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, 2001
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.
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(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
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(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 X No
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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 28, 2002 was approximately
$40,431,000.
As of March 28, 2002 there were 13,051,734 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 2002 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 seven drug delivery technology platforms:
synthetic polymer targeted delivery, vitamin mediated targeted delivery
(including oral), bioerodible hydrogel technology, nanoparticles and
nanoparticle networks, Residerm (R) topical delivery, carbohydrate targeting
technology and agents for the prevention and treatment of viral disease,
including HIV.
We use our proprietary technology to develop products and product
candidates, including our marketed products, amlexanox 5% paste
(marketed under the trade names Aphthasol (R) and Aptheal (R)) and
Zindaclin (TM), and our products that are currently in development status,
polymer platinate (AP 5280), DACH platinum , OraDisc (TM), OraRinse
(TM), amlexanox cream, amlexanox gel, and mucoadhesive liquid
technology.
We jointly developed amlexanox 5% paste, the first U.S. Food and Drug
Administration, or FDA, approved product for the treatment of canker
sores, with our partner GlaxoSmithKline, formerly Block Drug Company.
GlaxoSmithKline is marketing this product under the trade name
Aphthasol (R) in the United States and in September 2001, another of our
partners, Strakan Limited, received marketing authorization to market
amlexanox 5% paste in the United Kingdom under the trade name Aptheal
(R). We have licensed certain rights for the use of amlexanox in additional
indications from GlaxoSmithKline for numerous markets, including the
worldwide rights for mucositis and for other products, excluding the U.S.
We are developing new formulations and delivery forms of amlexanox for
use in additional clinical indications, including mucoadhesive disc delivery
and mucoadhesive liquid delivery.
In addition, Strakan has used our patented Residerm (R) technology to
develop zinc clindamycin for the treatment of acne. Strakan began
marketing zinc clindamycin in the United Kingdom under the trade name
Zindaclin (TM) in March 2002. The process to achieve marketing
authorization for Zindaclin (TM) throughout Europe has been initiated and
we expect the first country approvals by the end of 2002.
Recent Developments
In February 2002, our newly created wholly owned subsidiary, Access
Pharmaceuticals Australia Pty. Limited acquired the targeted therapeutic
technology business of Biotech Australia Pty. Ltd.
Under the terms of the acquisition agreement, Access Pharmaceuticals
Australia Pty. Limited, acquired the patents to three targeted therapeutics
technologies and retained the scientific group that has developed this
technology. The total consideration payable by us will be paid in a
combination of cash and stock over a three-year period and is dependent
on the achievement of certain technology milestones. The stock
consideration to be paid is subject to restriction and cannot be sold until
February 27, 2003.
The three patented targeted therapeutic technologies acquired are:
- - folate conjugates of polymer therapeutics, to enhance tumor delivery
by targeting folate receptors which are upregulated in certain tumor
types;
- - the use of vitamin B12 to target the transcobalamin II receptor which
is upregulated in numerous diseases including cancer, rheumatoid
arthritis and certain neurological and autoimmune disorders; and
- - oral delivery of a wide variety of molecules, which cannot otherwise
be orally administered, using the active transport mechanism which
transports vitamin B12 into the systemic circulation.
The inventor of these technologies, Dr. Gregory Russell-Jones, joined our
scientific team as Vice President of Targeted Therapeutics. In addition, we
acquired an internal capability to perform biological studies which we
previously out-sourced. We expect that this capability will enhance our
ability to identify lead compounds more rapidly and develop the necessary
preclinical data for regulatory filings. This acquisition is a step towards
the achievement of the critical mass necessary for us to accelerate the
development of our technology platforms.
1
In March 2002, we announced positive results of two preclinical studies
of our mucoadhesive liquid delivery technology for the prevention and
treatment of oral mucositis and our plan to advance this technology to a
pivotal clinical study. Following the completion of our Phase II study in
2001 in patients undergoing radiation therapy with or without concomitant
chemotherapy for the treatment of head and neck cancer, we decided to
conduct additional formulation development work to optimize the
technology prior to advancing clinical development. The topical
application of the mucoadhesive liquid delivery technology was tested for
its ability to attenuate the course of radiation-induced oral mucositis in an
established hamster model. A single dose of radiation was administered
to the hamster which consistently produces clinically significant ulcerative
mucositis similar to that observed in humans (NCI-CTC score of 3 or 4).
The severity of the mucositis is graded on a scale of 0-5 with 1
representing erythema, 3 being formation of ulcers in one or more places
and 5 indicating ulceration of virtually the entire area. The study results
clearly indicate the ability to prevent the onset of ulcerative mucositis,
delay the onset and reduce the severity of mucositis. Specifically,
treatment with the optimal formulation resulted in the following:
* 29% of the animals did not register a score above 1 for the
duration of the study;
* 43% of the animals did not register a score of above 2
compared to 100% of the animals treated with saline
reporting scores of 3 and above; and
* compared to animals treated with saline there was a 65%
reduction in the number of days when animals presented
with ulcerative mucositis.
