As Filed with the Securities and Exchange Commission on
January 8, 1999 Registration No. ________
--------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
PRE-EFFECTIVE AMENDMENT NO. 1
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
ACCESS PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
-------------------
Delaware 3841 83-0221517
- ------------------------------ ---------------------------- -----------------
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification No.)
--------------------
2600 Stemmons Freeway, Suite 176,
Dallas, Texas 75207
(214) 905-5100
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
--------------------
Kerry P. Gray
President and Chief Executive Officer
Access Pharmaceuticals, Inc.
2600 Stemmons Freeway, Suite 176
Dallas, Texas 75207
(214) 905-5100
(Name, address, including zip code, and
telephone number, including area code, of agent for service)
---------------------
with copies to:
John J. Concannon III
Bingham Dana LLP
150 Federal Street
Boston, MA 02110
(617) 951-8000
---------------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement is declared effective.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, check the following box. /x/
CALCULATION OF REGISTRATION FEE
Title of Securities to be Amount to be Registered Proposed Maximum
Registered Offering Price Per Share(1)
- ------------------------- ---------------------- ------------------------
Common Stock $.01 par 2,440,305 shares (2) $ 1.67
value per share
Proposed Maximum
Aggregate Offering Amount of
Price (1) Registration Fee
- ------------------- -------------------
$4,075,309 $1,202.22 (3)
(1) Estimated solely for the purpose of determining the registration fee.
Calculated in accordance with Rule 457(c) under the Securities Act of 1933
based on the average of the bid and ask prices reported in the consolidated
trading system of the National Association of Securities Dealers, Inc.
Automated Quotation System Over-the-Counter Bulletin Board on August 26, 1998.
(2) Includes 579,616 shares issuable to certain selling stockholders upon
exercise of warrants for the purchase of shares of the Registrant's Common
Stock (see "Selling Stockholders")
(3) Previously paid.
-------------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance
with Section 8(a) of the Securities Act of 1933 or until the Registration
Statement shall become effective on such date as the Commission, acting
pursuant to Section 8(a), may determine.
<PAGE>
Access Pharmaceuticals, Inc.
PROSPECTUS
2,440,305 Shares of
Common Stock, $.01 par value
This Prospectus ("Prospectus") of Access Pharmaceuticals,
Inc. a Delaware corporation (together with its subsidiary, the
"Company" or "Access"), relates to the sale of up to 2,440,305 shares (the
"Shares") of the Company's common stock, $.01 par value per share (the
"Common Stock"), being sold by certain stockholders of the
Company (the "Selling Stockholders") for their respective
accounts. See "Description of Capital Stock," "Security
Ownership of Certain Beneficial Owners and Management" and
"Selling Stockholders." The Company will not receive any
proceeds from the sale of the Shares by the Selling
Stockholders. None of the Shares have been registered prior
to the filing of the Registration Statement of which this
Prospectus is a part.
The Common Stock of the Company is traded on the OTC
Bulletin Board under the symbol AXCS. On January 7, 1999
the last reported sale price of the Common Stock on the OTC
Bulletin Board was $2.36 per share. See "Price Range of
Common Stock."
Price to Public Underwriting Discounts and Proceeds to Selling
Commissions Stockholders
--------------- -------------------------- -------------------
Per Share (1) (1)(2) (1)(2)
Total (1) (1)(2) (1)(2)
(1) The sale or distribution of the Shares may be effected
directly to purchasers by the Selling Stockholders as
principals or through one or more underwriters, brokers,
dealers or agents from time to time in one or more
transactions (which may involve crosses or block
transactions) or (i) on any exchange or in the over-the-
counter market, or (ii) in transactions otherwise than in
the over-the-counter market or (iii) through the writing of
options (whether such options are listed on an options
exchange or otherwise) on, or settlement of short sales of,
the Shares. Any of such transactions may be effected at
market prices prevailing at the time of sale, at prices
related to such prevailing market prices, at varying prices
determined at the time of sale or at negotiated or fixed
prices in each case as determined by the Selling Stockholder
or by agreement between the Selling Stockholder and
underwriters, brokers, dealers or agents, or purchasers. If
the Selling Stockholders effect such transactions by selling
Shares to or through underwriters, brokers, dealers or
agents, such underwriters, brokers, dealers or agents may
receive compensation in the form of discounts, concessions
or commissions from the Selling Stockholders or commissions
from purchasers of Securities for whom they may act as agent
(which discounts, concessions or commissions as to
particular underwriters, brokers, dealers or agents may be
in excess of those customary in the types of transactions
involved). The Selling Stockholders and any brokers, dealers
or agents that participate in the distribution of the Shares
may be deemed to be underwriters, and any profit on the sale
of Shares by them and any discounts, concessions or
commissions received by any such underwriters, brokers,
dealers or agents may be deemed to be underwriting discounts
and commissions under the Securities Act of 1933, as amended
("Securities Act").
Under the securities laws of certain states, the Shares may
be sold in such states only through registered or licensed
brokers or dealers. In addition, in certain states the
Shares may not be sold unless the Shares have been
registered or qualified for sale in such state or an
exemption from registration or qualification is available
and is complied with.
The Company will pay all of the expenses incident to the
registration, offering and sale of the Shares to the public
hereunder other than commissions, fees and discounts of
underwriters, brokers, dealers and agents. The Company has
agreed to indemnify the Selling Stockholders and any
underwriters against certain liabilities under the
Securities Act. The Company will not receive any of the
proceeds from the sale of any of the Shares by the Selling
Stockholders.
See "Plan of Distribution", "Management's Discussion and
Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources" and "Selling Stockholders."
(2) The Company has agreed to prepare and file this
Prospectus and the related Registration Statement and
supplements and amendments thereto required by the
Securities Act with the Securities and Exchange Commission,
to register or qualify the Shares if required under
applicable Blue Sky laws, and to deliver copies of the
Prospectus to the
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Selling Stockholders. The expenses incurred in connection
with the same, estimated at $34,000, will be borne by the
Company. The Company will not be responsible for any
discounts, concessions, commissions or other compensation
due to any broker or dealer in connection with the sale of
any of the shares offered hereby, which expenses will be
borne by the Selling Stockholder.
For a discussion of certain factors that should be
considered by prospective investors See "Risk Factors"
beginning on Page 3.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE
SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE
SECURITIES OR PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
----------------------
The date of this Prospectus is January 8,1999
AVAILABLE INFORMATION
The Company is subject to the reporting requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and in accordance therewith files periodic reports
and other information with the Securities and Exchange
Commission (the "Commission"). Such reports, proxy
statements and other information concerning the Company may
be inspected and copies may be obtained (at prescribed
rates) at public reference facilities maintained by the
Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the regional offices of the
Commission located at Seven World Trade Center, 13th Floor,
New York, New York 10048 and at Northwest Atrium Center, 500
W. Madison Street, Suite 1400, Chicago, Illinois 60661-2511.
Copies of such material can also be obtained from the Public
Reference Section, Securities and Exchange Commission, 450
Fifth Street, N.W., Washington, D.C. 20549, upon payment of
prescribed rates.
The Company has filed a Registration Statement on Form SB-2
(the "Registration Statement") under the Securities Act with
the Commission with respect to the Common Stock being
offered pursuant to this Prospectus. As permitted by the
rules and regulations of the Commission, this Prospectus
omits certain of the information contained in the
Registration Statement. For further information with respect
to the Company and the Common Stock being offered pursuant
to this Prospectus, reference is hereby made to such
Registration Statement, including the exhibits filed as part
thereof. Statements contained in this Prospectus concerning
the provisions of certain documents filed with, or
incorporated by reference in, the Registration Statement are
not necessarily complete, each such statement being
qualified in all respects by such reference. Copies of all
or any part of the Registration Statement, including the
documents incorporated by reference therein or exhibits
thereto, may be obtained upon payment of the prescribed
rates at the offices of the Commission set forth above.
Upon request, the Company will provide without charge to
each person to whom a copy of this Prospectus has been
delivered a copy of any information that was incorporated by
reference in the Prospectus (other than exhibits to
documents, unless such exhibits are specifically
incorporated by reference into the information incorporated
reference in the Prospectus). The Company will also provide
upon specific request, without charge to each person to whom
a copy of this Prospectus has been delivered, a copy of all
documents filed from time to time by the Company with the
Commission pursuant to the Exchange Act. Requests for such
copies should be directed to to the Company at 2600 Stemmons
Frwy, Suite 176, Dallas, Texas 75207, attention Chief
Financial Officer, Telephone requests may be directed to the
Chief Financial Officer at (214) 905-5100.
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<PAGE>
RISK FACTORS
The following factors should be considered carefully in
considering an investment in the shares of Common Stock
offered by this Prospectus.
Certain of the statements contained in this Prospectus are
forward looking statements within the meaning of Section 27a
of the Securities Act of 1933, as amended, that involves
risks and uncertainties including but not limited to the
risk factors set forth below:
History of Losses and Expectation of Future Losses;
Uncertainty of Future Profitability The Company has
incurred a cumulative operating loss of approximately $22.4
million through September 30, 1998. Losses have resulted
principally from costs incurred in research and development
activities related to the Company's efforts to develop
target candidates and from the associated administrative
costs. The Company expects to incur significant additional
operating losses over the next several years and expects
cumulative losses to increase substantially due to expanded
research and development efforts, pre-clinical and clinical
trials and development of manufacturing capabilities. In the
next few years, the Company's revenues may be limited to any
amounts received under research or drug development
collaborations that the Company will establish. There can be
no assurance, however, that the Company will be able to
establish any collaborative relationships on terms
acceptable to the Company. The Company's ability to achieve
significant revenue or profitability is dependent on its
ability to successfully complete the development of drug
candidates, to develop and obtain patent protection and
regulatory approvals for the drug candidates and to
manufacture and commercialize the resulting drugs. The
Company will not receive revenues or royalties from
commercial sales for a significant number of years, if at
all. Failure to receive significant revenues or achieve
profitable operations would impair the Company's ability to
sustain operations. There can be no assurance that the
Company will ever successfully identify, develop,
commercialize, patent, manufacture and market any products,
obtain required regulatory approvals or achieve
profitability.
Research and Development Focus Access' focus is on
commercializing proprietary biopharmaceutical patents.
Although Access may in the future have some royalty income,
it is still in the development stage, and its proposed
operations are subject to all the risks inherent in the
establishment of a new business enterprise, including the
need for substantial capital. Access has recorded minimal
revenue to date. It is anticipated that Access will remain
principally engaged in research and development activities
for an indeterminate, but substantial, period of time. As a
non-revenue producing company, normal credit arrangements
are unavailable to Access and, therefore, it is likely that
Access would be forced to accept unfavorable terms if it
should attempt to raise additional needed funds through
borrowing. There can be no assurance that any such credit
arrangements would be available. Further, it is anticipated
that additional losses will be incurred in the future, and
there can be no assurances that Access will ever achieve
significant revenues.
Uncertainties Associated with Research and Development
Activities 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 due to unanticipated
regulatory delays or demands, unexpected adverse side
effects or insufficient therapeutic efficacy will prevent or
substantially slow the research and development effort and
ultimately could have a material adverse effect on Access.
Absence of Operating Revenue Royalties received by Access
for sales of Actinex-TM and Amlexanox-TM have not been
significant to date. There can be no assurance of revenue or
profits in the future. Access currently has no products
approved for sale and there can be no assurance as to the
expenditures of time and resources that may be required to
complete the development of potential Access products and
obtain approval for sale or if such completion and approval
can be realized.
Going Concern Uncertainty The Company's audited
consolidated financial statements as of and for the twelve
months ended December 31, 1997 contain a reference to the
Company's ability to meet its obligations as they become due
and indicate that the Company may be unable to continue as
a going concern.
Early Stage of Product Development; No Assurance of
Successful Commercialization The Company's potential drug
candidates will be subject to the risks of failure inherent
in the development of pharmaceutical products based on new
technologies. These risks include the possibilities that any
or all of the Company's drug candidates will be found to be
unsafe, ineffective or toxic 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
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viable drugs or to manufacture on a large scale or will be
uneconomical to market; that proprietary rights of third
parties will preclude the Company from marketing such drugs;
or that third parties will market superior or equivalent
drugs. The failure to develop safe, commercially viable
drugs would have a material adverse effect on the Company's
business, operating results and financial condition.
Additional Financing Requirements; Uncertainty of Available
Funding The Company will require substantial additional
funds for its development programs, for operating expenses,
for pursuing regulatory clearances, and for prosecuting and
defending its intellectual property rights before it can
expect to realize significant revenues from commercial
sales. The Company believes that existing capital resources,
interest income and revenue from possible collaborative
agreements, will be sufficient to fund its operating
expenses and capital requirements as currently planned for
six to eight months. However, there can be no assurance that
such funds will be sufficient to fund its operating expenses
and capital requirements during such period. The Company's
actual cash requirements may vary materially from those now
planned and will depend upon numerous factors, including the
results of the Company's research and development and
collaboration programs, the timing and results of
preclinical trials, the ability of the Company to maintain
existing and establish new collaborative agreements with
other companies to provide funding to the Company, the
technological advances and activities of competitors and
other factors. Thereafter, the Company will need to raise
substantial additional capital to fund its operations. The
Company intends to seek such additional funding through
issuance of equity securities or collaborative or other
arrangements with corporate partners. If additional funds
are raised by issuing equity securities, further dilution to
existing stockholders may result and future investors may be
granted rights superior to those of existing stockholders.
There can be no assurance, however, that any such equity
offerings will occur, or that additional financing will be
available from any of these sources or, if available, will
be available on acceptable or affordable terms. If adequate
funds are not available, the Company may be required to
delay, reduce the scope of or eliminate one or more of its
research and development programs or to obtain funds by
entering into arrangements with collaborative partners or
others that require the Company to issue additional equity
securities or to relinquish rights to certain technologies
or drug candidates that the Company would not otherwise
issue or relinquish in order to continue independent
operations.
Dependence on Others; Collaborations The Company's strategy
for the research, development and commercialization of its
potential pharmaceutical products may require the Company to
enter into various arrangements with corporate and academic
collaborators, licensors, licensees and others, in addition
to those already established, and may therefore be dependent
upon the subsequent success of outside parties in performing
their responsibilities. There can be no assurance that the
Company will be able to establish additional collaborative
arrangements or license agreements that the Company deems
necessary or acceptable to develop and commercialize its
potential pharmaceutical products, or that any of its
collaborative arrangements or license agreements will be
successful.
No Marketing, Sales, Clinical Testing or Regulatory
Compliance Activities In view of the development stage of
the Company and its research and development programs, the
Company has restricted hiring to research scientists and a
small administrative staff and has made no investment in
manufacturing, production, marketing, product sales or
regulatory compliance resources. If the Company successfully
develops any commercially marketable pharmaceutical
products, it may seek to enter joint venture, sublicense or
other marketing arrangements with parties that have an
established marketing capability or it may choose to pursue
the commercialization of such products on its own. There can
be no assurance, however, that the Company will be able to
enter into such marketing arrangements on acceptable terms,
if at all. Further, the Company will need to hire additional
personnel skilled in the clinical testing and regulatory
compliance process and in marketing or product sales if it
develops pharmaceutical products with commercial potential
that it determines to commercialize itself. There can be no
assurance, however, that it will be able to acquire such
resources or personnel.
Manufacturing Limitations The Company intends to establish
arrangements with contract manufacturers to supply
sufficient quantities of products to conduct clinical trials
as well as for the manufacture, packaging, labeling and
distribution of finished pharmaceutical products if its
potential products are approved for commercialization. If
the Company is unable to contract for a sufficient supply of
its potential pharmaceutical products on acceptable terms,
the Company's preclinical and human clinical testing
schedule may be delayed, resulting in the delay of
submission of products for regulatory approval and
initiation of new development programs, which may have a
material adverse effect on the Company. If the Company
encounters delays or difficulties in establishing
relationships with manufacturers to produce, package, label
and distribute its finished pharmaceutical or other medical
products (if any), market introduction and subsequent sales
of such products would be adversely affected. Moreover,
contract manufacturers that the Company may use must adhere
to current Good Manufacturing Practices ("GMP") required by
the FDA. Manufacturing facilities must pass a preapproval
plant inspection before the FDA will issue a pre-market
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approval or product and establishment licenses, where
applicable, for the products. If the Company is unable to
obtain or retain third party manufacturing on commercially
acceptable terms, it may not be able to commercialize its
products as planned. The Company's potential dependence upon
third parties for the manufacture of its products may
adversely affect the Company's profit margins and its
ability to develop and deliver such products on a timely and
competitive basis. The Company has no experience in the
manufacture of pharmaceutical products in clinical
quantities or for commercial purposes. In addition, there
can be no assurance that the Company will be able to
manufacture or enter into arrangements with third parties
for the manufacture of any products successfully and in a
cost-effective manner.
Hazardous Materials; Environmental Matters The Company's
research and development processes involve the controlled
use of hazardous materials. The Company is subject to
federal, state and local laws and regulations governing the
use, manufacture, storage, handling and disposal of such
materials and certain waste products. Although the Company
believes that its 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, the Company could be held liable for any damages
that result and any such liability could exceed the
resources of the Company. Although the Company believes that
it is in compliance in all material respects with applicable
environmental laws and regulations and currently does not
expect to make material capital expenditures for
environmental control facilities in the near-term, there can
be no assurance that the Company will not be required to
incur significant costs to comply with environmental laws
and regulations in the future, nor that the operations,
business or assets of the Company will not be materially
adversely affected by current or future environmental laws
or regulations.
Impact of Extensive Government Regulation The FDA and
comparable agencies in foreign countries impose substantial
requirements upon the introduction of pharmaceutical
products through lengthy and detailed preclinical,
laboratory and clinical testing procedures, sampling
activities and other costly and time-consuming procedures to
establish their safety and efficacy. All of the Company's
drug candidates will require governmental approvals for
commercialization, none of which have been obtained.
Preclinical and clinical trials and manufacturing of the
Company's 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. There can be no assurance as to
when the Company, independently or with its collaborative
partners, might first submit an Investigational New Drug
Application ("IND") for FDA or other regulatory review.
Government regulation also affects the manufacturing and
marketing of pharmaceutical products.
The effect of government regulation may be to delay
marketing of the Company's potential drugs for a
considerable or indefinite period of time, impose costly
procedural requirements upon the Company's 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 the Company's marketing as well as the Company's
ability to generate significant revenues from commercial
sales. There can be no assurance that FDA or other
regulatory approvals for any drug candidates developed by
the Company 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
initial regulatory approvals for the Company's drug
candidates are obtained, the Company, its drugs and its
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 such drug or
manufacturer, including withdrawal of the drug from the
market. The regulatory standards are applied stringently by
the FDA and other regulatory authorities and failure to
comply can, among other things, result in fines, denial or
withdrawal of regulatory approvals, product recalls or
seizures, operating restrictions and criminal prosecution.
The FDA has developed two "fast track" policies for certain
new drugs (including anti-cancer agents), one policy for
expedited development and review and one policy for
accelerated approval. The expedited development and review
policy applies to new drug therapies that are intended to
treat persons with life-threatening and severely-
debilitating illnesses, especially where no satisfactory
alternative therapy exists. The accelerated approval policy
applies to certain new drugs that are intended to treat
persons with serious or life-threatening illnesses that
provide a meaningful therapeutic benefit to patients over
existing treatments. See "Business-Government Regulation."
There can be no assurance that any drug candidate
contemplated by the Company will qualify for the FDA's
various fast track or priority approval policies. Nor can
there by any assurance that such policies will remain as
currently implemented by the FDA.
Drug-related Risks Adverse side effects of treatment of
diseases and disorders in both human and animal
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patients are business risks in the pharmaceutical industry.
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 cause a company to terminate its
efforts to develop the drug for commercial use. Even after
FDA approval of a New Drug Application ("NDA"), adverse side
effects may develop to a greater extent than anticipated
during the clinical testing phase and could result in legal
action against a company. Drug developers and manufacturers,
including Access, may face substantial liability for damages
in the event of adverse side effects or product defects
identified with their products used in clinical tests or
marketed to the public. There can be no assurance that
Access will be able to satisfy any claims for which it may
be held liable resulting from the use or misuse of products
which it has developed, manufactured or sold.
Potential Product Liability and Availability of Insurance
The Company's business exposes it to potential liability
risks that are inherent in the testing, manufacturing and
marketing of pharmaceutical products. The use of the
Company's drug candidates in clinical trials may expose the
Company to product liability claims and possible adverse
publicity. These risks will expand with respect to the
Company's drug candidates, if any, that receive regulatory
approval for commercial sale. Product liability insurance
for the biotechnology industry is generally expensive, if
available at all. The Company does not have product
liability insurance but intends to obtain such coverage if
and when its drug candidates are tested in clinical trials.
However, such coverage is becoming increasingly expensive
and there can be no assurance that the Company will be able
to obtain insurance coverage at acceptable costs or in a
sufficient amount, if at all, or that a product liability
claim would not adversely affect the Company's business,
operating results or financial condition.
Reimbursement and Drug Pricing Uncertainty The successful
commercialization of, and the interest of potential
collaborative partners to invest in, the development of the
Company's drug candidates will depend substantially on
reimbursement of the costs of the resulting drugs and
related treatments at acceptable levels from government
authorities, private health insurers and other
organizations, such as health maintenance organizations
("HMOs"). There can be no assurance that reimbursement in
the United States or elsewhere will be available for any
drugs the Company 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, the Company's
drugs, thereby adversely affecting the Company's business.
If reimbursement is not available or is available only to
limited levels, there can be no assurance that the Company
will be able to obtain collaborative partners to manufacture
and commercialize its drugs, or would be able to obtain a
sufficient financial return on its own manufacture and
commercialization of any future drugs.
Third-party payors are increasingly challenging the prices
charged for medical products and services. Also, the trend
toward managed health care in the United States and the
concurrent growth of organizations such as HMOs, which can
control or significantly influence the purchase of health
care services and products, as well as legislative proposals
to reform health care or reduce government insurance
programs, may result in lower prices of pharmaceutical
products. The cost containment measures that health care
providers are instituting, including practice protocols and
guidelines and clinical pathways, and the effect of any
health care reform, could materially adversely affect the
Company's ability to sell any of its drugs if successfully
developed and approved. Moreover, the Company is unable to
predict what additional legislation or regulation, if any,
relating to the health care industry or third-party coverage
and reimbursement may be enacted in the future or what
effect such legislation or regulation would have on the
Company's business.
Uncertainty of Patents and Proprietary Rights The Company's
success will depend in part on its ability to obtain and
maintain U.S. and foreign patent protection for its drug
candidates and processes, preserve its trade secrets and
operate without infringing the proprietary rights of third
parties. Because of the length of time and expense
associated with bringing new drug candidates through the
development and regulatory approval process to the
marketplace, the pharmaceutical industry has traditionally
placed considerable importance on obtaining patent and trade
secret protection for significant new technologies, products
and processes. Although Access has or licenses eighteen U.S.
patents and three U.S. pending patent applications, there can
be no assurance that any additional patents will issue from
any of the patent applications owned by, or licensed to, the
Company. Further, there can be no assurance that any rights
the Company may have under issued patents will provide the
Company 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.
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. There can be no
assurance that any existing or future patents issued to, or
licensed by, the Company 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 the
Company's drug
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candidates. If the Company's drug candidates or processes
are found to infringe upon the patents or otherwise
impermissibly utilize the intellectual property of others,
the Company's development, manufacture and sale of such drug
candidates could be severely restricted or prohibited. In
such event, the Company may be required to obtain licenses
from third parties to utilize the patents or proprietary
rights of others. There can be no assurance that the Company
will be able to obtain such licenses on acceptable terms, or
at all. There has been significant litigation regarding
patents and other proprietary rights. If the Company becomes
involved in litigation regarding its intellectual property
rights or the intellectual property rights of others, the
potential cost of such litigation (regardless of the
strength of the Company's legal position) and the potential
damages that the Company could be required to pay could be
substantial.
In addition to patent protection, the Company relies on
trade secrets, proprietary know-how and technological
advances which it seeks to protect, in part, by
confidentiality agreements with its collaborative partners,
employees and consultants. There can be no assurance that
these confidentiality agreements will not be breached, that
the Company would have adequate remedies for any such
breach, or that the Company's trade secrets, proprietary
know-how and technological advances will not otherwise
become known or be independently discovered by others.
Intense Competition The biotechnology and pharmaceutical
industries are intensely competitive and subject to rapid
and significant technological change. Competitors of the
Company 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 employ greater financial and other resources,
including larger research and development staffs and more
effective marketing and manufacturing organizations, than
the Company or its collaborative partners. Acquisitions of
competing companies and potential competitors by large
pharmaceutical companies or others could enhance financial,
marketing and other resources available to such competitors.
As a result of academic and government institutions becoming
increasingly aware of the commercial value of their research
findings, such institutions are more likely to enter into
exclusive licensing agreements with commercial enterprises,
including competitors of the Company, to market commercial
products. There can be no assurance that the Company's
competitors will not succeed in developing technologies and
drugs that are more effective or less costly than any which
are being developed by the Company or which would render the
Company's technology and future drugs obsolete and
noncompetitive.
In addition, some of the Company's competitors have greater
experience than the Company in conducting preclinical and
clinical trials and obtaining FDA and other regulatory
approvals. Accordingly, the Company's competitors may
succeed in obtaining FDA or other regulatory approvals for
drug candidates more rapidly than the Company. 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, including certain patent and FDA
marketing exclusivity rights that would delay the Company's
ability to market certain products. There can be no
assurance that drugs resulting from the Company's research
and development efforts, or from the joint efforts of the
Company and its collaborative partners, will be able to
compete successfully with competitors' existing products or
products under development or that they will obtain
regulatory approval in the United States or elsewhere.
Uncertainty Associated with Preclinical and Clinical Testing
Before obtaining regulatory approvals for the commercial
sale of any of the Company's potential drugs, the drug
candidates will be subject to extensive preclinical and
clinical trials to demonstrate their safety and efficacy in
humans. The Company is dependent on its collaborative
partners to conduct clinical trials for its drug candidates.
Furthermore, there can be no assurance 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. 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
would have a material adverse effect on the Company's
business, operating results and financial condition. See
"Business-Government Regulation."
No Assurance of Market Acceptance There can be no assurance
that any drugs successfully developed by the Company,
independently or with its collaborative partners, if
approved for marketing, will achieve market acceptance. The
drugs which the Company is attempting to develop will
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 the Company
will depend on a number of factors, including the
establishment and demonstration of the clinical efficacy and
safety of the Company's drug candidates, their potential
advantage over existing therapies and reimbursement policies
of government and third-party payors. There is no assurance
that physicians, patients or the medical community in
general will accept and utilize any drugs that may be
developed by the Company independently
7
<PAGE>
or with its collaborative partners.
