As Filed with the Securities and Exchange Commission on
January __, 2000 Registration No. ________
==============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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ACCESS PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
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Delaware 3841 83-0221517
- ----------------------------- ------------------------- --------------------
(State or Other (Primary Standard (I.R.S. Employer
Jurisdiction of Incorporation Industrial Classification Identification
or Organization) Code Number) No.)
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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)
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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)
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with copies to:
John J. Concannon III
Bingham Dana LLP
150 Federal Street
Boston, MA 02110
(617) 951-8000
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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 Amount to be Registered Proposed Maximum
to be Registered Offering Price Per Share(1) Offering Price Per Share (1)
- ------------------- --------------------------- ----------------------------
Common Stock $.01 par
value per share 2,926,083 shares (2) $ 3.9375
Proposed Maximum Aggregate Amount of Registration Fee
Offering Price (1)
- -------------------------- ---------------------------
$ 11,521,452 $ 3,041.66
(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 high and low prices reported in the consolidated
trading system of the National Association of Securities Dealers, Inc. Automated
Quotation System Over-the-Counter Bulletin Board on January 20, 2000.
Includes 265,722 shares issuable to certain selling stockholders upon exercise
of warrants for the purchase of shares of the Registrant's Common Stock (see
"Selling Stockholders").
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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.
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PROSPECTUS
Access Pharmaceuticals, Inc.
2,926,083 Shares of
Common Stock, $.01 par value
This prospectus relates to the sale of up to 2,926,083 shares of our common
stock, or the Shares, $.01 par value per share, by certain stockholders of ours,
the Selling Stockholders, for their respective accounts.
We 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.
Our common stock is traded in the over-the-counter market and is quoted on the
OTC Bulletin Board under the symbol AXCS. On January 20, 2000 the last
reported sale price of our common stock on the OTC Bulletin Board was $3.9375
per share.
The Selling Stockholders may sell the Shares in public or private transaction,
in or off the over-the-counter market, at prevailing market prices, or at
privately negotiated prices. The Selling Stockholders may sell shares directly
to purchasers or through brokers or dealers. Brokers or dealers may receive
compensation in the form of discounts, concessions or commissions from the
Selling Stockholders. For more information, see "Plan of Distribution."
Investing in the common stock involves risks. For a discussion of certain
factors you should consider, see "Risk Factors" beginning on Page 2.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The date of this Prospectus is _____________, 2000
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WHERE YOU CAN FIND MORE INFORMATION
This prospectus constitutes a part of a registration statement on Form SB-2
filed by us with the Securities and Exchange Commission under the Securities
Act of 1933. This prospectus does not contain all of the information set
forth in the Registration Statement, since we have omitted some parts in
accordance with the SEC's rules and regulations. For further information about
us and the shares of our common stock being sold in this offering, please refer
to the registration statement. Statements contained in this prospectus
concerning the contents of any contract or any other document referred to are
not necessarily a complete description of the provisions of the contract.
Copies of the registration statement may be inspected, without charge, at the
offices of the SEC, or obtained at prescribed rates from the Public Reference
Section of the SEC at the address set forth below.
We are subject to the reporting requirements of the Securities Exchange Act of
1934 and we therefore file annual, quarterly and special reports, proxy
statements and other information with the SEC. You may read and copy any
document we file at the public reference facilities of the SEC located at
450 Fifth Street N.W., Washington D.C. 20549. You may obtain information on
the operation of the SEC's public reference facilities by calling the SEC at
1-800-SEC-0330. You can also access copies of such material electronically on
the SEC's home page on the World Wide Web at http://www.sec.gov.
This prospectus is part of a registration statement we filed with the SEC. The
SEC permits us to "incorporate by reference" the information we file with them,
which means that we can disclose important information to you by referring you
to those documents.
If you request a copy of any or all of the documents incorporated by reference,
then we will send to you the copies you requested at no charge. However, we
will not send exhibits to such documents, unless such exhibits are specifically
incorporated by reference in such documents. We will also provide to each
person to whom a copy of this prospectus has been delivered, upon specific
request and without charge, a copy of all documents filed from time to time by
us with the SEC pursuant to the Securities Exchange Act of 1934. You should
direct a request for such copies to Access Pharmaceuticals, Inc., 2600 Stemmons
Frwy, Suite 176, Dallas, Texas 75207, attention Chief Financial Officer. You
may direct telephone requests to the Chief Financial Officer at (214) 905-5100.
<PAGE>
PROSPECTUS SUMMARY
The items in the following summary are described in more detail later in this
prospectus. This summary provides an overview of selected information and
does not contain all the information you should consider. Therefore, you should
also read the more detailed information set out in this prospectus and the
financial statements.
Access Pharmaceuticals, Inc.
Access Pharmaceuticals, Inc. is a Delaware corporation in the development
stage. We are an emerging pharmaceutical company focused on developing both
novel low development risk product candidates and technologies with longer-
term major product opportunities. We have proprietary patents or rights to five
technology platforms: synthetic polymers, bioerodible hydrogels, Residerm TM,
carbohydrate targeting technology, and agents for the prevention and treatment
of viral disease, including HIV. In addition, our partner Block Drug Company,
or Block, is marketing in the United States Aphthasol TM, the first FDA
approved product for the treatment of canker sores. New formulations and
delivery forms are being developed to evaluate this product in additional
clinical indications. We have licensed the rights to this product from Block
for additional indications including mucositis and oral diseases.
Access was founded in 1974 as Chemex Corporation, a Wyoming
corporation, and in 1983 changed its name to Chemex Pharmaceuticals, Inc.
Chemex changed its state of incorporation from Wyoming to Delaware on
June 30, 1989. In connection with the merger of Access Pharmaceuticals,
Inc., a Texas Corporation, with and into Chemex on January 25, 1996, we
changed our name to Access Pharmaceuticals, Inc. Our principal executive
office is at 2600 Stemmons Freeway, Suite 176, Dallas, Texas 75207; our
telephone number is (214) 905-5100.
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RISK FACTORS
This offering involves a high degree of risk. You should carefully consider
the risks described below and the other information in this prospectus before
purchasing our common stock.
We have experienced a history of losses and we expect to incur future losses.
We have recorded minimal revenue to date and we have incurred a
cumulative operating loss of approximately $25.5 million through September
30, 1999. Our losses have resulted principally from costs incurred in research
and development activities related to our efforts to develop target candidates
and from the associated administrative costs. We expect to incur significant
additional operating losses over the next several years. We also expect
cumulative losses to increase substantially due to expanded research and
development efforts and preclinical and clinical trials.
We do not have significant operating revenue and we may never attain
profitability or be able to continue as a going concern.
Our ability to achieve significant revenue or profitability depends upon our
ability to successfully complete the development of drug candidates, to
develop and obtain patent protection and regulatory approvals for our drug
candidates and to manufacture and commercialize the resulting drugs. We
have not received significant royalties for sales of our Actinex TM and
amlexanox products to date and we may not receive significant revenues or
profits from the sale of these products in the future. Furthermore, we may
not be able to ever successfully identify, develop, commercialize, patent,
manufacture, market and obtain required regulatory approvals for any
additional products. Moreover, even if we do identify, develop,
commercialize, patent, manufacture, market and obtain required regulatory
approvals for additional products, we may not receive revenues or royalties
from commercial sales of these products for a significant number of years, if
at all. Therefore, our proposed operations are subject to all the risks inherent
in the establishment of a new business enterprise. In the next few years, our
revenues may be limited to any amounts that we receive under strategic
partnerships and research or drug development collaborations that we may
establish and we cannot assure, that we will be able to establish any such
relationships on terms acceptable to us. We cannot assure you that we will
achieve or maintain profitability in the future and our failure to receive
significant revenues or to achieve profitable operations would impair our
ability to sustain operations. In this regard, our audited financial statements
at and for the twelve months ended December 31, 1998 contain a reference to
our ability to continue as a going concern.
We may not successfully commercialize our drug candidates.
Our drug candidates are subject to the risks of failure inherent in the
development of pharmaceutical products based on new technologies. These
risks include the possibilities that some or all of our drug candidates will be
found to be unsafe or ineffective or otherwise fail to meet applicable
regulatory standards or receive necessary regulatory clearances; that these
drug candidates, if safe and effective will be difficult to develop into
commercially viable drugs or to manufacture on a large scale or will be
uneconomical to market; that proprietary rights of third parties will preclude
us from marketing such drugs; or that third parties will market superior or
equivalent drugs. Our failure to develop safe, commercially viable drugs
would have a material adverse effect on our business, operating results and
financial condition.
The success of our research and development activities, upon which we
primarily focus, is uncertain.
Our primary focus is on our research and development activities and the
commercialization of compounds covered by proprietary biopharmaceutical
patents. Research and development activities, by their nature, preclude
definitive statements as to the time required and costs involved in reaching
certain objectives. Actual research and development costs, therefore, could
exceed budgeted amounts and estimated time frames may require extension.
Cost overruns, unanticipated regulatory delays or demands, unexpected
adverse side effects or insufficient therapeutic efficacy will prevent or
substantially slow the research and development effort and our business could
ultimately suffer. We anticipate that we will remain principally engaged in
research and development activities for an indeterminate, but substantial,
period of time
We may be unable to obtain necessary additional capital to fund operations in
the future.
We will soon require substantial additional capital for our development
programs and operating expenses, to pursue regulatory clearances and to
prosecute and defend our intellectual property rights. Although we believe
that our existing capital resources, interest income and revenue from possible
licensing agreements and collaborative agreements will be sufficient to fund
our currently expected operating expenses and capital requirements for three
to four months, we may need to raise substantial additional capital during that
period because our actual cash requirements may vary materially from those
now
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planned and will depend upon numerous factors, including the results of our
research and development and collaboration programs, the timing and results
of preclinical trials, our ability to maintain existing and establish new
collaborative agreements with other companies to provide funding to us, the
technological advances and activities of competitors and other factors. We
intend to seek additional funding through additional equity offerings or
collaborative or other arrangements with corporate partners. We cannot
assure, 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 we do raise additional funds
by issuing equity securities, further dilution to existing stockholders may
result and future investors may be granted rights superior to those of existing
stockholders. Alternatively, we may seek to raise additional funds through
borrowing. As a non-revenue producing company, however, we are unable
to obtain standard credit arrangements, and it is therefore likely that if we
were to raise additional funds through borrowing, we would be forced to
accept unfavorable terms. Furthermore, there can be no assurance that any
credit arrangement would be available at all. If adequate funds are not
available to us through additional equity offerings or borrowing, we may be
required to delay, reduce the scope of or eliminate one or more of our
research and development programs or to obtain funds by entering into
arrangements with collaborative partners or others that require us to issue
additional equity securities or to relinquish rights to certain technologies or
drug candidates that we would not otherwise issue or relinquish in order to
continue independent operations.
The success of our business may depend, in part, upon relationships with
other companies.
Our strategy for the research, development and commercialization of our
potential pharmaceutical products may require us to enter into various
arrangements with corporate and academic collaborators, licensors, licensees
and others, in addition to our existing relationships with other parties.
Specifically, if we successfully develop any commercially marketable
pharmaceutical products, we may seek to enter joint venture, sublicense or
other marketing arrangements with parties that have an established marketing
capability or we may choose to pursue the commercialization of such
products on our own. We may, however, be unable to establish additional
collaborative arrangements or license agreements as we may deem necessary
to develop and commercialize our potential pharmaceutical products on
acceptable terms, and our collaborative arrangements or license agreements
may be unsuccessful. Furthermore, if we maintain and establish
arrangements or relationships with third parties, our business may depend
upon the successful performance by these third parties of their responsibilities
under those arrangements and relationships.
We may depend upon contract manufacturers to assist us with the
commercialization of any new products that we may develop.
We have no experience in the manufacture of pharmaceutical products in
clinical quantities or for commercial purposes and we may not be able to
manufacture any new pharmaceutical products that we may develop, so we
intend to establish arrangements with contract manufacturers to supply
sufficient quantities of products to conduct clinical trials and for the
manufacture, packaging, labeling and distribution of finished pharmaceutical
products if any of our potential products are approved for commercialization.
If we are unable to contract for a sufficient supply of our potential
pharmaceutical products on acceptable terms, our preclinical and human
clinical testing schedule may be delayed, resulting in the delay of our
submission of products for regulatory approval and initiation of new
development programs, which could cause our business to suffer. Delays or
difficulties in establishing relationships with manufacturers to produce,
package, label and distribute our finished pharmaceutical or other medical
products, if any, market introduction and subsequent sales of such products
could cause our business to suffer. Moreover, contract manufacturers that we
may use must adhere to current Good Manufacturing Practices, as required
by the U.S. Food and Drug Administration, or FDA. In this regard, the
FDA will not issue a pre-market approval or product and establishment
licenses, where applicable, to a manufacturing facility for the products until
after the manufacturing facilities passes a pre-approval plant inspection. If
we are unable to obtain or retain third party manufacturing on commercially
acceptable terms, we may not be able to commercialize our products as
planned. Our potential dependence upon third parties for the manufacture of
our products may adversely affect our profit margins and our ability to
develop and deliver such products on a timely and competitive basis.
We are subject to extensive governmental regulation which increases our cost
of doing business and may affect our ability to commercialize any new
products that we may develop.
The FDA and comparable agencies in foreign countries impose substantial
requirements upon the introduction of pharmaceutical products through
lengthy and detailed laboratory, preclinical and clinical testing procedures and
other costly and time-consuming procedures to establish their safety and
efficacy. All of our drug candidates will require governmental approvals for
commercialization, none of which have been obtained. Preclinical and clinical
trials and manufacturing of our drug candidates will be subject to the rigorous
testing and approval processes of the FDA and corresponding foreign
regulatory authorities. Satisfaction of these requirements typically takes a
significant number of years and can vary substantially based upon the type,
complexity and novelty of the product. We cannot assure when we,
independently or with our collaborative
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partners, might submit a New Drug Application, or NDA, for FDA or other
regulatory review. Government regulation also affects the manufacturing and
marketing of pharmaceutical products.
Government regulations may delay marketing of our potential drugs for a
considerable or indefinite period of time, impose costly procedural
requirements upon our activities and furnish a competitive advantage to larger
companies or companies more experienced in regulatory affairs. Delays in
obtaining governmental regulatory approval could adversely affect our
marketing as well as our ability to generate significant revenues from
commercial sales. We cannot assure you that the FDA or other regulatory
approvals for any drug candidates will be granted on a timely basis or at all.
Moreover, if regulatory approval of a drug candidate is granted, such
approval may impose limitations on the indicated use for which such drug
may be marketed. Even if initial regulatory approvals for our drug candidates
are obtained, we, or our drugs and our manufacturing facilities would be
subject to continual review and periodic inspection, and later discovery of
previously unknown problems with a drug, manufacturer or facility may
result in restrictions on the marketing or manufacture of such drug, including
withdrawal of the drug from the market. The 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 of these policies provides for expedited
development and review and the other policy provides 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 and that
provide a meaningful therapeutic benefit to patients over existing treatments.
For more information, see "Business-Government Regulation." We cannot
assure you that any drug candidate contemplated by us will qualify for the
FDA's various fast track or priority approval policies. Nor can we assure you
that such policies will remain as currently implemented by the FDA.
Our ability to successfully commercialize new products will be subject to the
uncertainty associated with preclinical and clinical testing.
Before obtaining regulatory approvals for the commercial sale of any of our
potential drugs, the drug candidates will be subject to extensive preclinical
and clinical trials to demonstrate their safety and efficacy in humans. We
cannot assure you that preclinical or clinical trials of any future drug
candidates will demonstrate the safety and efficacy of such drug candidates at
all or to the extent necessary to obtain regulatory approvals. In this regard,
for example, adverse side effects can occur during the clinical testing of a
new drug on humans or animals which may delay ultimate FDA approval or
even lead us to terminate our efforts to develop the drug for commercial use.