We were incorporated in Wyoming in 1974 as Chemex Corporation, and
in 1983 we 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., a
private Texas corporation, and 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.
Products
We have used our drug delivery technology platforms to develop the
following products and product candidates:
Marketed Products
Aphthasol (R) and Aptheal (R) (Amlexanox 5% Paste)
Amlexanox 5% paste 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, we licensed the exclusive United Kingdom and
Ireland rights for the sale and marketing of amlexanox 5% paste for the
treatment of canker sores to Strakan in August 1998. Under the terms of
this license, Strakan is responsible for and will bear all costs associated
with the regulatory approval process, including product registration, for
amlexanox in the United Kingdom and the European Union. Additionally,
Strakan will make milestone payments to us on achievement of
performance objectives and we will receive royalties on product sales of
amlexanox.
Strakan, received marketing authorization for amlexanox 5% paste in the
United Kingdom in September 2001. Strakan's trade name for the product
is Aptheal (R). We anticipate that the amlexanox 5% paste product will
be registered throughout Europe during the year 2002.
2
An international outlicensing program for amlexanox is ongoing. In
addition to our license 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 (R), in Canada to Paladin Labs Inc.
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. This technology
is called ResiDerm (R).
The first zinc drug complex that we have developed, in conjunction with
Strakan, is zinc clindamycin for the treatment of acne which is marketed
under the trade name Zindaclin (TM). Topical acne drugs constitute an
approximately $750 million per year market and clindamycin is a widely
prescribed drug for the treatment of acne. Clinical studies indicate that the
addition of zinc results in Zindaclin (TM) being as effective applied once
daily as the market leading clindamycin product applied twice daily. The
activity of zinc and clindamycin, the improved stability of the product and
the potential for zinc to overcome certain bacterial resistance are other
potential product benefits.
In February 1998, we licensed the exclusive worldwide rights for the
manufacturing, sales and marketing of zinc clindamycin pursuant to a
license agreement with Strakan. Under the terms of the license agreement,
Strakan has agreed to fund the development costs of zinc clindamycin and
any additional compounds developed utilizing our zinc patent, including
product registrations. 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. The
license agreement also provides that Strakan will make milestone payments
to us on achievement of commercial objectives and that we will receive
royalties on sales of products based on our Residerm (R) topical delivery
technology.
Strakan currently is marketing zinc clindamycin in the United Kingdom
under the trade name Zindaclin (TM). The process to achieve marketing
authorization for Zindaclin (TM) throughout Europe has been initiated and
we expect the first country approvals by the end of 2002. In addition, in
March 2001 Strakan signed an Option and License Agreement with
Healthpoint, Ltd., which granted a license to Healthpoint for rights to
both Residerm (R) A and our Residerm (R) topical delivery technology for
the U.S., Canada, Mexico and the Caribbean.
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.
3
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. In
addition, the anti-tumor effect of platinum drugs is generated by the
platinum binding to the DNA, which initiates the process of tumor cell
death. In a B16 melanoma rodent model, it was demonstrated that AP5280
formed at least 11 times more platinum DNA complexes in tumors than
did Carboplatin, the market leading platinum drug, when both agents were
administered intraveneously at doses which generated equal toxicity.
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
second quarter of 2002. The initial Phase I study protocol is designed 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.
DACH Platinum
The extensive experience we have gained developing AP5280 has been
applied to extend the platinum developments to include the DACH form
of platinum.
Oxaliplatin, another form of DACH platinum, which was initially
approved in France and in Europe in 1999 for the treatment of colorectal
cancer is now generating sales in excess of $150 million annually.
Carboplatin and Cisplatin, the most widely prescribed drugs, are not
indicated for the treatment of metastatic colorectal cancer. Oxaliplatin, in
combination with 5-flurouracil and folinic acid is indicated for the first-
line treatment of metastatic colorectal cancer in Europe. The colorectal
cancer market is a significant opportunity as there are over 500,000
reported new cases annually in the developed world, increasing at a rate
of approximately three percent per year.
In May 2001 we announced the expansion of our polymer platinate
activities to include a development program for the 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 have developed several additional
formulations with the objective of maximizing the therapeutic benefit of
the clinical development candidate. The lead development candidate has
been chosen and we plan to complete the necessary preclinical
development package in 2002 and commence clinical studies.
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.
4
This OraDisc (TM) formulation is 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. Utilizing this technology, we anticipate that higher drug
concentrations will be achieved at the disease site increasing the
effectiveness of the product.
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 with both studies generating 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.
A second Phase III study evaluating OraDisc (TM) for the treatment of
established canker sores is scheduled to begin in the second quarter 2002.
On completion of this study we plan to submit a new drug application to
the FDA.
