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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Form 10-Q

For the quarterly period ended March 31, 2003

or

For the transition period from                 to

Commission File Number 0-29993

INTRABIOTICS PHARMACEUTICALS, INC.

2483 East Bayshore Road, Suite 100
Palo Alto, CA 94303
(Address of principal executive offices)

(650) 526-6800
(Registrant’s telephone number including area code)

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 o

Indicate by checkmark whether registrant is an accelerated filer (as defined in Rule 12b-2 of Securities Exchange Act of 1934).
Yes o       No x

There were 3,269,168 shares of the Company’s Common Stock, par value $.001, outstanding as of April 30, 2003.

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INTRABIOTICS PHARMACEUTICALS, INC.

FORM 10-Q
QUARTER ENDED March 31, 2003

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PART I. FINANCIAL INFORMATION

ITEM I. FINANCIAL STATEMENTS

INTRABIOTICS PHARMACEUTICALS, INC.
CONDENSED BALANCE SHEETS
(IN THOUSANDS)

See accompanying notes

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INTRABIOTICS PHARMACEUTICALS, INC
CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

(UNAUDITED)

See accompanying notes.

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INTRABIOTICS PHARMACEUTICALS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

(UNAUDITED)

See accompanying notes.

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INTRABIOTICS PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS

(Unaudited)

Note 1. Basis of Presentation

     The accompanying condensed financial statements are unaudited and have been prepared by IntraBiotics Pharmaceuticals, Inc. (the “Company”) in accordance with the rules and regulations of the Securities and Exchange Commission for interim financial information, and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X.

     Certain information and footnote disclosures normally included in the Company’s annual audited financial statements (as required by accounting principles generally accepted in the United States) have been condensed or omitted. The interim condensed financial statements, in the opinion of management, reflect all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the Company’s financial position as of March 31, 2003, the results of its operations and cash flows for the three-month periods ended March 31, 2003 and 2002.

     The results of operations of the interim periods are not necessarily indicative of the results of operations to be expected for the fiscal year. These interim financial statements should be read in conjunction with the audited financial statements for the year ended December 31, 2002, which are contained in the Company’s Annual Report on Form 10-K, and filed with the Securities and Exchange Commission. The Balance Sheet as of December 31, 2002 is derived from such audited financial statements.

     In August 2002, the Financial Accounting Standards Board issued Statement No. 146 (“SFAS 146”), “Accounting for Costs Associated with Exit or Disposal Activities.” SFAS No. 146 supersedes Emerging Issues Task Force Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs To Exit an Activity (Including Certain Costs Associated with a Restructuring)” and requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred, as opposed to when management is committed to an exit plan. SFAS No. 146 also establishes that the liability should initially be measured and recorded at fair value. This Statement is effective for exit or disposal activities initiated after December 31, 2002. The provisions of SFAS No. 146 are required to be applied prospectively after the adoption date to newly initiated exit activities, and may affect the timing of recognizing future restructuring costs, as well as the amounts recognized. The adoption of the statement on January 1, 2003 did not have a material impact on our financial position, results of operations or disclosure.

     In November 2002, the FASB issued Interpretation No. 45 (“FIN 45”), “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.” FIN 45 requires that a liability be recorded in the guarantor’s balance sheet upon issuance of a guarantee. In addition, FIN 45 requires disclosures about the guarantees that an entity has issued. FIN 45 is effective on a prospective basis to guarantees issued or modified after December 31, 2002. The disclosure requirements of FIN 45 are effective for financial statements for interim and annual periods ending after December 31, 2002. The adoption of FIN 45 did not have any impact on our financial position, results of operations or disclosure.

     In January 2003, the FASB issued FASB Interpretation No. 46 (“FIN 46”), “Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51.” FIN 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN 46 is effective for all new variable interest entities created or acquired after January 31, 2003. For variable interest entities created or acquired prior to February 1, 2003, the provisions of FIN 46 must be applied for the first interim or annual period beginning after June 15, 2003. The adoption of FIN 46 did not have any effect upon our financial condition or results of operations.