Companies in the biotechnology industry have suffered significant setbacks in
advanced clinical trials, even after demonstrating promising results in earlier
trials. The failure to adequately demonstrate the safety and efficacy of a drug
candidate under development could delay or prevent regulatory approval of
the drug candidate and could cause our business, operating results and
financial condition to suffer. For more information, see "Business-
Government Regulation."
We may incur substantial product liability expenses due to the use or misuse
of our products for which we may be unable to obtain complete insurance
coverage.
Our business exposes us to potential liability risks that are inherent in the
testing, manufacturing and marketing of pharmaceutical products. These
risks will expand with respect to our drug candidates, if any, that receive
regulatory approval for commercial sale and we may face substantial liability
for damages in the event of adverse side effects or product defects identified
with any of our products that are used in clinical tests or marketed to the
public. We have product liability insurance for drug candidates that are
undergoing human clinical trials. Product liability insurance for the
biotechnology industry is generally expensive, however, if available at all,
and we cannot assure you that in the future we will be able to obtain
insurance coverage at acceptable costs or in a sufficient amount, if at all. We
may be unable to satisfy any claims for which we may be held liable as a
result of the use or misuse of products which we have developed,
manufactured or sold and any such product liability claim could adversely
affect our business, operating results or financial condition.
We may incur significant liabilities if we fail to comply with stringent
environmental regulations or if we did not comply with these regulations in
the past.
Our research and development processes involve the controlled use of
hazardous materials. We are subject to a variety of federal, state and local
governmental laws and regulations related to the use, manufacture, storage,
handling and disposal of such material and certain waste products. Although
we believe that our activities and our safety procedures for storing, using,
handling and disposing of such materials comply with the standards
prescribed by such laws and regulations, the risk of
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accidental contamination or injury from these materials cannot be completely
eliminated. In the event of such accident, we could be held liable for any
damages that result and any such liability could exceed our resources. In
addition, although we believe that we are in compliance in all material
respects with applicable environmental laws and regulations and currently do
not expect to make material capital expenditures for environmental control
facilities in the near-term, we cannot assure you that we will not be required
to incur significant costs to comply with environmental laws and regulations
in the future, or that our operations, business or assets will not be materially
adversely affected by current or future environmental laws or regulations.
Intense competition may limit our ability to successfully develop and market
commercial products.
The biotechnology and pharmaceutical industries are intensely competitive
and subject to rapid and significant technological change. Our competitors in
the United States and elsewhere are numerous and include, among others,
major multinational pharmaceutical and chemical companies, specialized
biotechnology firms and universities and other research institutions. Many of
these competitors have and employ greater financial and other resources,
including larger research and development staffs and more effective
marketing and manufacturing organizations, than us or our collaborative
partners. We cannot assure you that our competitors will not succeed in
developing technologies and drugs that are more effective or less costly than
any which are being developed by us or which would render our technology
and future products obsolete and noncompetitive.
In addition, some of our competitors have greater experience than us in
conducting preclinical and clinical trials and obtaining FDA and other
regulatory approvals. Accordingly, our competitors may succeed in obtaining
FDA or other regulatory approvals for drug candidates more rapidly than us.
Companies that complete clinical trials, obtain required regulatory agency
approvals and commence commercial sale of their drugs before their
competitors may achieve a significant competitive advantage. We cannot
assure you that drugs resulting from our research and development efforts or
from our joint efforts with collaborative partners will be able to compete
successfully with our competitors' existing products or products under
development.
Our ability to successfully develop and commercialize our drug candidates
will substantially depend upon the availability of reimbursement funds for
the costs of the resulting drugs and related treatments.
The successful commercialization of, and the interest of potential
collaborative partners to invest in, the development of our drug candidates
will depend substantially on reimbursement of the costs of the resulting drugs
and related treatments at acceptable levels from government authorities,
private health insurers and other organizations, including health maintenance
organizations, or HMOs. We cannot assure you that reimbursement in the
United States or elsewhere will be available for any drugs that we may
develop or, if available, will not be decreased in the future, or that
reimbursement amounts will not reduce the demand for, or the price of, our
drugs, thereby adversely affecting our business. If reimbursement is not
available or is available only to limited levels, we cannot assure you that we
will be able to obtain collaborative partners to commercialize our drugs, or
be able to obtain a sufficient financial return on our own manufacture and
commercialization of any future drugs.
Any pharmaceutical products that we successfully develop may not be
accepted by the market.
The drugs that we are 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 us
will depend on a number of factors, including the establishment and
demonstration of the clinical efficacy and safety of our drug candidates, the
potential advantage of our drug candidates over existing therapies and the
reimbursement policies of government and third-party payers. Physicians,
patients or the medical community in general may not accept or use any
drugs that we may develop independently or with our collaborative partners
and if they do not, our business could suffer.
Trends toward managed health care and downward price pressures on
medical products and services may limit our ability to profitably sell any
drugs that we may develop.
Lower prices for pharmaceutical products may result from:
- - third-party payers' increasing challenges to the prices charged for medical
products and services;
- - the trend toward managed health care in the United States and the
concurrent growth of HMOs and similar organizations that can control or
significantly influence the purchase of healthcare services and products; and
- - legislative proposals to reform healthcare or reduce government insurance
programs
The cost containment measures that healthcare providers are instituting,
including practice protocols and guidelines
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and clinical pathways, and the effect of any health care reform, could limit
our ability to profitably sell any drugs that we may successfully develop.
Moreover, any future legislation or regulation, if any, relating to the
healthcare industry or third-party coverage and reimbursement, may cause
our business to suffer.
We may not be successful in protecting our intellectual property and
proprietary rights.
Our success depends, in part, on our ability to obtain U.S. and foreign patent
protection for our drug candidates and processes, preserve our trade secrets
and operate our business without infringing the proprietary rights of third
parties. Although Access is either the owner or licensee of technology to 18
U.S. patents and to 6 U.S. patent applications now pending, we cannot assure
you that any additional patents will issue from any of the patent applications
owned by, or licensed to us . Furthermore, we cannot assure you that any
rights we may have under issued patents will provide us with significant
protection against competitive products or otherwise be commercially viable.
Legal standards relating to the validity of patents covering pharmaceutical and
biotechnological inventions and the scope of claims made under such patents
are still developing and there is no consistent policy regarding the breadth of
claims allowed in biotechnology patents. The patent position of a
biotechnology firm is highly uncertain and involves complex legal and factual
questions. We cannot assure you that any existing or future patents issued to,
or licensed by, us will not subsequently be challenged, infringed upon,
invalidated or circumvented by others. In addition, patents may have been
granted to third parties or may be granted covering products or processes that
are necessary or useful to the development of our drug candidates. If our
drug candidates or processes are found to infringe upon the patents or
otherwise impermissibly utilize the intellectual property of others, our
development, manufacture and sale of such drug candidates could be severely
restricted or prohibited. In such event, we may be required to obtain licenses
from third parties to utilize the patents or proprietary rights of others. We
cannot assure you that we will be able to obtain such licenses on acceptable
terms, if at all. If we become involved in litigation regarding our intellectual
property rights or the intellectual property rights of others, the potential
cost of such litigation, regardless of the strength of our legal position, and
the potential damages that we could be required to pay could be substantial.
Our business could suffer if we lose the services of, or fail to attract, key
personnel.
We are highly dependent upon the efforts of our senior management and
scientific team, including our President and Chief Executive Officer. The loss
of the services of one or more of these individuals could seriously impede our
success. We do not maintain any "key-man" insurance policies on any of our
key employees and we do not intend to obtain such insurance. In addition,
due to the specialized scientific nature of our business, we are highly
dependent upon our ability to attract and retain qualified scientific and
technical personnel. In view of the stage of our development and our research
and development programs, we have restricted our hiring to research
scientists and a small administrative staff and we have made no investment in
manufacturing, production, marketing, product sales or regulatory compliance
resources. If we develop pharmaceutical products that we commercialize
ourselves, however, we will need to hire additional personnel skilled in the
clinical testing and regulatory compliance process and in marketing and
product sales. There is intense competition among major pharmaceutical and
chemical companies, specialized biotechnology firms and universities and
other research institutions for qualified personnel in the areas of our
activities, however, and we may be unsuccessful in attracting and retaining
these personnel.
Ownership of our shares is concentrated, to some extent, in the hands of a
few individual investors.
Howard P. Milstein, Richard Stone and Dr. David Ranney currently
beneficially own approximately 12.1%, 10.9% and 7.5% respectively, of our
issued and outstanding common stock. Dr. Ranney has agreed not to sell any
shares of our common stock until January 11, 2001 without the approval of
the placement agent for our 1998 and 1999 placements of securities. Mr.
Milstein and Mr. Stone have signed lock-up agreements for 71,922 and
81,877 shares, respectively, and have agreed not to sell any of these shares
of our common stock until July 20, 2000. The remainder of their shares are
subject to Rule 144. For more information, see "Certain Relationships and
Related Transactions."
The liquidity of our common stock is limited because there is a limited
market for our common stock.
Trading in our securities is presently conducted in the over-the-counter
market on the OTC Bulletin Board. Although we intend to file an application
for listing on NASDAQ SmallCap Market or an exchange in the future, we
currently do not meet the listing requirements for the NASDAQ SmallCap
Market and we cannot assure you that we will be listed on the NASDAQ
SmallCap Market or any exchange. As a result, an investor may find it
difficult to dispose of, or to obtain accurate quotations as to the price of our
securities.
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The liquidity of our common stock is limited because we are subject to
regulations regarding stocks traded in the over-the-counter market.
Our shares were delisted from the NASDAQ Small Cap Market effective
April 27, 1995 for failure to meet certain financial criteria. Our common
stock continues to be traded in the over-the-counter market and reported on
the OTC Bulletin Board. As such, our common stock, when recommended
by a broker-dealer, is subject to the limitations of rule 15g-9 under the
Exchange Act, which Rule imposes additional sales practices requirements on
broker-dealers that sell our common stock (1) to persons other than:
- - existing customers with a previous history of trading through such
broker-dealer;
- - institutional accredited investors (for example, a bank or savings and loan
association); and
- - a director and/or officer of ours and/or the beneficial owner of 5% or
more of our Common Shares
or (2) in transactions not exempt by the Rule. Certain broker-dealers,
particularly if they are market makers in our 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 our common
stock and also may adversely affect the ability of purchasers in this offering
to sell their shares in the secondary market.
In addition, the regulations of the Securities and Exchange Commission
promulgated under the Exchange Act require additional disclosure relating to
the market for penny stock 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.
Provisions of our charter documents could discourage an acquisition of our
company that would benefit our stockholders.
Provisions of our Certificate of Incorporation and By-laws may make it more
difficult for a third party to acquire control of our company, even if a change
of in control would benefit our stockholders. In particular, shares of our
preferred stock may be issued in the future without further stockholder
approval and upon such terms and conditions, and having such rights,
privileges and preferences, as our Board of Directors may determine,
including, for example, rights to convert into our common stock. The rights
of the holders of our common stock will be subject to, and may be adversely
affected by, the rights of the holders of any of our preferred stock that may
be issued in the future. The issuance of our preferred stock, while providing
desirable flexibility in connection with possible acquisitions and other
corporate purposes, could have the effect of making it more difficult for a
third party to acquire control of us. This could limit the price that certain
investors might be willing to pay in the future for shares of our common
stock and discourage these investors from acquiring a majority of our
common stock.
Substantial sales of our common stock could lower our stock price.
The market price for our common stock could drop as a result of sales of a
large number of our presently outstanding shares. Currently, a significant
percentage of the outstanding shares of our common stock are unrestricted
and freely tradable or tradable under Rule 144. Shareholders holding
approximately 900,000 shares of our common stock, will become eligible to
sell such shares on January 11, 2001 and additional shareholders holding
approximately 533,000 shares of our common stock will become eligible to
sell such shares on July 20, 2000.
Special Note Regarding Forward-Looking Statements
This prospectus contains forward-looking statements that involve risks and
uncertainties. These statements relate to future events or our future financial
performance. In some cases, you can identify forward-looking statements by
terminology such as "may, " "will," "should," "expects," "plans,"
"anticipates," "believes," "estimates," "predicts," "potential" or "continue" or
the negative of such terms or other comparable terminology. These
statements are only predictions and involve known and unknown risks,
uncertainties and other factors, including the risks outlined under "Risk
Factors," that may cause our or our industry's actual results, levels of
activity, performance or achievements to be materially different from any
future results, levels or activity, performance or achievements expressed or
implied by such forward-looking statements.
7
<PAGE>
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. We are under no duty to update any
of the forward-looking statements after the date of this prospectus to conform
such statements to actual results.
USE OF PROCEEDS
We will not receive any proceeds from the sale of shares by the Selling
Shareholders.
8
<PAGE>
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
Our common stock trades, as it has since February 1, 1996, on the OTC
Bulletin Board under the trading symbol AXCS. Prior to this date our
common stock traded under the trading symbol CHMX. The following table
sets forth, for the periods indicated, the high and low closing prices for our
common stock as reported by the OTC Bulletin Board for our 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 Ending December 31, 2000
- -----------------------------------
First quarter (to January 20, 2000) $ 4 $ 1-5/8
Fiscal Year Ended December 31, 1999
- -----------------------------------
First quarter $ 3-5/8 $ 2-17/64
Second quarter 4-1/16 1-7/8
Third quarter 2-5/16 1-7/16
Fourth quarter 2-3/8 1-1/8
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 1-11/64
Fourth quarter 3-37/64 1-5/8
</TABLE>
We have never declared or paid any cash dividends on our preferred stock or
common stock and we do not anticipate paying any cash dividends in the
foreseeable future. The payment of dividends, if any, in the future is within
the discretion of our board of directors and will depend on our earnings,
capital requirements and financial condition and other relevant facts. We
currently intend to retain all future earnings, if any, to finance the
development and growth of our business.
9
<PAGE>
CAPITALIZATION
The following table sets forth, as of September 30, 1999, our actual
capitalization. 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, 1999
------------------
<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; 6,036,582 shares issued and outstanding (1) 60,000
Additional paid-in capital 29,920,000
Accumulated deficit during the development stage (25,543,000)
-----------------
Total stockholders' equity 4,437,000
-----------------
Total capitalization $ 4,437,000
=================
</TABLE>
(1) Excludes 1,632,853 shares of our common stock issuable pursuant to the
exercise of stock options and warrants outstanding as of December 31, 1999,
including:
- - Presently exercisable options for the purchase of 37,699 shares of our
common stock issued under our 1987 Stock Option Plan at a weighted
average exercise price of $34.66.
- - Options granted for the purchase of 630,000 shares of our common stock
issued under our 1995 Stock Option Plan at a weighted average exercise price
of $2.47. 300,875 of these options are presently exercisable.
- - Presently exercisable options for the purchase of 3,465 shares of our common
stock issued in connection with the Virologix merger agreement at a weighted
average exercise price of $25.97.
- - Warrants granted for the purchase of 991,689 shares of our common stock at
various terms and exercise prices.
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
You should read the following discussion and analysis of our financial
statements and related notes that appear elsewhere in this prospectus, and
other financial information incorporated by reference in this prospectus. The
following discussion and analysis contains forward-looking statements that
involve risks and uncertainties. Our actual results may differ materially from
those anticipated in the forward-looking statements as a result of a number of
factors, including those set forth in "Risk Factors" and elsewhere in this
prospectus.