OraRinse (TM) and Mucoadhesive Liquid Technology
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 in December 1999 and developed a Phase
II protocol 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. Over 90% of head
and neck cancer patients treated with radiation and chemotherapy
experience mucositis. This study commenced in the first quarter of 2000.
We enrolled 58 patients in the initial study which was performed at
multiple sites throughout the United States.
In July 2001, we announced results from our Phase II randomized clinical
study of OraRinse (TM) for the prevention and treatment of mucositis.
The data developed confirms that the mucoadhesive liquid technology
could be a platform technology and appears to represent an important
advancement in the management and prevention of mucositis.
The data has been retrospectively compared with two historical patient
databases to evaluate the potential advantages that this technology may
represent in the prevention, treatment and management of mucositis. The
patient evaluation was conducted using the oral mucositis assessment
scale, which qualifies the disease severity on a scale of 0-5. Key
highlights of the comparison with the historical patient databases are as
follows:
* the average severity of the disease was reduced by
approximately 40%;
* the maximum intensity of the mucositis was approximately
35% lower; and
* the median peak intensity was approximately 50% lower.
Given the results achieved with our mucoadhesive liquid technology, and
the fact that in the study amlexanox showed no additional benefit, we do
not plan to conduct additional clinical studies evaluating amlexanox as a
preventative product candidate for mucositis. Following the completion of
the Phase II study we conducted additional formulation development work
to optimize the technology prior to advancing clinical development. The
topical application of the mucoadhesive technology was tested for its
ability to attenuate the course the course of radiation-induced oral
mucositis in an established hamster model. The study results clearly indicate
the ability to prevent the onset of ulcerative mucositis, delay the onset and
reduce the severity of mucositis. We have met with the FDA to determine
5
the most expeditious way to advance our mucositis clinical
development program. Prior to finalizing the pivotal clinical study
protocol, the primary clinical endpoint has to be agreed with the FDA.
We are, however, evaluating the possibility of developing a range of
products utilizing our mucoadhesive liquid technology for the management
of the various phases of the disease. In addition to our prevention product
candidate, we are exploring the incorporation of an analgesic for pain
management or compounds for the treatment of bacterial or fungal
infections into our mucoadhesive liquid technology.
We are currently planning a Phase III clinical trial for the third quarter of
2002.
Amlexanox Cream and Gel
Clinical studies evaluating the cream and gel formulations of amlexanox
were conducted in 2001. The results achieved indicate that additional
formulation development and preclinical testing will be required prior to
the advancement of clinical development.
Prior to committing to further advancing this program an assessment of
the costs to be incurred for development, the development timeline, the
development risks and the profile of competitive products will be
conducted. In addition, the potential returns that could be achieved
investing in alternative programs will be considered prior to deciding on
whether to proceed further with these developments.
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.
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 agents
which exploit our zinc patent, the University of Missouri for formulation
research and the University of North Texas for nanoparticles and
nanoparticle network technology. 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. Where the size of the necessary
clinical studies and cost associated with the later clinical development
phases are significant we plan to outlicense to, or co-develop with,
marketing partners our current product candidates.
We will continue to expand our internal core capabilities of chemistry,
formulation, analytical methods development, clinical development,
biology 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.
6
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 for effective drug delivery is to control and
optimize the localized release of the drug at the target site and rapidly
clear the non-targeted fraction. Conventional drug delivery systems such
as controlled release, sustained release, transdermal systems and others are
designed for delivering active product into the systemic circulation over
time with the objective of improving patient compliance. These systems
do not address the biologically relevant issues such as site targeting,
localized release and clearance of drug. The major factors that impact the
achievement of this ultimate drug delivery goal are the physical
characteristics of the drug and the biological characteristics of the disease
target sites. The physical characteristics of the drug affect solubility in
biological systems, its biodistribution throughout the body, and its
interactions with the intended pharmacological target sites and undesired
areas of toxicity. The biological characteristics of the diseased area impact
the ability of the drug to selectively interact with the intended target site
to allow the drug to express the desired pharmacological activity.
We believe 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 Polymer Targeted Drug Delivery Technology;
* Vitamin Mediated Targeted Delivery Technology;
* Bioerodeable Hydrogel Delivery Technology;
* Nanoparticle Network Delivery Technology;
* Residerm (R) Topical Delivery Technology; and
* Carbohydrate Targeting Drug Delivery Technology
We also are developing agents for the prevention and treatment of viral
disease. Each of these platforms is discussed below:
Synthetic Polymer Targeted Drug Delivery Technology
In collaboration with The School of Pharmacy, University of London, we
have developed a synthetic polymer technology, which utilizes
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
7
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.
Vitamin Mediated Targeted Delivery Technology
Most drugs are effective only when they reach a certain minimum
concentration in the region of disease, yet are well distributed throughout
the body contributing to undesirable side-effects. It is therefore
advantageous to alter the natural biodistribution of a drug to have more
localized effect where it is needed. Our technology utilizes the fact that in
many diseases where there is rapid growth and/or cell division, the
demand for certain vitamins increases. By coupling the drug to an
appropriate vitamin, the vitamin serves as a carrier to increase the amount
of drug at the disease site relative to its normal distribution.
