Working Together to Find a Cure     Print Page | Close Window

Press Release

PLASMATECH BIOPHARMACEUTICALS INC Files SEC form 10-Q, Quarterly Report
Form 10-Q for PLASMATECH BIOPHARMACEUTICALS INC

14-Nov-2014

Quarterly Report


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

OVERVIEW

PlasmaTech Biopharmaceuticals, Inc., formerly known as Access Pharmaceuticals, Inc., (together with our subsidiaries, "We," "PlasmaTech" or the "Company") is a Delaware corporation. We are an emerging biopharmaceutical company focused on developing a range of pharmaceutical products primarily based upon our nanopolymer chemistry technologies, and salt diafiltration process ("SDF'') technology recently licensed from Plasma Technologies LLC (''Licensor''). We currently have one marketed product licensed in the U.S., Europe, China, Australia, New Zealand and Korea. We also have additional products and platform technologies in various stages of development and are seeking partners to continue development and/or to license the technology.

Marketed Product
MuGard is our marketed product for the management of oral mucositis, a frequent side-effect of cancer therapy for which there is no established treatment. The market for mucositis treatment is estimated to be in excess of $1.0 billion worldwide. MuGard, a proprietary nanopolymer formulation, has received marketing allowance in the U.S. from the FDA. We launched MuGard in the U.S. in 2010.

On June 6, 2013 we entered into an exclusive license agreement with AMAG Pharmaceuticals, Inc. (''AMAG''), related to the commercialization of MuGard in the U.S. and its territories. Under the terms of the licensing agreement we received an upfront licensing fee of $3.3 million and a tiered, double-digit royalty on net sales of MuGard in the licensed territory. We receive quarterly royalty payments from AMAG.

On August 5, 2010, we entered into an exclusive license with RHEI Pharmaceuticals (''RHEI'')
related to the commercialization of MuGard in China and other Southeast Asian countries. Our China partners have received an acceptance letter from the State Food and Drug Administration of the People's Republic of China, which provides marketing approval in China. MuGard has been manufactured in the U.S. and shipped to China for sale. RHEI has rights to sub-license MuGard sales in some Southeast Asia countries.

On March 11, 2014, we announced we had entered into an exclusive license agreement with Hanmi Pharmaceutical Co. Ltd. (''Hanmi'') related to MuGard commercialization in South Korea.

On August 7, 2014, we entered into an exclusive license agreement with Norgine B.V. (''Norgine''), a leading independent European specialty pharmaceutical company, for the


commercialization of MuGard in Europe. Under the terms of the license agreement, we could receive up to $10 million in milestone payments and an escalating double digit royalty on the net sales of the oral mucositis product, MuGard, in the licensed territories. Norgine will develop, manufacture, and commercialize MuGard in the European Union, Switzerland, Norway, Iceland and Lichtenstein. Norgine anticipates launching MuGard in 2015.

On October 27, 2014, we entered into an exclusive license agreement with Norgine B.V., a European specialist pharmaceutical company, for the commercialization of MuGard in Australia and New Zealand. The terms of the agreement are congruent to the Company's recent license with Norgine for MuGard in Europe. Norgine will now develop, manufacture and commercialize MuGard in the new territories.

We are actively seeking partners to license MuGard in other territories.

Product Candidates
ProctiGard received FDA marketing clearance on July 22, 2014. ProctiGard is our product for the treatment of radiation proctitis, a frequent side effect of radiation treatment to the pelvic region. Radiation proctitis, or RP, is the inflammation and damage to the lower portion of the colon after exposure to x-rays or ionizing radiation as part of radiation therapy. RP is most common after treatments for cancer, such as cervical, colon and prostate cancer. RP can be acute, occurring within weeks of initiation of therapy, or can occur months or years after treatment. We intend to commercialize ProctiGard in a manner similar to the commercialization of MuGard, which may include confirmatory clinical trials, with the objective of commercialization in collaboration with marketing partners globally.

LexaGard is our proprietary formulation of the generic pharmaceutical agent, amlexanox, a drug with known anti-inflammatory and anti-allergic properties that has been approved and used in the US, Japan, and other countries. We are positioning LexaGard for treatment of conditions of the upper gastrointestinal tract including Barrett's esophagus and esophagitis.