Dependence on Key Personnel The Company is highly
dependent upon the efforts of its senior management and
scientific team, including its President and Chief Executive
Officer. The Company does not maintain key man life
insurance for any of its key employees and does not intend
to obtain such insurance. The loss of the services of one or
more of these individuals might impede the achievement of
the Company's development objectives. Because of the
specialized scientific nature of the Company's business, the
Company is highly dependent upon its ability to attract and
retain qualified scientific and technical personnel. 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 the Company's activities.
Possible Volatility of Stock Price Stock prices for many
technology companies fluctuate widely for reasons which may
be unrelated to operating performance or new product or
service announcements. Broad market fluctuations, earnings
and other announcements of other companies, general economic
conditions or other matters unrelated to Access and outside
its control also could affect the market price of the Common
Stock. See "Per Share Prices of and Dividends on Common
Stock."
Limited Market for Common Stock Trading in Access'
securities is presently conducted in the over-the-counter
market on the OTC Bulletin Board. As a result, an investor
may find it difficult to dispose of, or to obtain accurate
quotations as to the price of, the Company's securities. In
addition, the Company's securities are subject to a rule
that imposes additional sales practice requirements on
broker-dealers who sell such securities to persons other
than established customers and accredited investors
(generally with assets of at least $1,000,000, or annual
income exceeding $200,000, or $300,000 together with their
spouse). For transactions covered by this rule, the broker-
dealer must make a special suitability determination for the
purchaser and have received the purchaser's written consent
to the transaction prior to the sale. Consequently, the rule
may affect the ability of broker-dealers to sell the
securities of the Company and may effect the ability of
purchasers to sell their securities in the secondary market.
NASDAQ SmallCap Market or Exchange Listing The Company
intends in the future to file an application for listing on
NASDAQ SmallCap Market or an exchange. The Company
currently does not meet the listing requirements for the
NASDAQ SmallCap Market and there can be no assurances that
the Company will be listed on the NASDAQ SmallCap Market or
any exchange.
Effect of Certain Charter and By-Law Provisions; Possible
Issuance of Preferred Stock Access' Certificate of
Incorporation and Bylaws contain provisions that may
discourage acquisition bids for Access. This could limit the
price that certain investors might be willing to pay in the
future for shares of Common Stock. In addition, shares of
Access 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 the Board of Directors may determine
(including, for example, rights to convert into Common
Stock). The rights of the holders of Common Stock will be
subject to, and may be adversely affected by, the rights of
the holders of any Access Preferred Stock that may be issued
in the future. The issuance of Access 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, or discouraging a third party from acquiring, a
majority of the outstanding voting Common Stock of Access.
Market Impact of Future Sales of Common Stock Sales of
substantial amounts of shares of Access Common Stock in the
public market could adversely affect the market price of the
Common Stock. Currently a significant percentage of the
outstanding shares of Common Stock are unrestricted and
freely tradable or tradable under Rule 144. There also are
outstanding options, warrants and rights to purchase up to
approximately 1,198,000 shares of the Common Stock. The
sale of a substantial amount of these shares could have a
material adverse effect on the future market price of the
Common Stock.
Absence of Dividends Access has not paid cash dividends on
its Common Stock and does not anticipate paying cash
dividends on Common Stock in the foreseeable future. See
"Share Prices of and Dividends on Common Stock."
NASD Requirements The Company's shares were delisted from
the NASDAQ Small Cap Market effective April 27, 1995 for
failure to meet certain financial criteria. The Common Stock
continues to be traded in the over-the-counter market and
reported in the OTC Bulletin Board. As such, the Common
Stock, when recommended by a broker-dealer, is subject to
the limitations of rule 15g-9 under the Exchange Act
("Rule"), which Rule imposes additional sales
8
<PAGE>
practices requirements on broker-dealers that sell the
Common Stock (1) to persons other than (a) existing
customers with a previous history of trading through such
broker-dealer, (b) institutional accredited investors (for
example, a bank or savings and loan association) and (c) a
director and/or officer of the Company and/or the beneficial
owner of 5% or more of the Common Shares or (2) in
transactions not exempt by the Rule. For transactions under
Rule 15g-9, the broker-dealer must obtain written
information from the prospective purchaser as to his or her
financial situation, investment experience and investment
objectives and, based on such information, reasonably
determine that transactions in the security are suitable for
that person and that the prospective investor (or his or her
independent adviser) has sufficient knowledge and experience
in financial matters so as to be reasonably expected to be
capable of evaluating the risks of transactions in such
security. The broker-dealer must also receive the
purchaser's written agreement to the transaction prior to
the sale. Certain broker-dealers, particularly if they are
market makers in the Common Stock, will have to comply with
the disclosure requirements of Rule 15g-2, 15g-3, 15g-4,
15g-5 and 15g-6 under the Exchange Act. Consequently, Rule
15g-9 and these other Rules may adversely affect the ability
of broker-dealers to sell the Common Stock.
Penny Stock Regulations; Illiquid Securities The
regulations of the Securities and Exchange Commission
("Commission") promulgated under the Exchange Act require
additional disclosure relating to the market for penny
stocks in connection with trades in any stock defined as a
penny stock. Commission regulations generally define a penny
stock to be an equity that has a market price of less than
$5.00 per share, subject to certain exceptions. Unless an
exception is available, those regulations require the
delivery, prior to any transaction involving a penny stock,
of a disclosure schedule explaining the penny stock market
and the risks associated therewith and impose various sales
practice requirements on broker-dealers who sell penny
stocks to persons other than established customers and
accredited investors (generally institutions). In addition,
the broker-dealer must provide the customer with current bid
and offer quotations for the penny stock, the compensation
of the broker-dealer and its salesperson in the transaction
and monthly account statements showing the market value of
each penny stock held in the customer's account. Moreover,
broker-dealers who recommend such securities to persons
other than established customers and accredited investors
must make a special written suitability determination for
the purchaser and receive the purchaser's written agreement
to transactions prior to sale. Regulations on penny stocks
could limit the ability of broker-dealers to sell the
Company's securities and thus the ability of purchasers of
the Company's securities to sell their securities in the
secondary market.
Year 2000 Issue The Year 2000 ("Y2K") issue is the result of computer programs
using two instead of four digits to represent the year. These computer programs
may erroneously interpret dates beyond the year 1999, which could cause system
failures or other computer errors, leading to disruptions in operations.
The Company has begun to develop a three-phase program to limit or eliminate
Y2K exposures. Phase I is to identify those systems, applications and third-
party relationships from which the Comapny has exposure to Y2K disruptions in
operations. Phase II is the development and implementation of action plans to
achieve Y2K compliance in all areas prior to the end of the third quarter of
1999. Also included in Phase II is the development of contingency plans which
would be implemented should Y2K compliance not be achieved in order to
minimize disruptions in operations. Phase III is the final testing or
equivalent certification of testing of each major area of exposure to ensure
compliance. The Company intends to complete all phases before the end of the
third quarter of 1999.
The Company has identified three major areas determined to be critical for
successful Y2K compliance: Area 1, which includes financial, research and
development and administrative informational systems applications reliant on
system software; Area 2, which includes research, development and quality
applications reliant on computer programs embedded in microprocessors; and
Area 3, which includes third-party relationships which may be affected by
Area 1 and 2 exposures which exist in other companies.
With respect to Area 1, the Company is completing an internal review and
contacting all software suppliers to determine major areas of Y2K exposure. In
research, development and quality applications (Area 2), the Company is working
with equipment manufactures to identify our exposures. With respect to
Area 3, the Company is in the process of evaluating our reliance on third
parties in order to determine whether their Y2K compliance will adequately
assure our uninterrupted operations.
The Company has yet to complete Phase I of our Y2K program with respect to all
three of the major areas. The Company relies on PC-based systems and does not
expect to incur material costs to transition to Y2K compliant systems in its
internal operations. However, even if the internal systems of the Company are
not materially affected by the Y2K Issue, the Company could be affected by
third-party relationships which, if not Y2K compliant prior to the end of 1999,
could have a material adverse impact on our operations. Because the Company has
not completed Phase II
9
<PAGE>
contingency planning, the Company can not describe what action the Company
would take in any of the areas should Y2K compliance not be achievable in
time. As such, there can be no assurance that the Y2K Issue will not have a
material adverse effect on the Company's business, financial condition or
results of operations. These costs will be expensed as incurred except
for equipment related costs.
As of September 30, 1998, we have not identified any costs related to
replacement or remediation and testing of our Area 1 computer information
systems. Not having completed our Phase I and Phase II evaluations, at this
time we have no basis for estimating the potential cost of our Y2K compliance
programs. The funds for these costs will be part of our cash flow from
operations and expenditures.
THE COMPANY
Access was founded in 1974 as Chemex Corporation, a Wyoming
corporation, and in 1983 changed its name to Chemex
Pharmaceuticals, Inc ("Chemex"). Chemex changed its state of
incorporation from Wyoming to Delaware on June 30, 1989. In
connection with the merger of Access Pharmaceuticals, Inc.,
a Texas Corporation ("API"), with and into the Company on
January 25, 1996, the name of the Company was changed to
Access Pharmaceuticals, Inc.
Access' principal executive office is at 2600 Stemmons
Freeway, Suite 176, Dallas, Texas 75207; its telephone
number is (214) 905-5100.
Unless otherwise indicated herein, the information in this
Prospectus has been adjusted to reflect a one-for-twenty
reverse stock split that was implemented June 18, 1998.
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of
shares by the Selling Shareholders.
10
<PAGE>
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
Since February 1, 1996, the Company's Common Stock trades on
the OTC Bulletin Board under the trading symbol AXCS. Prior
to this date the Common Stock traded under the trading
symbol CHMX. The following table sets forth, for the periods
indicated, the high and low closing prices for the Common
Stock as reported by the OTC Bulletin Board for the
Company's past two fiscal years. The quotations reflect
inter-dealer prices, without retail mark-up, mark-down or
commission and may not represent actual transactions.
<TABLE>
<CAPTION>
Common Stock
--------------------
High Low
--------- ---------
<S> <C> <C>
Fiscal Year Ended December 31, 1999
- -----------------------------------
First quarter (to January 7, 1999) $ 2-23/64 $ 2-17/64
Fiscal Year Ended December 31, 1998
- -----------------------------------
First quarter $14-1/16 $ 5
Second quarter 5-5/8 3-1/16
Third quarter 3-25/64 1-43/64
Fourth quarter 3-37/94 1-5/8
Fiscal Year Ended December 31, 1997
- -----------------------------------
First quarter $25-5/8 $14-3/8
Second quarter 17-3/16 7-1/2
Third quarter 10 3-3/4
Fourth quarter 14-1/16 4-1/16
Fiscal Year Ended December 31, 1996
- -----------------------------------
First quarter $53-3/4 $17-1/2
Second quarter 51-1/4 32-1/2
Third quarter 33-3/4 17-1/2
Fourth quarter 26-1/4 15
</TABLE>
The Company has never declared or paid any cash dividends on
its Preferred Stock or Common Stock and does not anticipate
paying any cash dividends in the foreseeable future. The
payment of dividends, if any, in the future is within the
discretion of the Board of Directors and will depend on
Access' earnings, its capital requirements and financial
condition and other relevant facts. The Company currently
intends to retain all future earnings, if any, to finance
the development and growth of the Company's business.
11
<PAGE>
CAPITALIZATION
The following table sets forth as of September 30, 1998 the
actual capitalization (unaudited) of the Company. This table
should be read in conjunction with the consolidated financial
statements (including the notes thereto), which are included in
this Registration Statement and Prospectus.
<TABLE>
<CAPTION>
September 30, 1998
-------------
<S> <C>
Stockholders' equity:
Preferred Stock: $.01 par value, 2,000,000 shares
authorized; no shares issued and outstanding $ -
Common Stock: $.01 par value, 20,000,000 shares
authorized; 3,439,266 shares issued and outstanding(1) 34,000
Additional paid-in capital 24,869,000
Accumulated deficit during the development stage (22,384,000)
-------------
Total stockholders' equity 2,519,000
-------------
Total capitalization $ 2,519,000
=============
</TABLE>
- -----------------------------------------------
(1) Excludes 1,016,896 shares of Common Stock issuable
pursuant to the exercise of stock options and warrants
outstanding as of January 7, 1999, including:
i) Presently exercisable options for the purchase of
40,280 shares of Common Stock pursuant to the 1987 Stock
Option Plan at a weighted average exercise price of $35.02.
ii) Options granted for the purchase of 306,500 shares of
Common Stock pursuant to the 1995 Stock Option Plan at a
weighted average exercise of $3.00. 100,000 of these options
are presently exercisable.
iii) Warrants granted for the purchase of 670,116 shares of
Common Stock at various terms and exercise prices.
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion of the financial condition and
results of operations of the Company should be read in
conjunction with the Company's Consolidated Financial Statements and
Notes thereto and the other financial information included
elsewhere in this Prospectus.
Overview
Access Pharmaceuticals, Inc. (together with its subsidiary "Access" or
the "Company") is a Delaware corporation in the development stage. The
Company is a site-directed drug targeting company using
bioresponsive carriers to target and control the release of
therapeutic agents into sites of disease activity and
significantly improve the side effect profile of the agents.
The Company has proprietary patents or rights to four
technology platforms: synthetic polymers, Residerm-TM,
carbohydrate targeting technology and selective muscle and
nerve delivery systems. In addition, Access' partner Block
Drug Company is marketing Aphthasol-TM in the United States,
the first FDA approved product for the treatment of canker
sores. Access is currently licensing this product in certain
international markets and developing new delivery forms.
In connection with the merger ("Merger") of Access
Pharmaceuticals, Inc., a Texas corporation ("API"), with and
into Chemex Pharmaceuticals, Inc. ("Chemex") on January 25,
1996, the name of Chemex was changed to Access
Pharmaceuticals, Inc. ("Access" or the "Company").
As a result of the Merger and immediately after the Merger,
the former API Stockholders owned approximately 60% of the
issued and outstanding shares of the Company. Generally
accepted accounting principles require that a company whose
stockholders retain the controlling interest in a combined
business be treated as the acquiror for accounting purposes.
As a consequence, the merger was accounted for as a "reverse
acquisition" for financial reporting purposes and API was
deemed to have acquired an approximate 60% interest in
Chemex. Despite the financial reporting requirement to
account for the acquisition as a "reverse acquisition,"
Chemex remains the continuing legal entity and registrant
for Securities and Exchange Commission reporting purposes.
Subsequent to the Merger of API into Access, the Company has
been managed by the former management of API and the focus
of the Company has changed to a drug delivery company using
advanced drug carrier technology for application in cancer
treatment, dermatology and imaging. In addition, the Company
has developed a drug to treat canker sores that was sold to
Block Drug Company ("Block") and is currently being marketed
in the United States by Block subject to a royalty agreement
with the Company.
In August 1997, the Company entered into an agreement to
collaborate with The Dow Chemical Company ("Dow Chemical")
for the development of products incorporating Dow Chemical's
chelation technology and Access' Bio-Responsive-TM polymer
systems. The collaboration focus is on the development of
MRI contrast agents and radiopharmaceutical diagnostics and
therapeutics. The advancement of the Access developments in
these areas are dependent on securing chelation technology,
which encapsulates metals to avoid adverse effects in the
body.
On December 9, 1997, a wholly-owned subsidiary of Access
merged with Tacora Corporation ("Tacora"), a privately-held
pharmaceutical company based in Seattle, Washington, whereby
Tacora became a wholly-owned subsidiary of Access. Operations have
been included in the Company's consolidated financial statements since
the date of acquisition. Pro forma disclosure relating to the Tacora
acquisition is not presented as the impact is immaterial to
the Company. The Company used the purchase method of
accounting for the acquisition in Tacora. The aggregate
purchase price was $738,000, payable $124,000 in cash and
$192,000 in stock. Additionally, the Company assumed
$239,000 in trade and accrued payables and $183,000 of
Tacora's capital lease obligations. Based upon the
achievement of certain milestones enumerated in the merger
agreement, the Company has issued 24,453 shares and may be
required to issue up to an additional approximate 137,500 shares of
Common Stock to the former stockholders and creditors of
Tacora. Such shares of Common Stock are payable at an
escalating value over the milestone period. The excess
purchase price of the fair value of Tacora's net assets of
$580,000 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.
Since its inception, Access has devoted its resources
primarily to fund its research and development programs. The
Company has been unprofitable since inception and to date
has not received any revenues from the sale of products. No
assurance can be given that the Company will be able to
generate sufficient product revenues to attain profitability
on a sustained basis, if at all. The Company expects to
incur losses for the next several years as it continues to invest in
13
<PAGE>
product research and development, preclinical
studies, clinical trials and regulatory compliance. At September
30, 1998, the Company's accumulated deficit was approximately $22.4 million.
Recent Developments
On June 18, 1998, in conjunction with the first closing of
a private placement, the Company effected a recapitalization
of the Company through a one-for-twenty reverse stock split
of its common stock, $0.04 par value per share, which decreased
the number of authorized shares of common stock from 60.0 million,
at $0.04 par value per share, to 20.0 million shares, $0.01 par value
per share (the "Common Stock"), and decreased the authorized shares of
preferred stock of the Company from 10.0 million to 2.0 million (the
"Recapitalization"). The Recapitalization decreased the number of
outstanding shares of Common Stock from approximately 41.5 million to
2.1 million.
An investment bank has been engaged to assist the Company in
raising funds to support the Company's research and
development activities. As discussed below, from March to
July 1998, the Company raised an aggregate of $5.0 million.
The Company is currently seeking to raise up to an additional $8.0 million
to support product development activities. There can be no assurance,
however, that any such equity offerings will occur, or that additional
financing will be available from any of these sources, or if
available, will be available on acceptabpe or affordable terms.
The Company, assisted by an investment bank, raised $1,200,000 in gross
proceeds ($725,000 received on March 20, 1998 and $475,000 received on April
11, 1998) less cash issuance costs of $47,000, from the
placement of 48 units, each unit consisting of 8,333 shares
of Common Stock and warrants to purchase 8,333 shares of
Common Stock at an exercise price of $3.00 per share. The
placement agent received warrants to purchase 44,527 shares
of Common Stock at $3.00 per share, in accordance with the
offering terms and elected to receive 45,277 shares of
Common Stock in lieu of certain sales commissions and expenses.
On June 18, 1998, the Company, assisted by the same investment
bank, raised an aggregate of $2.9 million in gross proceeds,
less cash issuance costs of $202,000, from the first closing
of a private placement of 953,573 shares of Common Stock at
$3.00 per share. The placement agent for such offering
received warrants to purchase 101,653 shares of Common Stock
at $3.00 per share, in accordance with the offering terms
and elected to receive 62,949 shares of Common Stock in lieu
of certain sales commissions and expenses.
On July 30, 1998, the Company, assisted by the same investment bank,
raised an aggregate of $900,000 in gross proceeds, less cash issuance
costs of $24,000, from the second closing of a private placement of
300,000 shares of Common Stock at $3.00 per share. The
placement agent for such offering received warrants to
purchase 33,445 shares of Common Stock at $3.00 per share,
in accordance with the offering terms and elected to receive
34,450 shares of Common Stock in lieu of certain sales
commissions and expenses.
Through September 30, 1998, issuance costs for the above placements
totaled $405,000. The proceeds of the offering will be used to
fund research and development, working capital, acquisitions,
of complementary companies or technologies and general corporate
purposes.
If and when the Company satisfies all listing requirements,
the Company intends to submit an application for listing on
NASDAQ or an alternate exchange. There can be no assurances
that the Company will be listed on NASDAQ or an alternate
exchange.
All share numbers and prices referenced herein have been adjusted
to reflect the Recapitalization.
On June 8, 1998, the Company entered into an agreement to
license from Block Drug Company the rights to amlexanox oral
paste 5% for certain international markets. Amlexanox oral
paste 5% was jointly developed by the Company and Block Drug
Company, and was subsequently purchased by Block Drug
Company with the Company receiving an up-front fee and
future royalty payments. Amlexanox oral paste 5% is currently
marketed in the United States by Block Drug under the trademark
Aphthasol-TM. Aphthasol-TM was launched to the dental market in
December 1997 and was launched to the general practice physician
market in June 1998.
Access has announced agreements or letters of intent with the following
international partners to market amlexanox 5% paste: In the UK and
Ireland Access signed an agreement on August 18, 1998 with Strakan
Limited. Under the terms of the agreement, Strakan will bear all
costs associated with the regulatory approval process in
the UK and the European community, and will pay milestones
based on cumulative sales and a royalty on sales. On August 20, 1998
Access anounced it had signed a Letter of Intent with Palidin Labs, Inc.
for marketing rights for amlexanox in Canada.
14
<PAGE>
Palidin will bear all costs associated with gaining regulatory approval
in Canada, and will pay milestones based on cummulative sales revenue
and a royalty on sales. Palidin is a subsidiary of PharmaScience. Access
signed a Letter of Intent on October 2, 1998 with Meda AB of Sweden for
licensing rights in Sweden, Findland, Norway, Denmark, Latvia, Estonia,
Lithuania and Iceland. Under the terms of the agreement, Meda will make
an up-front license payment, pay milestone payments and a royallty on
sales. Access also announce on October 15, 1998 the signing of a Letter
of Intent with Dr. Esteve to license amlexanox for Italy, Spain, Portugal
and Greece. Esteve will make an up-front license payment. pay milestone
payments and will pay a royalty on sales.
Access signed an agreement on August 25, 1998 with Virotex Corporation
("ViroTex") to incorporate amlexanox in the proprietary mucoadhesive
technologies being developed by ViroTex. ViroTex is developing an
innovative bioerodiable mucoadhesive ("BEMA") delivery system, which is
a thin film that adheres to the oral mucosa and erode over time
delivering the drug into tissue. Also under development is a film
forming mucocutaneous adsorption ("MCA") gel that deposits a film upon
application to mucosal surfaces adhering well to wet or damp skin, this
technology can also be adapted to an aaerosal spray delivery system.
It is anticipated that within nine months a formualtion could be ready
for clinical testing. Access will fund the ViroTex project development
activities; however, Block Drug Company will share in the development
costs by way of a reduction in the royalty Access will pay Block for
international sales. The international rights to any product resulting
from the collaboration with ViroTex will be out-licensed by Access to
its amlexanox licensing partners. ViroTex will receive a royalty on all
worldwide sales of products incorporating its proprietary technology.
Liquidity and Capital Resources
As of September 30, 1998 the Company's principal source of
liquidity is $2,230,000 of cash and cash equivalents. Working
capital as of September 30, 1998 was $1,768,000, representing an
increase in working capital of $1,984,000 as compared to the
working capital deficit as of December 31, 1997 of $216,000.
The increase in working capital at September 30, 1998 was due to
$4.6 million in net proceeds received from the private
placement of the Company's Common Stock sold in June and July 1998
and the private placement of units in March and April 1998, net of
monthly operating expenses.
Since its inception, the Company's expenses have
significantly exceeded its revenues, resulting in an
accumulated deficit of $22,384,000 at September 30, 1998. The
Company has funded its operations primarily through private
sales of its equity securities, contract research payments
from corporate alliances and the January 1996 Merger.
The Company has incurred negative cash flows from operations
since its inception and has expended, and expects to
continue to expend in the future, substantial funds to
complete its planned product development efforts. The
Company expects that its existing capital resources will be
adequate to fund its operations through the second quarter
of 1999. The Company is dependent on raising additional
capital to fund its development of technology and to
implement its business plan. Such dependence will continue
at least until the Company begins marketing its new
technologies.
If anticipated revenues are delayed or do not occur or the
Company is unsuccessful in raising additional capital on
acceptable terms, the Company would be required to curtail
research and development and general and administrative
expenditures so that working capital would cover reduced
operations into the third quarter of 1999. There can be no
assurance, however that changes in the Company's operating
expenses will not result in the expenditure of such
resources before such time.
The Company will require substantial funds to conduct
research and development programs, preclinical studies and
clinical trials of its potential products. The Company's
future capital requirements and adequacy of available funds
will depend on many factors, including the successful
commercialization of amlexanox; the ability to establish and
maintain collaborative arrangements for research,
development and commercialization of products with corporate
partners; continued scientific progress in the Company's
research and development programs; the magnitude, scope and
results of preclinical testing and clinical trials; the
costs involved in filing, prosecuting and enforcing patent
claims; competing technological developments; the cost of
manufacturing and scale-up; and the ability to establish and
maintain effective commercialization activities and
arrangements.
The Company intends to seek additional funding through
research and development or licensing arrangements with
potential corporate partners, public or private financing,
or from other sources. The Company does not have any
committed sources of additional financing and there can be
no assurance that additional financing will be available on
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favorable terms, if at all. In the event that adequate
funding is not available, the Company may be required to
delay, reduce or eliminate one or more of its research or
development programs or obtain funds through arrangements
with corporate collaborators or others that may require the
Company to relinquish greater or all rights to product
candidates at an earlier stage of development or on less
favorable terms than the Company would otherwise seek.
Insufficient financing may also require the Company to
relinquish rights to certain of its technologies that the
Company would otherwise develop or commercialize itself. If
adequate funds are not available, the Company's business,
financial condition and results of operations will be
materially and adversely affected.
Results of Operations
Comparison of Three Months Ended September 30, 1998 and 1997
- ------------------------------------------------------------
The Company had $113,000 in licensing revenue in the third quarter
of 1997 as compared to no revenues in the third quarter 1998. Third
quarter 1997 revenues were comprised of licensing income from an
ongoing agreement with an emeriging pharmaceutical company which
made certain milestone payments and will make royalty payments in
the future if a product is developed from the technology.
Total research spending for the third quarter of 1998 was $481,000
as compared to $787,000 for the same period in 1997, a decrease of
$306,000. The decrease was the result of lower external contract
research costs due primarily to the expiration of an agreement with
the University of London and research funding of the Dow project in
1997- $263,000; lower consulting expenses- $29,000; lower equipment
rent- $23,000; and lower other net costs toataling- $7,000; offset
by higher salaries and related costs- $16,000. If the Company is
successful in raising additional capital, research spending is expected
to increase in future quarters as the Company intends to hire additional
scientific management and staff and will accelerate activities to
develop the Company's product candidates. If the Company is not
successful in raising additional capital, research spending will
be curtailed.