Overview
We are an emerging pharmaceutical company focused on developing both
novel low development risk product candidates and technologies with longer-
term major product opportunities. We were incorporated in Wyoming in
1974 as Chemex Corporation, and in 1983 changed our name to Chemex
Pharmaceuticals, Inc. We changed our state of incorporation from Wyoming
to Delaware on June 30, 1989. In 1996, we merged with Access
Pharmaceuticals, Inc. and changed our name to Access Pharmaceuticals, Inc.
We have proprietary patents or rights to five technology platforms: synthetic
polymers, bioerodible hydrogels, Residerm TM, carbohydrate targeting
technology and agents for the prevention and treatment of viral disease,
including HIV. In addition, our partner Block Drug Company, or Block, is
marketing in the United States a product named Aphthasol TM, the first FDA
approved product for the treatment of canker sores. New formulations and
delivery forms are being developed to evaluate this product in additional
clinical indications. We have licensed the rights to this product from Block
for additional indications including mucositis and oral diseases.
As a result of our merger, the former Access Pharmaceuticals, Inc.
stockholders owned approximately 60% of our issued and outstanding shares.
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
Access Pharmaceuticals, Inc. 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.
Since our merger in 1996, we have been managed by the former management
of Access Pharmaceuticals, Inc. and our focus has changed to a drug delivery
development company using advanced drug carrier technology for application
in cancer treatment, dermatology and oral diseases.
Since our inception, we have devoted our resources primarily to fund our
research and development programs. We have been unprofitable since
inception and to date have received limited revenues from the sale of
products. We cannot assure you that we will be able to generate sufficient
product revenues to attain profitability on a sustained basis or at all. We
expect to incur losses for the next several years as we continue to invest in
product research and development, preclinical studies, clinical trials and
regulatory compliance. As of September 30, 1999, our accumulated deficit
was $25,543,000, of which $8,894,000, was the result of the write-off of
purchased research.
Recent Developments
We have engaged an investment bank to assist us in raising funds to support
our research and development activities, working capital requirements,
acquisitions of complementary companies or technologies and general
corporate purposes. On July 20, 1999 and October 18, 1999, respectively,
with the assistance of an investment bank, we completed the first and second
closing of an offering of up to $8 million of common stock at a per share
price of $2.00, receiving gross proceeds of $3.1 million in this closing, less
issuance costs of $213,000, from the private placement of 1,551,000 shares
of common stock. The placement agent for the offering received warrants to
purchase 165,721 shares of common stock at $2.00 per share, in accordance
with the offering terms and elected to receive 106,217 shares of common
stock in lieu of certain sales commissions and expenses. We cannot assure you
that any additional closings of the private placement will take place.
On July 20, 1999, and simultaneously with the first closing of the offering,
our wholly-owned subsidiary Access Holdings, Inc. merged with and into
Virologix Corporation, a Delaware corporation. As a result, Virologix
became our wholly-owned subsidiary and each outstanding share of
Virologix' common stock was converted into 0.231047 shares of our common
stock, representing 999,963 shares of common stock. The transaction has
been accounted for as a purchase.
11
<PAGE>
Other Developments
On June 18, 1998, in connection with the first closing of a private equity
placement, we effected a recapitalization through a one-for-twenty reverse
stock split of our 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,
and decreased the authorized shares of our preferred stock from 10.0 million
to 2.0 million. This recapitalization decreased the number of outstanding
shares of our common stock from approximately 41.5 million to 2.1 million.
All share numbers and prices referenced in this registration statement have
been adjusted to reflect the June 18, 1998 recapitalization.
In 1998, assisted by an investment bank, we raised an aggregate of
$1,200,000 from the sale 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, assisted by the same investment bank, we raised an
aggregate of $2.9 million 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, again assisted by the same investment bank, we raised an
aggregate of $900,000 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.
Issuance costs for the above placements totaled $405,000. The proceeds of
the offerings were used to fund research and development, working capital
and general corporate purposes.
If and when we satisfy all listing requirements, we intend to submit an
application for listing on Nasdaq or an alternate exchange. We cannot assure
you that we will be listed on Nasdaq or an alternate exchange.
On June 8, 1998, we entered into an agreement to license from Block Drug
Company the rights to "Amlexanox oral paste 5%" for certain international
markets. We jointly developed Amlexanox with Block Drug Company, and
Amlexanox was subsequently purchased by Block Drug Company with us
receiving an up front fee and future royalty payments. Amlexanox 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.
We have announced agreements or letters of intent with the following
international partners to market Amlexanox oral 5% paste:
- - In the UK and Ireland we 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 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 we signed a Letter of Intent with Paladin Labs, Inc. for
marketing rights for amlexanox in Canada. Paladin will bear all costs
associated with gaining regulatory approval in Canada, and will pay
milestones based on cumulative sales revenue and a royalty on sales. Paladin
is a subsidiary of PharmaScience, Inc.
- - We signed a license agreement in January 1999 with Meda AB of Sweden
12
<PAGE>
for licensing rights in Sweden, Finland, Norway, Denmark, Latvia, Estonia,
Lithuania and Iceland. Under the terms of the agreement, Meda made an up-
front license payment and will pay milestone payments and a royalty on sales.
- - We signed a license agreement in July 1999 with Laboratoios Dr. Esteve, for
licensing rights in Italy, Spain, Portugal and Greece. Esteve made an up-front
license payment and will pay milestone payments and will pay a royalty on
sales.
- - We signed an agreement on August 25, 1998 with Atrix Laboratories, Inc. to
incorporate amlexanox in the proprietary mucoadhesive technologies being
developed by Atrix. Atrix is developing an innovative bioerodiable
mucoadhesive, BEMA, delivery system, which is a thin film that adheres to
the oral mucosa and erodes over time delivering the drug into the tissue.
A product from this collaboration has entered clinical testing. We intend to
fund the Atrix project development activities; however, Block Drug Company
will share in the development costs through a reduction in the royalty we will
pay Block for international sales. The international rights to any product
resulting from the collaboration with Atrix will be out-licensed to our
amlexanox licensing partners.
In December 1998 we signed a license agreement with Block for the rights to
develop amlexanox for use in chemotherapy and radiation induced mucositis.
Mucositis is a debilitating condition involving extensive inflammation of
mouth tissue that affects an estimated 400,000 cancer patients in the United
States undergoing chemotherapy and radiation therapy.
On December 9, 1997, a wholly-owned subsidiary of ours acquired and
merged with Tacora Corporation, a privately-held pharmaceutical company
based in Seattle, Washington and as a result Tacora became a wholly-owned
subsidiary of ours. We used the purchase method of accounting for the
purchase of Tacora. The aggregate purchase price was $739,000, payable
$124,000 in cash, $192,000 in stock, representing 20,900 shares of our
common stock, and assumption of $239,000 in trade and accrued payables
and $184,000 of Tacora's capital lease obligations. The excess purchase price
over the fair value of Tacora's net identifiable 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. Operations
of Tacora have been included in our consolidated financial statements since
the date of acquisition.
Liquidity and Capital Resources
As of December 31, 1999 our principal source of liquidity is $868,000 of
cash and cash equivalents. Working capital as of September 30, 1999 was
$1,130,000, representing an increase in working capital of $121,000 as
compared to the working capital as of December 31, 1998 of $1,009,000.
The increase in working capital at September 30, 1999 was due to the first
closing of the offering offset by losses from operations in the first three
quarters of 1999.
Since inception, our expenses have significantly exceeded revenues, resulting
in an accumulated deficit of $25,543,000 as of September 30, 1999. We
have funded our operations primarily through private sales of equity
securities, contract research payments from corporate alliances and the 1996
merger of Access Pharmaceuticals, Inc. and Chemex Pharmaceuticals, Inc.
We have incurred negative cash flows from operations since inception, and
have expended, and we expect to continue to expend in the future, substantial
funds to complete our planned product development efforts. We expect that
our existing capital resources will be adequate to fund our operations through
the first quarter of 2000. We are dependent on raising additional capital to
fund the development of our technology and to implement our business plan.
Such dependence will continue at least until we begin marketing products
resulting from our technologies.
If, prior to the end of January 2000, we are unsuccessful in raising additional
capital on acceptable terms, we would be required to curtail research and
development and general and administrative expenditures so that working
capital would cover reduced operations into the second quarter of 2000.
There is no assurance, however, that changes in our operating expenses will
not result in the expenditure of such resources before such time. If we are
unable to raise additional capital in the near term, we may be forced to
suspend operations.
We will require substantial funds to conduct research and development
programs, preclinical studies and
13
<PAGE>
clinical trials of potential products, including research and development with
respect to the newly acquired technology from the acquisition of Virologix.
Our future capital requirements and adequacy of available funds will depend
on many factors, including:
- - the successful commercialization of amlexanox;
- - the ability to establish and maintain collaborative arrangements for research,
development and commercialization of products with corporate partners;
- - continued scientific progress in our research and development programs;
- - the magnitude, scope and results of preclinical testing and clinical trials;
the costs involved in filing, prosecuting and enforcing patent claims;
- - competing technological developments;
- - the cost of manufacturing and scale-up; and
- - the ability to establish and maintain effective commercialization
arrangements and activities.
We intend to seek additional funding through research and development or
licensing arrangements with potential corporate partners, public or private
financing, including the sale of up to an additional $7.5 million of common
stock at a price of $3 per share in our current equity offering, or from other
sources. If we are successful in raising additional capital, we expect to
increase our research spending in future quarters as we intend to commence
additional clinical trials, hire additional scientific management and staff and
accelerate activities to develop our product candidates.
We do not have any committed sources of additional financing and we cannot
assure you that additional financing will be available on favorable terms.
If we are not successful in raising additional capital, we will curtail our
research spending and we may be required to delay, reduce or eliminate one
or more of our research or development programs or obtain funds through
arrangements with corporate collaborators or others. These arrangements or
collaborations may require us to relinquish greater or all rights to product
candidates at an earlier stage of development or on less favorable terms than
we would otherwise seek. Insufficient financing may also require us to
relinquish rights to certain of our technologies that we would otherwise
develop or commercialize ourselves. If adequate funds are not available, our
business, financial condition and results of operations will suffer.
Results of Operations
Comparison of Three Months Ended September 30, 1999 and 1998
Revenues. We did not have any revenues in the three month periods ended
September 30, 1998 and 1999.
Research spending. Total research spending for the third quarter of 1999
was $349,000, as compared to $481,000 for the same period in 1998, a
decrease of $132,000. The decrease in expenses was the result of:
- - $103,000 less for external contract research costs due to the completion of
research contracts;
- - $61,000 lower external development costs; and
- - $42,000 lower salary and related costs.
These decreases were partially offset by $67,000 higher scientific consulting
costs and higher other net costs totaling $7,000.
General and administrative expenses. Total general and administrative
expenses were $293,000 for the third quarter of 1999, a decrease of $26,000
as compared to the same period in 1998. The decrease in spending was
primarily due to the following:
- - $20,000 lower salary and related costs;
- - $20,000 lower professional business expenses; and
14
<PAGE>
- - other net decreases totaling $20,000.
These decreases were partially offset by $34,000 higher patent costs due
primarily to the filing of a new patent.
Depreciation and amortization was $84,000 for the second quarter 1999 as
compared to $39,000 for the same period in 1998, representing an increase of
$45,000. The increase in amortization is due to amortization of goodwill
recorded as a result of the purchase of Virologix Corporation.
Total operating expenses in the third quarter of 1999 were $726,000, with
interest income of $8,000 and interest expense of $3,000, resulting in a loss
for the quarter of $771,000 or a $0.13 basic and diluted loss per common
share.
Comparison of Nine Months ended September 30, 1999 and 1998
Revenues. We did not have any revenues in the nine month periods ended
September 30, 1998 and 1999.
Research Spending. Research spending for the nine months ended September
30, 1999 was $1,042,000 as compared to $1,417,000 for the same period in
1998, a decrease of $375,000. The decrease in expenses was due to:
- - $412,000 lower external lab costs due to the completion of research
contracts; and
- - $62,000 lower external development costs.
These decreases were partially offset by $82,000 higher scientific consulting
costs and other net increases totaling $17,000.
General and administrative expenses. General and administrative expenses
were $1,205,000 for the nine months ended September 30, 1999, an increase
of $136,000 as compared to the same period in 1998. The increase was
primarily due to the following:
- - $249,000 increased business consulting expense primarily due to the
issuance of warrants issued in connection with consulting agreements; and
- - $80,000 higher shareholder expenses.
These increases were partially offset by:
- - $82,000 lower salary and related expenses;
- - $64,000 lower patent expenses;
- - $28,000 lower travel and entertainment expenses; and
- - other net decreases totaling $19,000.
Depreciation and amortization was $177,000 for the nine months ended
September 30, 1999 as compared to $169,000 for the same period in 1998,
an increase of $8,000. The increase in amortization is due to amortization of
goodwill of $41,000 recorded as a result of the purchase of Virologix
Corporation offset by lower depreciation reflecting that some major assets
have been fully depreciated.
Accordingly, this resulted in a loss for the nine months ended September 30,
1999 of $2,398,000, or a $0.58 basic and diluted loss per common share.
Comparison of Years Ended December 31, 1998 and 1997
Revenues. Net revenues for 1997 were $435,000 as compared to no
revenues 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. In addition, $110,000 of option
income was recorded in 1997 from an agreement with a pharmaceutical
company. This agreement is no longer in effect.
Research spending. Total research and development spending for 1998 was
$1,756,000 as compared to $2,433,000 for the same period in 1997, a
decrease of $677,000. The decrease in expenses was due to:
15
<PAGE>
- - $427,000 lower external contract research costs;
- - $149,000 lower salary and related costs;
- - $94,000 lower equipment rent;
- - $47,000 lower travel expenses; and
- - other net decreases totaling $116,000.
These decreases were partially offset by costs of $145,000 to manufacture the
polymer platinate product for testing.
General and administrative expenses. General and administrative expenses
were $1,464,000 for 1998, a decrease of $320,000 as compared to the same
period in 1997. The decrease was primarily due to the following:
- - $331,000 lower general business consulting fees and expenses;
- - $56,000 lower director and officer insurance costs due to a lower policy
premium; and
- - other net decreases totaling $18,000.
These decreases were partially offset by $29,000 higher patent expenses and
$56,000 higher shareholder expenses relating to an additional shareholder
meeting and the reverse stock split.
Depreciation and amortization was $213,000 for 1998 as compared to
$162,000 for the same period in 1997 reflecting additional depreciation for
assets acquired in the Tacora merger and a full year of amortization of
licenses.
Other income/expense. Interest and miscellaneous income was $58,000 for
1998 as compared to $119,000 for the same period in 1997, a decrease of
$61,000. The decrease was due to lower cash balances in 1998.
Interest expense was $22,000 for 1998 as compared to $36,000 for the same
period in 1997, a decrease of $14,000. The decrease was due to the pay
down of equipment leases.
Accordingly, these expenses resulted in a loss for the twelve months ended
December 31, 1998 of $3,397,000, or a $1.28 basic and diluted loss per
common share compared with a loss of $4,441,000, or $2.80 basic and
diluted loss per common share for the twelve months ended December 31,
1997.
Comparison of Years Ended December 31, 1997 and 1996
Revenues. 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 from a pharmaceutical company.
Research spending. 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:
- - $683,000 in external research expenditures primarily due to additional
funding of Polymer Platinate at University of London and research at Duke
University;
- - $158,000 for salaries and related expenses due to hiring of additional
scientists;
- - $82,000 in equipment rental and maintenance costs;
- - $44,000 for travel and entertainment due to project management of external
research;
- - $43,000 for scientific consulting due to additional consulting and manpower
for the ongoing projects; and
- - other net increases totaling $83,000.