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Note 2. Comprehensive Loss

     Comprehensive loss is primarily comprised of net loss and net unrealized gains or losses on available-for-sale securities. There is no material difference between the reported net loss and the comprehensive loss for all periods presented.

Note 3. Contractual Commitments

     In February 2003, the Company entered into an operating lease agreement for a facility in Palo Alto, California, which expires in June 2004. Under the terms of the lease, the Company is committed to pay approximately $84,000 in 2003 and $43,000 in 2004.

Note 4. Stock-Based Compensation

     As permitted by Statement of Financial Accounting Standards No. 123 (“SFAS 123”), “Accounting for Stock-Based Compensation”, as amended by Statement of Financial Standards No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure,” the Company has elected to follow Accounting Principles Board Opinion No. 25 (“APB 25”), “Accounting for Stock Issued to Employees” and related Interpretations in accounting for stock-based employee compensation. Under APB 25, if the exercise price of the Company’s employee and director stock options equals or exceeds the deemed fair value of the underlying stock on the date of grant, no compensation expense is recognized. When the exercise price of the employee or director stock options is less than the deemed fair value of the underlying stock on the grant date, the Company records deferred compensation for the difference. Deferred compensation is being amortized on a straight-line basis over the vesting period of the original award, ranging from four to six years.

     Options or stock awards issued to non-employees are recorded at their fair value as determined in accordance with SFAS 123, and are recognized over the related service period and are periodically remeasured as the underlying options vest.

     The following table illustrates the effect on net loss and net loss per share if the Company had applied the fair value recognition provisions of SFAS 123 to stock-based employee compensation (in thousands, except per share amounts):

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The fair value for the Company’s options was estimated at the date of the grant using the Black-Scholes option pricing model for the three-month periods ended March 31, 2003 and 2002 with the following weighted-average assumptions:

Note 5. Stock Options Cancellation and Regrant

     In February 2003, the Board of Directors approved a cancellation and regrant of stock options held by the Company’s remaining employees, consultants and directors of the Company. Participants in the program elected to exchange their current unexercised options in a one-for-one exchange for new options, except for Dr. Mario’s 54,166 options granted in 2002 outside of the plan, which were exchanged for 12,500 new options. Upon election, all current stock options were cancelled and new stock options were granted. New options were issued with an exercise price equal to the closing price on February 5, 2003, or $2.76 per share (post-split—see Note 9). All new options vest monthly over a four-year period beginning in March 2003. The new options have a five-year life and will expire before March 2008 if not exercised. Variable accounting will be used, starting on the date of regrant, on the new stock option grants and may have a significant impact on the Company’s future results of operations. During the three-month period ended March 31, 2003, the Company recorded zero compensation expense related to variable accounting for these options.

Note 6. Net Loss Per Share

Net loss per share has been computed according to Financial Accounting Standards Board Statement No. 128, “Earnings Per Share”, which requires disclosure of basic and diluted earnings per share. Basic and diluted earnings per share is calculated using the weighted-average number of shares of common stock outstanding during the period, less shares subject to repurchase. Diluted earnings per share include the impact of potentially dilutive securities. As the Company’s potentially dilutive securities (stock options and warrants) were anti-dilutive for all periods, they were not included in the computation of weighted-average shares used in computing diluted net loss per share. The total number of shares excluded from the calculations of diluted net loss per share for stock options, warrants and convertible preferred stock were 984,598 and 401,371 for the three-month periods ended March 31, 2003 and 2002, respectively.

Note 7. Reclassifications

     Certain reclassifications of prior year amounts in Stockholders’ Equity have been made to account for the 1-for-12 reverse stock split, which the Company effected on April 10, 2003.