We are also developing additional products using our proprietary mucoadhesive hydrogel technology as a mucoprotectant and/or delivery vehicle, as well as our vitamin B-12 mediated delivery technology.


                                                                Clinical
Compound            Originator   Technology     Indication      Stage (1)

MuGard             PlasmaTech   Mucoadhesive   Mucositis       - Launched
                                 Liquid                         in U.S.
                                                                - Licensed
                                                                to AMAG:
                                                                  U.S.
                                                                rights
                                                                - Licensed
                                                                to Norgine:
                                                                  European
                                                                Union,
                                                                  Australia
                                                                and New
                                                                  Zealand
                                                                rights
                                                                - Licensed
                                                                to RHEI :
                                                                 China
                                                                rights and
                                                                other
                                                                 SE Asia
                                                                countries
                                                                - Licensed
                                                                to Hanmi:
                                                                 South
                                                                Korea
                                                                rights
                                                                - Licensed
                                                                to Norgine
                                                                -
                                                                 European
                                                                Union
                                                                rights

ProctiGard         PlasmaTech   Mucoadhesive   Radiation       FDA
                                 hydrogel       proctitis       clearance
                                 technology                     7/22/14

LexaGard           PlasmaTech   Mucoadhesive   Inflammatory    Filings
                                 hydrogel       and             being
                                 technology     ulcerative      reviewed at
                                                conditions      FDA
                                                of the
                                                esophagus

Alpha-1             Licensor     Proprietary    Various         Process
Antitrypsin (AAT)                biological                     validation
                                 processing

Intravenous         Licensor     Proprietary    Various         Process
immune globulin                  biological                     validation
 (IVIG)                          processing

(1) For more information, see "Government Regulation" in our Annual Report on Form 10-K for description of clinical stages.

Recent Developments
On October 27, 2014, we entered into an exclusive license agreement with Norgine B.V., a European specialist pharmaceutical company, for the commercialization of MuGard in Australia and New Zealand. The terms of the agreement are congruent to the Company's recent license with Norgine for MuGard in Europe. Norgine will now develop, manufacture and commercialize MuGard in the new territories.

On August 7, 2014, we entered into an exclusive license agreement with Norgine, an independent European specialty pharmaceutical company, for the commercialization of MuGard in Europe. Under the terms of the license agreement, we will receive up to $10 million in milestone payments and an escalating double digit royalty on the net sales of the oral mucositis product, MuGard, in the licensed territories. Norgine will develop, manufacture, and commercialize MuGard in the European Union, Switzerland, Norway, Iceland and Lichtenstein. Norgine anticipates launching MuGard in 2015.

On July 22, 2014 we received 510(K) marketing clearance from the FDA for ProctiGard for the treatment of symptomatic management of rectal mucositis. The patent protects a wide range of liquid formulations for the prevention and treatment of mucosal diseases and disorders.

On July 8, 2014, we announced we received notification from the Hong Kong Patent Office that a patent for MuGard has been granted.


On September 12, 2014, we announced we had received notification from the European Patent Office that an additional European patent for MuGard had been granted. The patent (EP1997478) protects a wide range of liquid formulations for the prevention and treatment of mucosal diseases and disorders.

Reverse Stock Split
Our Board of Directors and majority shareholders approved an amendment to our certificate of incorporation to effect a reverse stock split of our common stock at a ratio between 1 for 5 and 1 for 50 in order to satisfy requirements for the listing of our common stock on the NASDAQ Capital Market. Our stockholders further authorized the board of directors to determine the ratio at which the reverse stock split would be effected. Our board of directors authorized the ratio of the Reverse Split on October 16, 2014 and to be effective at the opening of business on October 24, 2014. We amended our certificate of incorporation to effect the reverse split at a ratio of 1 for 50 on October 24, 2014 (the ''Reverse Split''). All share and per share numbers included in this Quarterly Report on Form 10-Q give effect to the Reverse Split.

Plasma Technologies LLC License
On September 22, 2014, we entered into an exclusive, worldwide licensing agreement with Licensor to obtain rights to utilize and to sub-license its recently patented methods for the extraction of therapeutic biologics from human plasma. Plasma biologics are bio-pharmaceutical proteins extracted, purified, and formulated from human blood plasma by the use of biotechnological processing techniques including precipitation, diafiltration, affinity chromatography, and ion-exchange chromatography. Because plasma biologics are biosimilar, they are less likely than recombinant or transgenic proteins to cause toxic or other adverse reactions, or cause adverse immunological responses such as the stimulation of inhibitors in recipients.