The use of cytotoxic drugs is one of the most common methods for
treating a variety of malignancies including solid and non-solid tumors.
The drawbacks of chemotherapeutic treatments, which include tumor
resistance, cancer relapse and toxicity from severe damage to healthy
tissues, has fuelled a scientific quest for novel treatments that are
specifically targeted to malignant cells thus reducing damage to collateral
tissues.
The design of targeted therapies involves exploitation of the difference
between the structure and function of normal cells compared with
malignant cells. Differences include the increased levels of surface
molecules on cancer cells, which makes them more sensitive to treatment
regimes that target surface molecules and differences in blood supply
within and around tumor cells compared with normal cells.
Two basic types of targeting approaches are utilized, passive tumor
targeting and active tumor targeting.
* passive tumor targeting involves transporting anti-cancer agents or
specific genes through the bloodstream to tumor cells using a
"carrier" molecule. Many different carrier molecules, which can
take a variety of forms (micelles, nanoparticles, liposomes and
polymers), are being investigated as each provides advantages such
as specificity and protection of the anti-cancer drug from
degradation due to their structure, size (molecular weights) and
particular interactions with tumor cells. The polymer platinate
program is a passive tumor targeting technology.
* active tumor targeting involves attaching an additional fragment to
the anticancer drug and the carrier molecule to create a
new "targeted" agent that will actively seek a complementary
surface molecule to which it binds (preferentially located on the
exterior of the tumor cells). The theory is that the targeting of the
anti-cancer agent through active means to the affected cells should
allow more of the anti-cancer drug or gene to enter the tumor cell
thus amplifying the response to the treatment and reducing the
toxic effect on bystander, normal tissue.
Examples of active targeting fragments include antibodies, growth factors
and vitamins. Our scientists have specifically focused on using vitamin
B12 and folate to more effectively target anti-cancer drugs to solid tumors.
It has been known for some time that vitamin B12 and folic acid are
essential for tumor growth and as a result, receptors for these vitamins are
up-regulated in certain tumors. Vitamin B12 receptor over-expression
occurs in breast, lung leukemic cells, lymphoma cells, bone, thyroid,
colon, prostate and brain cancers and some other tumor lines, while folate
receptor over-expression occurs in breast, lung, ovarian, endometrial,
renal, colon, brain and cancers of myeloid hemotopoietic cells and
methotrexate-sensitive tumors.
Oral delivery is the preferred method of administration of drugs where
either long-term or daily use (or both) is required. However many
therapeutics, including peptide and protein drugs, are poorly absorbed
when given orally. With more and more peptide and protein based
biopharmaceuticals entering the market, there is an increasing need to
develop an effective oral delivery system for them, as well as for long-
standing injected drugs such as insulin.
The difficulty in administering proteins orally is their susceptibility to
degradation by digestive enzymes, their inability to cross the intestinal
wall and their rapid excretion by the body. Over the years, many different
methodologies for making protein drugs available orally have been
attempted. Most of the oral protein delivery technologies involve
protecting the protein degradation in the intestine. More recently,
strategies have been developed which involve attaching the protein or
peptide to a molecule which transports the protein across the gut wall.
However, the field of oral drug delivery of proteins and peptides has yet
to achieve successful
8
commercialization of a product (although positive results have been achieved
in early clinical trials for some products under development).
Many pharmaceutically active compounds such as proteins, peptides and
cytotoxic agents cannot be administered orally due to their instability in
the gastrointestinal tract or their inability to be absorbed and transferred
to the bloodstream. A technology which would allow many of these
actives to be taken orally would greatly enhance their acceptance and
value. Several technologies for the protection of sensitive actives in the
gastro-intestinal tract and/or enhancement of gastro-intestinal absorption
have been explored and many have failed.
Our proprietary technology for oral drug delivery utilizes the body's
natural vitamin B12 (VB12) transport system in the gut. The absorption
of VB12 in the intestine occurs by way of a receptor-mediated
endocytosis. Initially, VB12 binds to intrinsic factor (IF) in the small
intestine, and the VB12-IF complex then binds to the IF receptor on the
surface of the intestine. Receptor-mediated endocytosis then allows the
transport the VB12 across the gut wall. After binding to another VB12-
binding protein, transcobalamin II (TcII), VB12 is transferred to the
bloodstream.