Note 8. Restructuring and Other Charges

     In October 2002, the Company announced a restructuring plan as a result of the failure of its then recently completed phase III clinical trial for the prevention of oral mucositis in cancer patients. This restructuring plan reduced headcount by 26 employees in research and development and general and administrative, or 70% of the Company’s workforce. In accordance with provisions of EITF 94-3 and related interpretations, the Company recorded restructuring charges of $848,000 for severance costs of which $784,000 were paid as of December 31, 2002. No other charges were expensed as a result of the restructuring plan. The remaining severance accrual as of December 31, 2002 of $64,000 was paid in January 2003 to employees who left the company in December 2002. No other charges were expensed in 2003 as a result of the restructuring plan.

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Note 9. Subsequent Events

     On April 3, 2003, the Company’s stockholders authorized a 1-for-12 reverse stock split of all outstanding shares of the Company’s common stock. The split became effective on April 10, 2003. All share and per share amounts have been adjusted to reflect the stock split for all periods presented.

     On May 1, 2003, in a private placement transaction, the Company sold shares of a newly created Series A convertible preferred stock and issued warrants to purchase common stock resulting in gross cash proceeds of $3.5 million. The primary purpose of completing the private placement was to provide funds to allow the Company to conduct and complete the clinical trial of iseganan HCl for the prevention of ventilator-associated pneumonia (VAP), as well as for other general corporate purposes and working capital.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     The following Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements, which involve risks, uncertainties and assumptions. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of many factors, including, but not limited to, those set forth below under “RISKS RELATED TO OUR BUSINESS”. The following discussion should be read in conjunction with the financial statements and notes included elsewhere herein and in our 2002 audited financial statements and notes thereto included in our 2002 Annual Report on Form 10-K. All forward-looking statements included in this document are based on information available to us on the date of this document, and except as required by law, we assume no obligation to update any of the forward-looking statements contained in this report to reflect any future events or developments.

Overview

     IntraBiotics Pharmaceuticals, Inc. is a biopharmaceutical company focused on developing iseganan HCl oral solution for the prevention of ventilator-associated pneumonia (VAP).

     In 2002, we were primarily developing iseganan HCl for the prevention of ulcerative oral mucositis and were also evaluating whether an infectious component of oral mucositis could be prevented or reduced by this novel antimicrobial drug. We concluded two large studies, one in patients receiving radiation therapy to the head and neck, and a second in patients undergoing aggressive chemotherapy. In the radiation therapy study, there was no difference between iseganan HCl and placebo, and in the chemotherapy study, differences in favor of iseganan HCl were insufficient to achieve statistical significance. Iseganan HCl appears to be safe when applied to the oral cavity. We are not pursuing further development of iseganan HCl to prevent oral mucositis and, instead we are now developing iseganan HCl to prevent VAP, the most common infection occurring in mechanically ventilated patients.

     A phase I/IIa trial of iseganan HCl oral solution evaluating safety and antimicrobial activity in mechanically ventilated patients was completed in February 2001. Single doses of iseganan HCl reduced the level of bacteria in the oral cavity by more than 100-fold compared to pre-treatment baseline levels in patients who required artificial ventilation. In this study, we also selected the optimal formulation and dosage strength of iseganan HCl. The phase I/IIa study demonstrated that administration of iseganan HCl every four hours progressively reduced the level of bacteria in the oral cavity.

     We have met with thought leaders involved in the care of mechanically ventilated patients. Together, we designed a phase II/III study to test the effectiveness of iseganan HCl in preventing VAP. We have also met with the FDA to obtain their feedback on the trial. The phase II/III trial is designed to enroll 500 patients in a double blind, placebo controlled study. Enrollment in the trial is expected to begin in the middle of 2003, and preliminary data from this trial are expected in the second quarter of 2004. We cannot be certain that iseganan HCl oral solution will prove to be safe or effective in the prevention of VAP, or will receive regulatory approvals.

     The Company has in the past ordered and received, and may in the future receive, significant quantities of iseganan HCl drug substance. The Company’s policy is to record any prepayments of such orders as “Prepaid drug substance”. When title to the drug substance is accepted by the Company, the purchase price, including prepaid amounts, is accounted for as a research and development expense. As a result, the Company may at times hold a significant amount of iseganan HCl inventory, with the value of this drug substance not reflected on the Company’s balance sheet.