Total general and administrative expenses were $319,000 for the third
quarter of 1998, a decrease of $106,000 as compared to the same period
in 1997. The decrease in spending was primarily due to the following:
lower patent costs- $79,000; decreased general business consulting
fees- $63,000; offset by increased shareholder expenses- $14,000;
increased rent- $13,000; and other net increases totaling- $9,000.
If the Company is not successful in rasing additional capital, general
and administrative spending will be curtailed.
Depreciation and amortization was $39,000 for the third quarter 1998 as
compared to $31,000 for the same period in 1997 reflecting the
additional depreciation of the assets acquired in the Tacora merger
and the amortization of licenses.
Interest and miscellaneous income was $29,000 for the third quarter
of 1998 as compared to $23,000 for the same period in 1997, an
increase of $6,000. The increase was due to higher interest income
from higher cash balances in 1998.
Total operating expenses in the third quarter of 1998 were $839,000
with interst income of $29,000, and interest expense of $4,000
resulting in a loss for the quarter of $814,000 or a $0.24
basic and diluted loss per common share.
Comparison of Nine Months Ended September 30, 1998 and 1997
- -----------------------------------------------------------
Net revenues for the nine months ended September 30, 1997 were $301,000 as
compared to no revenues for the same period in 1998. 1997 revenues were
comprised of licensing income from an ongoing agreement with an emerging
pharmaceutical company which made certain milestone payments and will make
royalty payments in the future if a product is developed from the technology.
Research spending for the nine months ended September 30, 1998 was
$1,417,000 as compared to $1,829,000 for the same period in 1997, a decrease
of $412,000. The decrease in expenses was due to: lower external contract
research costs- $154,000; lower salary and related costs- $132,000; lower
equipment rent- $78,000; lower travel expenses- $39,000; and other net
decreases totaling- $9,000. If the Company is successful in raising additional
capital, research spending is expected to increase in future quarters as the
Company intends to hire additional scientific management and staff and will
accelerate activities to develop the Company's product candidates. If the
Company is not successful in raising additional capital, research spending will
be curtailed.
General and administrative expenses were $1,069,000 for the nine months ended
September 30, 1998, a decrease of $185,000 as compared to the same period
in 1997. The decrease was primarily due to the following: lower general
business consulting fees and expenses- $210,000; and lower director and officer
insurance costs- $56,000; offset by higher patent expenses- $51,000; higher
shareholder expenses- $14,000 and other net increases totaling- $16,000.
Depreciation and amortization was $169,000 for the nine months ended
September 30, 1998 as compared to $93,000 for the same period in 1997
reflecting the additional depreciation of the assets acquired in the Tacora
merger and
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amortization of licenses.
Interest and miscellaneous income was $37,000 for the nine months ended
September 30, 1998 as compared to $107,000 for the same period in 1997, a
decrease of $70,000. The decrease was due to lower interest income from lower
cash balances in 1998.
Accordingly, this resulted in a loss for the nine months ended September 30,
1998 of $2,636,000, or a $1.10 basic and diluted loss per common share.
Comparison of Years Ended December 31, 1997 and 1996
- ----------------------------------------------------
Revenues for 1997 were $435,000 as compared to $167,000 in
1996, an increase of $268,000. Revenues for 1997 were
comprised of $325,000 of licensing income from an ongoing
agreement with an emerging pharmaceutical company. The
agreement provides for royalty payments if a product is
developed from the technology. In addition $110,000 of
option income was recorded in 1997. Revenues for 1996 were
comprised of option income with a pharmaceutical company.
Total research and development spending for 1997 was
$2,433,000 as compared to $1,405,000 for the same period in
1996, an increase of $1,028,000. The increase in research
and development expenses was due to the following: external
research expenditures- $683,000 primarily due to additional
funding of Polymer Platinate at University of London and
research at Duke University; salaries and related expenses-
$158,000 due to hiring of additional scientists; equipment
rental and maintenance costs- $82,000; travel and
entertainment- $44,000 due to project management of external
research; scientific consulting- $43,000 due to additional
consulting and manpower for the ongoing projects; and other
net increases totaling $83,000. The increase in research and
development expenses is offset by lower moving expenses-
$65,000 due to the relocation of scientists in 1996.
Total general and administrative expenses were $1,784,000 in
1997, a decrease of $154,000 as compared to the same period
in 1996. The decrease in spending was due to the following
decreases in: business consulting fees- $109,000 primarily
due to the fair value of warrants issued in 1997 for
consulting being less than the fair value of the warrants
issued in 1996; patent expenses- $74,000 due to fewer
initial patent filings in 1997 as compared to
1996; lower moving expenses- $44,000 due to the moving expenses
associated with the hiring of a business development vice
president in 1996; and other decreases of $27,000. The
decreases are offset by higher salaries and related expenses-
$111,000 due to a full twelve months of salaries in 1997
for all administrative employees as compared to a partial
period in 1996.
Interest expense of $36,000 was $9,000 lower in 1997 versus
1996 due to the decrease of the outstanding balance of
capital lease obligations. Interest expense will increase in
1998 due to the addition of capital leases from the Tacora
acquisition.
Depreciation and amortization increased to $162,000 in 1997
from $123,000 in 1996, an increase of $39,000. The increase
is due to the amortization of $25,000 of licenses and one
month of depreciation and amortization of the Tacora assets.
Excess purchase price over the fair value of Tacora's net
assets of $580,000 was recorded and written off in the
fourth quarter of 1997. In 1996, excess purchase price over
the fair value of Chemex's net assets of $8,314,000 was
recorded and written off due to an immediate impairment of
the excess purchase price.
Total expenses were $4,849,000, including $580,000 of excess
purchase price written off for the Tacora purchase,
which resulted in a loss for the twelve months of
$4,441,000, or $2.80 per share.
Comparison of Years Ended December 31, 1996 and 1995
- ----------------------------------------------------
Revenues for 1996 were $167,000 as compared to $690,000 in
1995, a decrease of $523,000. The decrease in revenues for
1996 as compared to the comparable 1995 period was
principally due to option payments recorded as income
related to a third-party evaluation of certain of the
Company's technology. The company performing the evaluation
elected not to extend the option period beyond March 29,
1996. An additional $110,000 in option payments was recorded
as unearned revenue. Revenues for 1995 were comprised of
sponsored research and development revenues.
Total research spending for 1996 was $1,405,000 as compared
to $728,000 for the same period in 1995, an increase
17
<PAGE>
of $677,000. The increase in expenses was due to the following:
increased salaries and related expenses- $353,000; increased
external research expenditures- $133,000; increased
equipment rental costs- $88,000; increased scientific
consulting- $72,000; and other increases of $31,000.
Total general and administrative expenses were $1,938,000 in
1996, an increase of $1,297,000 as compared to the same
period in 1995. The increase in spending was due to the
following increases in: business consulting fees- $344,000;
professional expenses due to the Merger and legal costs of
being a public company- $301,000; salaries and related
expenses- $184,000; general business consulting fees and
expenses- $146,000; patent expenses- $142,000; director fees
and director and officer insurance- $134,000; and other
increases of $46,000.
Interest expense was $13,000 lower in 1996 versus 1995 due
to the decrease of the outstanding balance of capital lease
obligations.
Depreciation and amortization decreased to $123,000 in 1996
from $367,000 in 1995, a decrease of $244,000. The decrease
is due to the write off of $246,000 capitalized patent and
application costs in 1995.
Excess purchase price over the fair value of Chemex's net
assets of $8,314,000 was recorded and written off in the
first quarter of 1996 due to an immediate impairment of the
excess purchase price.
Total expenses were $11,780,000, including $8,314,000 of
excess purchase price written off, which resulted in a loss
for the twelve months of $11,462,000, or $7.68 per share.
New Accounting Standard
- -----------------------
In June 1997, the Financial Accounting Standards Board
issued two new Statements of Financial Accounting Standards
("SFAS") which are effective for financial statements for
periods beginning after December 15, 1997 and which will
apply to the Company beginning with its fiscal year ending
December 31, 1998. Management of the Company does not expect
that the adoption of either pronouncement will have a
material impact on the Company's financial position, results
of operations or liquidity.
SFAS No. 130, "Reporting Comprehensive Income," establishes
standards for reporting and display of comprehensive income
and its components in a full set of general purpose
financial statements. Comprehensive income includes net
income and is defined as the change in net assets of a
business enterprise during a period from transactions and
other events and circumstances from nonowner sources. It
includes all changes in equity during a period except those
from investments by owners and distributions to owners.
Examples of comprehensive income, other than net income,
include unrealized gains and losses on certain investments
in debt and equity securities and foreign currency items.
SFAS No. 131, "Disclosure About Segments of an Enterprise
and Related Information," establishes standards for the way
that public enterprises report information about operating
segments in annual financial statements. It also requires
that those enterprises report selected information about
operating segments in interim financial reports issued to
stockholders.
In June 1998, the FASB issued Statement of Financial
Accounting Standards No. 133 "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"), which is
effective for financial statements for fiscal years
beginning after June 15, 1999, and which will apply to the
Company beginning June 1, 2000. SFAS 133 establishes
accounting and reporting standards for derivative
instruments and for hedging activities. The Company does not
believe that the new standard will have any significant effect on
its future results of operations.
In March and in April 1998, the Accounting Standards
Executive Committee of the American Institute of Certified
Public Accountants issued two Statements of Position
("SOPs") that are effective for financial statements for
fiscal years beginning after December 15, 1998, which will
apply to the Company beginning with its fiscal year ended
December 31, 1999. SOP 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use,"
provides guidance on the circumstances under which the costs
of certain computer software should be capitalized and/or
expensed. SOP 98-5, "Reporting on the Costs of Start-Up
Activities," Requires such costs to be expensed as incurred
instead of capitalized and amortized. The Company does not
expect the adoption of either of these SOP's to have any
material effect on its future results of operations.
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Year 2000 Issue
- ---------------
The Year 2000 ("Y2K") issue is the result of computer programs using two
instead of four digits to represent the year. These computer programs may
erroneously interpret dates beyond the year 1999, which could cause system
failures or other computer errors, leading to disruptions in operations.
The Company has begun to develop a three-phase program to limit or eliminate
Y2K exposures. Phase I is to identify those systems, applications and third-
party relationships from which the Company has exposure to Y2K disruptions
in operations. Phase II is the development and implementation of action plans
to achieve Y2K compliance in all areas prior to the end of the third quarter
of 1999. Also included in Phase II is the development of contingency plans
which would be implemented should Y2K compliance not be achieved in order to
minimize disruptions in operations. Phase III is the final testing or
equivalent certification of testing of each major area of exposure to ensure
compliance. The Company intends to complete all phases before the end of the
third quarter of 1999.
The Company has identified three major areas determined to be critical for
successful Y2K compliance: Area 1, which includes financial, research and
development and administrative informational systems applications reliant on
system software; Area 2, which includes research, development and quality
applications reliant on computer programs embedded in microprocessors; and
Area 3, which includes third-party relationships which may be affected by
Area 1 and 2 exposures which exist in other companies.
With respect to Area 1, the Company is completing an internal review and
contacting all software suppliers to determine major areas of Y2K exposure.
In research, development and quality applications (Area 2), the Company is
working with equipment manufactures to identify our exposures. With respect
to Area 3, the Company is in the process of evaluating our reliance on third
parties in order to determine whether their Y2K compliance will adequately
assure our uninterrupted operations.
The Company has yet to complete Phase I of our Y2K program with respect to
all three of the major areas. The Company relies on PC-based systems and
does not expect to incur material costs to transition to Y2K compliant
systems in its internal operations. However, even if the internal systems of
the Company are not materially affected by the Y2K Issue, the Company could
be affected by third-party relationships which, if not Y2K compliant prior to
the end of 1999, could have a material adverse impact on our operations.
Because the Company has not completed Phase II contingency planning, the
Company can not describe what action the Company would take in any of the areas
should Y2K compliance not be achievable in time. As such, there can be no
assurance that the Y2K Issue will not have a material adverse effect on the
Company's business, financial condition or results of operations.
As of September 30, 1998, we have not identified any costs related to
replacement or remediation and testing of our Area 1 computer information
systems. Not having completed our Phase I and Phase II evaluations, at this
time we have no basis for estimating the potential cost of our Y2K compliance
programs. The funds for these costs will be part of our current working
captial. These costs will be expensed as incurred except for equipment
related costs.
BUSINESS
Overview of Current Operations
Access Pharmaceuticals, Inc. (together with its subsidiary,
"Access" or the "Company") was founded in 1974 as Chemex
Corporation, a Wyoming corporation, and in 1983 changed its
name to Chemex Pharmaceuticals, Inc. ("Chemex"). Chemex
changed its state of incorporation from Wyoming to Delaware
on June 30, 1989. In connection with the merger of Access
Pharmaceuticals, Inc., a Texas corporation ("API"), with and
into the Company on January 25, 1996 (the "Merger"), the
name of the Company was changed to Access Pharmaceuticals,
Inc.
On December 9, 1997, a wholly-owned subsidiary of the
Company merged with Tacora Corporation ("Tacora"), a
privately-held pharmaceutical company based in Seattle,
Washington, whereby Tacora became a wholly-owned subsidiary
of the Company. Under the terms of the merger agreement,
based upon the achievement of certain milestones enumerated
in the merger agreement, the Company has issued 24,453
shares and may be required to issue up to an additional approximate
137,500 shares of Common Stock to the former stockholders
and creditors of Tacora. Such shares of Common Stock are
payable at an escalating value over the milestone period.
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Access' principal executive office is at 2600 Stemmons
Freeway, Suite 176, Dallas, Texas 75207; its telephone
number is (214) 905-5100.
Business Summary
Access is a drug delivery company using advanced polymer
technology for application in cancer treatment, dermatology
and imaging. In addition, the Company has developed a drug
to treat canker sores that was sold to Block Drug Company
("Block") and is currently being marketed in the United
States by Block subject to a royalty agreement with the
Company. The Company's lead compounds are as follows:
Polymer Platinate (AP 5070) - 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 cisplatin 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. The Company's Polymer Platinate
(as to which the Company has applied for patents) seeks to
achieve this goal by attaching a large polymer to a small
Platinum molecule, taking advantage of the fact that the
cells lining the walls of blood vessels that feed tumors are
usually leaky or hyperpermeable, allowing the large Polymer
Platinate molecule to enter the tumor in preference to other
tissue, which does not have leaky or hyperpermeable blood
vessels. On the other hand, the capillary/lymphatic drainage
system of tumors is not well developed and limited, so the
drug gets trapped in the tumor. This effect is called
enhanced permeability and retention (EPR). In addition, the
polymer is designed to shield the Platinate to minimize
interactions with normal cells, thereby reducing toxicity.
The proposed mechanism of drug uptake by tumor cells
bypasses known membrane associated mechanisms for
development of tumor resistance, which could provide a further significant
clinical advantage in treating drug resistant patients and
avoiding drug resistance.
In animal models, the Company's Polymer Platinate has
delivered up to 63 times the amount of Platinum to tumors
compared with cisplatin alone at the maximum tolerated dose,
and the Company's Polymer Platinate was approximately 2.5
times more effective in inhibiting tumor growth than
cisplatin alone. In terms of dosing, in animal studies, up
to 15 times more Platinum has been injected using the
Company's Polymer Platinate, 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 drug to the
tumor.
The Company plans to commence human clinical trials for its
Polymer Platinate if the results of additional ongoing
activities are successful.
Zinc Clindamycin - The complexing of zinc to a drug has the
effect of enhancing the penetration of the drug into the
skin, yet holding the drug in the skin, making zinc
effective for the delivery of dermatological drugs. The
Company has a broad patent covering the use of zinc for such
purposes.
The first zinc drug being developed by Access, in
conjunction with its licensing partner, is Zinc Clindamycin
for the treatment of acne. Acne drugs constitute an
approximately $700 million dollar per year market.
Clindamycin is a widely prescribed drug for the treatment of
acne and Access believes that the addition of zinc could
potentially significantly increase the effectiveness of the
drug through the reservoir effect of zinc, the activity of
zinc and Clindamycin, the improved stability of the product
and the potential for zinc to overcome certain bacterial
resistance.
The Company believes that its zinc technology could provide
a broad development platform for improved delivery of many
topically applied products. Additional developments are planned
using vitamin D, retanoids and anti-fungals.
Access has entered into a license agreement with Strakan
Limited ("Strakan") relating to its zinc technology. Strakan
has agreed to fund the development costs of Zinc Clindamycin
and any additional compounds developed utilizing the zinc
patent, and will share equally in all milestone payments
received from the sublicensing of the compound. In addition,
Access will receive a royalty on sales of products based on
this technology.
MRI Imaging Agent - Magnetic resonance imaging (MRI) is a
non-radioactive method of producing imaging for the
diagnosis of a broad range of diseases and conditions. To
date, for the diagnosis of cancer, the sensitivity of MRI
has been insufficient to pick up very small tumors. The
Company is developing an imaging agent that may greatly
enhance the ability of MRI to detect certain small tumors.
Currently, gadolinium, a rare earth metal, is used
20
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as an imaging agent in MRI, but its use is restricted to imaging
brain tumors and the central nervous system. The problem is
that gadolinium alone defuses much too rapidly throughout
the body and is eliminated very quickly. The Access imaging
agent consists of gadolinium bound to a chelate and attached
to a polymer that selectively binds to tumors. Animal
studies have indicated that the use of this imaging agent
can result in up to 40% brighter images and the ability to
detect tumors significantly smaller than currently available
techniques. In addition, in animal studies, the imaging
agent has increased the time period during which images can
be taken by a factor of up to four, which would be a major
practical advantage in diagnosing patients.
Access has a collaboration with The Dow Chemical Company
("Dow Chemical") to develop an improved compound utilizing
Dow Chemical's chelation technology to bind gadolinium and
attach to the polymer. In prior formulations of the imaging
agent, the chelator was considered insufficiently pure for
purposes of clinical development.
Amlexanox - This is currently the only compound approved by
the FDA for the treatment of canker sores. Independent
market research sponsored by the Company indicates that more
than 7 million patients visit doctors or dentists per year
in the United States with complaints of canker sores. In
1995, Access sold amlexanox to Block subject to a retained
royalty. On June 8, 1998, the Company entered into an
agreement to license from Block Drug Company the rights to
amlexanox oral paste 5% for certain international markets.
On August 18, 1998, the Company announced that it signed a
License Agreement for the United Kingdom and Ireland with
Strakan Limited to license amlexanox 5% paste for the
treatment of canker sores. Under the terms of the
agreement, Strakan Limited will be responsible for and bear
all costs associated with the regulatory approval process in
the United Kingdom and European Union, will pay milestones based on
cumulative sales revenue and will pay a royalty on sales. The Company
also announced that Strakan Limited had filed the product license
application for amlexanox 5% paste with the UK regulatory
authorities. It is anticipated that the product will be
registered throughout Europe in 1999. An international
outlicensing program is ongoing.
Access has commenced work on developing an over-the-counter
version of amlexanox, which could have significantly higher
sales potential than the prescription drug. In addition,
Block has an Investigational New Drug Application ("IND") to
commence clinical trials to expand the number of indications
for amlexanox. The Company expects that such trials will
initially focus on treatment of mucositis in chemotherapy
patients.
Access owns additional patented advanced technologies
designed to deliver drug in response to specific diseases or
take advantage of biological mechanisms. These technologies are
designed to provide the Company's next advanced drug
delivery product development candidates.
Drug Development Strategy
A part of Access' integrated drug development strategy is to
form creative alliances with centers of excellence so drug
delivery opportunities can be fully maximized. Access has
signed agreements with The School of Pharmacy, University of
London for platinate polymer technology, Dow Chemical for
chelation technology to develop imaging agents and
radiopharmaceuticals, Strakan Ltd for the delivery of
topical therapeutic agents which exploit the Access zinc
patent and Duke University for advanced drug delivery
systems and ViroTex Corporation for mucoadhesive polymer
formulations of amlexanox.
The Access strategy is to initially focus on utilizing its
technology in combination with approved drug substances to
develop novel patentable formulations of potential
therapeutic and diagnostic products. The Company believes
that this will expedite product development, both
preclinical and clinical, and ultimately product approval.
To reduce financial risk and equity financing requirements,
Access is directing its resources to the preclinical and
early clinical phase of development and plans to outlicense
to, or co-develop with, marketing partners its current
product candidates during the clinical development phases.
Access has initiated and will continue to expand its
internal core capabilities of chemistry, formulation,
analytical methods development, initial process scale up,
carbohydrate analysis, drug/diagnostic targeting screens and
project management capability to maximize product
opportunities in a timely manner. The manufacturing scaleup,
preclinical testing and product production will be
contracted 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, Access does not currently
plan to become a fully integrated pharmaceutical company.
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Consequently, Access expects 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, it is
believed that the Access technology can be more rapidly
developed and successfully introduced into the marketplace.
Scientific Background
The ultimate criterion of effective drug delivery is to
control and optimize the localized release of drug at the
target site and rapidly clear the non-targeted fraction.
Conventional drug delivery systems such as controlled
release, sustained release, transdermal systems, etc., are
based on a physical erosion process for delivering active
product into the systemic circulation 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. The Access 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 polymer carrier
formulations to significantly enhance the therapeutic
efficacy and reduce toxicity of a broad spectrum of
products. This is achieved by utilizing Bio-Responsive-TM
Polymers as novel drug delivery solutions to match the
specific physical properties of each drug with the
biological characteristics of each disease and targeting
sites of disease activity. The Company believes that the
ability to achieve physiological triggering of drug release
at the desired site of action could enable the Access Bio-
Responsive-TM Polymers to potentially have broad therapeutic
applications in the site specific delivery of
chemotherapeutic agents in cancer, infection, inflammation,
drugs for other autoimmune diseases, proteins, peptides and
gene therapy.
Bio-Responsive-TM Polymers mimic the natural transport
mechanisms in the body which are involved in the localized
delivery of biological mediators and cellular trafficking.
Access uses a multi-faceted approach through the use of both
natural carbohydrates and synthetic polymers. Access'
central focus is to use Bio-Responsive-TM Polymer systems
that can respond to normal biochemical or disease-induced
signals to localize drug carrier and release drug in a
highly selective fashion. These polymeric drug carriers can
be applied to a wide range of drug molecules including
proteins and nucleotides and can be engineered to control
pharmacokinetics and body distribution, site-selectivity,
site-release of drug and drug clearance from non-target sites.
Access Core Technology Platforms
Access' current technology platforms take advantage of the
following biological mechanisms to improve drug delivery:
* disease specific carbohydrate recognition by vascular
endothelial cells and underlying tissue
* enhanced permeability and retention in tumors
* triggered secretion of biological mediators
Access Carbohydrate Polymer Drug Delivery Technology
The Access 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.
Access has developed glycosaminoglycan carriers to
selectively image and treat diseases involving the
neovascular endothelium. Access believes that its
glycosaminoglycan technology has broad potential in a number
of therapeutic applications including cancer, inflammation
and infection.
Access Synthetic Soluble Polymer Drug Delivery Technology
In collaboration with The School of Pharmacy, University of
London, Access has developed a number of synthetic polymers,
including hydroxypropylmethacrylamide co-polymers and
polyamidoamines designed to be used to exploit
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EPR ("enhanced permeability and retention") in tumor cells and
control drug release. Many solid tumor cells possess
vasculature that is hyperpermeable (i.e., "leaky") to
macromolecules. In addition to this enhanced permeability,
tumors usually lack effective lymphatic and/or capillary
drainage. Consequently they selectively accumulate
circulating macromolecules (up to 10% of an intravenous dose
per gram in mice). This effect has been termed EPR, and is
thought to constitute the mechanism of action of SMANCS
(styrene-maleic/anhydride-neocarzinostatin), which is in
regular clinical use in Japan for the treatment of hepatoma.
These polymers take advantage of endothelial permeability
with the drug carrying polymers getting trapped in tumors
and then being taken up by tumor cells. Linkages between the
polymer and drug can be designed to be cleaved
extracellularly or intracellularly. Drug is released inside
the tumor mass while polymer/drug not trapped in tumors is
renally cleared from the body. Data generated in animal
studies have shown that the polymer/drug complexes are far
less toxic than free drug alone and that greater efficacy
can be achieved. Thus, these polymer complexes have
demonstrated significant improvement in the therapeutic
index of anti-cancer drugs, e.g. cisplatin.
Access Condensed Phase Smart Polymer Drug Delivery
Technology
The Access condensed phase polymer system is based on the
Smart Polymer Matrixes of Secretory Granules from secretory
cells such as the mast cell or goblet cell. The matrix in
the secretory granule of the mouse mast cell contains a
negatively charged, heparin proteoglycan network which
condenses in the presence of divalent cations, such as
calcium and histamine, and monovalent cations, such as
sodium. This matrix has a number of unique electrical and
mechanical properties in response to biochemical or
electrical signals. The heparin gel expands several-fold
when a secretory granule fuses with a cell membrane,
allowing ions from outside the cell to rush in, causing
release of contents. Thus, nature has evolved a highly advanced
"smart polymer" gel to control the storage and release of molecules
destined for exocytosis. These ubiquitous natural mechanisms can be
mimicked by engineering smart polymer matrices to deliver a
wide range of molecules, including proteins and genes, in
response to specific triggering stimuli. This natural
mechanism provides the basis of a novel technology for
releasing drugs on demand, with avoidance of systemic
toxicities. Access has commenced the development of a system
to mimic the secretory granule matrix to meet the biological
requirement of different drugs, delivery routes and disease
processes. In a unique inventive step, bioengineered, pore-
forming proteins, with triggers and switches that self
assemble in membranes, can be incorporated into coated
particles to control drug release. This represents a logical
step in the development of the next generation of Access
drug delivery technology platforms towards commercialization
of systems that can trigger the release of drug, at site, in
response to disease-specific signals. Initial proof of
concept will focus on the triggered release of
chemotherapeutic cancer and anti-inflammatory agents and
vaccines.
Access Topical Delivery Technology
Access has granted a license to Strakan, for the development
of compounds that utilize zinc ions to produce a reservoir
of drug in the skin to increase the efficacy 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 after trying to
minimize unwanted side-effects of the pharmacologically
active agent. The ideal vehicle for topically applied
pharmaceuticals is one which can produce a "reservoir
effect" in the skin or mucous membranes. Such a reservoir
effect can be produced by the complexation 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, i.e.:
- To increase skin or membrane residence time
- To decrease drug transit time
- To reduce transdermal flux
A number of compounds are known to enhance the ability of
pharmacologically active agents to penetrate the skin, but
have the disadvantage of allowing rapid systemic dispersion
away from the site of disease. Many topical agents, such as
the retinoids used in the treatment of acne, and
methotrexate, used in the treatment of psoriasis, are
systemically toxic. There is therefore a need for a method
of enhancing the ability of such agents to penetrate the
skin so that a lesser total dosage may be used, while at the
same time retarding their ability to move from the skin to
the systemic circulation.