Our scientists discovered that VB12 will still be transported by this
process even when drugs, macromolecules, or nanoparticles are coupled
to VB12. Thus VB12 serves as a carrier to transfer these materials from
the intestinal lumen to the bloodstream. For drugs and macromolecules
which are stable in the gastro-intestinal tract, the drug or macromolecule
can be coupled directly (or via a linker) to VB12. If the capacity of the
VB12 transport system is inadequate to provide an effective blood
concentration of the active, transport can be amplified by attaching many
molecules of the drug to a polymer, to which VB12 is also attached. For
drugs which are unstable in the stomach, but stable in the intestinal tract,
the VB12 conjugate can be incorporated in an enteric coated capsule. A
further option, especially for drugs and macromolecules which are
unstable in the intestine, is to formulate the drug in a nanoparticle which
is then coated with VB12. Once in the bloodstream, the active is released
by diffusion and/or erosion of the nanoparticle. Utilization of
nanoparticles also serves to "amplify" delivery by transporting many
molecules at one time due to the inherently large surface area.
Our proprietary position in this technology involves the conjugation of
vitamin B12 and/or folic acid (or their analogs) to a polymer to which is
also attached the drug to be delivered, or attached to a nanoparticle in
which the drug is incorporated. Since many molecules of the drug are
attached to a single polymer strand, or are incorporated in a single
nanoparticle, disease targeting is amplified compared to simpler conjugates
involving one molecule of the vitamin with one drug molecule. However,
in situations when such a simple conjugate might be preferred, our patents
also encompass these VB12-drug conjugates.
Bioerodeable Hydrogel Delivery Technology
Our bioerodeable hydrogel technology is one of our priority internal
development focuses. 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
of 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, our 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
hydrogel matrix. By selecting linkers with appropriate 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 our bioerodible hydrogel technology.
9
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.
Nanoparticle Network Delivery Technology
Our nanoparticles network delivery system involves first producing
hydrogel nanoparticles and then bonding them together resulting in a new
class of gels with two levels of engineered structural difference: the
primary network and the secondary network. The primary network is
crosslinked polymer chains inside each nanoparticle, while the secondary
network is a crosslinked system of the nanoparticles themselves. As a
result, the nanoparticle network could be used to entrap and deliver small
and/or very large biomolecules or other active compounds with its primary
and secondary structures, respectively. These unique properties will
enhance the versatility of polymer gel nanoparticle networks as potential
carriers to provide controlled delivery of a variety of active compounds.
In addition, such nanostructured gels have new and novel properties that
conventional gels do not possess. These properties include a high surface
area, a unique and distinguishable color at room temperature, and the
ability to be easily combined together if desired to yield heterogeneous
networks consisting of diversified physical and chemical properties. Our
research and development efforts may lead to creating opportunities in a
variety of technological applications, including controlled delivery of
drugs or other actives, optical and colorimetric sensors, interferometer
systems, holographic or interference gratings, integrated circuit
lithography, optical displays, environmental cleanup agents and bio-
adhesives.
Residerm (R) 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,
10
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.
Carbohydrate Targeting 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.
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.
11
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) Access Mucositis IND Phase III
Topical Delivery
- ----------------
Amlexanox (3) Takeda Oral ulcers NDA Approved
OraDisc (TM) Amlexanox (3)
Biodegradable Polymer Disc Takeda Oral ulcers IND Phase III
Residerm (R) A
Zinc Compound (4) Access Acne PLA (7) Approved (8)
Vitamin Mediated Delivery
- -------------------------
Oral Delivery System Access Various Research Pre-Clinical
Folate Targeted Therapeutics Access Anti-tumor Research Pre-Clinical
Vitamin B12 Targeted
Therapeutics Access Anti-tumor Research Pre-Clinical
Antiviral
- ---------
Anti viral compound (5)(6) NIH HIV Development Pre-Clinical
Anti viral compound (6) 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) Sold to GlaxoSmithKline. Subject to a Royalty Agreement.
International rights (except Japan and Israel) licensed from
GlaxoSmithKline subject to royalty and milestone payments.
(4) Licensed to Strakan.
(5) Licensed from NIH subject to royalty and milestone payments.
(6) Licensed from The Rockefeller University.
(7) United Kingdom ("U.K.") equivalent of an NDA.
(8) Marketing approval received from the Medicines Control Agency in
the U.K. and product launched in March 2002.
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 developing 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
12
studies required for IND submission. External investigators and
scaleup manufacturing facilities are selected in conjunction with our
consultants. The initial Phase I and Phase II studies are conducted by
laboratories and investigators supervised and monitored by our employees.
We do not plan to have an extensive clinical development organization as
we plan to have the advance phases of this process conducted by a
development partner. Should we conduct Phase III clinical studies a
contract research organization will be engaged to perform this work.
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 $4,174,000, $4,007,000 and $1,608,000 on
research and development during the years 2001, 2000 and 1999, 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. patent has issued and one U.S. patent and two European patent
applications are pending for polymer platinum compounds. This patent and
applications are the result in part of our collaboration with The School of
Pharmacy, University of London, from which the technology has been
licensed. This patent and applications include 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 applications 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 applications also include methods for improving the
pharmaceutical properties of platinum compounds.