     At March 31, 2003, the Company held over seven kg of finished iseganan HCl and a significant amount of partially completed iseganan HCl drug product. Also at March 31, 2003, the Company has Prepaid drug substance of $2.4 million relating to a previously placed order of an additional seven kg of iseganan HCl expected to be delivered in 2003. When title to this seven kg order is accepted, the Company will record a research and development expense for this $2.4 million, plus $250,000 for an additional amount payable upon transfer of title.

     Since commencing operations in 1994, we have not generated any revenue from product sales, and we have funded our operations primarily through the private sale of equity securities, funds received from a

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terminated collaboration agreement, the proceeds of equipment financing arrangements and our initial public offering of common stock in March 2000. On May 1, 2003, in a private placement transaction, we sold shares of a newly created Series A convertible preferred stock and warrants to purchase common stock resulting in aggregate gross cash proceeds of $3.5 million. The primary purpose of completing the private placement was to provide funds to allow us to conduct and complete our clinical trial of iseganan HCl for the prevention of VAP as well as for other general corporate purposes and working capital. We will need to raise additional funds in the future to continue our operations.

     In February 2003, the Board of Directors approved a cancellation and regrant of stock options held by the remaining employees, consultants and directors of the Company. The purpose of this program is to both provide a long-term incentive to the Company’s employees, directors and consultants and to further align their interests with those of its stockholders. Participants in the program elected to exchange their current unexercised options in a one-for-one exchange for new options, except for Dr. Mario’s 54,166 options granted in 2002 outside of the plan, which were exchanged for 12,500 new options. Upon election, all current stock options were cancelled and new stock options were granted. New options were issued with an exercise price equal to the closing price on February 5, 2003, or $2.76 per share (post-split). All new options vest monthly over a four-year period beginning in March 2003. The new options have a five-year life and will expire before March 2008 if not exercised. Variable accounting will be used, starting on the date of regrant, on the new stock option grants and may have a significant impact on the Company’s future results of operations. During the three-month period ended March 31, 2003, the Company recorded zero compensation expense related to variable accounting for these options.

     On April 3, 2003, the Company’s stockholders authorized a 1-for-12 reverse stock split of all outstanding shares of the Company’s common stock. The split became effective on April 10, 2003. All share and per share amounts have been adjusted to reflect the stock split for all periods presented.

Critical Accounting Policies

     There have been no material changes to the Company’s critical accounting policies, which are included and described in our Form 10-K for the year ended December 31, 2002 filed with the Securities and Exchange Commission.

RESULTS OF OPERATIONS

Three-month periods ended March 31, 2003 and 2002

Research and Development

     Research and development expenses for the three-month period ended March 31, 2003 consist of costs related to the preparation for a new phase II/III clinical trial for iseganan HCl oral solution for the prevention of VAP. For the three-month period ended March 31, 2002, the research and development expenses consisted of costs related to our phase III clinical trials for iseganan HCl oral solution for the prevention of oral mucositis. Research and development expenses decreased to $268,000 in the three-month period ended March 31, 2003 from $7.0 million for the same period of 2002. Expenses related to our then-enrolling phase III clinical trials for iseganan HCl oral solution for the prevention of oral mucositis during the 2002 period were significantly higher than expenses in the 2003 period related to the commencement of preparations for the new phase II/III clinical trial for the prevention of VAP. We expect research and development expenses to increase significantly as patients are enrolled in the second half of 2003 and the first half of 2004 for the new phase II/III clinical trial. In addition, in October 2002, as a result of negative results for the oral mucositis trial, we reduced our research and development headcount from 27 at March 31, 2002 down to three at March 31, 2003. We believe our current staff is sufficient to conduct the planned phase II/III trial for the prevention of VAP. Research and development costs primarily include salaries for research and development personnel, costs for contractor, consultant and clinical trial site fees, drug substance, supplies, administrative expenses and allocated facilities costs. Included in research and development expenses are

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non-cash deferred compensation charges of $0 and $281,000 in the three-month period ended March 31, 2003 and 2002, respectively. The decrease between periods was due to the cancellation of options for terminated employees.