Under the terms of this agreement, Strakan has agreed to
fund the development costs of Zinc Clindamycin and any
23
<PAGE>
additional compounds developed utilizing the zinc patent,
and will share equally in all milestone payments received
from sublicensing of the compound. In addition, the Company
will receive a royalty on sales of products based on this
technology.
Research Projects, Products and Products in Development
ACCESS DRUG PORTFOLIO
<TABLE>
<CAPTION>
Clinical
Compound Originator Indication FDA Filing Stage (1)
- -------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Cancer
- ------
AP 5070 Access Anti-tumor Development Pre-Clinical
AP 2011 Access MRI Contrast Agent Development Research
Research
Radiopharmaceutical Access Cancer Diagnosis Development Research
Amlexanox (2) Takeda Mucositis IND Phase I
Topical Delivery
- ----------------
Amlexanox (3) Takeda Oral ulcers FDA Approved Completed
(CHX-3673)
Zinc compound (4) Access Enhancing drug CTX (5) Phase II
penetration and
retention in the
skin (acne)
Amlexanox (6) Takeda Oral Ulcers Development Pre-Clinical
Biodegradeable
Polymer Disc
Amlexanox (6) Takeda Oral Lichen Planus Development Pre-Clinical
Mucoadhesive Gel
</TABLE>
(1) See "Government Regulations" for description of
clinical stages.
(2) Licensed from Block subject to milestone payments.
(3) Sold to Block. Subject to a Royalty Agreement. International rights
(except Japan and Israel) licensed from Block subject to milestone and
royalty payments,
(4) Licensed to Strakan.
(5) United Kingdom equivalent of an IND.
(6) Licensed from Block subject to milestone and royalty payments.
Access begins 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 the Access technology. Access has a
core internal development capability with significant
experience in these formulations.
Once the product candidate has been successfully screened in
pilot testing, Access' scientists together with external
consultants, assist in designing and performing the
necessary preclinical efficacy, pharmacokinetic and
toxicology studies required for IND submission. External
investigators and scaleup manufacturing facilities are
selected in conjunction with Company consultants. Access
does not plan to have an extensive clinical development
24
<PAGE>
organization as this is planned to be conducted by a
development partner.
With all of Access' product development candidates, there
can be no assurance 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. There can be no assurance that any of
these projects will be successfully completed or that
regulatory approval of any product will be obtained.
The Company (including both Chemex and API but excluding Tacora)
expended approximately $2,433,000, $1,405,000 and $1,981,000 on
research and development during the years 1997, 1996 and 1995,
respectively. Expenditures on research and development are
expected to increase during 1998 and subsequent years, subject to
funding.
Approved Product Amlexanox
Amlexanox is the first and only prescription medication
indicated specifically for the treatment of canker sores, in
patients with normal immune systems. There are numerous OTC
products available which will temporarily relieve the
pain associated with canker sores, however, amlexanox is the
only prescription medication specifically indicated to treat
canker sores. Current estimates indicate approximately 20%
of the U.S. adult population suffers from canker sores, of
which 15 million patients claim their canker sores recur.
In 1995, Access sold amlexanox to Block subject to a
retained royalty. On June 8, 1998, the Company entered into
an agreement to license from Block the rights to amlexanox
oral paste 5% for certain international markets. On August
18, 1998, the Company announced that it signed a License
Agreement with Strakan Limited to license amlexanox 5% paste
for the treatment of canker sores for the United Kingdom and
Ireland. Under the terms of the agreement, Strakan Limited
will be responsible for and bear all costs associated with
the regulatory approval process in the United Kingdom and
European Community, will pay milestones based on cumulative
sales revenue and will pay a royalty on sales. The Company
also announced that Strakan Limited had filed the product
license application for amlexanox 5% paste with the UK
regulatory authorities. It is anticipated that the product
will be registered throughout Europe in 1999. An
international outlicensing program is ongoing.
Development Program Topical Delivery
Access has a patent for enhancing drug penetration and
retention in the skin utilizing zinc ions, which is licensed
to Strakan. A wide range of agents are potentially suitable
for complexing with zinc ions, with examples from all of the
major dermatological product groups including, anti-
bacterials, anti-fungals, steroids, anti-histamines,
analgesics, anti-inflammatories and anti-psoriasis agents.
Zinc clindamycin - the most advanced development is a
combination of zinc and clindamycin in the treatment of
acne. The market for acne treatments exceeds $700 million in
Europe and the USA. The potential product advantage of this
development is anticipated to be improved efficacy and/or
reduced dosing. A CTX has been granted in the United Kingdom
and a Phase I clinical trial has been completed. A Phase II
clinical trial is scheduled to commence in the first quarter
of 1999.
Zinc vitamin D and retinoids - formulation development has commenced on
incorporating a vitamin D and retnoids in a zinc complex. Due to the
serious side effects of corticosteroids, potent vitamin D compounds are
used only when a condition is unresponsive to milder treatment.
A broader usage of more potent vitamin D fromulations could be
achieved utilizing zinc ions to reduce uptake in circulatory
systems and consequently significantly reduce side effects.
Development Programs Cancer
Approximately one-fourth of all deaths in the United States
are due to malignant tumors. More than 85% of these are
solid tumors and approximately half of the patients with
these tumors die of their disease. The cause of death is
usually metastatic disease distant from the original tumor,
although uncontrolled primary tumors can also be fatal. The
distant metastases are treated systemically with anti-cancer
drugs and biological agents, but these attempts are often
unsuccessful. The cost of treating these patients is
enormous, and in 1995 the estimated bill was $50 billion or
5% of the nation's total medical bill. As the population
ages and new, sophisticated diagnostic tests are launched,
incidence of detected cancer continues to rise.
Chemotherapy, surgery and radiation are the major components
in the clinical management of cancer patients.
25
<PAGE>
Chemotherapy is usually the primary treatment of hematologic
malignancies, which cannot be excised by surgery, and is
increasingly used as an adjunct to radiation and surgery, to
improve efficacy, and is used as the primary therapy for
some solid tumors and metastases. The current optimal
strategy for chemotherapy involves exposing patients to the
most intensive cytotoxic regimens they can tolerate.
Clinicians attempt to design a combination of drugs, dosing
schedule and method of administration to increase the
probability that cancerous cells will be destroyed while
minimizing the harm to healthy cells.
For chemotherapeutic agents to be effective in treating
cancer patients, the agent must reach the target cells in
effective quantities with minimal toxicity in normal
tissues.
Most current drugs have significant limitations. Certain
cancers are inherently unresponsive to chemotherapeutic
agents, while other cancers initially respond, but subgroups
of cancer cells acquire resistance to the drug during the
course of therapy, with the resistant cells surviving and
resulting in relapse. Another limitation of current
anti-cancer drugs is that serious toxicity, including bone
marrow suppression or irreversible cardiotoxicity, can
prevent their administration in curative doses.
The Access anti-cancer program is designed to overcome the
physiological barriers to penetration of drugs into tumor
tissue by targeting potent drugs into sites of disease
activity and clearing the non-targeted fraction.
Polymer Platinate, AP-5070 - Access, in conjunction with
The School of Pharmacy, University of London, is developing
a soluble, synthetic polymer conjugate formulation of
cisplatin for the first line treatment of solid tumors in
indications where cisplatin is currently approved.
Preliminary animal studies indicate:
* improved efficacy over standard cisplatin at maximum
tolerated dose
* reduced toxicity over standard cisplatin
* enhanced tumor uptake and retention of polymer platinate
in the tumor
The Company announced, November 23, 1998, that it has signed a
Development Agreement with the Foundation N.D.D.O. for the development
through Phase II of AP-5070. The Foundation N.D.D.O. was previously
the new drug office of the EORTC (the European Organization for
Research and Treatment of Cancer).
Amlexanox Mucositis - Mucositis is often a significant
complication of chemotherapy and can be severe enough to
limit therapy. In addition to causing debilitating pain,
which adversely affects the patients' ability to eat and
speak, mucositis may promote portals of entry for harmful
microorganisms in patients whose immune systems can often be
compromised. Any treatment that would accelerate their
healing and/or diminish their rate of appearance would have
a significant beneficial impact on the quality of life of
these patients and may allow for more aggressive
chemotherapy. Mucositis appears to have many clinical
similarities to oral aphthous ulcers and since amlexanox has
been proven to accelerate their healing, the Company
believes it could also have clinical benefit in
chemotherapy-induced mucositis. Therefore, amlexanox is now
in Phase I clinical studies for this indication with a new,
more suitable formulation for this disease. These studies
are being conducted by our partner, Block Drug Company. The
Company will be entitled to a royalty on any future sales.
Development Programs MRI Imaging Agents
Preoperative diagnostic imaging technologies are used to
determine the existence and the extent of disease. The
principal diagnostic imaging technologies are CT Scanning
and Magnetic Resonance Imaging ("MRI"). Both methods produce
images that show anatomic boundaries between the tissue
suspected of being malignant and the surrounding tissue, to
reveal potential disease. Neither method gives information
allowing a clear distinction of malignant from nonmalignant
tissue. A more recently developed technology,
immunoscintigraphy, uses a gamma ray detection camera
externally to identify internally localized radiolabeled
antibodies potentially specific to certain cancers. Although
immunoscintigraphy with certain radiolabeled antibodies
appears capable of distinguishing malignant tumors from
nonmalignant lesions and surrounding tissues, none of the
external imaging technologies, including immunoscintigraphy,
is effective in consistently identifying primary tumors
smaller than one centimeter, in precisely locating the site
or margins of the tumor, in consistently identifying all
metastatic tumor nodules, or in distinguishing pre-invasive
from functionally invasive tumor behaviors.
The currently available contrast agents for MRI are
nonselective gadolinium based extracellular agents
predominantly used in imaging the central nervous system.
26
<PAGE>
Access' technology could expand the utility of MRI imaging to
include body imaging by developing a site-selective
intravenous contrast agent with improved localization and
performance outside as well as within the central nervous
system. Access believes that improved site selectivity,
longer site contrast with rapid blood clearance, the ability
to clearly delineate tumor boundaries and metastases and the
opportunity to obtain additional valuable information on
prognosis, function, therapeutic response monitoring and
anatomy at high resolution, could be major competitive
advantages of the technology.
Access has formulated a site selective, MRI Contrast Agent
for the detection, staging and monitoring of tumors. Access
entered a collaboration with the Dow Chemical Company for
the development of products incorporating Dow's chelation
technology and Access' Bio-Responsive-TM Polymers. The
collaboration is focused on the development of MRI contrast
agents and radiopharmaceutical diagnostic and therapeutics.
The agreement provides Access with extensive chelation
technology, chelation chemistry and assistance over a broad
range of research and development activities. The program to advance
the development of MRI contrast agents and the priority of this
development is currently being evaluated.
Patents
Access believes that the value of technology both to Access
and to potential corporate partners is established and
enhanced by its broad intellectual property positions.
Consequently, Access already has issued and seeks 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 its
inventions and prospective products.
One U.S. patent and one European patent has issued and two European
patents are pending for the use of zinc as a pharmaceutical vehicle
for enhancing the penetration and retention of drug in the
skin. The 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. The patents also relate to
topical treatment methods including such reservoir effect
enhancers and to pharmaceutical compositions containing
them.
Access acquired the license to two U.S. and two PCT patent applications
for polymer platinum compounds. These patent applications are the
result of a collaboration between the Company and
the School of Pharmacy, University of London, from whom the
technology has been licensed. The patents include a number
of synthetic polymers, including hydroxypropylmethacrylamide
and polyamidoamines, that can be used to exploit enhanced
permeability and retention and control drug release. The
patent applications include a pharmaceutical composition for
use in tumor treatment comprising polymer-platinum compound
through linkages which are designed to be cleaved under
selected conditions to yield a platinum which accumulates at
a tumor site. The patent applications also include methods
for improving the pharmaceutical properties of platinum
compounds.
Access has four issued U.S. patents and one pending European
patent application in condensed-phase microparticles. These
patents are licensed from the Mayo Clinic and were acquired by
Access through the merger with Tacora in December 1997. This technology
is based on the Smart Polymer Matrices of Secretory Granules
from secretory cells such as the mast cell or goblet cell.
The technology has the following properties to control the
storage and release of molecules within the body: 1)
encapsulation of high concentration of small molecules,
nucleotides and proteins; 2) highly stable storage medium
for a variety of naturally occurring biological molecules;
and 3) release of stored products in response to
environments, external or internal signals to ensure correct
location, timing and concentration of secreted products in
the body.
Access holds 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. Nine patents have issued commencing in 1990
(eight U.S. and one European) and an additional four patent
applications are pending (one U.S. and three European).
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
27
<PAGE>
to these induced target determinants.
Access has a strategy of maintaining an ongoing line of
continuation applications for each major category of
patentable carrier and delivery technology. By this
approach, Access is extending the intellectual property
protection of its 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 Regulations
Access is 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 Access' 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 Access' products. The FDA has the
authority to approve or not approve new drug applications
and inspect research and manufacturing records and
facilities.
Among the requirements for drug approval and testing is that
the prospective manufacturer's facilities and methods
conform to the FDA's Code of Good Manufacturing Practices
("GMP") 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, and the FDA approval of an 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. Clinical trials
typically involve a three-phase process. Phase I, the
initial clinical evaluations, consists of administering the
drug and testing for safety and tolerated dosages as well as
preliminary evidence of efficacy in humans. Phase II
involves a study to evaluate the effectiveness of the drug
for a particular indication and to determine optimal dosage
and dose interval and to identify possible adverse side
effects and risks in a larger patient group. When a product
is found effective 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 or 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. Hence, Access cannot
with any certainty estimate how long the approval cycle may
take.
Access is 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 highly
competitive. Most pharmaceutical and biotechnology companies
have considerably greater research and development,
financial, technical and marketing resources than Access.
Although Access' proposed products utilize a novel drug
delivery system, they will be competing with established
pharmaceutical companies' existing and planned new product
introductions and alternate delivery forms of the active
substance being formulated by Access.
A number of companies are developing or may, in the future,
engage in the development of products competitive
28
<PAGE>
with the Access delivery system. Currently, liposomal formulations
being developed by Nexstar, Inc., The Liposome Company, Inc.
and Sequus Pharmaceuticals, Inc. are the major competitive
intravenous drug delivery formulations which utilize similar
drug substances. A number of companies are developing or
evaluating enhanced drug delivery systems. Access expects
that technological developments will occur at a rapid rate
and that competition is likely to intensify as various
alternative delivery system technologies achieve certain if
not identical advantages.
The principal current competitors to Access' polymer
targeting technology fall into two categories: monoclonal
antibodies and liposomes. Access believes that its
technology potentially represents a significant advance over
these older technologies because its 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.
Even if Access' products are fully developed and receive
required regulatory approval, of which there is no
assurance, Access believes that its products can only
compete successfully if marketed by a company having
expertise and a strong presence in the therapeutic area.
Consequently, Access does not currently plan to establish an
internal marketing organization. By forming strategic
alliances with major pharmaceutical and diagnostic medical
imaging companies, management believes that Access'
development risks should be minimized and the technology
will potentially be more rapidly developed and successfully
introduced into the marketplace.
Employees
As of December 14, 1998 Access has 12 full time employees,
six of whom have advanced scientific degrees. Access
believes that it maintains good relations with its
personnel. In addition, to complement its internal
expertise, Access contracts with scientific consultants,
contract research organizations and university research
laboratories that specialize in various aspects of drug
development including toxicology, sterility testing and
preclinical testing to complement its internal expertise.
Operations Prior to January 1996
Access operated as Chemex prior to the Merger, which occured
on January 25, 1996. On September 14, 1995, at a Special
Meeting of Stockholders, the Chemex Stockholders approved
the sale of its rights to amlexanox to Block, while
retaining the right to receive royalties from future sales
of amlexanox. As consideration for the sale of the Company's
share of amlexanox, Block (a) made a nonrefundable up-front
royalty payment of $2.5 million; (b) is obligated to pay
Access $1.5 million as a prepaid royalty at the end of the
calendar month during which Block together with any
sublicensee has achieved cumulative worldwide sales of
amlexanox oral products of $25 million; and (c) after the
payment of such $1.5 million royalty, is obligated to pay
royalties to Access for all sales in excess of cumulative
worldwide sales of amlexanox oral products of $45 million,
as calculated pursuant to the terms of the agreement.
Properties
Access maintains one facility of approximately 9,100 square
feet of administrative offices and laboratories in Dallas,
Texas. Access has a lease agreement for the facility, which
terminates in November 2002. However, the Company has an
option for early termination. Adjacent space is available
for expansion which the Company believes would accommodate
growth for the foreseeable future.
Legal Proceedings
Access is not a party to any legal proceedings.
29
<PAGE>
MANAGEMENT
Executive Officers and Directors
- --------------------------------
The directors and executive officers of the Company are as
follows:
Herbert H. McDade, Jr. 71 Chairman of the Board of Directors
Kerry P. Gray 45 President, Chief Executive Officer,
Director
J. Michael Flinn 65 Director
Stephen. B. Howell. M.D. 54 Director
Max Link, Ph.D. 58 Director
David P. Nowotnik, Ph.D. 49 Vice President Research & Development
Stephen B. Thompson 45 Chief Financial Officer
Business and Experience of Directors and Executive Officers
- --------------------------------------------------
The Board of Directors of the Company is divided into three
classes. Members of each class serve a term of three years
until the respective annual meeting of stockholders and
election and qualification of their successors. Dr. Max Link
is the sole member of Class 1 and his term expires upon the
Annual Meeting of Stockholders in 1999. Stephen B. Howell,
MD is the sole Class 2, director to serve as such until his
successor is elected and qualified in 2000. Messrs. Gray,
McDade and Flinn are Class 3 directors, to serve as such
until the 2001 Annual Meeting of Stockholders and until
their successors shall be elected and qualified. Each
officer of the Company is selected by the Board of Directors
for a term of one year. There is no family relationship
among any of the Directors or Executive Officers.
Mr. Herbert H. McDade, Jr. was elected a Director of the
Company in January 1988 and presently is Chairman of the
Board of Directors. In February 1989, he was elected
Vice-Chairman of the Board of Directors and Chief Executive
Officer of the Company. In June 1989, he was elected
Chairman of the Board of Directors and Treasurer in addition
to his responsibilities as Chief Executive Officer, and from
1990 to January 1996 he was President of the Company. Mr.
McDade served in such capacities until January 25, 1996. He
is also a member of the Audit & Finance Committee of the
Board of Directors. He is currently President and Chief
Executive Officer of the Thoma Corporation, a closely-held
health care consulting company. In addition, he also serves
on the Boards of CytRx Corporation, Shaman Pharmaceuticals,
Inc., Discovery Laboratories, Inc. and Clarion
Pharmaceuticals, Inc. From 1986 to 1987 he served as
Chairman of the Board of Directors and President of Armour
Pharmaceutical Co., a wholly-owned subsidiary of Rorer
Group, Inc. Prior to 1986 he served for approximately 13
years in various executive positions at Revlon, Inc.,
including President of the International Division of the
Revlon Health Care Group from 1979 to 1986. He was also
previously associated for twenty years in various executive
capacities with The Upjohn Company. From January 1989 to
July 1995 he served on the Board of Access Pharmaceuticals,
Inc., a Texas corporation ("API").
Mr. Kerry P. Gray has been President and a Chief Executive
Officer and a Director of the Company since January 25,
1996. Prior to such time, from June 1993, he served as
President and Chief Executive Officer of API. Previously,
Mr. Gray served as Vice President and Chief Financial
Officer of PharmaSciences, Inc., a company he co-founded to
acquire technologies in the drug delivery area. From May
1990 to August 1991, Mr. Gray was Senior Vice President,
Americas, Australia and New Zealand of Rhone-Poulenc Rorer,
Inc. Prior to the Rorer/Rhone Poulenc merger, he had been
Area Vice President Americas of Rorer International
Pharmaceuticals. Previously, from January 1986 to May 1988,
he was Vice President, Finance of Rorer International
Pharmaceuticals, having served in that same capacity for the
Revlon Health Care Group of companies before their
acquisition by Rorer Group. Between 1975 and 1985, he held
various senior financial positions in Revlon Health Care
Group. Mr. Gray's experience in the pharmaceutical industry
totals 23 years.
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Mr. J. Michael Flinn has served as a Director of the Company
since 1983. He also is a member of the Audit & Finance,
Nominating and Compensation Committees of the Board of
Directors. Since 1970 he has been an investment counselor.
Currently he is a consultant to the Operations Group of
United Asset Management. Previously from 1970 to 1996 he was
a principal with the investment counseling firm of Sirach
Capital Management, Inc. He assisted in the management of
pension, profit sharing, individual, corporate and
foundation accounts totaling over $6.5 billion. He serves as
a board member of Oridigm Corporation, Lonesome Dove
Petroleum and Carroll College.
Max Link, Ph.D. has been a director of the Company since
June 1996. He also is a member of the Compensation and
Nominating Committees of the Board of Directors. He has held
a number of executive positions with pharmaceutical and
health care companies. Most recently, he served as Chief
Executive Officer of Corange Limited, from May 1993 until
June 1994. Prior to joining Corange, Dr. Link served in a
number of positions with Sandoz Pharma Ltd., including Chief
Executive Officer, from 1987 until April 1992, and Chairman,
from April 1992 until May 1993. Dr. Link currently serves on
the board of directors of eight other publicly-traded life
science companies: Alexion Pharmaceuticals, Inc., Cell
Therapeutics, CytRx Corporation, Discovery Laboratories,
Inc., Human Genome Sciences, Inc, Procept, Inc., Protein
Design Labs, Inc. and Sulges Medica, Ltd. Dr. Link received
his Ph.D. in Economics from the University of St. Gallen in
1970.
Stephen B. Howell, M.D. has served as a Director of the
Company since November 4, 1996. Dr. Howell is a professor of
medicine at the University of California, San Diego, and
Director of the Clinical Investigation and Development
Therapeutics program of the UCSD Cancer Center. Dr. Howell
is a recipient of the Milken Foundation prize for his
contributions to the field of cancer chemotherapy. He also
serves on the National Research Council of the American
Cancer Society and the editorial boards of several medical
journals. Dr. Howell also serves on the Board of Directors
of DepoTech Corporation and Beacon Laboratories.
David P. Nowotnik, Ph.D. has been Vice President Research and
Development since November 1998. Prior to joining Access, Dr.
Nowotnik had been with Guilford Pharmaceuticals, Inc. from 1994
until 1998 in the position of Senior Director, Product Development
responsible for a team of scientists developeing polymeric
controlled-release drug delivery systems. From 1988 to 1994 he
was with Bristol-Myers Squibb working in the area of discovery of
technetium radiopharmaceuticals and MRI contrast agents. From 1977 to
1988 he was with Amersham International leading the project which
resulted in the discovery and development of Ceretec.
Mr. Stephen B. Thompson has been Chief Financial Officer of
the Company since January 25, 1996. Previously from 1990 to
1996 he was Controller and Administration Manager of API.
From 1989 to 1990, he was Controller of Robert E. Woolley,
Inc. a hotel real estate company where he was responsible
for accounting, finances and investor relations. Previously,
from 1985 to 1989, he was Controller of OKC Limited
Partnership, an oil and gas company where he was responsible
for accounting, finances and SEC reporting. Between 1975 and
1985 he held various accounting and finance positions with
Santa Fe International Corporation.
Compliance with Section 16(a) of the Securities Act of 1934
- ------------------------------------------------------------
Section 16(a) of the Securities Exchange Act of 1934
requires the Company's Directors, Executive officers and
persons who own more than ten percent of a registered class
of the Company's equity securities ("10% holders"), to file
with the Securities and Exchange Commission initial reports
of ownership and reports of changes in ownership of common
stock and other equity securities of the Company. Directors,
officers and 10% holders are required by SEC regulation to
furnish the Company with copies of all of the Section 16(a)
reports they file.
Based solely on a review of reports furnished to the Company
or written representatives from the Company's Directors and
executive officers during the fiscal year ended December 31,
1997, all Section 16(a) filing requirements applicable to
its Directors, officers and 10% holders for such year were
complied with.
Director Compensation
Each Director who is not an employee of the Company receives
a quarterly fee of $1,250, plus $1,000 for each board
meeting which he attends and $500 for each committee meeting
he attends as a member of the Audit and Finance, Nominating
and/or Compensation Committees. Each Committee Chairman also
received $250 for each meeting he attends.
During 1996 and 1997, Thoma Corporation, of which Mr. McDade
is a principal, was paid an aggregate amount of
31
<PAGE>
$72,000 and $60,000, respectively in consulting fees.
EXECUTIVE COMPENSATION
The following table sets forth the aggregate compensation
paid by the Company to the CEO and each of the most highly
compensated executive officers of the Company whose
aggregate salary and bonus exceeded $100,000 for services
rendered in all capacities to the Company for the years
ended December 31, 1997 and 1996. None of the current
executives were executive officers of the Company in 1995.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-term
Annual Compensation Compensation
---------------------- Awards
Name and Securities Underlying All Other
Principal Position Year Salary Bonus Options (#) Compens.
- -------------------------- ----- -------- -------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Kerry P. Gray 1997 $221,025 $ 0 0 $ 573 (2)
President and CEO (1) 1996 201,250 0 10,000 2,616 (2)
</TABLE>
(1) Mr. Gray, President and CEO, became an officer of the
Company on January 25, 1996. Previously he held the same
position at API.
(2) The Company paid Mr. Gray for certain expenses for
life insurance in the amount of $573 for 1997 and for life
insurance and long-term disability in the aggregate amount
of $2,616 for 1996.
Options Grants in 1997
There were no stock options granted to the named executive officers
during 1997.
Options Exercise and Year-End Value Table
This table includes the number of shares covered by both
exercisable and non-exercisable stock options as of December
31, 1997. Also reported are the values of "in-the-money"
stock options which represent the positive spread between
the exercise price of any such existing stock options and
the year-end price of the Company's common stock.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END
OPTION VALUES
<TABLE>
<CAPTION>
Number of Value of
Securities Underlying Unexercised In-
Unexercised The Money
Number of Options (#) Options($) (1)
Shares Acquired Value Exercisable/ Exerciseable/
Name On Exercise (#) Realized ($) Unexercisable Unexercisable
- -------------- -------------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
K. Gray - - 3,750 / 6,250 $0 / $0
</TABLE>
(1) Amounts disclosed in these columns do not reflect
amounts actually received by the named executive officers
but are calculated based on the difference between fair
market value of the Company's Common Stock at the end of
1997, as determined by the closing price of the stock on the
OTC Bulletin Board, less the exercise price payable for such
shares, in accordance with the rules and regulations adopted
by the Securities and Exchange Commission.
