F-8
2. Financial Statement Schedules
No financial statement schedules are included because they are not required
or the information is included in the financial statements or notes thereto.
27
Exhibits
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 of Merger and Plan of Reorganization, dated May 23,
1997 among us, Access Holdings, Inc and Tacora Corporation
(Incorporated by reference to Exhibit 10.11 of the Company's Form 10-K
for the year ended December 31, 1997)
2.3 Agreement of Merger and Plan of Reorganization, dated as of
February 23, 1999 among us, Access Holdings, Inc. and Virologix
Corporation (Incorporated by reference to Exhibit 2.2 of the Company's
Form 8-K filed on August 3, 1999)
3.0 Articles of incorporation and bylaws:
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 Amended and Restated Bylaws (Incorporated by reference to Exhibit
3.1 of our Form 10-Q for the quarter ended June 30, 1996)
3.6 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)
3.7 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)
3.8 Certificate of Amendment of Certificate of Incorporation filed July 31,
2000.
10.0 Material contracts:
10.1 Irrevocable Assignment of Proprietary Information with Dr. Charles
G. Smith (Incorporated by reference to Exhibit 10.6 of our Form 10-K for
the year ended December 31, 1991)
10.2 Asset Purchase and Royalty Agreement between Block Drug
Company, Inc. and us dated June 7, 1995 (Incorporated by reference to
Exhibit 10.28 of our Form 10-Q for the quarter ended June 30, 1995)
*10.3 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)
10.4 Stockholder's Agreement dated October 1995 between us and Dr.
David F. Ranney (Incorporated by reference to Exhibit A of our
Registration Statement on Form S-4 dated December 21, 1995, Commission
File No. 33-64031).
10.5 Patent Purchase Agreement dated April 5, 1994 between David F.
Ranney and Access Pharmaceuticals, Inc. (Incorporated by reference to
Exhibit 10.16 of the our Form 10-K for the year ended December 31, 1995)
10.6 First Amendment to Patent Purchase Agreement dated January 23,
1996 between David F. Ranney and us (Incorporated by reference to
Exhibit 10.17 of our Form 10-K for the year ended December 31, 1995)
10.7 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)
10.8 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 10.19 of our Form 10-Q for the
quarter ended September 30, 1996)
10.9 License Agreement between The Dow Chemical Company and us
dated June 30, 1997. (Certain portions are subject to a grant of confidential
treatment) (Incorporated by reference to Exhibit 10.12 of our Form 10-Q
for the quarter ended September 30, 1997)
10.10 License Agreement between Strakan Limited and us dated February
26, 1998 (Certain portions are subject to a grant of confidential treatment)
(Incorporated by reference to Exhibit 10.12 of our Form 10Q for the
quarter ended March 31, 1998)
28
3.0 Exhibits (continued)
Exhibit Number
10.11 Agreement between us and Block Drug Company, Inc. (Certain
portions are subject to a grant of confidential treatment) (Incorporated by
reference to Exhibit 10.13 of our Form 10Q for the quarter ended June 30,
1998)
*10.12 Employment Agreement of Mr. Kerry P. Gray (Incorporated by
reference to our Registration Statement on Form SB-2 dated January 11,
1999, Commission File No. 333-62463)
10.13 Letter Agreement between us and David F. Ranney (Incorporated
by reference to our Registration Statement on Form S