General and Administrative

     General and administrative expenses increased to $1.7 million in the three-month period ended March 31, 2003, from $1.5 million for the same period in 2002. The increase in general and administrative expense is primarily a result of $380,000 of severance costs recorded in the three-month period ended March 31, 2003 for the reduction of sales, marketing and business development staff as well as reduced allocation of facilities and general administrative expenses to research and development activities. General and administrative costs include salaries for administrative personnel, outside contractors, legal and accounting fees, insurance, deferred compensation, facilities, supplies and general administrative expenses. Included in general and administrative expenses are non-cash deferred compensation charges of $62,000 and $207,000 in the three-month period ended March 31, 2003 and 2002, respectively. The decrease between periods was due to the cancellation of options for terminated employees.

Arbitration Settlement

     The arbitration between us and a contract vendor relating to a drug dispensing error in iseganan HCI oral solution phase III clinical trials was resolved amicably in January 2002. We received $3.6 million in the settlement during the quarter ended March 31, 2002 and we had no comparable item for the three-month period ended March 31, 2003.

Restructuring and Other Charges

     There were no expenses recorded for restructuring during the three-month period ended March 31, 2003, compared to $91,000 for the same period in 2002. The decrease in restructuring and other charges was due to the fact that there were no new restructuring actions occurring in the first quarter of 2003 as compared to the same period of 2002.

Interest Income and Expense

     Interest income decreased to $26,000 in the three-month period ended March 31, 2003 from $265,000 for the same period in 2002. The decrease in interest income resulted from the decrease in average interest earning investment balances as well as lower interest rates in 2003 relative to the comparable prior year period. Interest expense decreased to zero for the three-month period ended March 31, 2003 from $153,000 for the same period in 2002. The decrease in interest expense is attributed to the repayment of our line of credit and bank loan in October 2002.

LIQUIDITY AND CAPITAL RESOURCES

     Cash, cash equivalents, short-term investments and restricted cash were $11.4 million as of March 31, 2003, compared to $13.3 million as of December 31, 2002. At March 31, 2003, we had restricted cash deposits of $250,000 in connection with a standby letter of credit issued to PolyPeptide Laboratories A/S for a drug substance. We had no debt outstanding as of March 31, 2003. We invest excess funds in short-term money market funds.

     Net cash used in operating activities for the three-month periods ended March 31, 2003 and 2002 was $1.9 million and $3.6 million, respectively. Our cash used for operating activities in each period consisted primarily of the net loss for each period, excluding non-cash expenses consisting primarily of amortization of deferred stock compensation expense, and a decrease in prepaid expenses in 2002.

     Net cash provided by investing activities for the three-month periods ended March 31, 2003 and 2002 was zero.

     Net cash provided by financing activities for the three-month periods ended March 31, 2003 and 2002 was $1,000 and $13.9 million, respectively. Cash provided by financing activities for the three-month period ended March 31, 2003 was from the issuance of common stock purchased under the Employee

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Stock Purchase Plan. Cash provided by financing activities for the three-month period ended March 31, 2002 was due to $14.3 million of gross proceeds from the issuance of 5.9 million shares of common stock in a private placement transaction, partially offset by $469,000 in payments on financing obligations to a bank.

The following are future contractual commitments at March 31, 2003, (in thousands):

     The $528,000 drug substance commitment represents a commitment to PolyPeptide Laboratories A/S. In 2003 the commitment represents the payment of $250,000 upon acceptance of a drug substance, $40,000 for the completion of a development report, and a $38,000 fee for storage of drug substance. The remaining $200,000 represents storage fees for our drug substance in future periods.

     Operating leases relate to the lease for our facility in Palo Alto, California, which expires in June 2004. Under the terms of the lease we have committed to pay a total of $84,000 and $43,000 in 2003 and 2004, respectively.

     The severance payments relate to the reduction of staff during the three-month period ended March 31, 2003, primarily associated with sales, marketing and business development staff.