32
<PAGE>
Compensation Pursuant to Agreements and Plans
Employment Agreements
The Company is party to an employment agreement (the
"Employment Agreement") with Mr. Kerry Gray which expires
March 31, 2001 and thereafter may be automatically renewed
for successive one-year periods. Under this agreement, Mr.
Gray is currently entitled to receive an annual base salary
of $240,429 subject to adjustment by the Board of Directors.
Mr. Gray is eligible to participate in all Company employee
benefit programs available to executives. Mr. Gray is also
eligible to receive: i) a bonus payable in cash and common
stock related to the attainment of reasonable performance
goals specified by the Board of Directors; ii) stock options
at the discretion of the Board of Directors; iii) long-term
disability insurance to provide compensation equal to at
least 60% of his annual base salary; and, iv) term life
insurance coverage of $400,000.
Mr. Gray is entitled to certain severance benefits in the
event that his employment is terminated by the Company
without cause or by Mr. Gray following a change of control.
In the event the Employment Agreement is terminated for any
reason by the Company, other than for cause, Mr. Gray would
receive the salary due for the remaining term of the
agreement or 18 months, whichever is longer. The Company
will also continue benefits for such period. In the event
that Mr. Gray's employment is terminated within six months
following a change in control or by Mr. Gray upon the
occurrence of certain events following change in control,
Mr. Gray would receive two years salary and his target
bonus. The Company will also continue benefits for such
period. The Employment Agreement contains a covenant not to
compete with the Company for up to 18 months following the
termination date.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Dr. David Ranney. Dr. David Ranney, a former director and
officer of Access, beneficially owns 457,380 shares of
Common Stock, which represents 13.3% of the outstanding
shares of Common Stock. See "Security Ownership of Certain
Beneficial Owners and Management." Dr. Ranney and Access
have entered into a Stockholder's Agreement providing for,
among other matters, (1) certain rights of Dr. Ranney to be
nominated or to have his nominee nominated for election to
the Board of Directors of Access at any election of Access
Directors; (2) so long as Dr. Ranney beneficially owns 15%
or more of the issued and outstanding stock of the Company
he agrees to vote all such shares for which he has voting
power on any proposal presented to the stockholders of the
Company in the manner recommended by a majority of the Board
of Directors, as defined; and, (3) a right of first refusal
of Dr. Ranney to license or purchase certain technology and
intellectual property of Access under certain conditions.
The intellectual property around which API was founded was
originally licensed by API, by way of a License Agreement
from the inventor and principal shareholder Dr. David
Ranney. A Patent Purchase Agreement dated April 5, 1994,
(the "Patent Purchase Agreement") terminated the License
Agreement and provided for assignment of the rights to the
original patents to Access. The terms of the Patent Purchase
Agreement were amended effective January 23, 1996, reducing
the minimum royalty payments due to Dr. Ranney. This
agreement was subsequently modified on March 5, 1998 with
all rights to the patents transferred to the Company and the
elimination of any future obligation to make any payments
including elimination of royalty payments. Additional
patents covering the technology were purchased from the
University of Texas system on October 31, 1990 and applied
for directly by Access. The technology was developed by Dr.
Ranney during his tenure at the University of Texas
Southwestern Medical School which retains a royalty free
non-exclusive right to use the patent rights for its own
research, teaching and other educationally-related purposes.
Dr. Ranney signed an agreement whereby all rights, title and
interest in and to all inventions and confidential
information became the sole and exclusive property of the
Company as of May 31, 1998.
Herbert McDade. In consideration for the termination of his
employment with Access, Mr. McDade and Access entered into
an agreement on October 4, 1995, pursuant to which, among
other things, (i) Mr. McDade became a consultant to Access,
providing consulting services to Access at least four days
each month; (ii) Mr. McDade is paid a base of $1,500 per day
of consulting; and (iii) the period for exercise of all
options and SARs owned by Mr. McDade was extended from three
months after the termination of his employment with Access
to the expiration of the option or SAR. During 1997 and
1996, Thoma Corporation, of which Mr. McDade is a principal,
was paid an aggregate amount of $72,000 and $60,000,
respectively in consulting fees.
33
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of
20,000,000 shares of Common Stock, $.01 par value per share,
and 2,000,000 shares of Preferred Stock, $.01 par value per
share (the "Preferred Stock"), which may be issued in one or
more series.
On June 18, 1998, in conjunction with the first closing of
a private placement, the Company effected a recapitalization
of the Company through a one-for-twenty reverse stock split
of its common stock, $0.04 par value per share (the "Common
Stock"), which decreased the number of authorized shares of
Common Stock from 60.0 million, at $0.04 par value per
share, to 20.0 million shares, $0.01 par value per share,
and decreased the authorized shares of preferred stock of
the Company from 10.0 million to 2.0 million (the
"Recapitalization"). The Recapitalization decreased the
number of outstanding shares of Common Stock from
approximately 41.5 million to 2.1 million.
Common Stock
As of December 14, 1998, there were 3,430,266 shares of Common
Stock outstanding and held of record by approximately 5,000
stockholders.
Holders of Common Stock are entitled to one vote for each
share held on all matters submitted to a vote of
stockholders and have the right to vote cumulatively for the
election of Directors. This means that in the voting at the
Annual Meeting each stockholder, or his proxy, may multiply
the number of his shares by the number of directors to be
elected then cast the resulting total number of votes for a
single nominee, or distribute such votes on the ballot among
the nominees as desired. Holders of Common Stock are
entitled to receive ratably such dividends, if any, as may
be declared by the Board of Directors out of funds legally
available therefor, subject to any preferential dividend
rights for outstanding Preferred Stock. Upon the
liquidation, dissolution or winding up of the Company, the
holders of Common Stock are entitled to receive ratably the
net assets of the Company available after the payment of all
debts and other liabilities and subject to the prior rights
of any outstanding Preferred Stock. Holders of the Common
Stock have no preemptive, subscription, redemption or
conversion rights. The outstanding shares of Common Stock
are, and the shares offered by the Selling Stockholders in
this offering will be fully paid and nonassessable. The
rights, preferences and privileges of holders of Common
Stock are subject to, and may be adversely affected by, the
rights of the holders of shares of any series of Preferred
Stock which the Company may designate and issue in the
future.
Preferred Stock
The Board of Directors is authorized, subject to certain
limitations prescribed by law, without further stockholder
approval, to issue from time to time up to an aggregate of
2,000,000 shares of Preferred Stock in one or more series
and to fix or alter the designations, preferences, rights
and any qualifications, limitations or restrictions of the
shares of each such series thereof, including the dividend
rights, dividend rates, conversion rights, voting rights and
terms of redemption of shares constituting any series or
designations of such series. The issuance of Preferred
Stock may have the effect of delaying, deferring or
preventing a change of control of the Company. The Company
has no present plans to issue any shares of Preferred Stock.
Transfer Agent and Registrar
The transfer agent and registrar of the Common Stock is
American Stock Transfer & Trust Company, New York, New York.
Delaware Law and Certain Charter and By-Law Provisions
Certain anti-takeover provisions. Access is subject to the
provisions of Section 203 of the General Corporation Law of
Delaware. Section 203 prohibits certain publicly held
Delaware corporations from engaging in a "business
combination" with an "interested stockholder," for a period
of three years after the date of the transaction in which
the person became an "interested stockholder", unless the
business combination is approved in a prescribed manner. A
"business combination" includes mergers, asset sales and
other transactions resulting in a financial benefit to the
interested stockholder. Subject to certain exceptions, an
"interested stockholder" is a person or entity who, together
with affiliates and associates, owns (or within the
preceding three years, did own) 15% or more of the
corporation's voting stock. The statue contains provisions
enabling a corporation to avoid the statute's restrictions if the
34
<PAGE>
stockholders holding a majority of the corporation's
voting stock approve an amendment to the corporation's
Certificate of Incorporation or Bylaws.
The Certificate of Incorporation of Access provides that the
directors of the corporation shall be divided into three
classes, with the terms of each class to expire on different
years.
In addition, the Certificate of Incorporation of Access, in
order to combat "greenmail," provides in general that any
direct or indirect purchase by Access of any of its voting
stock (or rights to acquire voting stock) known to be
beneficially owned by any person or group which holds more
than five percent of a class of its voting stock and which
has owned the securities being purchased for less than two
years must be approved by the affirmative vote of at least
two-thirds of the votes entitled to be cast by the holders
of voting stock, subject to certain exceptions. The
prohibition of "greenmail" may tend to discourage or
foreclose certain acquisitions of Access' securities which
might temporarily increase the price of Access' securities.
Discouraging the acquisition of a large block of Access'
securities by an outside party may also have a potential
negative effect on takeovers. Parties seeking control of
Access through large acquisitions of its securities will not
be able to resort to "greenmail" should their bid fail, thus
making such a bid less attractive to persons seeking to
initiate a takeover effort.
Elimination of Monetary Liability for Officers and Directors
Access' Certificate of Incorporation incorporates certain
provisions permitted under the General Corporation Law of
Delaware relating to the liability of Directors. The
provisions eliminate a Director's liability for monetary
damages for a breach of fiduciary duty, including gross
negligence, except in circumstances involving certain
wrongful acts, such as the breach of Director's duty of
loyalty or acts or omissions, which involve intentional
misconduct or a knowing violation of law. These provisions
do not eliminate a Director's duty of care. Moreover, the
provisions do not apply to claims against a Director for
violations of certain laws, including certain federal securities
laws. Access' Certificate of Incorporation also contains
provisions to indemnify the Directors, officers, employees
or other agents to the fullest extent permitted by the
General Corporation Law of Delaware. The Company believes
that these provisions will assist Access in attracting and
retaining qualified individual to serve as Directors.
Indemnification of Officers and Directors
Access' Certificate of Incorporation also contains
provisions to indemnify the Directors, officers, employees
or other agents to the fullest extent permitted by the
General Corporation Law of Delaware. These provisions may
have the practical effect in certain cases of eliminating
the ability of shareholders to collect monetary damages from
directors. Access believes that these provisions will assist
Access in attracting or retaining qualified individuals to
serve as Directors.
35
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Based solely upon information made available to the Company,
the following table sets forth certain information with
respect to the beneficial ownership of Common Stock as of
January 7, 1999 by (i) each person who is known by the Company
to beneficially own more than five percent of the Common
Stock; (ii) each director of the Company; (iii) each of the
executive officers; and (iv) all executive officers and
directors as a group. Except as otherwise indicated, the
holders listed below have sole voting and investment power
with respect to all shares of Common Stock beneficially
owned by them.
<TABLE>
<CAPTION>
Common Stock Beneficially Owned
-------------------------------
Name Number of Shares (1) % of Class
- ---------------------------------- -------------------- ----------
<S> <C> <C>
Herbert H. McDade. Jr.(2) 63,238 1.8%
Kerry P. Gray (3) 164,040 4.7%
J. Michael Flinn (4) 10,475 *
Stephen B. Howell (5) 12,750 *
Max Link (6) 12,000 *
Stephen B. Thompson 2,023 *
David F. Ranney (7) 457,380 13.3%
Nicholas Madonia, Individually
and as Trustee (8) 270,884 7.9%
Richard Stone (9) 221,877 6.3%
All Directors and Executive Officers
as a group (consisting of 7 persons) 264,526 7.4%
- ----------------------------------------------------------------------
* Less than 1%
(1) Includes Common Stock held plus all options and
warrants exercisable within 60 days after January 7, 1999.
Unless otherwise indicated, the persons listed have sole
voting and investment powers with respect to all such
shares.
(2) Including presently exercisable options for the
purchase of 16,031 share of Common Stock and 7,591 exercisable
SARs pursuant to the 1987 Stock Option Plan and presently
exercisable options for the purchase of 12,500 shares of Common
Stock pursuant to the 1995 Stock Option Plan. Also includes 1,000
shares of Common Stock owned by Thoma Corporation of which
Mr. McDade is the beneficial owner.
(3) Including presently exercisable options for the
purchase of 50,000 shares of Common Stock pursuant to the
1995 Stock Option Plan
(4) Including presently exercisable options for the
purchase 10,000 shares of Common Stock pursuant to the 1995
Stock Option Plan.
(5) Including presently exercisable options for the
purchase of 750 and 10,000 shares of Common Stock pursuant to the
1987 Stock Option Plan and 1995 Stock Option Plan, respectively.
(6) Including presently exercisable options for the
purchase of 10,000 shares of Common Stock pursuant to the 1995
Stock Option Plan.
(7) Dr. David F. Ranney, 3539 Courtdale Drive, Dallas,
Texas, 75234 is known to be the beneficial owner of more
than five percent of common stock.
(8) Mr. Nicholas Madonia owns 940 shares of Common Stock.
Mr. Madonia is the trustee of the Sentinel Charitable
Remainder Trust ("Sentinel"), 30 Outwater Lane, Garfield,
New Jersey, which is known to Access to be the beneficial
owner of more than five percent of the Common Stock. In
addition to 77,239 shares of Common Stock held by Sentinel,
Sentinel has an option to purchase until January 1, 1999, up
to 25,000 units at $50.00 per unit. The units consist of
25,000 shares of Common Stock, 25,000 warrants with an
expiration date of January 1, 2000 and an exercise price of
$125.00 and 10,000 Warrants with an expiration date of
January 1, 2000 and an exercise price of $50.00.
Mr. Madonia is also the trustee of the Century Charitable
Remainder Trust, the Ocean Charitable Remainder Trust, the
Frontier Charitable Remainder Trust, the Beacon Charitable
Remainder Trust, the Freedom Charitable Remainder Trust, the
Oak Charitable Remainder Trust and the Celestial Charitable
Remainder Trust (together, the "Charitable Remainder
Trusts"). The Charitable Remainder Trusts are known by
Access to be the beneficial owners of an aggregate of 46,511
shares of Common Stock and as such Mr. Madonia, as trustee
is deemed to be a beneficial owner of the securities held by
them. Mr. Madonia is also the trustee of the Blech Family
Trust, beneficial owner of 146,194 shares of Common Stock,
and as such may be deemed to be a beneficial owner of the
securities held by it. Mr. Madonia disclaims beneficial
ownership of all shares held by the trusts. The information
set forth in this footnote is based on a Schedule 13D filed
by Mr. Madonia on April 9, 1997.
(9) Mr. Ricahrd Stone, 44 West 77th Street, New York, New York,
10024, owns 123,404 shares of Common Stock and has warrants to
purchase 98,473 shares of Common Stock at $3.00 per share with
expiration dates between April 1 and July 30, 2003, is known to be
the beneficial owner of more than five percent of Common Stock.
The information set forth in this footnote is based on a Schedule
13D filed
36
<PAGE>
by Mr. Stone on September 29, 1998.
SELLING STOCKHOLDERS
The following table sets forth certain information regarding
the beneficial ownership of the Company's Common Stock as of
January 7, 1999 and as adjusted to reflect the sale of the
Common Stock offered hereby, by each of the Selling
Stockholders.
Except as indicated below, none of the Selling Stockholders
has had any position, office or other material relationship
within the past three years with the Company or its
affiliates.
</TABLE>
<TABLE>
<CAPTION>
Shares Shares to be
Beneficially Beneficially
Owned Prior Shares Owned After
Name of Selling Stockholder to Offering (1,3) Offered (2,3) Offering
- ------------------------------- ---------------- ------------- -----------
<S> <C> <C> <C>
Alexander Hasenfeld Inc. Profit
Sharing Plan 16,667 16,667 0
David P. and Meredith C. Ash 116,656 (4) 116,656 (4) 0
David Bartash IRA Rollover 16,666 (4) 16,666 (4) 0
Bergen Fonds ASA 83,332 (4) 83,332 (4) 0
Darryl D. Berger 33,333 33,333 0
Harry J. Blumenthal, Jr. 25,000 25,000 0
Bernice Brauser 66,666 66,666 0
David R. Burrus 166,666 166,666 0
Marcia R. Carson 7,750 7,750 0
Central Yeshiva Beth Joesph 166,664 (4) 166,664 (4) 0
Yehudah B. Cohn 5,000 5,000 0
F. Joseph Daugherty (6) 7,176 7,176 0
The Dow Chemical Company 40,000 40,000 0
David L. Engel 16,666 (4) 16,666 (4) 0
F&N Associates 8,333 8,333 0
Zvi Farber 8,333 8,333 0
Sandra M. Feingerts, Jacques L.
Wiener, Tenants-In-Common 33,333 33,333 0
Theodore Friedman 100,000 100,000 0
Paul J. Gardella 33,332 (4) 33,332 (4) 0
Gross Foundation, Inc. 166,666 (4) 166,666 (4) 0
Mark and Amy Halper 49,998 (4) 49,998 (4) 0
Hasenfeld Stein Inc. Pension Trust 16,667 16,667 0
Jerry Heymann 20,000 20,000 0
Kerri Hoddinott 33,333 33,333 0
Malcolm Hoenlein 7,000 7,000 0
Thomas F. Hudak 66,664 (4) 66,664 (4) 0
ITEX Company 66,666 66,666 0
Eli Jacobson 17,000 17,000 0
Kentucky National Insurance Co. 16,667 16,667 0
Neal Kozodoy 3,000 3,000 0
Monte M. Lemann 10,000 10,000 0
George Lichtenstein 25,000 25,000 0
Nathan Low 96,948 (4) 96,948 (4) 0
Donald J. McCarren (6) 10,101 10,101 0
Gary S. Mendel 8,000 8,000 0
Howard P. Milstein 166,666 166,666 0
Peter Mezan 17,000 17,000 0
Adele A. Morreale 5,000 5,000 0
Justin P. Morreale 33,332 (4) 33,332 (4) 0
George J. Newton, III 33,333 33,333 0
Denis J. Neyden 66,666 (4) 66,666 (4) 0
Aron Rovner 1,666 1,666 0
David M. Rozen 38,014 30,000 8,014
37
<PAGE>
Rutgers Casualty Insurance Co. 16,667 16,667 0
David Sabey 7,176 7,176 0
Jay Schottenstein 83,333 83,333 0
Stefan Shoup 17,000 17,000 0
Nachum Stein 8,333 8,333 0
David Stone 66,666 66,666 0
Richard Stone 208,377 (4) 208,377 (4) 0
Alan Swerdloff 5,959 (5) 5,959 (5) 0
William D. Teate, Jr. 5,000 5,000 0
Mervin L. Trail, M.D. 33,333 33,333 0
Preston Tsao 11,015 (5) 11,015 (5) 0
Nelson Tuchman 50,000 50,000 0
Elizabeth van Merkensteijn 8,892 5,000 3,892
William A Carter, Jr. Trust
Dated 8/21/97 3,500 3,500 0
</TABLE>
(1) Except as provided herein, the Company believes, based
on information provided by the Selling Shareholders, that
each Selling Stockholder has sole voting and investment
power with respect to the shares beneficially owned.
(2) The sale or distribution of the Shares may be effected
directly to purchasers by the Selling Stockholders as
principals or through one or more underwriters, brokers,
dealers or agents from time to time in one or more
transactions (which may involve crosses or block
transactions) or (i) on any exchange or in the over-the-
counter market, or (ii) in transactions otherwise than in
the over-the-counter market or (iii) through the writing of
options (whether such options are listed on an options
exchange or otherwise) on, or settlement of short sales of,
the Shares. Any of such transactions may be effected at
market prices prevailing at the time of sale, at prices
related to such prevailing market prices, at varying prices
determined at the time of sale or at negotiated or fixed
prices, in each case as determined by the Selling
Stockholder or by agreement between the Selling Stockholder
and underwriters, brokers, dealers or agents, or purchasers.
If the Selling Stockholders effect such transactions by
selling Shares to or through underwriters, brokers, dealers
or agents, such underwriters, brokers, dealers or agents may
receive compensation in the form of discounts, concessions
or commissions from the Selling Stockholders or commissions
from purchasers of Shares for whom they may act as agent
(which discounts, concessions or commissions as to
particular underwriters, brokers, dealers or agents may be
in excess of those customary in the types of transactions
involved). The Selling Stockholders and any brokers,
dealers or agents may be deemed to be underwriters, and any
profit on the sale of Shares by them and any discounts,
concessions or commissions received by any such
underwriters, brokers, dealers or agents may be deemed to be
underwriting discounts and commissions under the Securities
Act.
Under the securities laws of certain states, the Shares may
be sold in such states only through registered or licensed
brokers or dealers. In addition, in certain states the
Shares may not be sold unless the Shares have been
registered or qualified for sale in such state or an
exemption from registration or qualification is available
and is complied with.
The Company has agreed to pay certain expenses incident to
the registration, offering and sale of the Shares to the
public hereunder, other than commissions, fees and discounts
of underwriters, brokers, dealers and agents. The Company
has agreed to indemnify the Selling Stockholders and any
underwriters against certain liabilities, including
liabilities under the Securities Act. The Company will not
receive any of the proceeds from the sale of any of the
Shares by the Selling Shareholders.
(3) Includes an aggregate of 399,993 shares issuable upon
exercise of warrants.
(4) Includes shares issuable upon exercise of warrants.
38
<PAGE>
(5) Represents shares issuable upon exercise of warrants.
(6) Dr. F. Joseph Daugherty was Chairman of the Board and
Director and Mr. Donald J. McCarren was President, CEO and
Director of Tacora Corporation until December 8, 1997, the
date of the merger with Access Holdings, Inc., a subsidiary
of the Company.
PLAN OF DISTRIBUTION
The sale or distribution of the Shares may be effected
directly to purchasers by the Selling Stockholders as
principals or through one or more underwriters, brokers,
dealers or agents from time to time in one or more
transactions (which may involve crosses or block
transactions) or (i) on any exchange or in the over-the-
counter market, or (ii) in transactions otherwise than in
the over-the-counter market or (iii) through the writing of
options (whether such options are listed on an options
exchange or otherwise) on, or settlement of short sales of,
the Shares. Any of such transactions may be effected at
market prices prevailing at the time of sale, at varying
prices determined at the time of sale or at negotiated or
fixed prices, in each case as determined by the Selling
Stockholder or by agreement between the Selling Stockholder
and underwriters, brokers, dealers or agents, or purchasers.
If the Selling Stockholders effect such transactions by
selling Shares to or through underwriters, brokers, dealers
or agents, such underwriters, brokers, dealers or agents may
receive compensation in the form of discounts, concessions
or commissions from the Selling Stockholders or commissions
from purchasers of securities for whom they may act as agent
(which discounts, concessions or commissions as to
particular underwriters, brokers, dealers or agents may be
in excess of those customary in the types of transactions
involved). The Selling Stockholders and any brokers,
dealers or agents that participate in the distribution of
the Shares may be deemed to be underwriters, and any profit
on the sale of Shares by them and any discounts, concessions
or commissions received by any such underwriters, brokers,
dealers or agents may be deemed to be underwriting discounts
and commissions under the Securities Act.
Under the securities laws of certain states, the Shares may
be sold in such states only through registered or licensed
brokers or dealers. In addition, in certain states the
Shares may not be sold unless the Shares have been
registered or qualified for sale in such state or an
exemption from registration or qualification is available
and is complied with.
The Company will pay all of the expenses incident to the
registration, offering and sale of the shares to the public
hereunder other than commissions, fees and discounts of
underwriters, brokers, dealers and agents. The Company has
agreed to indemnify the Selling Stockholders and any
underwriters against certain liabilities, including
liabilities under the Securities Act. The Company will not
receive any of the proceeds from the sale of any of the
Shares by the Selling Stockholders.
Certain of the underwriters, dealers, brokers or agents may
have other business relationships with the Company and its
affiliates in the ordinary course.
LEGAL MATTERS
The validity of the Common Stock to be sold in this offering
is being passed upon for the Company by Bingham Dana LLP 150
Federal Street, Boston, Massachusetts 02110. Justin P.
Morreale, David L. Engel and John J. Concannon, III,
partners of Bingham Dana LLP, beneficially own an aggregate
of 24,999 shares and 24,999 warrants to purchase shares of
Common Stock of the Company.
EXPERTS
The consolidated financial statements of Access Pharmaceuticals,
Inc., as of December 31, 1997 and 1996 and for each of the years
in the three-year period ended December 31, 1997 appearing in
this Prospectus and Registration Statement have been audited
by KPMG LLP, independent certified public accountants, as set
forth in their report thereon appearing
elsewhere herein and in the Registration Statement and are
included in reliance upon such report given the authority of
said firm as experts in accounting and auditing.
KPMG LLP was previously the principal accountants for
Access Pharmaceuticals, Inc. On October 22, 1998 that firm resigned.
The decision to change accountants was not recommended by the audit
committee of the board of directors
39
<PAGE>
In connection with the audits of the two fiscal years ended December
31, 1997, and the subsequent interim period through October 22, 1998,
there were no disagreements with KPMG LLP on any matter of
accounting principles or practices, financial statement disclosure, or
auditing scope or procedures, which disagreements if not resolved to
their satisfaction would have caused them to make reference in
connection with their opinion to the subject matter of the disagreement.
KPMG LLP's independent auditors' report on the
consolidated financial statements of Access Pharmaceuticlas, Inc. and
subsidiary as of and for the years ended December 31, 1997 and 1996,
contained a separate paragraph stating that "the Company has suffered
recurring losses from operations and has a net capital deficiency, that
raise substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in
Note 11. The consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty."
Effective December 15, 1998, Access Pharmaceuticals, Inc. engaged
Grant Thornton LLP, independent certified public accountants, as its
principal accountants. During the last two fiscal years and the subsequent
interim period to the date hereof, the Company did not consult with Grant
Thornton LLP regarding any of the matters set forth in
Item 304 (a) (2) (i) and (ii) of Regulation S-K.
The cumulative statements of operations, stockholders'
equity (deficit) and cash flows for the period February 24, 1988
(inception) to December 31, 1994 appearing in this
Prospectus and Registration Statement have been audited by
Smith, Anglin & Co., independent certified Public
Accountants, as set forth in their report thereon appearing
elsewhere herein and in the Registration Statement and are
included in reliance upon such report given the authority of
said firm as experts in accounting and auditing.