These increases were offset by $65,000 lower moving expenses due to the
relocation of scientists in 1996.
16
<PAGE>
General and administrative expenses. 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:
- - $109,000 in business consulting fees 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;
- - $74,000 in patent expenses due to fewer initial patent filings in 1997 as
compared to 1996;
- - $44,000 lower moving expenses due to the moving expenses associated with
the hiring of a business development vice president in 1996; and
- - other decreases of $27,000.
These decreases were offset by $111,000 in higher salaries and related
expenses due to a full twelve months of salaries in 1997 for all administrative
employees as compared to a partial period in 1996.
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.
Other income/expense. Interest and miscellaneous income was $119,000 for
1997 as compared to $196,000 for the same period in 1996, a decrease of
$77,000. The decrease was due to lower cash balances in 1997.
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.
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 ended December 31, 1997 of $4,441,000, or $2.80 per share
compared with a loss of $11,462,000, or $7.68 basic and diluted loss per
common share for the twelve months ended December 31, 1996, including
$8,314,000 of excess purchase price written off for the Chemex acquisition.
New Accounting Standards
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133 "Accounting for Derivative Instruments and Hedging Activities",
which is effective for financial statements for fiscal years beginning after
June 15, 2000, and which will apply to us beginning January 1, 2001. SFAS 133
establishes accounting and reporting standards for derivative instruments and
for hedging activities. We do not believe that the new standard will have any
significant effect on our future results of operations.
In April 1998, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants issued a Statement of
Position effective for financial statements for fiscal years beginning after
December 15, 1998, which we adopted on January 1, 1999 SOP 98-5, "Reporting
on the Costs of Start-Up Activities," requires such costs to be expensed as
incurred instead of capitalized and amortized. This SOP did not have
any material effect on results of operations.
Year 2000 Issue
The Year 2000, or 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.
We developed a three-phase program to limit or eliminate Y2K exposures.
Phase I involved the identification of those systems, applications and third-
party relationships from which we have exposure to Y2K disruptions in
operations. Phase II was 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 was the development
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<PAGE>
of contingency plans which would be implemented should Y2K compliance
not be achieved in order to minimize disruptions in operations. Phase III was
the final testing or equivalent certification of testing of each major area of
exposure to ensure compliance. We have completed our Y2K program.
We identified three major areas determined to be critical for successful Y2K
compliance: Area 1 included financial, research and development and
administrative informational systems applications reliant on system software;
Area 2 included research, development and quality applications reliant on
computer programs embedded in microprocessors; and Area 3 included third-
party relationships which may be affected by Area 1 and 2 exposures which
exist in other companies.
With respect to Area 1, we completed an internal review and contacted all
software suppliers to determine major areas of Y2K exposure. In research,
development and quality applications (Area 2), we worked with equipment
manufactures to identify our exposures. With respect to Area 3, we evaluated
our reliance on third parties in order to determine whether their Y2K
compliance will adequately assure our uninterrupted operations.
We have completed Phase I of our Y2K program with respect to all three of
the major areas. We rely on PC-based systems and did not expect to incur
material costs to transition to Y2K compliant systems in our internal
operations. However, even if our internal systems were not materially
affected by the Y2K Issue, we could have been affected by third-party
relationships which, if not Y2K compliant prior to the end of 1999, could
have had a material adverse impact on our operations. We have completed
Phase II contingency planning and continue to monitor our third party
relationships. Most, if not all, of the third parties with which we have
relationships have informed us that they were in compliance at
December 31, 1999.
As of December 31, 1999, we had identified costs related to replacement or
remediation and testing of our Area 1 computer information systems. Having
completed the Phase I, II and III evaluation, total costs to date are $6,000.
The funds for these costs were a part of our current working capital
requirements. These costs were expensed as incurred except for equipment
related costs.
As of January 24, 2000 we have experienced no Y2K problems or additional
costs.
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<PAGE>
BUSINESS
Access Pharmaceuticals is a Delaware corporation in the development stage.
We are an emerging pharmaceutical company focused on developing both
novel low development risk product candidates and technologies with longer-
term major product opportunities. We have proprietary patents or rights to
five technology platforms: synthetic polymers, bioerodible hydrogels,
Residerm TM, carbohydrate targeting technology, and agents for the
prevention and treatment of viral disease, including HIV. In addition, our
partner Block Drug Company, or Block, is marketing in the United States
Aphthasol TM, the first FDA-approved product for the treatment of canker
sores. We are developing new formulations and delivery forms to evaluate
this product in additional clinical indications. We have licensed the rights to
this product from Block for additional indications including mucositis and oral
diseases.
Recent Developments
On July 20, 1999, Access Holdings, a Delaware corporation and our wholly-
owned subsidiary, merged with and into Virologix Corporation, a privately
held Delaware corporation focused on the development of product candidates
for the prevention and treatment of viral diseases, including HIV. Upon the
consummation of the merger, the separate existence of Access Holdings
ceased, Virologix became our wholly-owned subsidiary and each outstanding
share of Virologix' common stock was converted into 0.231047 shares of our
common stock, representing 999,963 shares of our common stock.
Business
We are an emerging pharmaceutical company developing drug delivery
systems and advanced polymer technology for application in cancer treatment,
dermatology and oral diseases. In addition, we have developed a drug to treat
canker sores that was sold to Block and which Block currently is marketing
in the United States under the name Aphthasol TM, subject to a royalty
agreement with us. Our lead compounds and the potential markets for those
compounds are as follows.
Marketed Product
Amlexanox 5% Paste (Aphthasol TM)
This product currently is the only compound approved by the FDA for the
treatment of canker sores. Independent market research sponsored by us
indicates that more than 7 million patients visit doctors or dentists per year
in the United States with complaints of canker sores. Current estimates indicate
that approximately 20% of the U.S. adult population suffers from canker
sores, of which 15 million patients claim that their canker sores recur.
Currently, there is a study ongoing in Ireland to determine if the application
of amlexanox 5% paste at the first sign or symptom of canker sores can abort
ulcer formation or further accelerate healing. If these results confirm that
early application of the product can improve treatment, they will provide a
major marketing opportunity to expand usage of the product and to attract
sufferers of canker sores to contact medical practitioners to request the
product.
In 1995, we sold our rights to amlexanox to Block subject to a retained
royalty. On June 8, 1998, we entered into an agreement to license these
rights back from Block for certain international markets. Pursuant to this
agreement, we announced on August 18, 1998 that we signed a License
Agreement for the United Kingdom and Ireland with Strakan Limited, or
Strakan, to license amlexanox for the treatment of canker sores. Under the
terms of this agreement, Strakan will be responsible for and will bear all
costs associated with the regulatory approval process for amlexanox in the
United Kingdom and European Union, will pay milestones based on
cumulative sales revenue and will pay a royalty on sales of amlexanox. We
also announced that Strakan has filed the product license application for
amlexanox 5% paste with regulatory authorities in the United Kingdom. We
anticipate that the amlexanox 5% paste product will be registered throughout
Europe in early 2000. Product registrations have been submitted in additional
markets including Canada.
An international outlicensing program for amlexanox is ongoing, in addition to
the agreement with Strakan, licensing agreements have been signed with Meda
for Scandinavia, the Baltic states and Iceland; Laboratorios Esteve for Italy,
Spain, Portugal and Greece; and, a letter of intent has been signed with
Paladin Laboratories for Canada.
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<PAGE>
Products in Development Status
Polymer Platinate (AP 5280)
Chemotherapy, surgery and radiation are the major components in the clinical
management of cancer patients. Chemotherapy is usually the primary
treatment of hematologic malignancies, which cannot be excised by surgery.
Chemotherapy is increasingly used as an adjunct to radiation and surgery to
improve their effectiveness and serves as the primary therapy for some solid
tumors and metastases. For chemotherapeutic agents to be effective in
treating cancer patients, however, the agent must reach the target cells in
effective quantities with minimal toxicity in normal tissues.
The current optimal strategy for chemotherapy involves exposing patients to
the most intensive cytotoxic regimens that they can tolerate and clinicians
attempt to design a combination of chemotherapeutic drugs, a dosing schedule
and a method of administration to increase the probability that cancerous cells
will be destroyed while minimizing the harm to healthy cells.
Notwithstanding clinicians' efforts, most current chemotherapeutic drugs have
significant limitations that limit the efficacy of chemotheraphy, for example,
certain cancers are inherently unresponsive to chemotherapeutic agents.
Alternatively, other cancers may initially respond, but subgroups of cancer
cells acquire resistance to the drug during the course of therapy and the
resistant cells may survive and cause a relapse. Serious toxicity, including
bone marrow suppression or irreversible cardiotoxicity, is another limitation
of current anti-cancer drugs that can prevent their administration in curative
doses.
Currently, platinum compounds are one of the largest selling categories of
chemotherapeutic agents, with annual sales in excess of $800 million. As is
the case with all chemotherapeutic drugs, the use of such compounds is
associated with serious systemic side effects. The drug delivery goal therefore
is to enhance delivery of the drug to the tumor and minimize the amount of
drug affecting normal organs in the body.
Polymer Platinate is a chemotherapeutic agent that we believe has the
potential to have significantly superior effectiveness in treating numerous
cancers compared to existing platinum compounds. Our patented Polymer
Platinate product seeks to achieve this goal by attaching a large polymer to a
small platinum molecule. This method exploits the usually leaky or
hyperpermeable nature of the cells that line the walls of blood vessels that
feed tumors by allowing the large Polymer Platinate molecule to enter the
tumor in preference to other tissue, which does not have leaky or
hyperpermeable blood vessels. In addition, the capillary/lymphatic drainage
system of tumors is not well developed and limited, so the drug gets trapped
in the tumor. This dual effect is called enhanced permeability and retention,
or EPR. In addition, the polymer is designed to shield the platinum from
interactions with normal cells while the drug circulates within the body,
thereby reducing toxicity. The proposed mechanism of how Polymer Platinate
is taken up by tumor cells bypasses known membrane-associated mechanisms
for development of tumor resistance, a common cause of failure of chemo-
therapeutic drugs over the course of treatment.
In animal models, our Polymer Platinate has delivered up to 70 times the
amount of platinum to tumors compared with cisplatin, the standard platinum
formulation, at the maximum tolerated dose, and our 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 our 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 amounts of the drug to the tumor.
We have developed the Polymer Platinate AP5280 clinical formulation,
defined the manufacturing and analytical methods and commenced the
production of Good Manufacturing Practice, or GMP, material for clinical
trials. We are aggressively moving this project toward clinical development,
with GLP toxicology studies initiated, which is the major preclinical activity
remaining to be completed. We plan to commence human clinical trials for
our Polymer Platinate at the end of the first quarter 2000.
OraDisc TM (Amlexanox)
We, in conjunction with Atrix Laboratories, are working to develop a
mucoadhesive disc that adheres to the site of disease and slowly erodes over
time locally releasing the drug.
The OraDisc TM formulation is potentially an improved delivery vehicle for
the oral delivery of amlexanox which could overcome the difficulties
encountered in using conventional paste and cell formulations for conditions
in the mouth, that is, applying the drug and keeping it in place over time.
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The first GMP production of the amlexanox disc has been completed. A
clinical study to evaluate this product in oral wound healing was completed in
early December with positive results.
A significantly larger GMP production batch is currently in progress that will
produce material for the planned clinical studies, to evaluate this formulation
for both the prevention and treatment of canker sores. We have scheduled
these studies to commence in Europe in the first quarter 2000. We have
developed two clinical trial protocols for the OraDisc TM development
program and engaged the clinical site that will perform the major portion of
the clinical trials.
Utilizing this technology, we anticipate that higher drug concentrations
will be achieved at the disease site increasing the effectiveness of the
product.
We have submitted a pre-Investigational New Drug, or IND, dossier to the
FDA and a development plan was discussed at a meeting with the FDA. An
Investigational New Drug Application will be filed with the FDA and clinical
studies will commence in the United States in the first quarter 2000.
OraRinse TM (Amlexanox)
We signed in 1998 a license agreement with Block for the rights to develop
amlexanox for use in chemotherapy and radiation induced mucositis.
Mucositis is a debilitating condition involving extensive inflammation of
mouth tissue that affects an estimated 400,000 cancer patients in the United
States undergoing chemotherapy and radiation treatment. Any treatment that
would accelerate healing and/or diminish the rate of appearance would have a
significant beneficial impact on the quality of life of these patients and may
allow for more aggressive chemotherapy. We believe amlexanox could
provide a clinical benefit in treating and preventing this condition because of
the clinical similarities of mucositis to canker sores for which amlexanox has
proven efficacy and the positive results achieved in the oral wound healing
study.
An IND has been filed with the FDA and a Phase II protocol developed to
investigate a mouthwash formulation for the prevention and treatment of
mucositis in head and neck cancer patients treated with radiation and
chemotherapy. This study is scheduled to commence in the first quarter of
2000. Over 90% of head and neck cancer patients treated with radiation and
chemotherapy experience a mucositis incidence. We plan to enroll
approximately 60 patients in the initial study which will be performed at
multiple sites throughout the United States. Results of this study will direct
the future clinical development plans for OraRinse TM.
Amlexanox Cream
We are currently generating and assembling the data for an IND submission
to the FDA for amlexanox cream for the treatment of atopic dermatitis, a
condition which is prevalent in 3% of the adult population and 10% of the
pediatric population. We anticipate that this filing will be made in the first
quarter 2000. We plan to commence a Phase II clinical study in the first half
of 2000, and we anticipate completion of this study by year-end 2000.
Amlexanox Gel
Development work on formulating a mucoadhesive gel is currently ongoing.
The objective of this project is to develop an aqueous based mucoadhesive
gel. Alcohol based products cause local irritation and stinging which is
undesirable for the indication being evaluated. A pilot formulation has been
developed and we anticipate that this work will be concluded in the first
quarter 2000.
During the first half of 2000, manufacture of clinical trials material and the
filing of an IND will be completed. We expect to evaluate this formulation
for the treatment of oral lichen planus, a chronic condition afflicting up to
2% of the population. The clinical study is planned to commence in the
second half of 2000.
Residerm (R) A (Zinc Clindamycin)
The complexing of zinc to a drug has the effect of enhancing the penetration
of the drug into the skin and the retention of the drug in the skin. This
phenomenon is called the "reservoir effect," and it makes zinc potentially
effective for the delivery of dermatological drugs. We have a broad patent
covering the use of zinc for such purposes.
The first zinc drug that we are developing, in conjunction with Strakan, our
licensing partner, is Zinc Clindamycin
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for the treatment of acne. This drug is currently in a pivotal Phase III study
in Europe. Topical acne drugs constitute an approximately $700 million per
year market and Clindamycin is a widely prescribed drug for the treatment of
acne. We believe that the addition of zinc potentially could increase the
effectiveness of Clindamycin through the reservoir effect of zinc, the activity
of zinc and Clindamycin, the improved stability of the product and the
potential for zinc to overcome certain bacterial resistance.
The Phase III study of Residerm (R) A is designed to determine whether
Residerm (R) A is superior to treatment with the market leading Clindamycin
containing product. A sub-group of the study will be evaluated to determine
if Residerm (R) A is effective in overcoming bacterial resistance to standard
Clindamycin therapy, and whether this factor contributes to a favorable
clinical outcome. In the recently completed Phase II study of Residerm (R) A,
the drug was significantly superior to standard Clindamycin therapy with
respect to the development of oily skin, a benefit which will be further
examined in Phase III.
We anticipate that the European Phase III clinical trial program will be
completed in 2000. The successful completion of the Phase III trial will be
the basis for a Product License Application to be filed with a European
Regulatory Authority. This filing is scheduled to occur within 15 months,
which may result in a product approval in 2001.