     The consulting payments relate to a former officer of IntraBiotics, who departed in November 2001.

     We expect to continue to incur substantial operating losses. Including the completion of the $3.5 million financing on May 1, 2003, we believe that existing capital resources and interest income will be sufficient to fund our planned operations for at least the next 12 months, as we pursue the development of iseganan HCl for the prevention of VAP.

     This forecast is a forward-looking statement that involves risks and uncertainties, and actual results could vary. Our future capital requirements will depend on many factors, including:

•		the timing, delay, cost, extent and results of clinical trials;
•		future opportunities for raising capital;
•		payments to third parties for manufacturing scale up;
•		the costs and timing of regulatory approvals;
•		the costs of establishing sales, marketing and distribution capabilities; and
•		the progress of our development activities.

     Until we can generate sufficient cash from our operations, which we do not expect for the foreseeable future, we expect to finance future cash needs through private and public financings, including equity financings. We cannot be certain that additional funding will be available when needed or on favorable terms. If additional funding is not available, we may need to delay or curtail our development and clinical trial activities to a significant extent, or we may be forced to cease operations.

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RISKS RELATED TO OUR BUSINESS

     Our business faces significant risks and the risks described below may not be the only risks we face. Additional risks that we do not know of or that we currently believe are immaterial may also impair our business operations. If any of the events or circumstances described in the following risks actually occurs, our business, financial condition, or results of operations could be materially adversely affected and the trading price of our common stock could decline.

We expect to continue to incur future operating losses and may never achieve profitability.

     We have never generated revenue from product sales, and we have incurred significant net losses in each year since inception. We incurred net losses of $34.5 million in 2002 and $1.9 million in the three-month period ended March 31, 2003. As of March 31, 2003, our accumulated deficit was approximately $202.2 million. We expect to continue to incur substantial additional losses for the foreseeable future, and we may never become profitable. To date, we have financed our operations primarily through the private sale of equity securities, funds received from a terminated collaboration agreement, the proceeds of equipment financing arrangements, and our initial public offering of common stock in March 2000. In the first quarter of 2003, we commenced preparations for a new phase II/III trial of iseganan HCl oral solution for the prevention of VAP. We may also develop iseganan HCl for other indications in the future or acquire or license other products.

     We will receive product revenues only if we complete clinical trials with respect to one or more products, receive regulatory approvals and successfully commercialize such products. We do not know whether we will be successful in developing iseganan HCl for our currently planned VAP indication or other indications, or in acquiring or licensing other products.

We must raise capital to continue our operations, and if we fail to obtain the capital necessary to fund our operations, we will be unable to develop our drug candidates and may have to cease operations.

     At March 31, 2003, our cash and cash equivalents, including short-term investments, were $11.4 million, which included restricted cash of $250,000. We believe these cash, cash equivalents and investments, in addition to the $3.5 million gross proceeds from the private placement completed on May 1, 2003, will be sufficient to meet our current operating and capital requirements for at least the next 12 months. However, we have based this estimate on assumptions that may prove to be wrong, and we cannot assure that estimates and assumptions will remain unchanged in the future. For example, we are currently assuming that we will have iseganan HCl in active clinical development over the next 12 months without any significant staff or other resources expansion. To the extent we pursue the development of iseganan HCl for other indications or acquire or license other products, we will need to raise additional capital to fund clinical development costs. For the year ended December 31, 2002 and the three-month period ended March 31, 2003, net cash used for operating activities was $26.3 million and $1.9 million, respectively. Our future liquidity and capital requirements will depend on many factors, including timing, cost and progress of our VAP trial, our evaluation of, and decisions with respect to, our strategic alternatives, costs associated with the regulatory approvals, securing in-licensing opportunities, purchasing additional products or drug candidates and conducting pre-clinical research and clinical development of those drug candidates.

     We believe that additional financing will be required in the future to fund our operations, conduct any other possible iseganan HCl trials or commercialize our current and any future product candidates. We do not know whether additional financing will be available when