40
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Independent Auditors' Report of KPMG LLP F-2
Independent Auditors' Report of Smith, Anglin and Company F-3
Consolidated Balance Sheets at December 31, 1997 and 1996 F-4
Consolidated Statements of Operations for the three years
ended December 31, 1997 and the period from February 24, 1998
(Inception) to December 31, 1997 F-5
Consolidated Statements of Stockholders' Equity (Deficit)
for the period from February 24, 1998
(Inception) to December 31, 1997 F-6
Consolidated Statements of Cash Flows for the three years
ended December 31, 1997 and the period
from February 24, 1998 (Inception) to December 31, 1997 F-7
Notes to Consolidated Financial Statements F-9
Condensed Consolidated Balance Sheets at September 30, 1998
(unaudited) and December 31, 1997 F-21
Condensed Consolidated Statements of Operations (unaudited)
for the three months ended September 30, 1998 and 1997 and for the
nine months ended September 30, 1998 and 1997 and the period from
February 24, 1988 (Inception) to September 30, 1998 F-22
Condensed Consolidated Statements of Cash Flows (unaudited)
for the nine months ended September 30, 1998 and 1997 and the
period from February 24, 1988 (Inception) to September 30, 1998 F-23
Notes to Condensed Consolidated Financial Statements (unaudited) F-24
F-1
<PAGE>
Independent Auditors' Report
The Board of Directors and Stockholders
Access Pharmaceuticals, Inc.:
We have audited the accompanying consolidated balance sheets
of Access Pharmaceuticals, Inc. and subsidiary (a
development stage company) as of December 31, 1997 and 1996,
and the related consolidated statements of operations,
stockholders' equity (deficit), and cash flows for each of
the years in the three-year period ended December 31, 1997
and for the period February 24, 1988 (inception) to December
31, 1997. These consolidated financial statements are the
responsibility of the Company's management. Our
responsibility is to express an opinion on these
consolidated financial statements based on our audits. The
cumulative statements of operations, stockholders' equity
(deficit), and cash flows for the period February 24, 1988
(inception) to December 31, 1997 include amounts for the
period from February 24, 1988 (inception) to December 31,
1988 and for each of the years in the six-year period ending
December 31, 1994, which were audited by other auditors
whose report has been furnished to us and is included
herein, and our opinion, insofar as it relates to the
amounts included for the period February 24, 1988
(inception) through December 31, 1994, is based solely on
the report of the other auditors.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that we
plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, based on our audits and report of the other
auditors included herein, the consolidated financial
statements for the three-year period ended December 31, 1997
referred to above present fairly, in all material respects
the financial position of Access Pharmaceuticals, Inc. and
subsidiary (a development stage company) as of December 31,
1997 and 1996, and the results of their operations and their
cash flows for each of the years in the three-year period
ended December 31, 1997 and for the period February 24, 1988
(inception) to December 31, 1997, in conformity with
generally accepted accounting principles.
The accompanying consolidated financial statements have been
prepared assuming that the Company will continue as a going
concern. As discussed in note 11 to the consolidated
financial statements, the Company has suffered recurring
losses from operations and has a net capital deficiency that
raise substantial doubt about its ability to continue as a
going concern. Management's plans in regard to these matters
are also described in note 11. The consolidated financial
statements do not include any adjustments that might result
from the outcome of this uncertainty.
/s/ KPMG LLP
---------------
KPMG LLP
Dallas, Texas
March 24, 1998, except as
to Notes 7 (a) and (b), 11 and 12
which are as of August 28, 1998
F-2
<PAGE>
Independent Auditors' Report
The Board of Directors and Stockholders
of Access Pharmaceuticals, Inc.:
We have audited the accompanying statements of operations,
stockholders' equity and cash flows of Access
Pharmaceuticals, Inc. (a development stage company) for
the period February 24, 1988 (inception) through December
31, 1994. These financial statements are the
responsibility of the Company's management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that
we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also
includes assessing the accounting principles used and
significant estimates made by management, as well as
evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the period
February 24, 1988 (inception) through December 31, 1994,
in conformity with generally accepted accounting
principles.
/s/ Smith Anglin & Co.
-----------------------
Smith Anglin & Co.
Dallas, Texas
September 21, 1995
F-3
<PAGE>
ACCESS PHARMACEUTICALS, INC. AND SUBSIDIARY
a development stage company
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
-------------------------
1997 1996
------------- -------------
Assets
- -------
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 438,000 $4,428,000
Accounts receivable 1,000 1,000
Prepaid expenses and other current assets 51,000 190,000
----------- -----------
Total Current Assets 490,000 4,619,000
----------- -----------
Property and equipment, net (note 5) 422,000 300,000
Licenses, net (note 1) 475,000 -
Other assets 60,000 9,000
----------- -----------
Total Assets $1,447,000 $4,928,000
=========== ===========
Liabilities and Stockholders' Equity
- ------------------------------------
Current Liabilities
Accounts payable and accrued expenses $ 434,000 $ 399,000
Royalties payable (note 10) 53,000 50,000
Accrued insurance premium 38,000 74,000
Current portion of obligations
under capital leases (note 6) 181,000 152,000
----------- -----------
Total Current Liabilities 706,000 675,000
----------- -----------
Obligations under capital leases,
net of current portion (note 6) 142,000 83,000
Unearned revenue (note 3) - 110,000
---------- -----------
Total Liabilities 848,000 868,000
---------- -----------
Commitments and Contingencies (notes 6, 10 & 11)
Stockholders' Equity (note 7)
Preferred stock, at December 31, 1997 and
1996, $.01 par value, authorized
10,000,000 shares, none issued or
outstanding respectively - -
Common stock, $.04 par value, authorized
3,000,000 shares, 1,630,450 and 1,569,566
issued and outstanding at December 31, 1997
and 1996, respectively 16,000 16,000
Additional paid-in capital 20,331,000 19,351,000
Deficit accumulated during the
development stage (19,748,000) (15,307,000)
------------ ------------
Total Stockholders' Equity 599,000 4,060,000
------------ ------------
Total Liabilities and Stockholders' Equity $ 1,447,000 $ 4,928,000
============ ============
</TABLE>
____________________________________________________
See Accompanying Notes to Consolidated Financial Statements
F-4
<PAGE>
ACCESS PHARMACEUTICALS, INC. AND SUBSIDIARY
a development stage company
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31, February 24, 1988
(Inception) to
December 31, 1997
1997 1996 1995
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
Research and development $ - $ - $ 690,000 $ 2,711,000
Option income 110,000 167,000 - 2,149,000
Licensing revenues 325,000 - - 325,000
------------ ------------ ------------ -------------
Total Revenues 435,000 167,000 690,000 5,185,000
------------ ------------ ------------ -------------
Expenses
Research and development 2,433,000 1,405,000 728,000 8,609,000
General and administrative 1,784,000 1,938,000 641,000 6,863,000
Depreciation and amortization 162,000 123,000 367,000 1,056,000
Write-off of excess purchase price 580,000 8,314,000 - 8,894,000
------------ ------------ ------------ -------------
Total Expenses 4,959,000 11,780,000 1,736,000 25,422,000
------------ ------------ ------------ -------------
Loss From Operations (4,524,000) (11,613,000) (1,046,000) (20,237,000)
Other Income (Expense)
Interest and miscellaneous income 119,000 196,000 5,000 774,000
Interest expense (36,000) (45,000) (58,000) (158,000)
------------ ------------ ------------ -------------
83,000 151,000 (53,000) 616,000
------------ ------------ ------------ -------------
Loss Before Income Taxes (4,441,000) (11,462,000) (1,099,000) (19,621,000)
Provision for Income Taxes - - - 127,000
------------ ------------ ------------ -------------
Net Loss $(4,441,000) $(11,462,000) $(1,099,000) $(19,748,000)
============ ============ ============ =============
Basic and Diluted Loss Per Common Share $(2.80) $(7.68) $(1.86)
============ ============ ============
Weighted Average Basic and Diluted
Common Shares Outstanding 1,583,785 1,492,278 592,316
============ ============ ============
</TABLE>
- -----------------------------------------------------------
See Accompanying Notes to Consolidated Financial Statements
F-5
<PAGE>
ACCESS PHARMACEUTICALS, INC. AND SUBSIDIARY
a development stage company
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Deficit
Additional Accumulated
Common Stock Paid-in During the
Shares Amount Capital Development Stage
---------- ---------- ----------- -------------
<S> <C> <C> <C> <C>
Balance, February 24, 1988 - $ - $ - $ -
Common stock issued, $6.60 per share 15,000 - 97,000 -
Common stock issued, $1.60 per share 8,000 - 12,000 -
Net loss for the period February 24,
1988 to December 31, 1988 - - - (30,000)
---------- ---------- ----------- -------------
Balance, December 31, 1988 23,000 - 109,000 (30,000)
Common stock issued, $2.18 per share 4,000 - 29,000 -
Common stock issued, $33.00 per share 4,000 - 124,000 -
Common stock issued, $0.20 per share 97,000 1,000 8,000 -
Net loss for the year - - - (191,000)
---------- ---------- ----------- -------------
Balance, December 31, 1989 128,000 1,000 270,000 (221,000)
Common stock issued, $60.00 per share 4,000 - 218,000 -
Common stock issued, $156.40 per share 14,000 - 2,225,000 -
Net loss for the year - - - (219,000)
---------- ---------- ----------- -------------
Balance, December 31, 1990 146,000 1,000 2,713,000 (440,000)
Common stock issued, $60.00 per share - - 6,000 -
Contribution of equipment by shareholder - - 468,000 -
Net income for the year - - - 413,000
---------- ---------- ----------- ------------
Balance, December 31, 1991 146,000 1,000 3,187,000 (27,000)
Contribution of equipment by shareholder - - 89,000 -
Net loss for the year - - - (859,000)
---------- ---------- ----------- ------------
Balance, December 31, 1992 146,000 1,000 3,276,000 (886,000)
Net loss for the year - - - (1,384,000)
---------- ---------- ----------- ------------
Balance, December 31, 1993 146,000 1,000 3,276,000 (2,270,000)
Net loss for the year - - - (476,000)
---------- ---------- ----------- -------------
Balance, December 31, 1994 146,000 1,000 3,276,000 (2,746,000)
Common stock issued, $40.00 per share 1,000 - 50,000 -
Exercise of stock options between
$0.25 and $1.25 per share 31,000 1,000 168,000 -
Common stock grants 4,000 - - -
Net loss for the year - - - (1,099,000)
---------- ---------- ----------- -------------
Balance, December 31, 1995 182,000 2,000 3,494,000 (3,845,000)
Merger 951,000 10,000 9,991,000 -
Common stock issued, $14.00 share 429,000 4,000 5,499,000 -
Exercise of stock options/SAR's between
$0.00 and $0.88 per share 8,000 - 23,000 -
Warrants issued at $20.00 per share for
consulting services - - 344,000 -
Net loss for the year - - - (11,462,000)
---------- ---------- ----------- -------------
Balance, December 31, 1996 1,570,000 16,000 19,351,000 (15,307,000)
F-6
<PAGE>
Deficit
Additional Accumulated
Common Stock Paid-in During the
Shares Amount Capital Development Stage
---------- ---------- ----------- -------------
Common Stock issued, $15,00 share 40,000 - 600,000 -
Common stock issued, $9.20 share 20,000 - 192,000 -
Warrants issued at $12.00 and $18.00
per share for financial consulting
services - - 188,000 -
Net loss for the year - - - (4,441,000)
---------- ---------- ----------- -------------
Balance, December 31, 1997 1,630,000 $ 16,000 $20,331,000 $(19,748,000)
========== ========== =========== =============
</TABLE>
- -----------------------------------------------------------
See Accompanying Notes to Consolidated Financial Statements
F-7
<PAGE>
ACCESS PHARMACEUTICALS, INC. AND SUBSIDIARY
a development stage company
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
February 24, 1988
Year Ended December 31, (Inception) to
1997 1996 1995 December 31, 1997
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
Cash Flows From Operating Activities:
Net Loss $(4,441,000) $(11,462,000) $(1,099,000) $(19,748,000)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Write off of excess purchase price 580,000 8,314,000 - 8,894,000
Consulting expense related to
warrants granted 188,000 344,000 - 532,000
Research expenses related to
common stock granted 100,000 - - 100,000
Depreciation and amortization 162,000 123,000 367,000 1,056,000
Unearned revenue (110,000) (150,000) (30,000) (110,000)
Change in operating assets
and liabilities:
Accounts receivable (1,000) 2,000 (3,000) (2,000)
Prepaid expenses and other
current assets 139,000 (186,000) 16,000 (52,000)
Other assets (1,000) (7,000) 1,000 (8,000)
Accounts payable and
accrued expenses (244,000) 354,000 43,000 232,000
------------ ------------ ------------ -------------
Net Cash Used In Operating Activities (3,628,000) (2,668,000) (705,000) (9,106,000)
------------ ------------ ------------ -------------
Cash Flows From Investing Activities:
Capital expenditures (16,000) (38,000) - (1,164,000)
Sales of capital equipment 6,000 - - 6,000
Purchase of Tacora, net of
cash acquired (124,000) - - (124,000)
Other assets (50,000) - - (50,000)
------------ ------------ ------------ -------------
Net Cash Used In Investing Activities (184,000) (38,000) - (1,332,000)
------------ ------------ ------------ -------------
Cash Flows From Financing Activities
Proceeds from notes payable - 118,000 100,000 721,000
Payments of principal on obligations
under capital leases (178,000) (127,000) (117,000) (454,000)
Cash acquired in merger with Chemex - 1,587,000 - 1,587,000
Proceeds from stock issuances - 5,526,000 219,000 9,022,000
------------ ------------ ------------ -------------
Net Cash (Used In) Provided by
Financing Activities (178,000) 7,104,000 202,000 10,876,000
------------ ------------ ------------ -------------
Net Increase (Decrease) in Cash
and Cash Equivalents (3,990,000) 4,398,000 (503,000) 438,000
Cash and Cash Equivalents At
Beginning of Period 4,428,000 30,000 533,000 -
------------ ------------ ------------ -------------
Cash and Cash Equivalents at
End of Period $ 438,000 $ 4,428,000 $ 30,000 $ 438,000
============ ============ ============ =============
Cash Paid for Interest $ 34,000 $ 45,000 $ 58,000 $ 155,000
Cash Paid for Income Taxes - - - 127,000
Supplemental disclosure of noncash
transactions:
Payable accrued for fixed asset
purchase $ - $ - $ 47.000 $ 47,000
Elimination of note payable to
Chemex Pharmaceuticals due to merger - 100,000 - 100,000
Stock issued for License on patents 500,000 - - 500,000
Equipment purchases financed
through capital leases 82,000 - - 82,000
Net liabilities assumed in
acquisition of Tacora
Corporation (note 1) 455,000 - - 455,000
</TABLE>
- -----------------------------------------------------------
See Accompanying Notes to Consolidated Financial Statements
F-8
<PAGE>
ACCESS PHARMACEUTICALS, INC. AND SUBSIDIARY
(a development stage company)
Notes To Consolidated Financial Statements
Three Years Ended December 31, 1997
(1) Summary of Significant Accounting Policies:
(a) Business
Access Pharmaceuticals, Inc. ("Access" or the "Company")
is a site-directed drug targeting company using
bioresponsive carriers to target and control the release
of therapeutic agents into sites of disease activity and
clear the non-targeted drug-fraction. The Company operates
in a single industry segment.
On December 9, 1997, a wholly-owned subsidiary of the
Company merged with Tacora Corporation ("Tacora"), a
privately-held pharmaceutical company based in Seattle,
Washington, whereby Tacora became a wholly-owned
subsidiary of the Company. The Company used the purchase
method of accounting for the investment in Tacora. The
aggregate purchase price was $739,000 payable $124,000 in
cash and $192,000 in stock, representing 20,900 shares of
Company common stock and assumption of $239,000 in trade
and accrued payables and $184,000 of Tacora's capital
lease obligations. Based upon the achievement of certain
milestones enumerated in the merger agreement, the Company
may be required to issue up to approximately 137,500
shares of common stock of the Company ("Common Stock") to
the former stockholders of Tacora. Such shares of Common
Stock are payable at an escalating value over the
milestone period. 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. Operations have been
included in the Company's consolidated financial
statements since the date of acquisition. Pro forma
disclosure relating to the Tacora acquisition is not
presented as the impact is immaterial to the Company.
Access, formerly known as Chemex Pharmaceuticals, Inc.
("Chemex"), merged with Access Pharmaceuticals, Inc., a
Texas corporation ("API") on January 25, 1996.
Shareholders of both companies approved the merger. Under
the terms of the merger agreement, API was merged into
Chemex with Chemex as the surviving legal entity. Chemex
acquired all of the outstanding shares of API in exchange
for 695,998 shares of registered common stock of Chemex, a
conversion factor of .1912126 Chemex shares for each API
share. The fair value of Chemex was $10.0 million. The
excess of purchase price over the net assets acquired of
$8,313,516 was recorded and written off during the first
quarter of 1996 due to an immediate impairment of the
excess purchase price. Chemex also changed its name to
Access Pharmaceuticals, Inc. and the operations of the
merged company are now based in Dallas, Texas.
As a result of the merger and immediately after the
merger, the former API Stockholders owned approximately
60% of the issued and outstanding shares of Chemex.
Generally accepted accounting principles require that a
company whose stockholders retain the controlling interest
in a combined business be treated as the acquiror for
accounting purposes. As a consequence, the merger was
accounted for as a "reverse acquisition" for financial
reporting purposes and API was deemed to have acquired an
approximate 60% interest in Chemex. Despite the financial
reporting requirement to account for the acquisition as a
"reverse acquisition," Chemex remains the continuing legal
entity and registrant for Securities and Exchange
Commission reporting purposes.
In March 1996 the Company concluded a $6.0 million private
placement of 428,550 shares of common stock.
The Company's products will require clinical trials, U.S.
Food and Drug Administration ("FDA") approval, or approval
of similar authorities internationally and acceptance in
the marketplace prior to commercialization. Although the
Company believes its patents and patent applications are
valid, the invalidation of its major patents would have a
material adverse effect upon its business. The Company
F-9
<PAGE>
ACCESS PHARMACEUTICALS, INC. AND SUBSIDIARY
(a development stage company)
Notes To Consolidated Financial Statements
competes with specialized biotechnology companies and
major pharmaceutical companies. Many of these competitors
have substantially greater resources than the Company.
The Company is in the development stage and its efforts
have been principally devoted to research and development
resulting in significant losses since inception on
February 24, 1988.
(b) Principles of Consolidation
The consolidated financial statements include the
financial statements of Access Pharmaceuticals, Inc. and
Tacora Corporation, a wholly-owned subsidiary. All
significant intercompany balances have been eliminated in
consolidation.
(c) Cash and Cash Equivalents
The Company considers all highly liquid instruments with
an original maturity of three months or less to be cash
equivalents for purposes of the statements of cash flows.
Cash and cash equivalents consist primarily of cash in
banks and money market funds.
(d) Property and Equipment
Property and equipment are recorded at cost.
Depreciation is provided using the straight-line method
over estimated useful lives ranging from three to seven
years. Assets acquired pursuant to capital lease
arrangements are amortized over the shorter of the
estimated useful lives or the lease terms.
(e) Patents and Applications
In the fourth quarter of 1995, the Company changed from
deferring and amortizing patent and application costs to
recording them as expenses as incurred because, even
though the Company believes the patents and underlying
processes have continuing value, the amount of future
benefits to be derived therefrom are uncertain.
Accordingly, the new accounting method has been adopted in
recognition of a possible change in estimated future
benefits. Since the effect of this change in accounting
principle is inseparable from the effect of the change in
accounting estimate, such change has been accounted for as
a change in estimate in accordance with Opinion No. 20 of
the Accounting Principles Board. Future patent and
application costs are expected to be expensed since the
benefits to be derived therefrom are likely to be
uncertain. As a result of the change, the Company wrote
down capitalized patent and application costs by
approximately $246,000 which amounts were included in
depreciation and amortization expense in the accompanying
Statement of Operations for 1995.
(f) Licenses
The Company recognizes the purchase value of licenses and
amortizes them over the estimated useful lives. The
Company acquired a license to certain patents for $500,000
by issuing 40,000 shares of the Company's common stock in
1997. The License is amortized over ten years.
Amortization was $25,000 for the year ended December 31,
1997.
(g) Revenue Recognition
Sponsored research and development revenues are
recognized as research and development activities are
performed under the terms of research contracts. Advance
payments received are recorded as unearned revenue until
the related research activities are performed. Option
revenues are recognized when the earnings process is
completed pursuant to the terms of the respective
contract.
F-10
<PAGE>
ACCESS PHARMACEUTICALS, INC. AND SUBSIDIARY
(a development stage company)
Notes To Consolidated Financial Statements
(h) Research and Development Expenses
Research and development costs are expensed as incurred.
(i) Income Taxes
Tax credits related to research and development and to
investments in equipment and improvements are reported as
a reduction of income tax expense in the year realized.
Income taxes are accounted for under the asset and
liability method. Deferred tax assets and liabilities are
recognized for the future tax consequences attributable to
differences between the financial statement carrying
amounts of existing assets and liabilities and their
respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary
differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change
in tax rates is recognized in income in the period that
includes the enactment date.
(j) Net Loss Per Share
In February 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No.
128, "Earnings per Share" ("SFAS No. 128"). SFAS No. 128
revised the previous calculation methods and presentations
of earnings per share and requires that all prior-period
earnings (loss) per share data be restated. The Company
adopted SFAS No. 128 in the fourth quarter of 1997 as
required by this Statement. In accordance with SFAS No.
128, the Company has presented basic loss per share,
computed on the basis of the weighted average number of
common shares outstanding during the year, and diluted
loss per share, computed on the basis of the weighted
average number of common shares and all dilutive potential
common shares outstanding during the year. All prior
period loss per share amounts have been restated in
accordance with this Statement.
At December 31, 1997, the Company has options and common
stock warrants outstanding (notes 7 & 8). These options
and warrants would have resulted in additional weighted
average securities, under the treasury stock method,
totaling 20,522, 56,691 and 10,197 for the three years
ended December 31, 1997, respectively. The potentially
dilutive effect of these securities has not been
considered in the computation of diluted net loss per
common share since their inclusion would be anti-dilutive.
(k) Use of Estimates
Management of the Company has made a number of estimates
and assumptions relative to the reporting of assets and
liabilities and the disclosure of contingent assets and
liabilities to prepare these consolidated financial
statements in conformity with generally accepted
accounting principles. Actual results could differ from
those estimates.
(l) Reclassifications
Certain reclassifications have been made to prior year
financial statements to conform with the December 31, 1997
presentation.
(m) Year 2000 Issue (Unaudited)
The Company has developed a plan to modify its information
technology to be ready for the year 2000. The Company
relies upon PC-based systems and does not expect to incur
material costs to transition to Year 2000 compliant
systems in its internal operations. The Company does not
expect this project to have a
F-11
<PAGE>
ACCESS PHARMACEUTICALS, INC. AND SUBSIDIARY
(a development stage company)
Notes To Consolidated Financial Statements
significant effect on operations. The Company will continue to
implement systems and all new investments are expected to be
with Year 2000 compliant software.
(n) Stock Option Plans
Prior to January 1, 1996, the Company accounted for its
stock option plan in accordance with the provisions of
Accounting Principles Board ("APB") Opinion No. 25,
Accounting for Stock Issued to Employees, and related
interpretations. As such, compensation expense would be
recorded on the day of grant only if the current market
price of the underlying stock exceeded the exercise price.
On January 1, 1996, the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 123, Accounting
for Stock-Based Compensation, which permits entities to
recognize as expense over the vesting period the fair
value of all stock-based awards on the date of grant.
Alternatively, SFAS No. 123 also allows entities to
continue to apply the provisions of APB Opinion No. 25 and
provide pro forma net income (loss) and pro forma earnings
(loss) per share disclosures for employee stock option
grants made in 1995 and future years as if the fair-value-
based method defined in SFAS No. 123 had been applied. The
Company has elected to continue to apply the provisions of
ABP Opinion No. 25 and provide the pro forma disclosure
provisions of SFAS No. 123.
(o) Impairment of Long-Lived Assets and Long-Lived Assets
to Be Disposed Of
The Company adopted the provisions of SFAS No. 121,
Accounting for the Impairment of Long-Lived Assets and
Long-Lived Assets to Be Disposed Of, on January 1, 1996.
This Statement requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment
whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured
by a comparison of the carrying amount of an asset to
future net cash flows expected to be generated by the
asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by
which the carrying amount of the assets exceed the fair
value of the assets. Assets to be disposed of are reported
at the lower of the carrying amount or fair value less
costs to sell. Adoption of this Statement did not have a
material impact on the Company's financial position,
results of operations, or liquidity.
(2) Related Party Transactions:
Under consulting agreements between Thoma Corporation
("Thoma") and the Company, Thoma receives payments for
consulting services and reimbursement of direct expenses.
Herbert H. McDade, Jr., the Chairman of the Board of
Directors of the Company, is an owner of Thoma Corp.
During 1997, 1996 and 1995 Thoma received payments for
consulting services of $72,000, $60,000 and $0
respectively. Thoma was also reimbursed for expenses of
$6,000, $18,000, and $3,000 respectively, in 1997, 1996
and 1995.
Stephen B. Howell, M.D., Director of the Company receives
payments for consulting services and reimbursement of
direct expenses. Dr. Howell consulted with the Company in
1997 and received $2,000 in consulting fees and $1,000 in
expenses.
On October 4, 1995, Chemex made a loan to API of $100,000
which was evidenced by a 7% promissory note. In addition,
Chemex sold the remainder of its fixed assets to API at
book value in the fourth quarter of 1995. A payable to
Chemex for approximately $47,000 was recorded at December
31, 1995 for these fixed assets. The
F-12
<PAGE>
ACCESS PHARMACEUTICALS, INC. AND SUBSIDIARY
(a development stage company)
Notes To Consolidated Financial Statements
loan and payable were both eliminated on January 25, 1996,
the date of the merger.
See Note 10 "Commitments", for transactions regarding Dr.
David F. Ranney, a major shareholder of the Company.
(3) Research and Development Agreements:
On August 1, 1997, the Company entered into an agreement
with The Dow Chemical Company ("Dow Chemical") for the
development of products incorporating Dow Chemical's
chelation technology and Access' Bio-Responsive-TM polymer
systems. The collaboration will focus on the development
of MRI contrast agents and radiopharmaceutical diagnostics
and therapeutics. The advancement of the Access
developments in these areas are dependent on securing
chelation technology, which encapsulates metals to avoid
adverse effects on the body.