We believe that our zinc technology could provide a broad development
platform for improved delivery of many topically applied products. We are
currently evaluating zinc complexed with vitamin D and retanoids.
We have entered into a license agreement with Strakan relating to our zinc
technology. Strakan has agreed to fund the development costs of zinc
clindamycin and any additional compounds developed utilizing the zinc
patent, and will share equally in all milestone payments received from the
sublicensing of the compound. In addition, we will receive a royalty on sales
of products based on this technology.
Bioerodeable Hydrogel Technology
We have submitted a patent application for our bioerodeable hydrogel
technology, which will be our development focus once Polymer Platinate
AP5280 has entered clinical development. A number of possible drug
delivery systems can be made using the Access bioerodible hydrogel
technology, ranging from nanoparticles for intravenous administration, to
larger devices which may be taken orally or implanted.
Viral Disease Technology
We acquired our viral disease technology through our acquisition of
Virologix. This technology is for the prevention and treatment of viral
diseases, including HIV. These compounds target a critical enzyme involved
in viral infection and replication. Analogous to reverse transcriptase and
protease inhibitors that have shown effectiveness against HIV, our compounds
target a critical enzyme involved in viral infection and replication. A Phase
I/II study has been designed to study this product candidate in HIV patients.
Positive clinical data would provide important validation for this new class of
HIV therapeutics. We also have development programs in HTLV type I and
II infection, and other applications of the proprietary technology being used
in the HIV therapeutic program. We acquired some of this technology through a
licensing agreement with the National Institutes of Health.
Other Technology
We own 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 our next advanced drug delivery
product development candidates.
Drug Development Strategy
A part of our integrated drug development strategy is to form creative
alliances with centers of excellence in order to obtain alternative lead
compounds while minimizing overall cost of research. We have signed
agreements with The University of Kentucky for the formulation of an
amlexanox gel, Strakan for the delivery of topical therapeutic agents which
exploit our zinc patent and Atrix Laboratories for mucoadhesive polymer
formulations of amlexanox. Additionally, our polymer platinate technology
has resulted in part from a research collaboration with The School of Pharmacy,
University of London.
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Our strategy is to initially focus on utilizing our technology in combination
with approved drug substances to develop novel patentable formulations of
potential therapeutic and diagnostic products. We believe that this will
expedite product development, both preclinical and clinical, and ultimately
product approval. To reduce financial risk and equity financing requirements,
we are directing our resources to the preclinical and early clinical phase of
development and plan to outlicense to, or co-develop with, marketing partners
our current product candidates during the later clinical development phases.
We have initiated and will continue to expand our internal core capabilities of
chemistry, formulation, analytical methods development, initial process scale
up and project management capability to maximize product opportunities in a
timely manner. We will, however, contract the manufacturing scaleup,
preclinical testing and product production to research organizations, contract
manufacturers and strategic partners. Given the current cost containment and
managed care environment both in the United States and overseas and the
difficulty for a small company to effectively market its products, we do not
currently plan to become a fully integrated pharmaceutical company.
Consequently, we expect to form strategic alliances for product development
and to outlicense the commercial rights to development partners. By forming
strategic alliances with major pharmaceutical and diagnostic companies, we
believe that our technology can be more rapidly developed and successfully
introduced into the marketplace.
Scientific Background
The ultimate criterion of effective drug delivery is to control and optimize the
localized release of drug at the target site and rapidly clear the non-targeted
fraction. Conventional drug delivery systems such as controlled release,
sustained release, transdermal systems, and others are based on a physical
erosion process for delivering active product into the systemic circulation
over time with the objective of improving patient compliance. These systems
do not address the biologically relevant issues such as site targeting,
localized release and clearance of drug. The major factors that impact the
achievement of this ultimate drug delivery goal are the physical
characteristics of the drug and the biological characteristics of the disease
target sites. The physical characteristics of the drug affect solubility in
biological systems, its biodistribution throughout the body, and its
interactions with the intended pharmacological target sites and undesired
areas of toxicity. The biological characteristics of the diseased area impact
the ability of the drug to selectively interact with the intended target site
to allow the drug to express the desired pharmacological activity.
We believe that our drug delivery technology platforms are differentiated
from conventional drug delivery systems in that they seek to apply a disease
specific approach to improve the drug delivery process with 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. We believe that the
ability to achieve physiological triggering of drug release at the desired site
of action could enable our 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. We use 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.
Core Drug Delivery Technology Platforms
Our current drug delivery technology platforms take advantage of the
following biological mechanisms to improve drug delivery:
- - disease specific carbohydrate recognition by vascular endothelial cells and
underlying tissue; and
- - enhanced permeability and retention in tumors.
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Carbohydrate Polymer Drug Delivery Technology
Our carbohydrate polymer drug delivery technology exploits specific changes
in the vascular endothelium that occur during disease processes. These
carriers mimic disease-specific, carbohydrate recognition by vascular
endothelium cells and underlying tissue. It has been well established that
white blood cells can recognize, target and permeate disease sites by means
of surface carbohydrates which bind to cytokine-induced endothelium plus
underlying tissue and cells. A number of receptors on the endothelium and on
underlying tissue are known to bind sulfated glycosaminoglycans, such as
heparin and dermatan sulfate. We have developed glycosaminoglycan carriers
to selectively image and treat diseases involving the neovascular endothelium.
We believe that our glycosaminoglycan technology has broad potential in a
number of therapeutic applications including cancer, inflammation and
infection.
Synthetic Soluble Polymer Drug Delivery Technology
In collaboration with The School of Pharmacy, University of London, we
have developed a synthetic polymer, hydroxypropylmethacrylamide, designed
to be used to exploit enhanced permeability and retention, or EPR, in tumor
cells and control drug release. Many solid tumor cells possess vasculature
that is hyperpermeable, or leaky, to macromolecules. In addition to this
enhanced permeability, tumors usually lack effective lymphatic and/or
capillary drainage. Consequently tumors selectively accumulate circulating
macromolecules, including, for example, up to 10% of an intravenous dose
per gram in mice. This effect has been termed EPR, and is thought to
constitute the mechanism of action of styrene-maleic/anhydride-
neocarzinostatin, or SMANCS, which is in regular clinical use in Japan for
the treatment of hepatoma. These polymers take advantage of endothelial
permeability as the drug carrying polymers are trapped in tumors and then
taken up by tumor cells. Linkages between the polymer and drug can be
designed to be cleaved extracellularly or intracellularly. The drug is released
inside the tumor mass while polymer/drug not trapped in tumors is renally
cleared from the body. Data generated in animal studies have shown that the
polymer/drug complexes are far less toxic than free drug alone and that
greater efficacy can be achieved. Thus, these polymer complexes have
demonstrated significant improvement in the therapeutic index of anti-cancer
drugs, including, for example, cisplatin.
Topical Delivery Technology
We have 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
effectiveness of topically applied products and to reduce toxicity. There are
many localized disease conditions, which are effectively treated by topical
application of suitable pharmaceutical agents. In order for such treatments to
be maximally effective, it is necessary that as much of the active agent as
possible be absorbed into the skin where it can make contact with the disease
condition in the dermal tissue without being lost by rubbing off on clothing or
evaporation. At the same time, the agent must not penetrate so effectively
through the skin that it is absorbed into the systemic circulation. This latter
factor is especially important in order to minimize unwanted side-effects of
the pharmacologically active agent. The ideal vehicle for topically applied
pharmaceuticals is one which can rapidly penetrate the skin and produce a
"reservoir effect" in the skin or mucous membranes. Such a reservoir effect
can be produced by complexing of suitable pharmaceutical agents with zinc
ions, by an as yet unknown mechanism. This "reservoir effect" is defined as
an enhancement of the skin or membrane's ability to both absorb and retain
pharmacological agents, that is:
- - to increase skin or membrane residence time;
- - to decrease drug transit time; and
- - to reduce transdermal flux.
A number of compounds are known to enhance the ability of
pharmacologically active agents to penetrate the skin, but have the
disadvantage of allowing rapid systemic dispersion away from the site of
disease. Many topical agents, such as the retinoids used in the treatment of
acne, and methotrexate, used in the treatment of psoriasis, are systemically
toxic. There is, therefore, a need for a method of enhancing the ability of
such agents to penetrate the skin so that a lesser total dosage may be used,
while at the same time their ability to move from the skin to the systemic
circulation is retained.
Bioerodeable Hydrogels
Our scientists have developed a novel series of bioerodible hydrogels which
have the potential to be utilized in a number of drug delivery applications as
well as several non-pharmaceutical applications. Hydrogels are very large
molecules with complex three-dimensional structures capable of storing either
small molecule drugs or much larger peptide and protein therapeutics. These
molecules are stored within the matrix of the hydrogel. Most hydrogels are
not bioerodible, therefore they deliver their payload of drug by diffusion of
these molecules through the interconnecting chambers of the
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hydrogel. Once all the drug has been delivered, non-bioerodible hydrogels
remain in the body (unless surgically removed) as they cannot be broken
down and eliminated. By comparison, our hydrogels possess bioerodible
linking groups with well defined rates of degradation in biological systems,
and so release their payload of drugs by both diffusion and erosion of the gel.
By selecting linkers with appropriate degradation rates, much greater control
of drug release rates can be achieved. Once the drug has been released,
erosion of the hydrogel continues until no solid hydrogel remains, eliminating
the need to use an additional procedure to remove the drug delivery device.
The hydrogel erodes to form much smaller water-soluble fractions which are
readily eliminated from the body.
A number of possible drug delivery systems can be made using our
bioerodible hydrogel technology, ranging from nanoparticles for intravenous
administration, to larger devices which may be taken orally or implanted. A
U.S. patent application has been filed.
Research Projects, Products and Products in Development
<TABLE>
<CAPTION>
ACCESS DRUG PORTFOLIO
Clinical
Compound Originator Indication FDA Filing Stage(1)
- ---------------------------- --------- ---------------------- ------------ ----------
<S> <C> <C> <C> <C>
Cancer
------------
Polymer Platinate (AP5280) Access Anti-tumor Development Pre-Clinical
OraRinse TM Amlexanox (2) Takeda Mucositis IND Phase II
Topical Delivery
-----------------
Amlexanox (3) (CHX-3673) Takeda Oral ulcers FDA Approved Completed
OraDisc TM Amlexanox (6)
Biodegradable Polymer Disc Takeda Oral Ulcers CTX (5) Phase II/III
Residerm (R) A
Zinc Compound (4) Access Enhancing drug CTX (5) Phase III
penetration and
retention in the
skin (acne)
Amlexanox Cream (6) Takeda Atopic Dermatitis Development Pre-Clinical
Amlexanox Gel (6) Takeda Oral Lichen Planus Development Pre-Clinical
Viral Diseases
--------------
Anti viral compound (7) NIH HIV Development Research
Anti viral compound Access HTLV type I and II
infection Development Research
</TABLE>
(1) For more information, 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 royalty and
milestone payments.
(4) Licensed to Strakan.
(5) United Kingdom equivalent of an IND.
(6) Licensed from Block subject to royalty and milestone payments.
(7) Licensed from NIH subject to royalty and milestone payments.
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We begin the product development effort by screening and formulating
potential product candidates, selecting an optimal active and formulation
approach and developing the processes and analytical methods. Pilot stability,
toxicity and efficacy testing are conducted prior to advancing the product
candidate into formal preclinical development. Specialized skills are required
to produce these product candidates utilizing our technology. We have a core
internal development capability with significant experience in these
formulations.
Once the product candidate has been successfully screened in pilot testing,
our scientists, together with external consultants, assist in designing and
performing the necessary preclinical efficacy, pharmacokinetic and toxicology
studies required for IND submission. External investigators and scaleup
manufacturing facilities are selected in conjunction with our consultants. We
do not plan to have an extensive clinical development organization as we plan
to have this process conducted by a development partner.
With all of our product development candidates, we cannot assure you that
the results of the in vitro or animal studies are or will be indicative of the
results that will be obtained if and when these product candidates are tested in
humans. We cannot assure you that any of these projects will be successfully
completed or that regulatory approval of any product will be obtained.
We expended approximately $1,756,000, $2,433,000 and $1,405,000 on
research and development during the years 1998, 1997 and 1996,
respectively.
Patents
We believe that the value of technology both to us and to our potential
corporate partners is established and enhanced by our broad intellectual
property positions. Consequently, we have already been issued and seek to
obtain additional U.S. and foreign patent protection for products under
development and for new discoveries. Patent applications are filed with the
U.S. Patent and Trademark Office and, when appropriate, with the Paris
Convention's Patent Cooperation Treaty (PCT) Countries (most major
countries in Western Europe and the Far East) for its inventions and
prospective products.
One U.S. and two European patents have issued and one European patent is
pending for the use of zinc as a pharmaceutical vehicle for enhancing the
penetration and retention of drug in the skin. These patents cover the method
of inducing a reservoir effect in skin and mucous membranes to enhance
penetration and retention of topically applied therapeutic and cosmetic
pharmacologically active agents. These patents also relate to topical treatment
methods including such reservoir effect enhancers and to pharmaceutical
compositions containing them.
We acquired the license to one U.S. and one European patent application for
polymer platinum compounds through our acquisition of Tacora in 1998. This
patent and application are the result of collaboration with The School of
Pharmacy, University of London, from which the technology has been
licensed. This patent and application includes a synthetic polymer,
hydroxypropylmethacrylamide, that can be used to exploit enhanced
permeability and retention and control drug release. This patent and
application 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. This patent and application also include methods for
improving the pharmaceutical properties of platinum compounds. Recently a
provisional patent application has been filed to cover our specific compounds.
We, through our Tacora subsidiary, have six 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:
- - encapsulation of high concentration of small molecules, nucleotides and
proteins;
- - highly stable storage medium for a variety of naturally occurring biological
molecules; and
- - 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.
We hold U.S. and European patents with broad composition of matter claims
encompassing glycosaminoglycan, acidic saccharide, carbohydrate and other
endothelial binding and targeting carriers in combination with drugs and
diagnostic agents formulated by both physical and chemical covalent means.
Nine patents have issued commencing in
26
<PAGE>
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 to these induced target determinants.
We also have one U.S. patent application for our bioerodeable hydrogel
technology. A number of possible drug delivery systems can be made using
the Access bioerodible hydrogel technology, ranging from nanoparticles for
intravenous administration, to larger devices which may be taken orally or
implanted.
Through our Virologix subsidiary, we have two patents licensed from the
National Institute of Health, or NIH, and four additional U.S. patent
applications for our viral disease technology for the prevention and treatment
of viral diseases including HIV. The licensed patents compounds target a
critical enzyme involved in viral infection and replication. The other patents
include areas in HTLV type I and II infection, and other applications of the
proprietary technology being used in the HIV therapeutic program.
Under our various license agreements with Block, we have the worldwide
rights for the use of amlexanox for the treatment of mucositis in patients
undergoing chemotherapy and radiation treatment for cancer and in AIDS
patients, and the worldwide rights excluding Japan, the United States and
Israel for the use of amlexanox for oral and dermatological use. Block has
the rights to market any product developed for oral or dermatological use in
the U.S. and Takeda Chemical Industries has the rights to market any product
in Japan.
We have a strategy of maintaining an ongoing line of continuation
applications for each major category of patentable carrier and delivery
technology. By this approach, we are extending the intellectual property
protection of our basic targeting technology and initial agents to cover
additional specific carriers and agents, some of which are anticipated to carry
the priority dates of the original applications.