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 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.
We also have patent applications for our disc technology, mucoadhesive
liquid technology and nanoparticle network delivery technology.
We have filed one U.S. patent application for our OraDisc (TM)
technology. This oral delivery vehicle potentially overcomes the
difficulties encountered in using conventional paste and gel formulations
for conditions in the mouth. Utilizing this technology, we anticipate that
higher drug concentrations will be achieved at the disease site increasing
the effectiveness of the product.
We have filed two U.S. patent applications for our mucoadhesive liquid
technology. Our applications cover a range of products utilizing our
mucoadhesive liquid technology for the management of the various phases
of mucositis. In addition to our product candidate, we also can incorporate
an analgesic for pain management or compounds for the treatment of
bacterial or fungal infections into our mucoadhesive liquid technology.
13
We have filed two patent applications for our nanoparticle delivery
technology. These applications are the result of our collaboration with the
University of North Texas, from which the technology has been licensed.
The applications include a new class of gels. Our technology may lead to
a variety of technological applications, including controlled delivery of
drugs or other actives, optical and colorimetric sensors, interferometer
systems, holographic or interference gratings, integrated circuit
lithography, optical displays, environmental cleanup agents and bio-
adhesives.
Through our Access Pharmaceuticals Australia Pty. Limited subsidiary we
have three patented targeted therapeutic technologies:
- - folate conjugates of polymer therapeutics, to enhance tumor delivery
by targeting folate receptors, which are upregulated in certain tumor
types with two U.S. and two European patent applications;
- - the use of vitamin B12 to target the transcobalamin II receptor which
is upregulated in numerous diseases including cancer, rheumatoid
arthritis, certain neurological and autoimmune disorders with two U.S.
patents and three U.S. and four European patent applications; and
- - oral delivery of a wide variety of molecules which cannot otherwise
be orally administered, utilizing the active transport mechanism which
transports vitamin B12 into the systemic circulation with six U.S.
patents and two European patents and one U.S. and one European
patent application.
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. Eleven patents have issued commencing in 1990, ten U.S.
and one 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.
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.
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
14
authority to approve or not approve new drug applications and
inspect research, clinical and manufacturing records and facilities.
Among the requirements for drug approval and testing is that the
prospective manufacturer's facilities and methods conform to the FDA's
Code of Good Manufacturing Practices regulations, which establish the
minimum requirements for methods to be used in, and the facilities or
controls to be used during, the production process. Such facilities are
subject to ongoing FDA inspection to insure compliance.
The steps required before a pharmaceutical product may be produced and
marketed in the U.S. include preclinical tests, the filing of an IND with
the FDA, which must become effective pursuant to FDA regulations
before human clinical trials may commence, numerous phases of clinical
testing and the FDA approval of a NDA prior to commercial sale.
Preclinical tests are conducted in the laboratory, usually involving
animals, to evaluate the safety and efficacy of the potential product. The
results of preclinical tests are submitted as part of the IND application and
are fully reviewed by the FDA prior to granting the sponsor permission
to commence clinical trials in humans. All trials are conducted under
International Conference on Harmonization, or ICH, good clinical practice
guidelines. All investigator sites and sponsor facilities are subject to FDA
inspection to insure compliance. Clinical trials typically involve a
three-phase process. Phase I, the initial clinical evaluations, consists of
administering the drug and testing for safety and tolerated dosages and in
some indications such as cancer and HIV, as 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
15
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 Inhale 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 Gilead
Sciences, Elan Corporation and Alza Corporation, are the major
competing intravenous drug delivery formulations which deliver similar
drug substances.
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.
Zindaclin (TM), which is the first product developed utilizing the
Residerm (R) technology, will 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.
In the area of advanced drug delivery, which is the focus of our early
stage research and development activities, a number of companies are
developing or evaluating enhanced drug delivery systems. We expect that
technological developments will occur at a rapid rate and that competition
is likely to intensify as various alternative delivery system technologies
achieve similar if not identical advantages.
Even if our products are fully developed and receive required regulatory
approval, of which there can be no assurance, we believe that our
products can only compete successfully if marketed by a company having
expertise and a strong presence in the therapeutic area. Consequently, we
do not currently plan to establish an internal marketing organization. By
forming strategic alliances with major and regional pharmaceutical
companies, management believes that our development risks should be
minimized and that the technology potentially could be more rapidly
developed and successfully introduced into the marketplace.
Employees
As of March 27, 2002, we had 28 full time employees, 16 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.
Other Developments
On October 19, 2001, our Board of Directors declared a special dividend
distribution of a preferred share purchase right (a "Right") for each
outstanding share of our common stock. This dividend was distributed on
November 9, 2001 to our
16
stockholders of record as of the close of
business on that date. Each Right, when exercisable, generally entitles the
registered holder to purchase from us one one-hundredth of a share of our
Series A Junior Participating Preferred Stock at a price of $30 per one
one-hundredth of a share, subject to adjustment or substitution of our
other securities in place of the preferred shares. The description and terms
of the Rights are set forth in a Rights Agreement dated as of October 31,
2001, between us and American Stock Transfer & Trust Company.