The Company entered into a technology evaluation option
agreement with a pharmaceutical company. The Company
recognized revenue under the agreement as certain
milestones were achieved and amounted to $110,000 and
$165,000 in 1997 and 1996, respectively. Proceeds received
in excess of amounts recognized were accounted for as
unearned income. This agreement was terminated March 29,
1996.
On April 26, 1994, the Company entered into agreements, as
amended, with Corange International Ltd. (Corange) to
develop drugs based on the Company's endothelial binding
technology for use in the oncology area. Under the
agreements, the Company granted Corange an option for a
period up to two years, as defined, to exclusively license
worldwide, any oncology agent developed pursuant to the
terms of the common research agreement. In 1995, Corange
made $495,000 in payments to the Company for sponsored
research and development which amounts were recognized as
revenue in 1995. In addition, $180,000 of unearned revenue
at December 31, 1994 was recognized as revenue in 1995
pursuant to the Corange agreements. The Corange
agreements were terminated by Corange on June 30, 1995.
(4) Fair Value of Financial Instruments
The carrying value of current assets and current
liabilities approximates fair value due to the short
maturity of these items.
(5) Property and Equipment:
Property and equipment, of which a majority is held under
capital leases, consists of the following:
<TABLE>
<CAPTION>
December 31,
--------------------
1997 1996
------------- -------------
<S> <C> <C>
Laboratory equipment $ 852,000 $ 448,000
Laboratory and building improvements 25,000 23,000
Furniture and equipment 170,000 114,000
------------- -------------
1,047,000 585,000
Less accumulated depreciation
and amortization 625,000 285,000
------------- -------------
Net property and equipment $ 422,000 $ 300,000
============= =============
</TABLE>
Depreciation and amortization on property and equipment
was $137,000, $123,000, and $115,000 for the years ended
December 31, 1997, 1996 and 1995, respectively.
(6) Leases:
At December 31, 1997, future minimum lease payments under
capital lease obligations and commitments under
noncancelable operating leases were as follows:
F-13
<PAGE>
ACCESS PHARMACEUTICALS, INC. AND SUBSIDIARY
(a development stage company)
Notes To Consolidated Financial Statements
<TABLE>
<CAPTION>
Capital leases Operating leases
------------- -------------
<S> <C> <C>
1998 $ 211,000 $ 77,000
1999 126,000 81,000
2000 31,000 85,000
2001 - 90,000
2002 - 85,000
------------ -------------
Total future minimum lease payments 368,000 $ 418,000
Less amount representing interest 45,000 =============
------------
Present value of minimum capital
lease payments 323,000
Less current portion 181,000
------------
Obligations under capital leases,
Excluding current portion $ 142,000
============
</TABLE>
The Company leases certain office and research and
development facilities under an operating lease. Rent
expense for the years ended December 31, 1997, 1996 and
1995 was $74,000, $69,000 and $59,000, respectively.
In September 1994, pursuant to a sales leaseback
transaction, the Company sold substantially all of its
property and equipment for $426,000, which amount equaled
the net book value of the property and equipment sold. The
lease agreement is classified as a capital lease with an
initial minimum obligation of $426,000, payable in 42
monthly installments plus interest. The agreement allows
for the purchase of the equipment at the end of the lease
term for $43,000, which management intends to purchase in
April 1998. The Company also issued a warrant to the
lessor for the purchase of 6,795 shares of the Company's
common stock at an exercise price of $3.00 per share,
subject to adjustment, as part of the transaction (see
Note 7).
(7) Stockholders' Equity:
(a) Preferred Stock
The Company was authorized to issue 10,000,000 shares of $0.01 par value
preferred stock, none of which was issued or outstanding at December 31,
1997 or 1996. On June 18, 1998, the shareholders approved the change
from 10,000,000 to 2,000,000 shares in the authorized number of shares.
(b) Common Stock
The Company was authorized to issue 3,000,000 shares of $0.01 par value
common stock, 1,630,450 of which was issued or outstanding
at December 31, 1997. No dividends have been paid or
declared by the Company since its inception.
On June 18, 1998, in conjunction with the first closing of
a private placement, the Company effected a
F-14
<PAGE>
ACCESS PHARMACEUTICALS, INC. AND SUBSIDIARY
(a development stage company)
Notes To Consolidated Financial Statements
recapitalization, approved by the shareholders of the
Company, on April 14, 1998, through a one-for-twenty
reverse stock split of its common stock, $0.04 par value
per share (the "Common Stock"), which decreased the number
of authorized shares of Common Stock from 60.0 million, at
$0.04 par value per share, to 20.0 million shares, $0.01
par value per share, and decreased the authorized shares
of preferred stock of the Company from 10.0 million to 2.0
million (the "Recapitalization"). The Recapitalization
decreased the number of outstanding shares of Common Stock
from approximately 41.5 million to 2.1 million.
All share numbers and loss per share amounts have been
retroactively restated to reflect the Recapitalization in the
accompanying Statement of Stockholders' Equity (Deficit).
(c) Warrants
The Company has issued 25,000 Units to the Sentinel
Charitable Remainder Trust (the "Trust") consisting in the
aggregate of 25,000 shares of common stock and warrants
exercisable in the aggregate for an additional 35,000
shares of common stock. The authorization and issuance of
the Units was made in connection with a Conversion
Agreement, dated June 18, 1990, as amended, by and between
the Company and the Trust (the "Conversion Agreement").
Pursuant to the terms of the Conversion Agreement, each
Unit has an exercise price of $50.00 and the rights to
subscribe for the Units expire on January 1, 1999.
Each warrant issuable in connection with the Units
described above is exercisable for one share of common
stock (subject to adjustment as provided in the warrant),
with 25,000 of the warrants exercisable at $125.00 and the
remaining 10,000 warrants exercisable at $50.00, all upon
terms and conditions set forth in the Conversion
Agreement. The warrants expire on January 1, 2000.
Under the terms of the 1994 lease agreement (described in
Note 6), the leasing company received a warrant to
purchase 6,795 shares of common stock. The warrant remains
exercisable for seven years from the date of issuance and
will expire on September 19, 2001. The warrant is
exercisable at $3.00 per share. The warrant may be
adjusted under some conditions, as defined, for dividends,
changes in stock price, reorganization, consolidation or
merger and extraordinary events.
On October 5, 1995 API entered into an agreement with a
shareholder to purchase 2,390 Units of API equity. Each
Unit consisted of one share of stock and one warrant. The
exercise price for the warrants is $3.00 for every two
warrants, which entitles the holder to one share of common
stock. The warrants are exercisable until October 5, 1999.
Under the terms of the merger on January 25, 1996, a
maximum of 37,500 warrants could have been issued to the
former holders of record of API Common Stock upon the
occurrence of certain conditions within twelve months of
the merger. These warrants would have been exercisable at
$15.00 per share with a 5 year expiration from the date of
issue. These conditions did not occur by January 25, 1997,
therefore these warrants were not issued and have expired.
During 1996, under terms of a consulting agreement, a
shareholder received warrants to purchase 30,000 shares of
common stock at an exercise price of $20.00 per share any
time from March 5, 1997 until March 4, 2000, for
compensation for consulting services. The fair value of
the warrants was $15.40 on the date of the grant using the
Black-Scholes pricing model with the following
assumptions: 1996-expected dividend yield 0.0%, risk-free
interest rate 6.1%, expected volatility 100% and an
expected life of 3 years. The portion of the total fair
value of the warrants relating to the consulting services
($344,000) has been recorded as general and administrative
expense and an increase to additional paid-in capital in
the accompanying 1996 consolidated financial statements.
During 1997, under terms of an agreement, a financial
advisor received warrants to purchase 37,500 shares of
common stock, one-half (18,750 shares) at an exercise
price of $12.00 per share, and one-half (18,750 shares) at
an exercise price of $18.00 per share any time from
January 1, 1998 until June 30, 2002, for
F-15
<PAGE>
ACCESS PHARMACEUTICALS, INC. AND SUBSIDIARY
(a development stage company)
Notes To Consolidated Financial Statements
financial consulting services rendered in 1997. The fair
value of the warrants was $5.00 on the date of the grant
using the Black-Scholes pricing model with the following
assumptions: 1997-expected dividend yield 0.0%, risk-free
interest rate 5.6%, expected volatility 129% and an
expected life of 5 years. Total fair value of the warrants
relating to the consulting services ($188,000) has been
recorded as general and administrative expense and an
increase to additional paid-in capital in the accompanying
1997 consolidated financial statements.
(8) Stock Option Plans
The Company adopted a new stock option plan (the "1995
Stock Awards Plan") on January 25, 1996 and reserved
100,000 shares of the Company's authorized but unissued
common stock for issuance to optionees including officers,
employees, and other individuals performing services for
the Company. The 1995 Stock Awards Plan replaced the
previously approved stock options plan (the "1987 Stock
Awards Plan") and API's stock option plan ("API Stock
Option Plan"). Options granted under the plans vest
ratably over a 4-5 year period and are generally
exercisable over a ten-year period from the date of grant.
However, as a result of certain events occurring in 1995,
all granted options in the 1987 Stock Awards Plan became
vested and exercisable and all options in the API Stock
Option Plan were exercised or forfeited. No further grants
have been or can be made under the 1987 Stock Awards Plan
and the API Stock Option Plan has been canceled. New stock
options are generally granted with an exercise price equal
to the stock's quoted market value at the date of grant.
At December 31, 1997 there were 67,850 additional shares
available for grant under the 1995 Stock Awards Plan. The
per share weighted-average fair value of stock options
granted during 1997 was $13.00 on the date of grant using
the Black-Scholes option pricing method with the following
weighted-average assumptions: 1997-expected dividend yield
0.0%, risk-free interest rate 5.6%, expected volatility
129% and an expected vesting life of 4 years for option
grants. The per share weighted-average fair value of stock
options granted during 1996 was $18.40 on the date of
grant using the Black-Scholes option pricing method with
the following weighted-average assumptions: 1996-expected
dividend yield 0.0%, risk-free interest rate 6.0%,
expected volatility 100% and an expected life of 4 years.
The Company applies APB Opinion No. 25 in accounting for
its 1995 Stock Awards Plan. Accordingly, no compensation
expense has been recognized in the accompanying
Consolidated Statements of Operations for employee stock
options because the quoted market price of the underlying
common stock did not exceed the exercise price of the
option at the date of grant. Had the Company determined
compensation cost based on the fair value at the grant
date for its stock options under SFAS No. 123, the
Company's net loss and loss per share would have been
reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
Net Loss
As reported $ (4,441,000) $(11,462,000) $ (1,099,000)
Pro forma (4,614,000) (11,563,000) (1,101,000)
Basic and diluted loss per share
As reported $2.80 $7.68 $1.86
Pro forma $2.91 $7.75 $1.86
</TABLE>
Pro forma net loss and loss per share amounts reflect only
options granted in 1997 and 1996. No options were granted
in 1995. Therefore, the full impact of calculating
compensation cost for stock options under SFAS No. 123 is
not reflected in the pro forma net loss amounts and loss
per share presented above because compensation cost is
reflected over the awards' vesting period of four and five
years and compensation cost for options granted prior to
January 1, 1995 is not considered.
F-16
<PAGE>
ACCESS PHARMACEUTICALS, INC. AND SUBSIDIARY
(a development stage company)
Notes To Consolidated Financial Statements
(a) 1995 Stock Awards Plan
Summarized information for the 1995 Stock Awards Plan is
as follows:
<TABLE>
<CAPTION>
1995 Stock Awards Plan
----------------------
Weighted
Stock Average
Options Exercise Price
---------- ----------
<S> <C> <C>
Outstanding options at December 31, 1995 - $ -
Granted 33,299 26.40
Forfeited (1,800) (28.80)
Exercised - -
----------
Outstanding options at December 31, 1996 31,499 26.20
Granted 8,217 13.00
Forfeited (7,566) (27.60)
Exercised - -
----------
Outstanding options at December 31, 1997 32,150 20.40
==========
</TABLE>
At December 31, 1997, the range of exercise prices and
weighted average remaining contractual life of outstanding
options was $5.60 - $36.20 and 9 years, respectively.
At December 31, 1997, the number of awards exercisable was
8,950 and the weighted-average exercise price of those
options was $25.60. At December 31, 1996, the number of
options exercisable was 4,750 and the weighted-average
exercise price of those awards was $26.20.
(b) 1987 Stock Awards Plan
Chemex adopted the 1987 Stock Awards Plan in 1987. All
issued options and stock appreciation rights ("SAR's")
became vested and exercisable due to the merger on January
25, 1996. No further grants can be made. Summarized
information for the 1987 Stock Awards Plan is as follows:
<TABLE>
<CAPTION>
1987 Stock Awards Plan
----------------------
1987 Non- Weighted
Incentive Employee Average
Stock Director Exercise
Options SAR's Plan Price
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Outstanding awards, from Chemex,
December 31, 1995 48,804 16,932 13,955 $ 39.80
Granted - - - -
Forfeited (7,569) - (5,045) 51.40
Exercised (1,371) (6,735) - 3.00
---------- ---------- ----------
Outstanding awards,
December 31, 1996 39,864 10,197 8,910 40.80
Granted - - - -
Forfeited (1,125) - (3,660) 72.40
Exercised - - - -
---------- ---------- ----------
Outstanding awards at
December 31, 1997 38,739 10,197 5,250 38.00
========== ========== ==========
</TABLE>
At December 31, 1996, the range of exercise prices and
weighted average remaining contractual life of outstanding
awards was $0.00 - $180.00 and 6 years respectively. At
December 31, 1997, the range of exercise prices and
weighted average remaining contractual life of outstanding
awards was $0.00 - $102.00 and 5 years respectively.
At December 31, 1996, the number of awards exercisable was
58,973 and the weighted-average exercise price of those
awards was $40.80. At December 31, 1997, the number of
awards exercisable was 54,187 and the weighted-average
exercise price of those awards was $38.00.
F-17
<PAGE>
(9) Income Taxes:
The Company follows Statement of Financial Accounting
Standards Number 109 - Accounting for Income Taxes ("FASB
109"). No provision for federal income taxes has been made
in fiscal years 1997, 1996 and 1995 due to the operating
losses incurred for income tax purposes. The Company's
only significant temporary difference relates to net
operating loss carryforwards. This resulted in gross
deferred tax assets of approximately $14,700,000 and
$13,515,000 at December 31, 1997 and 1996, respectively,
all of which have been fully reserved. Because the Company
has a history of losses, a 100% provision against the
deferred tax assets was recorded in the form of a
valuation allowance. Increases in the valuation allowance
amounted to $1,185,000, $954,000 and $360,000 at December
31, 1997, 1996 and 1995, respectively. At December 31,
1997, the Company's regular and alternative minimum tax
net operating loss carry-forwards for federal income tax
purposes approximated $42 million, which if not utilized,
will expire in varying amounts through the year 2011. As
a result of the merger on January 25, 1996, a change in
control occurred for federal income tax purposes which
limited the utilization of pre-merger net operating loss
carry-forwards related to Chemex to approximately $530,000
per year.
(10) Commitments and Contingencies:
The Company is not currently a party to any material legal
proceedings.
Under the terms of the "Patent Purchase Agreement" dated
April 5, 1994, as amended on January 23, 1996 between Dr.
David F. Ranney and the Company, Dr. Ranney, a majority
stockholder, is entitled to yearly cash royalty payments
as consideration for the assignment of patents to the
Company as follows:
<TABLE>
<CAPTION>
Royalty Payments
------------------------------
Date Amount
--------------- ------------
<S> <C>
April 15, 1994 $7,500
January 31, 1995 $15,000
January 31, 1996 $25,000
January 31, 1997 $50,000
</TABLE>
Thereafter each January 31, payments equal to 105% of the
payment made in the immediately preceding calendar year
will be paid to Dr. Ranney through the life of the
patents. A royalty of $52,500 and $ 50,000 was payable at
December 31, 1997 and 1996, respectively, and included in
the accompanying consolidated balance sheets. Access will
also pay Dr. Ranney a royalty of three quarters of one
percent (0.75%) of gross revenues derived from products
covered by the patents.
(11) Liquidity:
The Company has incurred negative cash flows from
operations since its inception, and has expended, and
expects to continue to expend in the future, substantial
funds to complete its planned product development efforts.
The Company expects that its existing capital resources
will be adequate to fund the Company's operations through
the second quarter of 1999. The Company is dependent
on raising additional capital to fund its development of
technology and to implement its business plan. Such
dependence will continue at least until the Company begins
marketing its new technologies.
If the anticipated revenues are delayed or do not occur or
the Company is unsuccessful in raising additional capital
on acceptable terms, the Company would be required to
curtail research and development and general and
administrative expenditures so that working capital would
cover reduced operations into the third quarter of 1999.
F-18
<PAGE>
There can be no assurance, however, that changes in the
Company's operating expenses will not result in the
expenditure of such resources before such time.
The Company will require substantial funds to conduct
research and development programs, preclinical studies and
clinical trials of its potential products. The Company's
future capital requirements and adequacy of available
funds will depend on many factors including: the
successful commercialization of amlexanox; the ability to
establish and maintain collaborative arrangements for
research, development and commercialization of products
with corporate partners; continued scientific progress in
the Company's research and development programs; the
magnitude, scope and results of preclinical testing and
clinical trials; the costs involved in filing, prosecuting
and enforcing patent claims; competing technological
developments; the cost of manufacturing and scale-up; and,
the ability to establish and maintain effective
commercialization activities and arrangements.
The Company intends to seek additional funding through
research and development or licensing arrangements with
potential corporate partners, public or private financing,
or from other sources. The Company does not have any
committed sources of additional financing and there can be
no assurance that additional financing will be available
on favorable terms, if at all. In the event that adequate
funding is not available, the Company may be required to
delay, reduce or eliminate one or more of its research or
development programs or obtain funds through arrangements
with corporate collaborators or others that may require
the Company to relinquish greater or all rights to product
candidates at an earlier stage of development or on less
favorable terms than the Company would otherwise seek.
Insufficient financing may also require the Company to
relinquish rights to certain of its technologies that the
Company would otherwise develop or commercialize itself.
If adequate funds are not available, the Company's
business, financial condition and results of operations
will be materially and adversely effected.
(12) Subsequent Events:
On June 18, 1998, in conjunction with the first closing of
a private placement, the Company effected a
recapitalization of the Company through a one-for-twenty
reverse stock split of its common stock, $0.04 par value
per share (the "Common Stock"), which decreased the number
of authorized shares of Common Stock from 60.0 million, at
$0.04 par value per share, to 20.0 million shares, $0.01
par value per share, and decreased the authorized shares
of preferred stock of the Company from 10.0 million to 2.0
million (the "Recapitalization"). The Recapitalization
decreased the number of outstanding shares of Common Stock
from approximately 41.5 million to 2.1 million. The
Recapitalization was approved by Shareholders at a Special
Meeting held on April 14, 1998. The reduction in
authorized shares of Common Stock actually increased the
number of authorized but unissued shares when compared
with the number of authorized but unissued shares before
the Recapitalization.
An investment bank has been engaged to assist the Company
in raising funds to support the Company's research and
development activities. As discussed below, from March to
July 1998, the Company raised an aggregate of $5.0
million. Up to an additional $4.0 million may be raised.
There can be no assurances that any additional closings of
the private placement will take place.
The Company raised $1,200,000 in gross proceeds ($725,000
received on March 20, 1998 and $475,000 received on April
11, 1998) less cash issuance costs of $33,750, from the
placement of 48 units, each unit consisting of 8,333
shares of Common Stock and warrants to purchase 8,333
shares of Common Stock at an exercise price of $3.00 per
share. The placement agent received warrants to purchase
44,527 shares of Common Stock at $3.00 per share. In
accordance with the offering terms, the placement agent
elected to receive 45,277 shares of Common Stock in lieu
of certain sales commissions and expenses.
On June 18, 1998, the Company, assisted by an investment
bank, raised an aggregate of $2.9 million in gross
proceeds, less cash issuance costs of $202,000, from the
first closing of a private placement of 953,573 shares of
Common Stock at $3.00 per share. The placement agent for
the offering received warrants to purchase 101,653 shares
of Common Stock at $3.00 per share. In accordance with the
offering terms the placement agent elected to receive
62,949 shares of Common Stock in lieu of certain sales
commissions and expenses. Legal fees and other issuance
F-19
<PAGE>
costs were $122,000 through June 30, 1998. The proceeds of
the offering will be used to fund research and
development, working capital, acquisitions of
complementary companies or technologies and general
corporate purposes.
On July 30, 1998, the Company raised an aggregate of
$900,000 in gross proceeds, less cash issuance costs of
$24,000, from the second closing of a private placement of
300,000 shares of Common Stock at $3.00 per share. The
placement agent for such offering received warrants to
purchase 33,445 shares of Common Stock at $3.00 per share.
In accordance with the offering terms the placement agent
elected to receive 34,450 shares of Common Stock in lieu
of certain sales commissions and expenses.
All share numbers, price per share and loss per share
amounts referenced herein have been adjusted to reflect
the Recapitalization.
F-20
<PAGE>
ACCESS PHARMACEUTICALS, INC. AND SUBSIDIARY
a development stage company
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
September 30, 1998 December 31, 1997
------------- -------------
(unaudited)
Assets
- ------
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 2,230,000 $ 438,000
Accounts receivable - 1,000
Prepaid expenses and other current assets 12,000 51,000
------------- -------------
Total Current Assets 2,242,000 490,000
------------- -------------
Property and Equipment, at cost 1,007,000 1,047,000
Less accumulated depreciation and amortization (749,000) (625,000)
------------- -------------
258,000 422,000
------------- -------------
Licenses, net of accumulated amortization
of $37,000 and $25,000 at September 30,
1998 and December 31, 1997, respectively 438,000 475,000
Other Assets 108,000 60,000
------------- -------------
Total Assets $ 3,046,000 $ 1,447,000
============= =============
Liabilities and Stockholders' Equity
- ------------------------------------
Current Liabilities
Accounts payable and accrued expenses $ 380,000 $ 434,000
Royalties payable - 53,000
Accrued insurance premium - 38,000
Current portion of obligations under
capital leases 94,000 181,000
------------- -------------
Total Current Liabilities 474,000 706,000
------------- -------------
Obligations under capital leases,
net of current portion 53,000 142,000
------------- -------------
Total Liabilities 527,000 848,000
------------- -------------
Stockholders' Equity
Preferred stock, $.01 par value, authorized
2,000,000 shares, none issued or outstanding
at September 30, 1998; $.01 par value,
authorized 10,000,000 shares, none issued
or outstanding at December 31, 1997 - -
Common stock, $.01 par value, authorized
20,000,000 shares, 3,439,266, issued and
outstanding at September 30, 1998;
authorized 3,000,000 shares, 1,630,450
issued and outstanding at December 31,1997 34,000 16,000
Additional paid-in capital 24,869,000 20,331,000
Deficit accumulated during the
development stage (22,384,000) (19,748,000)
------------- -------------
Total Stockholders' Equity 2,519,000 599,000
------------- -------------
Total Liabilities and Stockholders' Equity $ 3,046,000 $ 1,447,000
============= =============
</TABLE>
- ---------------------------------------------------------------------
See accompanying notes to condensed consolidated financial statements
F-21
<PAGE>
ACCESS PHARMACEUTICALS, INC. AND SUBSIDIARY
a development stage company
Condensed Consolidated Statements of Operations
(unaudited)
<TABLE>
<CAPTION>
Three Months ended Nine Months ended
September 30, September 30, February 24, 1988
--------------------------- --------------------------- (inception) to
1998 1997 1998 1997 September 30, 1998
------------ ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Revenues
Research and development $ - $ - $ - $ - $ 2,711,000
Option income - - - - 2,149,000
Licensing revenues - 113,000 - 301,000 325,000
------------ ------------ ------------ ------------ -------------
Total Revenues - 113,000 - 301,000 5,185,000
------------ ------------ ------------ ------------ -------------
Expenses
Research and development 481,000 787,000 1,417,000 1,829,000 10,026,000
General and administrative 319,000 425,000 1,069,000 1,254,000 7,932,000
Depreciation and amortization 39,000 31,000 169,000 93,000 1,225,000
Write-off of excess purchase price - - - - 8,894,000
------------ ------------ ------------ ------------ -------------
Total Expenses 839,000 1,243,000 2,655,000 3,176,000 28,077,000
------------ ------------ ------------ ------------ -------------
Loss From Operations (839,000) (1,130,000) (2,655,000) (2,875,000) (22,892,000)
------------ ------------ ------------ ------------ -------------
Other Income (Expense)
Interest and miscellaneous income 29,000 23,000 37,000 107,000 811,000
Interest expense (4,000) (5,000) (18,000) (20,000) (176,000)
------------ ------------ ------------ ------------ -------------
25,000 18,000 19,000 87,000 635,000
------------ ------------ ------------ ------------ -------------
Loss Before Income Taxes (814,000) (1,112,000) (2,636,000) (2,788,000) (22,257,000)
Provision for Income Taxes - - - - 127,000
------------ ------------ ------------ ------------ -------------
Net Loss $ (814,000) $(1,112,000) $(2,636,000) $(2,788,000) $(22,384,000)
============ ============ ============ ============ =============
Basic and Diluted Loss Per
Common Share $ (0.24) $ (0.70) $ (1.10) $ (1.77)
============ ============ ============ ============
Weighted Average Basic and Diluted
Common Shares Outstanding 3,322,668 1,595,979 2,393,068 1,578,467
============ ============ ============ ============
</TABLE>
- ---------------------------------------------------------------------
See accompanying notes to condensed consolidated financial statements
F-22
<PAGE>
ACCESS PHARMACEUTICALS, INC. AND SUBSIDIARY
a development stage company
Condensed Consolidated Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
Nine Months ended September 30, February 24, 1988
-------------------------- (inception) to
1998 1997 September 30, 1998
------------ ------------ -------------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net Loss $(2,636,000) $(2,788,000) $(22,384,000)
Adjustments to reconcile net loss to
cash used in operating activities:
Write-off of excess purchase price - - 8,894,000
Consulting expense related to
warrants granted - - 532,000
Research expenses related to common
stock granted and donated equipment 9,000 100,000 109,000
Depreciation and amortization 169,000 93,000 1,225,000
Unearned revenue - - (110,000)
Change in operating assets
and liabilities:
Accounts receivable 1,000 (87,000) (1,000)
Prepaid expenses and
other current assets 39,000 60,000 (13,000)
Other assets 2,000 1,000 (6,000)
Accounts payable and
accrued expenses (145,000) (309,000) 87,000
------------ ------------ -------------
Net Cash Used In Operating Activities (2,561,000) (2,930,000) (11,667,000)
------------ ------------ -------------
Cash Flows From Investing Activities:
Capital expenditures (4,000) (24,000) (1,168,000)
Sales of capital equipment - - 6,000
Purchase of Tacora, net of cash acquired - - (124,000)
Other Assets (50,000) - (100,000)
------------ ------------ -------------
Net Cash Used In Investing Activities (54,000) (24,000) (1,386,000)
------------ ------------ -------------
Cash Flows From Financing Activities:
Proceeds from notes payable - - 721,000
Payments of principal on obligations
under capital leases (149,000) (126,000) (603,000)
Cash acquired in merger with
Chemex Pharmaceuticals - - 1,587,000
Proceeds from stock issuances, net 4,556,000 - 13,578,000
------------ ------------ -------------
Net Cash Provided By (Used In)
Financing Activities 4,407,000 (126,000) 15,283,000
------------ ------------ -------------
Net Increase (Decrease) in Cash and
Cash Equivalents 1,792,000 (3,080,000) 2,230,000
Cash and Cash Equivalents at
Beginning of Period 438,000 4,428,000 -
------------ ------------ -------------
Cash and Cash Equivalents at
End of Period $ 2,230,000 $ 1,348,000 $ 2,230,000
============ ============ =============
Cash paid for interest $ 18,000 $ 20,000 $ 173,000
Cash paid for income taxes - - 127,000
Supplemental disclosure of
noncash transactions
Payable accrued for fixed
asset purchase $ - $ - $ 47,000
Elimination of note payable
to Chemex Pharmaceuticals
due to merger - - 100,000
Stock issued for License on patents - 500,000 500,000
Equipment purchases financed
through capital leases - 72,000 82,000
Net liabilities assumed in
acquisition of Tacora Corporation - - 455,000
</TABLE>
- ----------------------------------------------------------------------
See accompanying notes to condensed consolidated financial statements
F-23
<PAGE>
ACCESS PHARMACEUTICALS, INC. AND SUBSIDIARY
a development stage company
Notes to Condensed Consolidated Financial Statements
Nine Months Ended September 30, 1998 and 1997
(unaudited)
(1) Interim Financial Statements
The consolidated balance sheet as of September 30, 1998 and the consolidated
statements of operations for the three and nine months ended and cash flows for
the nine months ended September 30, 1998 and 1997 were prepared by management
without audit. In the opinion of management, all adjustments, including only
normal recurring adjustments necessary for the fair presentation of the
financial position, results of operations, and changes in financial position
for such periods, have been made. Certain reclassifications have been made to
prior year financial statements to conform with the September 30, 1998
presentation. The accompanying Consolidated Balance Sheets as of December 31,
1997 and Statements of Operations for the twelve months then ended
have been retroactively restated to reflect the Recapitalization
including the one-for-twenty reverse stock split effected June 18, 1998.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. It is suggested that these financial
statements be read in conjunction with the audited consolidated financial
statements and notes thereto included in the Company's Annual Report on
Form 10-K for the year ended December 31, 1997. The results of operations for
the nine month period ended September 30, 1998 are not necessarily indicative
of the operating results which may be expected for a full year. The
consolidated balance sheet as of December 31, 1997 contains financial
information taken from the audited financial statements as of that date.