Government Regulations
We are subject to extensive regulation by the federal government, principally
by the FDA, and, to a lesser extent, by other federal and state agencies as
well as comparable agencies in foreign countries where registration of
products will be pursued. Although a number of our formulations incorporate
extensively tested drug substances, because the resulting formulations make
claims of enhanced efficacy and/or improved side effect profiles, they are
expected to be classified as new drugs by the FDA.
The Federal Food, Drug and Cosmetic Act and other federal, state and
foreign statutes and regulations govern the testing, manufacturing, safety,
labeling, storage, shipping and record keeping of our products. The FDA has
the authority to approve or not approve new drug applications and inspect
research and manufacturing records and facilities.
Among the requirements for drug approval and testing is that the prospective
manufacturer's facilities and methods conform to the FDA's Code of Good
Manufacturing Practices regulations, which establish the minimum
requirements for methods to be used in, and the facilities or controls to be
used during, the production process. Such facilities are subject to ongoing
FDA inspection to insure compliance.
The steps required before a pharmaceutical product may be produced and
marketed in the U.S. include preclinical tests, the filing of an IND with the
FDA, which must become effective pursuant to FDA regulations before
human clinical trials may commence, and the FDA approval of a NDA prior
to commercial sale.
Preclinical tests are conducted in the laboratory, usually involving animals, to
evaluate the safety and efficacy of the potential product. The results of
preclinical tests are submitted as part of the IND application and are fully
reviewed by the FDA prior to granting the sponsor permission to commence
clinical trials in humans. 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
27
<PAGE>
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. Therefore, we cannot estimate with any certainty the length
of the approval cycle.
We are also governed by other federal, state and local laws of general
applicability, such as laws regulating working conditions, employment
practices, as well as environmental protection.
Competition
The pharmaceutical and biotechnology industry is characterized by intense
competition, rapid product development and technological change.
Competition is intense among manufacturers of prescription pharmaceuticals
and other product areas where we may develop and market products in the
future. Most of our potential competitors are large, well established
pharmaceutical, chemical or healthcare companies with considerably greater
financial, marketing, sales and technical resources than are available to us.
Additionally, many of our potential competitors have research and
development capabilities that may allow such competitors to develop new or
improved products that may compete with our product lines. Our potential
products could be rendered obsolete or made uneconomical by the
development of new products to treat the conditions to be addressed by our
developments, technological advances affecting the cost of production, or
marketing or pricing actions by one or more of our potential competitors.
Our business, financial condition and results of operation could be materially
adversely affected by any one or more of such developments. We cannot
assure you that we will be able to compete successfully against current or
future competitors or that competition will not have a material adverse effect
on our business, financial condition and results of operations. Academic
institutions, governmental agencies and other public and private research
organizations are also conducting research activities and seeking patent
protection and may commercialize products on their own or with the
assistance of major health care companies in areas where we are developing
product candidates. We are aware of certain development projects for
products to treat or prevent certain diseases targeted by us; the existence of
these potential products or other products or treatments of which we are not
aware, or products or treatments that may be developed in the future, may
adversely affect the marketability of products developed by us.
We believe that the principal current competitors to our polymer targeting
technology fall into two categories: monoclonal antibodies and liposomes. We
believe that our technology potentially represents a significant advance over
these older technologies because our technology provides a system with a
favorable pharmacokinetic profile which has been shown to effectively bind
and cross neovascular barriers and to penetrate the major classes of deep
tissue and organ disease, which remain partially inaccessible to other
technologies.
A number of companies are developing or may in the future engage in the
development of products competitive with the Access delivery system.
Currently, liposomal formulations being developed by Nexstar, The
Liposome Company and Sequus Pharmaceuticals, a subsidiary of Alza
Corporation, are the major competing intravenous drug delivery formulations
which deliver similar drug substances. A number of companies are
developing or evaluating enhanced drug delivery systems. We expect that
technological developments will occur at a rapid rate and that competition is
likely to intensify as various alternative delivery system technologies achieve
similar, if not identical, advantages.
Products developed from the Residerm (R) technology will compete for a
share of the existing market with numerous products which have become
standard treatments recommended or prescribed by dermatologists. Residerm
A, which is the first product being developed utilizing the Residerm (R)
technology, would compete with products including Benzamycin, marketed by
a subsidiary of Rhone-Poulenc Rorer; Cleocin-T and a generic topical
clindamycin, marketed by Pharmacia & Upjohn; Benzac, marketed by a
subsidiary of L'Oreal; and Triaz, marketed by Medicis Pharmaceutical Corp.
Even if our products are fully developed and receive required regulatory
approval, of which there can be no assurance, we believe that our products
can only compete successfully if marketed by a company having expertise and
a strong presence in the therapeutic area. Consequently, we do not currently
plan to establish an internal marketing organization. By forming strategic
alliances with major and regional pharmaceutical companies, management
believes that our development risks should be minimized and that the
technology potentially could be more rapidly developed and
28
<PAGE>
successfully introduced into the marketplace.
Employees
As of January 24, 2000, we had 13 full time employees, five of whom have
advanced scientific degrees. We believe that we maintain good relations with
our personnel. In addition, to complement our internal expertise, we have
contracts with scientific consultants, contract research organizations and
university research laboratories that specialize in various aspects of drug
development including toxicology, sterility testing and preclinical testing.
Properties
We maintain one facility of approximately 9,100 square feet for
administrative offices and laboratories in Dallas, Texas. We have a lease
agreement for the facility, which terminates in November 2002. However, we
have an option for early termination. Adjacent space is available for
expansion which we believe would accommodate growth for the foreseeable
future.
Legal Proceedings
We are not a party to any material legal proceedings.
29
<PAGE>
MANAGEMENT
Executive Officers and Directors
Our directors and executive officers are as follows:
Name Age Title
- -------------------------- ---- ---------------------
Herbert H. McDade, Jr. 72 Chairman of the Board of Directors
Kerry P. Gray 46 President, Chief Executive Officer,
Director
J. Michael Flinn 66 Director
Stephen B. Howell. M.D. 55 Director
Max Link, Ph.D. 59 Director
Howard P. Milstein 48 Director
Richard B. Stone 57 Director
Preston Tsao 54 Director
David P. Nowotnik, Ph.D. 50 Vice President Research &
Development
Stephen B. Thompson 46 Chief Financial Officer, Treasurer
Business and Experience of Directors and Executive Officers
Our board of directors 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. Link and
Mr. Milstein are members of the Class 1 directors with their terms set to
expire upon the annual meeting of stockholders in 2002. Dr. Howell and
Messrs. Stone and Tsao are Class 2 directors with their terms set to expire
upon the annual meeting of stockholders in 2000. Messrs. Gray, McDade and
Flinn are Class 3 directors with their terms set to expire upon the annual
meeting of stockholders in 2001. Each of our officers 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.
Until August 1, 2001, Sunrise Securities Corporation, or Sunrise, has the
right to designate one individual for election to our board of directors and, if
Sunrise exercises such right, we are required to use our best efforts to cause
their nominee to be elected. In addition, if Sunrise does not exercise their
right, we shall permit a representative of Sunrise to attend and observe all
board of directors meetings. Messrs. Stone and Tsao are directors of Sunrise.
For more information, see "Certain Relationships and Related Transactions."
Mr. Herbert H. McDade, Jr. was elected to be one of our directors 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
our Chief Executive Officer. 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 our President. Mr.
McDade served in such capacities until January 25, 1996. He is also a
member of the Audit & Finance Committee and Compensation 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 Cell Path, 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 from 1979 to 1986, as President of the
International Division of the Revlon Health Care Group. 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
30
<PAGE>
Pharmaceuticals, Inc. of Texas.
Mr. Kerry P. Gray has been our President and a Chief Executive Officer and
a director since January 25, 1996. Prior to such time, from June 1993, Mr.
Gray served as President and Chief Executive Officer of Access
Pharmaceuticals, Inc. of Texas. 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 25 years.
Mr. J. Michael Flinn has served as one of our directors since 1983. Mr.
Flinn is also a member of the Audit & Finance Committee 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 one of our directors since June 1996. Dr. Link is
also a member of the Compensation and Audit & Finance 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, Inc., 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 one of our directors since November
4, 1996. Dr. Howell is also a member of the Compensation Committee. Dr.
Howell is a medical oncologist who is a Professor of Medicine at the
University of California, San Diego, and a leader of the Cancer
Pharmacology Program of the UCSD Cancer Center. Dr. Howell also directs
the Laboratory of Pharmacology and the Clayton Foundation Drug Resistance
Laboratory at the UCSD Cancer Center. Amongst other awards and honors,
Professor Howell is a recipient of the Milken Family Medical Foundation for
Outstanding Work in the Field of Cancer Research, and has been listed in
The Best Doctors in America since 1990. Acknowledged as a leading world
expert in the field of cancer therapeutics, Professor Howell has published
over 280 journal articles, and serves on the editorial boards of numerous
medical journals.
Mr. Howard P. Milstein was appointed as a director at the October 22, 1999
board meeting. Mr. Milstein is a Managing Partner of Milstein Properties, an
investment builder active in both residential and commercial development
primarily in New York City and a Managing Partner of Milstein Ventures.
Mr. Milstein is Co-Chairman of the Emigrant Savings Bank and chairs
Douglas Elliman-Beitler, a national commercial leasing and management
company. As Chairman of Milford Hotel Corp., Mr. Milstein owns and
operates hotels in New York. Mr. Milstein chairs the family communication
activities, including cable and telephone activities and The Milford
Advertising Agency. Mr. Milstein has a BA from Cornell University and a
JD and MBA from Harvard University.
Mr. Richard B. Stone was appointed as a director at the October 22, 1999
board meeting. Mr. Stone is a Managing Director of Sunrise Securities
Corp., an investment bank specializing in the life science and
communications industries. Since 1974 Mr. Stone has been the Wilbur H.
Friedman Professor of Tax Law at Columbia University where his
responsibilities include teaching Federal Income Tax, Partnership Tax, Real
Estate Tax and Business Planning. A graduate of Harvard College and
Harvard Law School Mr. Stone served four years as Assistant Solicitor
General of the United States.
Mr. Preston Tsao was appointed as a director at the October 22, 1999 board
meeting. From January 1, 1995 through the date of this prospectus, Mr. Tsao
has been Managing Director for Corporate Finance of Sunrise Securities
Corp., an investment bank specializing in the life science and
communications industries. From 1993 to 1994, Mr. Tsao was Managing
Director of D. Blech & Company, Inc., a venture capital and investment
bank specializing in the biotech industry. Mr. Tsao received his BA at
Princeton and a JD degree from Columbia University Law School.
David P. Nowotnik, Ph.D. has been Vice President Research and
Development since November 1998. Prior to joining
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<PAGE>
Access, Dr. Nowotnik had been with Guilford Pharmaceuticals, Inc. from
1994 until 1998 in the position of Senior Director, Product Development and
was responsible for a team of scientists developing polymeric controlled-
release drug delivery systems. From 1988 to 1994 he was with Bristol-Myers
Squibb researching and developing 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 our Chief Financial Officer since
January 25, 1996. Previously, from 1990 to 1996, he was Controller and
Administration Manager of Access Pharmaceuticals, Inc.. 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 our directors,
executive officers and persons who own more than ten percent of a registered
class of our equity securities to file with the Securities and Exchange
Commission initial reports of ownership and reports of changes in ownership
of our common stock and other equity securities. Directors, officers and 10%
holders are required by SEC regulation to furnish us with copies of all of the
Section 16(a) reports they file.
Based solely on a review of reports furnished to us or written representatives
from our directors and executive officers during the fiscal year ended
December 31, 1999, all Section 16(a) filing requirements applicable to our
directors, executive officers and 10% holders for such year were complied
with.
Director Compensation
Each director who is not also our employee 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 member of the Audit and Finance
and/or Compensation Committees. Each committee Chairman also receives
$250 for each meeting he attends. In addition, we reimbursed each director,
whether an employee or not, the expenses of attending board and committee
meetings. Each non-employee director will also be entitled to receive stock
options to purchase 5,000 shares of our common stock on the date of each
annual meeting of stockholders and 20,000 shares of common stock when
he/she is first appointed as a director.
EXECUTIVE COMPENSATION
The following table sets forth the aggregate compensation paid to our CEO
and each of our executive officers whose aggregate salary and bonus
exceeded $100,000 for services rendered in all capacities for the years ended
December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
Summary Compensation Table
Long-term
Annual Compensation Compensation
--------------------- Awards All
Name and Securities Underlying Other
Principal Position Year Salary Bonus Options (#) Compens.
- ---------------------- ----- --------- -------- ------------------- -------------
<S> <C> <C> <C> <C> <C>
Kerry P. Gray
President and CEO (1) 1998 $236,497 $ 0 160,000 $ 1,200 (2)
1997 221,025 0 0 573 (2)
1996 201,250 0 10,000 2,616 (2)
W. Eric Bowditch
Vice President
Business Development (3) 1998 $103,565 $ 0 0 $ 0
1997 135,243 11,271 1,500 27,671 (4)
1996 69,360 0 3,500 0
</TABLE>
(1) Mr. Gray, President and CEO, became an officer on January 25, 1996.
Prior to our merger with Access Pharmaceuticals, Inc., he held the same
position at Access Pharmaceuticals, Inc.
(2) We paid Mr. Gray for certain expenses in the amount of $1,200 for life
insurance in 1998, $573 for long-term disability
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<PAGE>
in 1997, and in the aggregate amount of $2,616 for life insurance and long-
term disability in 1996.
(3) Mr. Bowditch was Vice President Business Development between June
21, 1996 and September 25, 1998.
(4) We paid Mr. Bowditch for reimbursement of moving expenses, selling
and purchasing housing costs in the aggregate of $27,671 in 1997.
Options Grants in 1998
<TABLE>
<CAPTION>
Individual Option Grants In Last Fiscal Year
Percent of Potential Realizable
Number of Total Options Value at Assumed
Securities Granted to Annual Rates of
Underlying Employees in Exercise Expiration Stock Appreciation
Name Options Fiscal Year Price Date For Option Term (2)
- ----------------- --------- ------------ --------- ---------- ------------------
5% 10%
-------- --------
<S> <C> <C> <C> <C> <C> <C>
Kerry P. Gray (1) 160,000 52% $3.00 06/18/08 $302,000 $765,000
</TABLE>
(1) Mr. Gray had 100,000 options vest on the grant date and they are
exercisable. The remaining 60,000 options vest 2.083% monthly after twelve
months from the grant date and are cumulatively exercisable 48 months after
the grant date.
(2) Potential realizable value is based on the assumption that the price per
share of our common stock appreciates at the assumed annual rate of stock
appreciation for the option term. There is no assurance that the assumed 5%
and 10% annual rates of appreciation (compounded annually) will actually be
realized over the term of the option. The assumed 5% and 10% annual rates
are set forth in accordance with the rules and regulations adopted by the
Securities and Exchange Commission and do not represent our estimate of
stock price appreciation.
Option Exercises and Year-End Value Table
This table includes the number of shares covered by both exercisable and
non-exercisable stock options as of December 31, 1998. Also reported are the
values of "in-the-money" stock options which represent the positive spread
between the exercise price of any such existing stock options and the year-
end price of our common stock.
Aggregated Option Exercises In Last Fiscal Year
And Fiscal Year-End Option Values
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised In-
Number of Underlying Unexercised Options The-Money Options ($) (1)
Shares
Acquired Value Exercisable/ Exercisable/
Name On Exercise Realized ($) Unexercisable Unexercisable
- -------------- ----------- ------------ ------------------ ----------------
<S> <C> <C> <C> <C>
Kerry P. Gray - - 100,000 / 60,000 $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 our common stock at the end of
1998, 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.