Under the terms of the licensing agreement, we will pay a license fee of $5 million in a combination of cash and common stock subject to the achievement of certain events, a regulatory approval milestone payment in common shares upon the first FDA regulatory approval of a drug derived from the Licensor's proprietary SDF process, and a tiered royalty on annual net sales of plasma fractions produced with Licensor's proprietary SDF process.

Licensor was founded to develop superior high-yield technology to extract a wide range of therapeutically useful proteins from human blood plasma. We believe that Licensor's proprietary SDF process is expected to significantly enhance yields of key value blood proteins, including alpha-1 antitrypsin (''AAT''), expanding market opportunities, while greatly enhancing margins. We obtained rights to utilize and sub-license to other pharmaceutical firms the recently patented improved methods for the extraction of therapeutic biologics from human plasma. We believe that Licensor's lead product, SDF Alpha offers a low-risk, high revenue, short time-to-market respiratory product for treatment of inherited COPD (pulmonary emphysema), among other genetic AAT deficiencies. Additionally, the ability to extract several additional therapeutically useful and important proteins, due to the process being less destructive than historical fractionation processes, may enable us to seek new therapeutic applications and address high-value-added orphan indications.


Series A Preferred Stock
As approved by the shareholders at the Annual Meeting of Stockholders on May 15, 2014, we filed on October 23, 2014, in Delaware a Certificate of Amendment to Certificate of Designations, Rights and Preferences of Series A Cumulative Convertible Preferred Stock (the ''Certificate of Amendment'') to amend the Certificate of Amendment to allow a special mandatory conversion of the Series A Cumulative Convertible Preferred Stock, $0.01 par value per share under certain circumstances, including qualified financings, as described in the Certificate of Amendment.

Series B Preferred Stock
On September 10, 2014 we entered into a Share Exchange Agreement for Series B Preferred Stock between us and SCO Capital Partners LLC and Beach Capital LLC whereby we agreed in connection with the consummation of an offering for the Series B Preferred Stock to be converted into Common Stock. All Series B Preferred Stock dividends payable, interest on Series B Preferred Stock dividends payable and liquidated damages will be converted into Series B Preferred Stock just prior to an offering of at least $10 million. The Series B Preferred Stock, including the shares of Series B Preferred Stock issued upon conversion of all accrued dividends payable, interest on dividends payable and liquidated damages thereon, subject to a liquidation preference, will be exchanged for shares of Common Stock upon consummation of an offering at the offering price pursuant to a Share Exchange Agreement dated September 10, 2014.

LIQUIDITY AND CAPITAL RESOURCES

We have funded our operations primarily through private sales of common stock, preferred stock, convertible notes and through licensing agreements. Our principal source of liquidity is cash and cash equivalents. Licensing payments and royalty revenues provided limited funding for operations during the period ended September 30, 2014. As of September 30, 2014, our cash and cash equivalents were $165,000 and our net cash expenditures for the period ended September 30, 2014, was approximately $30,000 per month. As of September 30, 2014, our working capital deficit was $12,372,000. Our working capital deficit at September 30, 2014 represented an increase of $3,986,000 as compared to our working capital deficit as of December 31, 2013 of $8,386,000. The increase in the working capital deficit at September 30, 2014 reflects nine months of net operating costs and changes in current assets and liabilities, partially offset by the license fee from Hanmi and $250,000 from the Grid Note (see below).

On September 10, 2014, we entered into an Unsecured Grid Note, for up to $250,000 with SCO Capital Partners LLC. As of November 14, 2014 we have drawn a total of $250,000. The interest rate is 8% per annum and the maturity date is August 31, 2015 unless a financing of at least $5,000,000 occurs, in which extent the note is required to be paid in full.

On September 22, 2014, we entered into an exclusive, worldwide licensing agreement with Licensor to obtain rights to utilize and to sub-license to other pharmaceuticals firms, its recently patented methods for the extraction of therapeutic biologics from human plasma.