In 1997, the Company adopted Statement of Financial Accounting Standards No.
128, "Earnings Per Share." In accordance with SFAS No. 128, the Company has
presented basic loss per share, computed on the basis of the weighted average
number of common shares outstanding during the period, and diluted loss per
share, computed on the basis of the weighted average number of common shares
and all dilutive potential common shares outstanding during the period. The
adoption of this new accounting standard, which required the restatement of all
presented periods' earnings per share data, did not have a material impact on
previously reported earnings per share. Potentially dilutive effect of the
Company's outstanding options and common stock warrants have not been
considered in the computation of diluted net loss per common share since
their inclusion would be anti-dilutive.
Effective with fiscal years beginning after December 15, 1997, companies are
required to adopt Statement of Financial Accounting Standards ("SFAS") No.
130 "Reporting Comprehensive Income." The Statement establishes standards for
the reporting and display of comprehensive income and its components in a full
set of general-purpose financial statements. Comprehensive income includes net
income and other comprehensive income, which comprises certain specific items
previously reported directly in stockholders' equity. Other comprehensive
income comprises items such as unrealized gains and losses on debt and equity
securities classified as available-for-sale securities, minimum pension
liability adjustments, and foreign currency translation adjustments. Since the
Company does not currently have any of these other comprehensive income items,
SFAS No. 130 has no impact on the way the Company reports or has reported its
financial statements.
(2) Liquidity
The Company has incurred negative cash flows from operations since its
inception, and has expended, and expects to continue to expend in the future,
substantial funds to complete its planned product development efforts. The
Company expects that its existing capital resources will be adequate to fund
the Company's operations through the second quarter of 1999. The Company is
dependent on raising additional capital to fund its development of
technology and to implement its business plan. Such dependence will continue
at least until the Company begins marketing its new technologies.
If the anticipated revenues are delayed or do not occur or the Company is
unsuccessful in raising additional capital on acceptable terms, the Company
would be required to curtail research and development and general and
administrative expenditures so that working capital would cover reduced
operations into the third quarter of 1999. There can be no assurance, however,
that changes in the Company's operating expenses will not result in the
expenditure of such resources before such time.
The Independent Auditor's Report on the Company's 1997 consolidated financial
statements included an emphasis paragraph regarding the uncertainty of the
Company's ability to continue as a going concern.
F-24
<PAGE>
(3) Recapitalization
On June 18, 1998, in conjunction with the first closing of a private placement,
the Company effected a recapitalization of the Company through a one-for-twenty
reverse stock split of Access common stock, $.04 par value per share, which
decreased the number of authorized shares of common stock from 60.0 million
shares, at $0.04 par value per share, to 20.0 million shares, par value $0.01
per share (the "Common Stock"), and decreased the authorized shares of
preferred stock of the Company from 10.0 million to 2.0 million (the
"Recapitalization"). The Recapitalization decreased the number of outstanding
shares of Common Stock from approximately 41.5 million to 2.1 million.
If and when the Company satisfies all listing requirements, the Company intends
to submit an application for listing on NASDAQ or an alternate exchange. There
can be no assurances that the Company will be listed on NASDAQ or an alternate
exchange.
(4) Private Placement
The Company, assisted by an investment bank, raised $1,200,000 in gross
proceeds ($725,000 received on March 20, 1998 and $475,000 received on April
11, 1998) less cash issuance costs of $47,000, from the placement of 48 units,
each unit consisting of 8,333 shares of Common Stock and warrants to purchase
8,333 shares of Common Stock at an exercise price of $3.00 per share. The
placement agent received warrants to purchase 44,527 shares of Common Stock
at $3.00 per share, in accordance with the offering terms and elected to
receive 45,277 shares of Common Stock in lieu of certain sales commissions
and expenses.
On June 18, 1998, the Company, assisted by the same investment bank, raised an
aggregate of $2.9 million in gross proceeds, less cash issuance costs of
$202,000, from the first closing of a private placement of 953,573 shares
Common Stock at $3.00 per share. The placement agent for such offering received
warrants to purchase 101,653 shares of Common Stock at $3.00 per share, in
accordance with the offering terms and elected to receive 62,949 shares of
Common Stock in lieu of certain sales commissions and expenses.
On July 30, 1998, the Company, assisted by the same investment bank, raised an
aggregate of $900,000 in gross proceeds, less cash issuance costs of $24,000,
from the second closing of a private
placement of 300,000 shares of Common Stock at $3.00 per share. The placement
agent for such offering received warrants to purchase 33,445 shares of Common
Stock at $3.00 per share, in accordance with the offering terms and elected
to receive 34,450 shares of Common Stock in lieu of certain sales commissions
and expenses. The proceeds of the offering will be used to fund research and
development, working capital, acquisitions of complementary companies or
technologies and general corporate purposes.
Through September 30, 1998, issuance costs for all placements totaled $405,000.
The proceeds of the offering will be used to fund research and development,
working capital, acquisitions of complementary companies or technologies and
general corporate purposes.
The investment bank has been engaged to assist the Company in raising up to an
additional $8.0 million to fund research and development, working capital,
acquisitions of complementary companies or technologies and general corporate
purposes. There can be no assurances that any additional closings of the
private placement will take place.
F-25
<PAGE>
No person has been authorized in connection with the
offering made hereby to give any information or to make
any representation not contained in this Prospectus and,
if given or made, such information or representation must
not be relied upon as having been authorized by the
Company. This Prospectus does not constitute an offer to
sell or a solicitation of any offer to buy any of the
securities offered hereby to any person or by anyone in
any jurisdiction in which it is the delivery of this
Prospectus nor any sale made hereunder shall, under any
circumstances, create any implication that the information
contained herein is correct as of any date subsequent to
the date hereof.
TABLE OF CONTENTS
Page
Available Information 2
Risk Factors 3
The Company 10
Use of Proceeds 10
Price Range of Common Stock and Dividend
Policy 11
Capitalization 12
Management's Discussion and Analysis of
Financial Condition and Results of
Operations 13
Business 19
Management 30
Executive Compensation 32
Certain Relationships and Related
Transactions 33
Description of Capital Stock 34
Security Ownership of Certain
Beneficial Owners and Management 36
Selling Stockholders 37
Plan of Distribution 39
Legal Matters 39
Experts 39
Index to Financial Statements F-1
2,440,305 SHARES
LOGO
Access Pharmaceuticals, Inc.
COMMON STOCK
PROSPECTUS
January 8, 1999
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
Estimated expenses (other than underwriting discounts and
commissions) payable in connection with the sale of the
Common Stock offer hereby are as follows:
<TABLE>
<S> <C>
SEC registration fee $ 1,202
Printing and engraving expenses 500
Legal fees and expenses 10,000
Accounting fees and expenses 11,000
Blue Sky fees and expenses (including legal fees) 1,000
Transfer agent and registrar fees and expenses 0
Miscellaneous 10,298
--------
Total $34,000
========
</TABLE>
Item 14. Indemnification of Directors and Officers
Section 145 of the Delaware General Corporation Law (the
"DGCL") empowers a Delaware corporation to indemnify any
person who was or is, or is threatened to be made, a party
to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of
such corporation) by reason of the fact that such person
is or was a director, officer, employee or agent of such
corporation, or is or was serving at the request of such
corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or
other enterprise, provided that such person acted in good
faith and in a manner that such person reasonably believed
to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or
proceeding, such person had no reasonable cause to believe
his conduct was unlawful. The indemnity may include
expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably
incurred by such person in connection with such action,
suit or proceeding. A Delaware corporation may also
indemnify such persons against expenses (including
attorneys' fees) in actions brought by or in the right of
the corporation to procure a judgement in its favor,
subject to the same conditions set forth in the
immediately preceding sentences, except that no
indemnification is permitted in respect of any claim, issue
or matter as to which such person shall have been adjudged
to be liable to the corporation unless and to the extent
the Court of Chancery of the State of Delaware or the
court in which such action or suit was brought shall
determine upon application that, in view of all the
circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses as the
Court of Chancery or other such court shall deem proper.
To the extent such person has been successful on the
merits or otherwise in defense of any action to above, or
in defense of any claim, issue or matter therein, the
corporation must indemnify such person against expenses
(including attorneys' fees) actually and reasonably
incurred by such person in connection therewith. The
indemnification and advancement of expenses provided for
in, or granted pursuant to, Section 145 is not exclusive
of any other rights to which those seeking indemnification
or advancement of expenses may be entitled under any by-
law, agreement, vote of stockholders or disinterested
directors or otherwise.
Section 145 of the DGCL also provides that a corporation
may maintain insurance against liabilities for which
indemnification is not expressly provided by the statute.
The Registrant is insured against liabilities which it may
incur by reason of its indemnification obligations under
its Certificate of Incorporation, Bylaws and
indemnification agreements.
Article X of the Registrant's Certificate of Incorporation
provides that the Registrant will indemnify, defend and
hold harmless directors, officers, employees and agents or
the Registrant to the fullest extent currently permitted
under the DGCL.
In addition, Article X of the Registrant's Certificate of
Incorporation, provides that neither the Registrant nor
its stockholders may recover monetary damages from the
Registrant's directors for a breach of their fiduciary
duty in the performance of their duties as directors of
the Registrant, unless such breach relates to (i) the
director's duty of loyalty, (ii) acts or omissions not in
good faith or which involve intentional misconduct or a
knowing violation of law, (iii) unlawful payments of
dividends or unlawful stock repurchases or redemptions as
provided in Section 174 of the DGCL of (iv) any
transactions for which the director derived an improper
personal benefit. The By-Laws of the Registrant
<PAGE>
provide for indemnification of the Registrant's directors,
officers, employees and agents on the terms permitted
under Section 145 of the DGCL described above.
The Registrant has entered into indemnification agreements
with certain of its directors and executive officers.
These agreements provide rights of indemnification to the
full extent allowed and provided for by Section 145 of the
DGCL and the Certificate of Incorporation and Bylaws of
Chemex.
Item 15. Recent Sales of Unregistered Securities.
In the three years preceding the filing of this
registration statement, the Company has issued the
following securities that were not registered under the
Securities Act:
On July 30, 1998 the Company sold to 16 individual
accredited investors an aggregate of 300,000 shares of
Common Stock at $3.00 per share. The placement agent for
such offering received warrants to purchase 33,445 shares
of Common Stock at $3.00 per share. In accordance with the
offering terms, the placement agent elected to receive
34,450 shares of Common Stock in lieu of certain sales
commissions and expenses. The Company raised an aggregate
of $900,000 in gross proceeds.
On June 18, 1998, in conjunction with the first closing of
a private placement, the Company effected a
recapitalization of the Company through a one-for-twenty
reverse stock split of its common stock, $0.04 par value
per share (the "Common Stock"), which decreased the number
of authorized shares of Common Stock from 60.0 million
shares, at $0.04 par value per share, to 20.0 million
shares, $0.01 par value per share, and decreased the
authorized shares of preferred stock of the Company from
10.0 million to 2.0 million (the "Recapitalization"). The
Recapitalization decreased the number of outstanding
shares of Common Stock from approximately 41.5 million to
2.1 million.
On June 18, 1998 the Company sold to 24 individual
accredited investors an aggregate of 953,567 shares of
Common Stock at $3.00 per share. The placement agent for
such offering received warrants to purchase 101,653 shares
of Common Stock at $3.00 per share. In accordance with the
offering terms, the placement agent elected to receive
62,949 shares of Common Stock in lieu of certain sales
commissions and expenses. The Company raised an aggregate
of $2,900,000 in gross proceeds.
On March 20 and April 1, 1998 the Company sold to 11
individual accredited investors an aggregate of 48 units,
each unit consisting of 8,333 shares of Common Stock and
warrants to purchase 8,333 shares of Common Stock at $3.00
per share. The placement agent received warrants to
purchase 444,518 shares of Common Stock at an exercise
price at $3.00 per share. In accordance with the offering
terms, the placement agent elected to receive 45,277
shares of Common Stock in lieu of certain sales
commissions and expenses. The Company raised an aggregate
of $1,200,000 in gross proceeds.
On February 20, 1998 and August 27, 1998 the Company issued
20,882 and 3,571 shares, respectively, of Common Stock to
creditors of Tacora Corporation in connection with the
Merger Agreement between the Company and Tacora Corporation.
On July 11, 1997 and February 26, 1998 the Company issued
30,000 and 10,000 shares, respectively, of Common Stock to
The Dow Chemical Company in connection with the License
Agreement between the Company and The Dow Chemical Company.
In connection with a private placement offering in March 1996,
the Company issued 428,570 shares of Common Stock and
warrants to purchase 30,000 shares of Common Stock
No underwriters were involved in the other sales of
securities. Such sales were made in reliance upon an
exemption from the registration provisions of the Securities
Act set forth in Section 4(2) and/or 3 (b) thereof relative
to sales by an issuer not involving any public offering or
the rules and regulations thereunder. All of the purchasers
of securities in the transactions described above
represented to the Company that they were accredited
investors as defined in Rule 501(a) of Regulation D
promulgated under the Securities Act and that their
intentions were to acquire the securities for investment
only under the Securities Act and not with a view to or for
sale in connection with any distribution thereof, and
appropriate legends were affixed to the securities issued in
such transactions and/or such transactions were effected in
compliance with an applicable exemption from the federal securities
law. All recipients had adequate access to
<PAGE>
information about the Company. All of the foregoing
securities are deemed restricted securities for the purpose
of the Securities Act.
Item 16. Exhibits and Financial Statement Schedule.
(a) Exhibits:
4. Exhibit Number
2.1 Amended and Restated Agreement of Merger and Plan of
Reorganization between Access Pharmaceuticals, Inc. and
Chemex Pharmaceuticals, Inc., dated as of October 31, 1995
(Incorporated by reference to Exhibit A of the Company's
Registration Statement on Form S-4 dated December 21, 1995,
Commission File No. 33-64031)
3.0 Articles of incorporation and bylaws:
3.1 Certificate of Incorporation (Incorporated by Reference
to Exhibit 3(a) of the Company's Form 8-B dated July 12,
1989, Commission File Number 9-9134)
3.2 Bylaws (Incorporated by referenced to Exhibit 3(b) of
the Company's Form 8-B dated July 12, 1989, Commission File
Number 0-9314)
3.3 Certificate of Amendment of Certificate of
Incorporation filed August 21, 1992
3.4 Certificate of Merger filed January 25, 1996.
(Incorporated by reference to Exhibit E of the Company's
Registration Statement on Form S-4 dated December 21, 1995,
Commission File No. 33-64031)
3.5 Certificate of Amendment of Certificate of
Incorporation filed January 25, 1996. (Incorporated by
reference to Exhibit E of the Company's Registration
Statement on Form S-4 dated December 21, 1995, Commission
File No. 33-64031)
3.6 Amended and Restated Bylaws (Incorporated by reference
to Exhibit 3.1 of the Company's Form 10-Q for the quarter ended
June 30, 1996)
3.7 Certificate of Amendment of Certificate of
Incorporation filed July 18, 1996.
(Incorporated by reference to Exhibit 3.8 of the Company's
Form 10-K for the year ended December 31, 1996)
3.8 Certificate of Amendment of Certificate of
Incorporation filed June 18, 1998.
(Incorporated by reference to Exhibit 3.8 of the Company's
Form 10-Q for the quarter ended June 30, 1998)
5.1 Opinion of Bingham Dana LLP (Previously filed)
10.0 Material contracts:
10.1 Irrevocable Assignment of Proprietary Information with
Dr. Charles G. Smith (Incorporated by reference to Exhibit
10.6 of the Company's Form 10-K for the year ended December 31, 1991)
10.2 Conversion Agreement with Sentinel Charitable Remainder
Trust dated June 18, 1990 (Incorporated by reference to
Exhibit 10 of the Company's Form 10-K for the year ended
December 31, 1990)
10.3 Asset Purchase and Royalty Agreement between Block Drug
Company, Inc. and the Company dated June 7, 1995
(Incorporated by reference to Exhibit 10.28 of the Company's
Form 10-Q for the quarter ended June 30, 1995)
*10.4 1995 Stock Option Plan (Incorporated by reference to
Exhibit F of the Company's Registration Statement on Form S-
4 dated December 21, 1995, Commission File No. 33-64031)
10.5 Stockholder's Agreement dated October 1995 between
Access Pharmaceuticals, Inc. and Dr. David F. Ranney
(Incorporated by reference to Exhibit A of the Company's
Registration Statement on Form S-4 dated December 21, 1995,
Commission File No. 33-64031).
10.6 Patent Purchase Agreement dated April 5, 1994 between
David F. Ranney and Access Pharmaceuticals, Inc.
(Incorporated by reference to Exhibit 10.16 of the Company's
Form 10-K for the year ended December 31, 1995)
10.7 First Amendment to Patent Purchase Agreement dated
January 23, 1996
<PAGE>
between David F. Ranney and Access Pharmaceuticals, Inc.
(Incorporated by reference to Exhibit 10.17 of the Company's
Form 10-K for the year ended December 31, 1995)
10.8 Lease Agreement between Pollock Realty Corporation and
the Company dated July 25, 1996 (Incorporated by reference
to Exhibit 10.19 of the Company's Form 10-Q for the quarter
ended September 30, 1996)
10.9 Platinate HPMA Copolymer Royalty Agreement between The
School of Pharmacy, University of London and the Company
dated November 19, 1996
10.10 License Agreement between The Dow Chemical Company and
the Company dated June 30, 1997. (Certain portions are
subject to a grant of confidential treatment)
(Incorporated by reference to Exhibit 10.12 of the Company's
Form 10-Q for the quarter ended September 30, 1997)
10.11 Agreement of Merger and Plan of Reorganization, dated
May 23, 1997 among the Company, Access Holdings, Inc and
Tacora Corporation
10.12 License Agreement between Strakan Limited and the
Company dated February 26, 1998 (Certain portions are
subject to a grant of confidential treatment)
(Incorporated by reference to Exhibit 10.12 of the Company's
Form 10Q for the quarter ended March 31, 1998)
10.13 Agreement between Access Pharmaceuticals, Inc. and
Block Drug Company, Inc. (Certain portions are subject to a
grant of confidential treatment) (Incorporated by
reference to Exhibit 10.13 of the Company's Form 10Q for the
quarter ended June 30, 1998)
10.14 Sales Agency Agreement. (Incorporated by reference to
Exhibit 10.14 of the Company's Form 10Q for the quarter
ended June 30, 1998)
10.15 Registration Rights Agreement. (Incorporated by
reference to Exhibit 10.15 of the Company's Form 10Q for the
quarter ended June 30, 1998)
*10.16 Employment Agreement of Mr. Kerry P. Gray (Previously filed)
10.17 Letter Agreement between the Company and David F. Ranney
23(a) Consent of Bingham Dana LLP (included in Exhibit 5.1)
23(b) Consent of KPMG LLP
23(c) Consent of Smith, Anglin & Co.
26 Power of Attorney (See page II-7)
* Management contract or compensatory plan required to be
filed as an Exhibit to this Form pursuant to Item 14(c) of
the report
(b) Financial Statement Schedules:
All schedules are omitted because they are not applicable or
the required information is shown in the financial
statements or the notes thereto.
Item 17. Undertakings.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the
foregoing provisions described in Item 14 above, or
otherwise, the Registrant has been advised that in the
opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the
event that a claim of indemnification against such
liabilities (other than the payment by the Registrant of
expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection
with the securities being registered, the Registrant will,
unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed
in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the
Securities Act of 1933, the information omitted
<PAGE>
from the form of prospectus filed as part of this registration
statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule
424(b) (1) or (4) or 497(h) under the Securities Act shall be
deemed to be part of this registration statement as of the time
it was declared effective.
(2) For the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that
contains a form of prospectus shall be deemed to be a new
registration statement relating to the securities offered
therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering
thereof.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration
statement to
(i) Include any Prospectus required by Section 10(a)(3)
of the Securities Act;
(ii) Reflect in the Prospectus any facts or events which,
individually or together, represent a fundamental change in
the information in the registration statement.
Notwithstanding the foregoing, any increase or decrease in
the volume of securities offered (if the total dollar value
of Securities offered (if the total dollar value of
Securities offered would not exceed that which was
registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected the
form of Prospectus filed with the Commission pursuant to
Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20 percent change in the
maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective
registration statement.
(2) To remove from registration by means of a post-
effective amendment any of the securities being registered
which remain unsold at the termination of the offering.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933,
the Registrant has duly caused this Amendment No. 1 to the
Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Dallas, Texas, on this 8th
day of January, 1999.
ACCESS PHARMACEUTICALS, INC.
By /s/ Kerry P. Gray
-------------------
Kerry P. Gray
President and Chief Executive
Officer, Director
POWER OF ATTORNEY AND SIGNATURES
Each person whose signature appears below hereby constitutes
and appoints Kerry P. Gray, as his attorney-in-fact and
agent, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all
capacities, (i) to sign any and all amendments (including
post-effective amendments) to this Registration Statement,
(ii) to sign any registration statement to be filed pursuant
to Rule 462(b) under the Securities Act of 1933 for the
purpose of registering additional shares of Common Stock for
the same offering covered by this Registration Statement,
and (iii) to file any of the same, with all exhibits
thereto, and other documents in connection therewith, with
the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might
or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents or any of them, or
their or his substitute or substitutes, may lawfully do or
cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of
1933, the Registration Statement has been signed by the
following person in the capacities and on the dates
indicated.
Signature Title Date
- ------------------------ ----------------------------- -------------
/s/ KERRY P. GRAY President and Chief Executive
- --------------------
Kerry P. Gray Officer, Director January 8, 1999
*
- --------------------------
Herbert H. McDade, Jr. Director January 8, 1999
*
- --------------------------
J. Michael Flinn Director January 8, 1999
*
- ----------------------
Stephen B. Howell Director Janaury 8, 1999
*
- ----------------------
Max Link Director January 8, 1999
/s/ STEPHEN B. THOMPSON
- ------------------------
Stephen B. Thompson Chief Financial Officer, January 8, 1999
Treasurer
/s/ Kerry P. Gray
- ---------------------
Kerry P. Gray January 8, 1999
* Attorney in Fact
EXHIBIT 23(b)
Independent Auditors' Consent
The Board of Directors of
ACCESS Pharmaceuticals, Inc.
We consent to the use of our report on the 1997 consolidated financial
statements of ACCESS Pharmaceuticals, Inc. (a development
stage enterprise) included herein and to the reference to
our Firm under the heading "Experts" in the prospectus.
Our report dated March 24, 1998 except as to Notes 7 (a) and (b), 11 and
12, which are as of August 28, 1998, contains an explanatory
paragraph that states that the Company has suffered
recurring losses from operations and has a net capital
deficiency, which raise substantial doubt about its ability
to continue as a going concern. The consolidated financial
statements do not include any adjustments that might result
from the outcome of that uncertainty.
/s/ KPMG LLP
- --------------------------
KPMG LLP
Dallas, Texas
Janaury 8, 1999
EXHIBIT 23(c)
Independent Auditors' Consent
The Board of Directors
ACCESS Pharmaceuticals, Inc.
We consent to the use of our report included herein and to
the reference to our firm under the heading "Experts" in the
prospectus.
/s/ Smith Anglin & Co.
- -----------------------
Smith Anglin & Co.
Dallas, Texas
Janaury 8, 1999