On June 18, 1998, in connection with our recapitalization, all stock options
granted under the 1995 Stock Option Plan were cancelled and new stock
options were issued to directors, employees and consultants at an exercise
price of $3.00 per share.
Compensation Pursuant to Agreements and Plans
Employment Agreements
We are party to an employment agreement with Kerry P. 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
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<PAGE>
an annual base salary of $260,000 subject to adjustment by the board of
directors. Mr. Gray is eligible to participate in all of our employee benefit
programs available to executives. Mr. Gray is also eligible to receive:
- - a bonus payable in cash and common stock related to the attainment of
reasonable performance goals specified by the board of directors;
- - stock options at the discretion of the board of directors;
- - long-term disability insurance to provide compensation equal to at least 60%
of his annual base salary; and
- - term life insurance coverage of $400,000.
Mr. Gray is entitled to certain severance benefits in the event that we
terminate his employment without cause or that Mr. Gray terminates his
employment following a change of control. In the event that we terminate the
employment agreement for any reason, other than for cause, Mr. Gray would
receive the salary due for the remaining term of the agreement or 18 months,
whichever is longer. We 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 a change in control, Mr. Gray would receive two years salary and
his target bonus. We will also continue payment of benefits for such period.
The employment agreement contains a covenant not to compete with us for
up to 18 months following the termination date. In the employment
agreement, the term change of control is defined to mean when:
- - persons who were Directors of the Company on April 1, 1998 no longer
constitute a majority of the Board of Directors of the Company, or
- - a person or group "beneficially owns" in the aggregate 50% or more of the
outstanding shares of capital stock entitled to vote generally in the
election of the Board of Directors, or
- - there occurs a sale of all or substantially all of the business and/or assets
of the Company.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Herbert H. McDade, Jr. In consideration for the termination of his
employment with the pre-merger Access, Mr. McDade and Access entered
into an agreement on October 4, 1995, pursuant to which, among other
things:
- - Mr. McDade became a consultant to Access, providing consulting services
to Access at least four days each month;
- - Mr. McDade is paid a base of $1,500 per day of consulting; and
- - the period for exercise of all options owned by Mr. McDade was extended
from three months after the termination of his employment with Access to the
expiration of the option.
During 1998, 1997 and 1996, Thoma Corporation, of which Mr. McDade is
a principal, was paid an aggregate amount of $204,000 in consulting fees.
Richard B. Stone. Mr. Stone is a managing director of Sunrise Securities
Corp., which acted as a placement agent in the 1998 private placement of our
common stock and is acting as placement agent in our current 1999 offering.
Mr. Stone received 109,904 shares of our common stock and warrants to
purchase 98,474 shares of our common stock at $3.00 per share in our 1998
private placements. Mr. Stone received 101,225 shares of our common stock
and warrants to purchase 165,722 shares of our common stock at $2.00 per
share in our 1999 private placements. Until August 1, 2001, Sunrise has the
right to designate one individual for election to our board of directors and, if
Sunrise exercises such right, we are required to use our best efforts to cause
their nominee to be elected. In addition, if Sunrise does not exercise their
right, we shall permit a representative of Sunrise to attend and observe all
board of directors meetings.
Preston Tsao. Mr. Tsao is Managing Director for Corporate Finance of
Sunrise Securities Corp., which acted as a placement agent in the 1998
private placement of our common stock and is acting as placement agent in
our current 1999 offering. Mr. Tsao received warrants to purchase 11,015
shares of our common stock at $3.00 per share in our 1998 private
placements. Until August 1, 2001, Sunrise has the right to designate one
individual for election to our board of directors and, if Sunrise exercises
their right, we are required to use our best efforts to cause their nominee
to be elected. In addition, if Sunrise does not exercise their right, we
shall permit a representative of Sunrise to attend and observe all board of
directors meetings.
Stephen B. Howell, MD. Dr. Howell, one of our directors, also serves as a
scientific consultant. The consulting agreement provides for a minimum of
two days consulting per month at a rate of $5,000 per month plus expenses.
Dr. Howell has also received warrants to purchase 30,000 shares of our
common stock at $3.00 per share that can be exercised until January 1, 2003.
34
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists of 20,000,000 shares of our common
stock, $.01 par value per share, and 2,000,000 shares of preferred stock,
$.01 par value per share, which may be issued in one or more series.
On June 18, 1998, in conjunction with the first closing of a private
placement, we effected a recapitalization through a one-for-twenty reverse
stock split of our common stock, $0.04 par value per share, which decreased
the number of authorized shares of our 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. This recapitalization decreased the number of
outstanding shares of our common stock from approximately 41.5 million to
2.1 million.
Common Stock
As of January 24, 2000, there were 6,089,763 shares of our common
stock outstanding and held of record by approximately 5,200 stockholders.
Holders of our 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
our 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 our common stock are
entitled to receive ratably such dividends, if any, as may be declared by our
Board of Directors out of funds legally available therefor, subject to any
preferential dividend rights for our outstanding preferred stock. Upon our
liquidation, dissolution or winding up, the holders of our common stock are
entitled to receive ratably our net assets available after the payment of all
debts and other liabilities and subject to the prior rights of any of our
outstanding preferred stock. Holders of our common stock have no
preemptive, subscription, redemption or conversion rights. The outstanding
shares of our 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 our common stock are subject
to, and may be adversely affected by, the rights of the holders of shares of
any series of our preferred stock which we may designate and issue in the
future.
Preferred Stock
Our 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. We have no
present plans to issue any shares of preferred stock.
Transfer Agent and Registrar
The transfer agent and registrar of our 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.
We are 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 statute contains provisions enabling a
corporation to avoid the statute's restrictions if the stockholders holding a
majority of the corporation's voting stock approve
35
<PAGE>
an amendment to our Certificate of Incorporation or Bylaws.
Our Certificate of Incorporation provides that our directors shall be divided
into three classes, with the terms of each class to expire on different years.
In addition, our Certificate of Incorporation, in order to combat "greenmail,"
provides in general that any direct or indirect purchase by us of any of our
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 our
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 our securities which might temporarily
increase the price of our securities. Discouraging the acquisition of a large
block of our securities by an outside party may also have a potential negative
effect on takeovers. Parties seeking control of us 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
Our 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, these provisions do not apply to claims
against a Director for violations of certain laws, including certain federal
securities laws. Our 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. We believe
that these provisions will assist us in attracting and retaining qualified
individual to serve as directors.
Indemnification of Officers and Directors
Our 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. We believe that these provisions
will assist us in attracting or retaining qualified individuals to serve as our
directors.
36
<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
our common stock as of January 24, 2000 by (i) each person who is known
by the Company to beneficially own more than five percent of our 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 our common stock beneficially owned by them.
Common Stock Beneficially Owned
<TABLE>
<CAPTION>
Name Number of Shares (1) % of Class
- --------------------------------------- -------------------- --------------
<S> <C> <C>
Herbert H. McDade. Jr. (2) 71,707 1.2%
Kerry P. Gray (3) 293,040 4.6%
J. Michael Flinn (4) 30,975 *
Stephen B. Howell (5) 64,082 1.0%
Max Link (6) 22,000 *
Howard P. Milstein (7) 750,140 12.3%
Richard B. Stone (8) 660,205 10.6%
Preston Tsao (9) 26,325 *
David P. Nowotnik (10) 20,828 *
Stephen B. Thompson (11) 10,351 *
David F. Ranney (12) 457,380 7.5%
All Directors and Executive Officers
as a group (consisting of 10 persons) 1,949,653 29.1%
</TABLE>
* Less than 1%
(1) Includes our common stock held plus all options and warrants exercisable
within 60 days after January 24, 2000. 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 12,000 shares
of our common stock and 7,591 exercisable SARs pursuant to the 1987 Stock
Option Plan and presently exercisable options for the purchase of 25,000
shares of our common stock pursuant to the 1995 Stock Option Plan. Also
includes 1,000 shares of our common stock owned by Thoma Corporation of
which Mr. McDade is the beneficial owner.
(3) Including presently exercisable options for the purchase of 225,000 shares
of our common stock pursuant to the 1995 Stock Option Plan.
(4) Including presently exercisable options for the purchase of 22,500 shares
of our common stock pursuant to the 1995 Stock Option Plan.
(5) Including presently exercisable options for the purchase of 750 and
21,332 shares of our common stock pursuant to the 1987 Stock Option Plan
and 1995 Stock Option Plan, respectively and warrants to purchase 30,000
shares of our common stock at an exercise price of $3.00 per share.
(6) Including presently exercisable options for the purchase of 20,000 shares
of our common stock pursuant to the 1995 Stock Option Plan.
(7) Mr. Howard P. Milstein, c/o Douglas Elliman, 575 Madison Avenue,
New York, NY 10022, beneficially owns 738,588 shares of our common
stock and has warrants to purchase 11,552 shares of our common stock at
$12.98 per share with expiration of April 30, 2002, is known to be the
beneficial owner of more than five percent of our common stock. The
information set forth in this footnote is based on a Schedule 13D filed by Mr.
Milstein on October 5, 1999.
(8) Mr. Richard B. Stone, 44 West 77th Street, New York, New York,
10024, owns 490,740 shares of our common stock and has warrants to
purchase 98,473 shares of our common stock at $3.00 per share with
expiration dates between April 1 and July 20, 2004 and has warrants to
purchase 70,992 shares of our common stock at $2.00 per share with an
expiration date of July 20, 2004. Mr Stone is known to be the
beneficial owner of more than five percent of our common stock. The
information set forth in this footnote is based on a Schedule 13D filed by Mr.
Stone on November 2, 1999 and from our shareholder records.
(9) Including presently exercisable warrants for the purchase of 11,015 shares
of our common stock at $3.00 per share with expiration dates between April
1 and July 30, 2003 and presently exercisable warrants for the purchase of
15,310 shares of our common stock at $2.00 per share with an expiration date
of July 20, 2004.
10) Including presently exercisable options for the purchase of 20,828 shares
of our common stock pursuant to the 1995 Stock Option Plan.
(11) Including presently exercisable options for the purchase of 8,328 shares
of our common stock pursuant to the 1995 Stock Option Plan.
(12) Dr. David F. Ranney, 3539 Courtdale Drive, Dallas, Texas, 75234 is
known to be the beneficial owner of more than five percent of our common
stock.
37
<PAGE>
SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of our common stock as of January 24, 2000 and as adjusted to
reflect the sale of our 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
us or our affiliates. In addition, except as provided herein, we believe, based
on information provided to us by the Selling Shareholders, that each Selling
Stockholder has sole voting and investment power with respect to the shares
beneficially owned. For more information regarding the shares offered, see
"Plan of Distribution" below.
<TABLE>
<CAPTION>
Shares Shares to be
Beneficially Beneficially
Owned Prior Shares Owned After
Name of Selling Stockholder to Offering Offered Offering
- ----------------------------------- ------------ ---------- ------------
<S> <C> <C> <C>
Gary & Barbara Allie 4,158 4,158 -
Alfred J. Anzalone Family
Limited Partnership 51,232 (1) 12,476 1,732 (2)
Alvin H. Einbender Revocable Trust 50,000 50,000 -
Amore Perpetuo, Trust 51,232 (1) 8,317 1,732 (2)
Anzalone 1995 Trust 51,232 (1) 20,794 1,732 (2)
Anzalone Family Limited Partnership-
dated 12/30/93 51,232 (1) 7,913 1,732 (2)
David P. & Meredith C. Ash 142,610 (1) 84,524 58,086 (2)
David Bartash 21,666 (1) 21,666 (1) -
Benjamin J. Jesselson Trust 150,000 75,000 -
Ari Blech 13,500 13,500 -
Benjamin Blech 25,500 25,500 -
Harry Blumenthal 33,317 8,317 25,000
Douglas C. Carroll 1,039 1,039 -
James Carson 4,158 4,158 -
Central Yeshiva Beth Joseph 173,598 (1) 6,931 166,667 (1)
Chelsey Capital 1,039 1,039 -
Frank Chiarulli 1,039 1,039 -
Peter & Nancy Chidyllo 6,430 (1) 5,275 1,155 (2)
Judson Cooper 137,183 125,631 -
Charles J. Corbin (deceased)
Estate of Charles Corbin
Sandy Kay Yanes Administrator 1,039 1,039 -
Curran Partners LP 100,000 100,000 -
Dalton Kent Securities Group Inc. 4,000 (2) 4,000 (2) -
De Gucht Eduard 50,000 50,000 -
Richard H. Dolan & Marilyn D. Go 67,500 30,000 -
Dr. Daniel Fish 6,238 6,238 -
Howard E. Freidman 12,000 12,000 -
John Gallagher 10,491 (1) 10,491 (1) -
Genevieve Go 67,500 15,000 -
Kenneth D. Gold, MD 519 519 -
Herbert L. & Marlene C. Goldblatt 519 519 -
Gross Foundation 215,392 (1) 127,725 87,667 (1)
William W. Hall 49,675 49,675 -
Gabriel B. & Ellen G. Herman 519 519 -
Jerry Heymann 28,664 8,664 20,000
Thomas Hudak 96,162 (1) 27,186 68,976 (1)
Marc Hurwitz 8,317 8,317 -
Eli Jacobson 42,545 25,545 17,000
38
<PAGE>
Michael G. Jesselson 150,000 75,000 -
David Kaufman 11,552 11,552 -
Gary Kaufman 1,039 1,039 -
Eugene J. Keilen and Joanne Witty 50,000 50,000 -
Thomas Lanier 415 415 -
Lisa Low as Custodian for Chantal Low 287,442 (1) 100,000 96,949 (1)
Nathan Low 287,442 (1) 36,823 96,949 (1)
Nathan A. Low Roth IRA 287,442 (1) 53,670 (2) 96,949 (1)
Donald J. McCarren 13,282 3,181 10,101
David J. McCooey 1,039 1,039 -
Jeffrey Markowitz 1,039 1,039 -
Gary Mendel 12,158 4,158 8,000
Maryann Michelizzi 3,465 3,465 -
Dwight Miller 5,000 (2) 5,000 (2) -
Larry Miller 125,000 125,000 -
Albert Milstein 1,039 1,039 -
Howard P. Milstein 750,140 (1) 571,922 178,218 (1)
Denis J. Nayden 91,619 (1) 24,953 66,666 (1)
Steven Oliveira 90,974 90,974 -
Barton & Alice Peck 1,039 1,039 -
Robert R. Praschil, Jr. 1,039 1,039 -
Prism Ventures 262,814 11,552 -
Yaron Z. Reich 29,158 29,158 -
Robert Rickel 9,010 9,010 -
David Rozen 38,317 8,317 30,000
Joshua D. Schein 137,183 125,631 -
Schlam, Stone, Dolan, FBO Richard Dolan 67,500 22,500 -
Lee Schlesinger 25,000 25,000 -
Jane Shoup 25,316 4,158 17,000
Marc Seelenfreund 6,250 (2) 6,250 (2) -
Stefan Shoup 25,316 4,158 17,000
Martin Sirotkin 8,317 8,317 -
Paul Sirotkin 8,317 8,317 -
Beverly Smith 3,465 3,465 -
Howard L. Spitz 623 623 -
Glen S. Stanley 1,039 1,039 -
Joseph L. Stanley 2,078 1,039 -
Rita M. Stanley 2,078 1,039 -
Stuart G. Stanley 1,039 1,039 -
David Stone 80,528 13,862 66,666
Richard B. Stone 660,205 (1) 438,328 (1) 281,211 (1)
Hidshiro Takahashi 20,794 20,794 -
William Teate 7,079 2,079 5,000
Preston Tsao 23,325 (2) 15,310 (2) 11,015 (2)
Charles S. Whitman III 12,500 12,500 -
Winston IPO Investments 8,317 8,317 -
Wolfe Axelrod Associates 100,000 (2) 100,000 (2) -
Hersz Zukier 3,119 3,119 -
</TABLE>
(1) These share amounts include shares issuable upon exercise of warrants.