Under the terms of the licensing agreement, we will pay a license fee of $5 million in a combination of cash and common stock subject to the achievement of certain events, a regulatory approval milestone payment in common shares upon the first FDA regulatory approval of a drug


derived from the Licensor's proprietary SDF process, and a tiered royalty on annual net sales of plasma fractions produced with Licensor's proprietary SDF process.

As of November 14, 2014, we did not have enough capital to achieve our long-term goals. If we raise additional funds by selling equity securities, the relative equity ownership of our existing investors will be diluted and the new investors could obtain terms more favorable than previous investors. A failure to obtain necessary additional capital in the future could jeopardize our operations and our ability to continue as a going concern.

We have incurred negative cash flows from operations since inception, and have expended, and expect to continue to expend in the future, substantial funds to complete our planned product development efforts. Since inception, our expenses have significantly exceeded revenues, resulting in an accumulated deficit as of September 30, 2014 of $283,447,000. We expect that our capital resources, financing strategy, revenues from MuGard sales, and expected receipts due under our license agreements will be adequate to fund our current level of operations into the first quarter of 2015. However, our ability to fund operations over this time could change significantly depending upon changes to future operational funding obligations or capital expenditures. As a result, we may be required to seek additional financing sources within the next twelve months. We cannot provide assurance that we will ever be able to generate sufficient product revenue or royalty revenue to achieve profitability on a sustained basis or at all.

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 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.

THIRD QUARTER 2014 COMPARED TO THIRD QUARTER 2013

Our licensing revenue for the third quarter of 2014 was $152,000 as compared to $144,000 for the same period of 2013, an increase of $8,000. We recognize licensing revenue over the period of the performance obligation under our licensing agreements.

We recorded royalty revenue for MuGard of $84,000 for third quarter of 2014 and $45,000 royalties in the same period of 2013, an increase of $39,000. We licensed MuGard to AMAG on June 6, 2013 and currently receive quarterly royalties from AMAG under our agreement.

Total research and development spending for the third quarter of 2014 was $73,000, as compared to $236,000 for the same period of 2013, a decrease of $163,000. The decrease in expenses was primarily due to:

secreased salary and related costs ($82,000) from reduced scientific staff;

decreased clinical development with trials for MuGard ($72,000);

offset by increased scientific consulting expense ($53,000); and

other net decreases in research spending ($62,000).


Product costs for MuGard in the United States were $7,000 for the third quarter of 2013. There were no product costs in 2014 due to no sales of MuGard by us.

Total selling, general and administrative expenses were $795,000 for the third quarter of 2014, as compared to $642,000 for the same period of 2013, an increase of $153,000. The increase in expenses was due primarily to the following:

increased stock compensation expense for options granted to employees, officers, directors and consultants ($137,000) (no options were granted in the third quarter 2014 or 2013);

increased legal fees ($67,000);

increased shareholder consulting fees ($51,000);

offset by decreased salary and related costs ($93,000) from reduced general and administrative staff; and

net decrease other general and administrative expenses ($9,000).

Total operating expenses for the third quarter of 2014 were $869,000 as compared to total operating expenses of $885,000 for the same period of 2013, a decrease of $16,000 for the reasons listed above.

Interest and miscellaneous income was $11,000 for the third quarter of 2014 as compared to $46,000 for the same period of 2013, a decrease of $35,000. Miscellaneous income was higher in 2013 due to write-offs of certain accounts payable.

Interest and other expense was $147,000 for the third quarter of 2014 as compared to $96,000 in the same period of 2013, an increase of $51,000. The interest represents interest accrued on unpaid dividends. No dividends have been paid in 2013 or 2014.

We recorded a gain related to warrants classified as derivative liabilities of $168,000 for the third quarter of 2013. The warrants expired in November 2013 and February 2014 so there was no derivative liability or gain/loss during the third quarter of 2014.

We recorded a loss for the derivative liability related to preferred stock of $700,000 for the third quarter of 2014 and a gain of $421,000 for the same period of 2013. We recorded a derivative liability in 2010 per the requirements of accounting guidance due to the possibility of repricing our Series A Preferred Stock if we sold our common stock at a price below the original conversion price.