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 $37.9 million through
December 31, 2001. 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
17
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.
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
18
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.
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 generally procure product liability insurance
for drug candidates that are undergoing human clinical trials. Product
19
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.
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
20
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:
* 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 we, together with our subsidiaries are either the
owner or licensee of technology to 23 U.S. patents and to 17 U.S. patent
applications now pending, and 6 European and 15 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.
21
Ownership of our shares is concentrated, to some extent, in the hands
of a few individual investors.
Heartland Advisors, Inc., Larry N. Feinberg (Oracle Partners LP, Oracle
Institutional Partners LP and Oracle Investment Management Inc.), and
Howard P. Milstein currently beneficially own approximately 13.3%,
9.5% and 5.8% respectively, of our issued and outstanding common
stock.
Provisions of our charter documents could discourage an acquisition
of our company that would benefit our stockholders.
Provisions of our Certificate of Incorporation, By-laws and Stockholders
Rights Plan 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.
We may not be able to successfully integrate the targeted therapeutic
technology business acquired from Biotech Australia into our business.
We expect that the February 2002 acquisition of the targeted therapeutic
technology business of Biotech Australia Pty. Ltd. by our subsidiary,
Access Pharmaceuticals Australia Pty. Ltd., will result in certain benefits
including the development of a new drug delivery technology platform, an
internal capability to perform biological studies which we previously out-
sourced, which could enhance our ability to identify lead compounds more
rapidly and develop the necessary preclinical data for regulatory filings
and the achievement of the critical mass necessary for us to accelerate the
development of our technology platforms. Our ability to achieve these and
other expected benefits of the acquisition depends in part upon the
integration of the newly acquired technology and personnel of Access
Pharmaceuticals Australia with our technology, operations and personnel
in a timely and efficient manner. We cannot assure you that we will be
able to successfully integrate the targeted therapeutic technology business
and the operations of our foreign subsidiary and its personnel with our
business. In addition, we cannot assure you that our business will achieve
improved revenues, efficiencies or synergies as a result of the acquisition.
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.
12
ITEM 2. PROPERTIES
We maintain one facility of approximately 15,000 square feet for
administrative offices and laboratories in Dallas, Texas. We have a lease
agreement for the facility, which terminates in March 2006. However, we
have an option for early termination. Adjacent space may be available for
expansion which we believe would accommodate growth for the
foreseeable future.
Our subsidiary, Access Pharmaceuticals Australia Pty. Limited, leases
approximately 6,000 square feet for offices and laboratories in New South
Wales, Australia.
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.
23
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 2001 and 2000. 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, 2001
- -----------------------------------
First quarter $ 5.95 $ 2.30
Second quarter 4.95 2.49
Third quarter 4.00 2.60
Fourth quarter 4.52 2.56
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
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 28, 2002
was approximately 5,500. On March 28, 2002, the closing price for the
common stock as quoted on the AMEX was $3.68. There were
13,051,734 shares of common stock outstanding at March 28, 2002.
Recent Sales of Unregistered Securities
None.
24
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, 2001, has been derived from our audited
consolidated financial statements and notes thereto appearing elsewhere in
this Form 10-K 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,
------------------------------------------------
2001 2000 1999 1998 1997
-------- -------- -------- -------- --------
Consolidated Statement of Operations Data:
Total revenues $ 243 $ 107 $ 15 $ - $ 435
Operating loss (6,308) (6,058) (3,364) (3,433) (4,524)
Interest and
miscellaneous income 1,451 972 53 58 119
Interest expense 1,170 342 12 22 36
Net loss (6,027) (5,428) (3,308) (3,397) (4,441)
Common Stock Data:
Net loss per basic and diluted
common share $ (0.47) $ (0.49) $ (0.72) $ (1.28) $ (2.80)
Weighted average basic and
diluted common shares
outstanding 12,857 11,042 4,611 2,650 1,584
December 31,
------------------------------------------------
2001 2000 1999 1998 1997
-------- -------- -------- -------- --------
Consolidated Balance Sheet Data:
Cash, cash equivalents and
short term investments $20,126 $25,809 $ 869 $ 1,487 $ 438
Total assets 25,487 30,526 4,600 2,351 1,447
Deferred revenue 508 551 155 - -
Convertible notes 13,530 13,530 - - -
Total liabilities 16,409 15,522 986 556 848
Total stockholders' equity $ 9,078 $15,004 $ 3,614 $ 1,795 $ 599
(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 our 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 ours 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 our assumption of $239,000 in trade and
accrued payables and
25
$184,000 of Tacora's capital lease obligations.