Preferred stock dividends of $740,000 were accrued for the third quarter of 2014 and $742,000 for the same period of 2013, a decrease of $2,000. Dividends are due semi-annually in either cash or common stock for the Series A Preferred Stock and due quarterly in either cash or common stock for the Series B Preferred Stock.

Net loss allocable to common stockholders for the third quarter of 2014 was $2,209,000, or a $4.15 basic and diluted loss per common share as compared to a net loss of $899,000, or a $1.77 basic and diluted income per common share, for the same period in 2013, an increased loss of $1,310,000.


NINE MONTHS ENDED SEPTEMBER 30, 2014 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
2013

Product sales of MuGard in the United States totaled $1,542,000 for the first nine months of 2013. We did not have any sales of MuGard in 2014 since MuGard was licensed to AMAG on June 6, 2013. We are currently receiving royalties from AMAG for sale of MuGard.

Our licensing revenue for the first nine months of 2014 was $448,000 as compared to $290,000 for the same period of 2013, an increase of $158,000. We recognize licensing revenue over the period of the performance obligation under our licensing agreements.

We recorded royalty revenue for MuGard of $243,000 for first nine months of 2014 and $48,000 royalties in the same period of 2013, an increase of $195,000. We licensed MuGard to AMAG on June 6, 2013 and currently receive quarterly royalties from AMAG under our agreement.

Total research and development spending for the first nine months of 2014 was $298,000, as compared to $756,000 for the same period of 2013, a decrease of $458,000. The decrease in research and development expenses was primarily due to:

decreased clinical development with trials for MuGard ($298,000);

decreased salary and related costs ($231,000) from reduced scientific staff;

offset by increased scientific consulting expense ($248,000); and

other net decreases in research spending ($177,000).

Product costs for MuGard in the United States were $125,000 for the first nine months of 2013. There were no product costs in 2014 due to no sales of MuGard by us.

Total selling, general and administrative expenses were $3,055,000 for the first nine months of 2014, as compared to $4,117,000 for the same period of 2013, a decrease of $1,062,000. The decrease in expenses was due primarily to the following:

decreased net MuGard product selling expenses ($960,000) which includes an increase of $212,000 of MuGard product returns;

decreased salary and related costs ($552,000) from reduced general and administrative staff;

decreased legal fees ($402,000); offset by

net increase other general and administrative expenses ($132,000); and

increased stock compensation expense for options granted to employees, officers, directors and consultants ($720,000), options were granted in 2014 and no options were granted in 2013.

Depreciation and amortization was $2,000 for the first nine months of 2014 as compared to $2,000 for the same period in 2013.

Total operating expenses for the first nine months of 2014 were $3,355,000 as compared to total operating expenses of $5,000,000 for the same period of 2013, a decrease of $1,645,000 for the reasons listed above.


Interest and miscellaneous income was $45,000 for the first nine months of 2014 as compared to $215,000 for the same period of 2013, a decrease of $170,000. Miscellaneous income was higher in 2013 due to sale of certain platinum inventory and to write-offs of certain accounts payables.

Interest and other expense was $406,000 for the first nine months of 2014 as compared to $182,000 in the same period of 2013, an increase of $224,000. The interest represents interest accrued on unpaid dividends. No dividends have been paid in 2013 or 2014.

We recorded a gain related to warrants classified as derivative liabilities of $140,000 for the first nine months of 2013. The warrants expired in November 2013 and February 2014 so there was no derivative liability or gain/loss during the first nine months of 2014.

We recorded a loss for the derivative liability related to preferred stock of $11,810,000 for the first nine months of 2014 and a gain of $8,471,000 for the same period of 2013. We recorded a derivative liability per the requirements of accounting guidance due to the possibility of resetting the conversion price of our Series A Preferred Stock if we sold our common stock at a price below the original price.

Preferred stock dividends of $2,191,000 were accrued for the first nine months of 2014 and $2,202,000 for the same period of 2013, a decrease of $11,000. Dividends are due semi-annually in either cash or common stock for the Series A Preferred Stock and due quarterly in either cash or preferred stock for the Series B Preferred Stock.

Net loss allocable to common stockholders for the first nine months of 2014 was $17,026,000, or a $32.46 basic and diluted loss per common share as compared to a net income of $3,322,000, or a $6.61 basic and $6.55 diluted income per common share, for the same period in 2013, an increased loss of $20,348,000.