Certain milestones were met up to June 30, 2000 and we issued an
aggregate of 49,609 shares of our common stock to certain former
creditors of Tacora as a result. There are no further milestones related to
this transaction to be met. 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 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 are a Delaware corporation
in the development stage.
Together with our subsidiaries, we have proprietary patents or rights to
seven drug delivery technology platforms: synthetic polymer targeted
delivery, vitamin mediated targeted delivery (including oral), bioerodible
hydrogel technology, nanoparticles and nanoparticle networks, Residerm
(R) topical delivery, carbohydrate targeting technology and agents for the
prevention and treatment of viral disease, including HIV. In addition, our
partner GlaxoSmithKline, is marketing in the United States our jointly
developed drug - Aphthasol (R), the first FDA approved product for the
treatment of canker sores. We have licensed certain rights for the use of
amlexanox in additional indications from GlaxoSmithKline for numerous,
markets including the worldwide rights for mucositis and other products
excluding the U.S. We are developing new formulations and delivery
forms to evaluate amlexanox in additional clinical indications, including
mucoadhesive disc delivery and mucoadhesive liquid delivery.
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, 2001, our accumulated deficit
was $37,908,000, of which $8,894,000 was the result of the write-off of
excess purchase price.
Results of Operations
Comparison of Years Ended December 31, 2001 and 2000
Our revenue in 2001 was $243,000, as compared to revenue of $107,000
in 2000, an increase of $136,000. We recognize licensing revenue over
the period of the performance obligation under our licensing agreements.
Licensing revenue recognized in 2001 was from several agreements,
including agreements related to various amlexanox projects and Residerm (R)
whereas the licensing revenue that we recognized in 2000 was only from
amlexanox projects.
Our total research spending for the year ended December 31, 2001 was
$4,174,000, as compared to $4,007,000 in 2000, an increase of $167,000.
The increase in expenses was the result of:
* higher salary and salary related expenses due to additional staff
($461,000);
* higher development and clinical development costs for our
polymer platinate project ($195,000);
* higher clinical development costs ($102,000) for amlexanox
development projects for the cream and gel formulations;
* higher internal lab costs due to the additional staff and
projects ($52,000); and
26
* other net increases ($6,000).
These increases were offset by:
* lower clinical development costs for the following
amlexanox projects: OraDisc (TM) ($491,000) and OraRinse (TM)
($80,000); and
* lower moving and recruiting expenses for scientific
personnel ($78,000).
We expect our research spending to increase and remain higher than it has
been in 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.
Our total general and administrative expenses were $1,959,000 for 2001
and $1,736,000 in 2000. Our general and administrative expenses
increased $223,000 in 2001 due to:
* higher patent and license expenses ($118,000);
* higher shareholder expenses ($95,000);
* executive search fee ($30,000); and
* higher rent expenses ($19,000); and
* other net increases ($4,000).
These increases were offset by lower foreign tax expense ($43,000).
Depreciation and amortization was $418,000 in 2001 as compared to
$422,000 in 2000, a decrease of $4,000.
Our loss from operations in 2001 was $6,308,000 as compared to a loss
of $6,058,000 in 2000.
Our interest and miscellaneous income was $1,451,000 for 2001 as
compared to $922,000 for 2000, an increase of $479,000. The increase in
interest income ($403,000) was due to higher net cash balances in 2001
resulting from our private placements of common stock and our
convertible note offering in the second half of 2000. The increase in
miscellaneous income ($76,000) was due entirely to a settlement in 2002
of a dispute with a vendor.
Interest expense was $1,170,000 for 2001 as compared to $342,000 for
the same period in 2000, an increase of $828,000. The increase in interest
expense was due to interest accrued on the $13.5 million convertible notes
issued in September 2000 and amortization of debt issuance costs.
Net loss for 2001 was $6,027,000, or a $0.47 basic and diluted loss per
common share compared with a loss of $5,428,000, or a $0.49 basic and
diluted loss per common share, for 2000.
Comparison of Years Ended December 31, 2000 and 1999
Our revenue in 2000 was $107,000, as compared to revenue of $15,000
in 1999, an increase of $92,000. We recognize licensing revenue over the
period of the performance obligation under our licensing agreements.
Licensing revenue recognized in 2000 was from several amlexanox
agreements. Revenues in 1999 were for an option payment on our
carbohydrate polymer technology as applied to the field of selectively
replicating viruses.
Our 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 and 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);
27
* higher development costs for our hydrogel project ($72,000);
* additional travel expenses ($52,000);
* moving expenses for scientific personal ($56,000); and
* recruitment expenses ($59,000).
Our total general and administrative expenses were $1,736,000 for 2000
and $1,471,000 in 1999. Our general and administrative 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
* 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
was due to:
* additional amortization of goodwill of $143,000 recorded in
2000 versus 1999 as a result of the acquisition of Virologix
Corporation in July 1999; and
* additional amortization of licenses totaling $58,000 due to
additional license