(2) These share amounts represent shares issuable upon exercise of warrants.
PLAN OF DISTRIBUTION
The Selling Stockholders may sell or distribute the Shares directly to
purchasers as principals or through one or
39
<PAGE>
more underwriters, brokers, dealers or agents as follows:
- - from time to time in one or more transactions, which may involve crosses
or block transactions;
- - on any exchange or in the over-the-counter market;
- - in transactions otherwise than in the over-the-counter market; or
- - 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 these 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, the Selling
Stockholders may compensate these underwriters, brokers, dealers or agents
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. These compensatory discounts, concessions or
commissions may be in excess of those customary in the types of transactions
involved as to particular underwriters, brokers, dealers or agents. 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 of these underwriters, brokers, dealers or agents may
constitute underwriting discounts and commissions under the Securities Act of
1933.
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.
We will pay all of the expenses incident to the registration, offering and sale
of the Shares to the public hereunder, estimated at $30,000, other than
commissions, fees and discounts of underwriters, brokers, dealers and agents.
Those commissions, fees and discounts, if any, will be borne by the Selling
Stockholder. We have agreed to indemnify the Selling Stockholders and any
underwriters against certain liabilities under the Securities Act. We 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 us and our affiliates in the ordinary course.
LEGAL MATTERS
The validity of our common stock to be sold in this offering is being passed
upon for us 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 our
common stock.
EXPERTS
Our consolidated financial statements, as of December 31, 1998 and for the
year ended December 31, 1998 that appear in this prospectus and registration
statement have been audited by Grant Thornton LLP, independent certified
public accountants, as set forth in their report thereon appearing elsewhere in
this prospectus 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.
Grant Thornton LLP's independent auditors' report on the consolidated
financial statements of Access Pharmaceuticals Inc. and subsidiary as of and
for the year ended December 31, 1998, contained a separate paragraph
stating that "the Company has suffered recurring losses from operations and
has incurred negative cash flows since inception. These matters raise
substantial doubt about its ability to continue as a going concern.
Management's plan's 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."
Our consolidated financial statements, as of December 31, 1997 and for each
of the years in the two-year period ended December 31, 1997 appearing in
this prospectus and registration statement have been audited by KPMG LLP,
40
<PAGE>
independent certified public accountants, as set forth in their report thereon
appearing elsewhere in this prospectus 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's independent auditor's report on the consolidated financial
statements of Access Pharmaceuticals, Inc. and our 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 substatnial 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."
KPMG LLP was previously our principal accountants. On October 22, 1998,
that firm resigned. The decision to change accountants was not recommended
by the audit committee of the board of directors.
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.
Effective December 15, 1998, we engaged Grant Thornton LLP, independent
certified public accountants, as our principal accountants.
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 in this prospectus 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.
41
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Report of Independent Certified Public Accountants - Grant Thornton LLP F-2
Report of Independent Certified Public Accountants - KPMG LLP F-3
Report of Independent Certified Public Accountants - Smith, Anglin and
Company F-4
Consolidated Balance Sheets at December 31, 1998 and 1997 F-5
Consolidated Statements of Operations for the three years ended December
31, 1998 and the period from February 24, 1988 (Inception) to
December 31, 1998 F-6
Consolidated Statements of Stockholders' Equity (Deficit) for the period
from February 24, 1988 (Inception) to December 31, 1998 F-7
Consolidated Statements of Cash Flows for the three years ended December
31, 1998 and the period from February 24, 1988 (Inception) to
December 31, 1998 F-9
Notes to Consolidated Financial Statements F-10
Condensed Consolidated Balance Sheets at September 30, 1999 (unaudited)
and December 31, 1998 F-25
Condensed Consolidated Statements of Operations (unaudited) for the three
months ended September 30, 1999 and 1998 and for the nine months ended
September 30, 1999 and 1998 and the period from February 24, 1988
(Inception) to September 30, 1999 F-26
Condensed Consolidated Statements of Cash Flows (unaudited) for the nine
months ended September 30, 1999 and 1998 and the period from
February 24, 1988 (Inception) to September 30, 1999 F-27
Notes to Condensed Consolidated Financial Statements (unaudited) F-28
F-1
<PAGE>
Report of Independent Certified Public Accountants
Board of Directors and Stockholders
Access Pharmaceuticals, Inc.
We have audited the accompanying consolidated balance sheet of Access
Pharmaceuticals, Inc. and subsidiary (a development stage company) as of
December 31, 1998, the related consolidated statements of operations,
stockholders' equity (deficit), and cash flows for the year then ended, and the
consolidated statements of operations and cash flows for the period February
24, 1988 (inception) to December 31, 1998. 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 audit. The cumulative statements of operations, and
cash flows for the period February 24, 1988 (inception) to December 31,
1998 include amounts for the period from February 24, 1988 to December
31, 1988 and for each of the nine years in the period ended December 31,
1997, which were audited by other auditors whose reports have been
furnished to us and are included herein. Our opinion, insofar as it relates to
the amounts included for the period February 24, 1988 through December
31, 1997, is based solely on the reports of the other auditors.
We conducted our audit 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 our audit provides a reasonable basis for
our opinion.
In our opinion, based on our audit and the reports of the other auditors
included herein, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Access
Pharmaceuticals, Inc. and subsidiary as of December 31, 1998, and the
consolidated results of their operations and their consolidated cash flows for
the year then ended and for the period February 24, 1988 to December 31,
1998, 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 incurred negative cash flows from
operations since inception. These matters raise substantial doubt about its
ability to continue as a going concern. Management's plan's 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/ Grant Thornton LLP
- ----------------------
GRANT THORNTON LLP
Dallas, Texas
February 12, 1999
F-2
<PAGE>
Report of Independent Certified Public Accountants
Board of Directors and Stockholders
Access Pharmaceuticals, Inc.
We have audited the accompanying consolidated balance sheet of Access
Pharmaceuticals, Inc. and subsidiary (a development stage company) as of
December 31, 1997 and the related consolidated statements of operations,
stockholders' equity (deficit), and cash flows for each of the years in the two-
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 two-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 the results of
their operations and their cash flows for each of the years in the two-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 plan's 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
F-3
<PAGE>
Report of Independent Certified Public Accountants
Board of Directors and Stockholders
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-4
<PAGE>
Access Pharmaceuticals, Inc. and Subsidiary
(a development stage company)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
ASSETS 1998 1997
----------- -----------
<S> <C> <C>
Current assets
Cash and cash equivalents $1,487,000 $ 438,000
Accounts receivable - 1,000
Prepaid expenses and other current assets 54,000 51,000
----------- -----------
Total current assets 1,541,000 490,000
Property and equipment, net (Note 5) 227,000 422,000
Licenses, net (Note 1) 425,000 475,000
Investments 150,000 50,000
Other assets 8,000 10,000
----------- -----------
Total assets $2,351,000 $1,447,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued expenses $ 395,000 $ 434,000
Royalties payable (Note 3) - 53,000
Accrued insurance premiums 38,000 38,000
Current portion of obligations under
capital leases (Note 6) 99,000 181,000
----------- -----------
Total current liabilities 532,000 706,000
Obligations under capital leases,
net of current portion (Note 6) 24,000 142,000
----------- -----------
Total liabilities 556,000 848,000
Commitments and contingencies
(Notes 6, 10 and 11) - -
Stockholders' equity (Note 7)
Preferred stock - $.01 par value;
authorized, 2,000,000 shares - -
Common stock - $.01 par value;
authorized, 20,000,000 shares;
issued and outstanding, 3,429,402
and 1,630,450 at December 31, 1998
and 1997, respectively 34,000 16,000
Additional paid-in capital 24,906,000 20,331,000
Deficit accumulated during the
development stage (23,145,000) (19,748,000)
----------- -----------
Total stockholders' equity 1,795,000 599,000
----------- -----------
Total liabilities and
stockholders' equity $2,351,000 $1,447,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
Access Pharmaceuticals, Inc. and Subsidiary
(a development stage company)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
February 24,1988
(inception) to
Year ended December 31, December 31,
------------------------------------
1998 1997 1996 1998
---------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
Revenues
Research and development $ - $ - $ - $2,711,000
Option income - 110,000 167,000 2,149,000
Licensing revenues - 325,000 - 325,000
---------- ---------- ---------- ------------
Total revenues - 435,000 167,000 5,185,000
Expenses
Research and development 1,756,000 2,433,000 1,405,000 10,365,000
General and administrative 1,464,000 1,784,000 1,938,000 8,327,000
Depreciation and amortization 213,000 162,000 123,000 1,269,000
Write-off of excess purchase price - 580,000 8,314,000 8,894,000
---------- ---------- ---------- ------------
Total expenses 3,433,000 4,959,000 11,780,000 28,855,000
---------- ---------- ---------- ------------
Loss from operations (3,433,000) (4,524,000) (11,613,000) (23,670,000)
Other income (expense)
Interest and miscellaneous income 58,000 119,000 196,000 832,000
Interest expense (22,000) (36,000) (45,000) (180,000)
---------- ---------- ---------- ------------
36,000 83,000 151,000 652,000
Loss before income taxes (3,397,000) (4,441,000) (11,462,000) (23,018,000)
---------- ---------- ---------- ------------
Provision for income taxes - - - 127,000
---------- ---------- ---------- ------------
Net loss $(3,397,000) $(4,441,000)$(11,462,000)$(23,145,000)
========== ========== =========== ============
Basic and diluted loss
per common share $(1.28) $(2.80) $(7.68)
Weighted average basic and diluted
common shares outstanding 2,650,168 1,583,785 1,492,278
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE>
Access Pharmaceuticals, Inc. and Subsidiary
(a development stage company)
CONSOLIDATED STATEMENT OF
STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Deficit
accumulated
Common stock Additional during the
-------------------- paid-in development
Shares Amount capital 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)
</TABLE>
F-7
<PAGE>
Access Pharmaceuticals, Inc. and Subsidiary
(a development stage company)
CONSOLIDATED STATEMENT OF
STOCKHOLDERS' EQUITY (DEFICIT) - CONTINUED
<TABLE>
<CAPTION>
Deficit
accumulated
Common stock Additional during the
-------------------- paid-in development
Shares Amount capital stage
--------- --------- ----------- -----------
<S> <C> <C> <C>
<C>
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)
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)
Common stock issued, $3.00 per
share, net of costs of
$405,000 1,795,000 18,000 4,538,000 -
Common stock issued, $3.50
per share 4,000 - - -
Warrants issued at $4.00 per share
for financial consulting services - - 37,000 -
Net loss for the year - - - (3,397,000)
--------- --------- ----------- -----------
Balance, December 31, 1998 3,429,000 $ 34,000 $24,906,000 $(23,145,000)
========= ========= =========== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
F-8
<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
-------------------------------------- December 31,
1998 1997 1996 1998
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss $(3,397,000) $(4,441,000) $(11,462,000) $(23,145,000)
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 37,000 188,000 344,000 569,000
Research expenses related to
common stock granted - 100,000 - 100,000
Depreciation and amortization 213,000 162,000 123,000 1,269,000
Unearned revenue - (110,000) (150,000) (110,000)
Change in operating assets
and liabilities:
Accounts receivable 1,000 (1,000) 2,000 (1,000)
Prepaid expenses and other
current assets (3,000) 139,000 (186,000) (55,000)
Other assets 2,000 (1,000) (7,000) (6,000)
Accounts payable and
accrued expenses (92,000) (244,000) 354,000 140,000
------------- ------------ ------------- -------------
Net cash used in operating activities (3,239,000) (3,628,000) (2,668,000) (12,345,000)
Cash flows from investing activities:
Capital expenditures (4,000) (16,000) (38,000) (1,168,000)
Sales of capital equipment 9,000 6,000 - 15,000
Purchase of Tacora, net of cash acquired - (124,000) - (124,000)
Investments (100,000) (50,000) - (150,000)
------------ ------------ ------------- --------------
Net cash used in investing activities (95,000) (184,000) (38,000) (1,427,000)
Cash flows from financing activities
Proceeds from notes payable (173,000) - 118,000 721,000
Payments of principal on obligations
under capital leases - (178,000) (127,000) (627,000)
Cash acquired in merger with Chemex - - 1,587,000 1,587,000
Proceeds from stock issuances 4,556,000 - 5,526,000 13,578,000
------------ ------------ ------------- -------------
Net cash provided by (used in)
financing activities 4,383,000 (178,000) 7,104,000 15,259,000
------------ ------------ ------------- -------------
Net increase (decrease) in cash and
cash equivalents 1,049,000 (3,990,000) 4,398,000 1,487,000
Cash and cash equivalents at
beginning of period 438,000 4,428,000 30,000 -
------------ ------------ ------------- -------------
Cash and cash equivalents at
end of period $ 1,487,000 $ 438,000 $ 4,428,000 $ 1,487,000
============ ============ ============= =============
Cash paid for interest $22,000 $34,000 $45,000 $177,000
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 - - 100,000 100,000
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 - 455,000 - 455,000
</TABLE>
The accompanying notes are an integral part of these statements.
F-9
<PAGE>
Access Pharmaceuticals, Inc. and Subsidiary
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three years ended December 31, 1998
NOTE 1 - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
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. 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.
A summary of the significant accounting policies applied in the preparation
of the accompanying consolidated financial statements follows.
Merger
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.
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.
F-10
<PAGE>
Access Pharmaceuticals, Inc. and Subsidiary
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Three years ended December 31, 1998
NOTE 1 - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -
Continued
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.
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.
Patents and Applications
The Company expenses patent and application costs 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.
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
$50,000 and $25,000 for the years ended December 31, 1998 and 1997,
respectively.
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.
Research and Development Expenses
Research and development costs are expensed as incurred.
F-11
<PAGE>
Access Pharmaceuticals, Inc. and Subsidiary
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Three years ended December 31, 1998
NOTE 1 - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -
Continued
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.
Loss Per Share
In accordance with the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings per
Share" ("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. Dilutive potential
common shares result from stock options and warrants.
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.
Reclassifications
Certain reclassifications have been made to prior year financial statements
to conform with the December 31, 1998 presentation.
F-12
<PAGE>
Access Pharmaceuticals, Inc. and Subsidiary
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Three years ended December 31, 1998
NOTE 1 - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -
Continued
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.
Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of
SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and
Long-Lived Assets to Be Disposed Of, 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.
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.
F-13
<PAGE>
Access Pharmaceuticals, Inc. and Subsidiary
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Three years ended December 31, 1998
NOTE 2 - ACQUISITIONS
On December 9, 1997, a wholly-owned subsidiary of the Company acquired
and merged with Tacora Corporation ("Tacora"), a privately-held
pharmaceutical company based in Seattle, Washington; Tacora became a
wholly-owned subsidiary of the Company. The Company used the purchase
method of accounting for the purchase of Tacora. The aggregate purchase
price was $739,000 payable $124,000 in cash, $192,000 in stock
(representing 20,900 shares of Company common stock) and assumption of
$239,000 in trade and accrued payables and $184,000 of Tacora's capital
lease obligations, plus up to 137,500 shares of additional Common Stock
if certain milestones are met. The share price to be used will range
between $2.50 and $6.50 per share (range of value of shares is $344,000
to $894,000), depending on when the milestones are met. All milestone
conditions expire in June 2000. 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.
NOTE 3 - 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 1998, 1997 and 1996 Thoma received payments for consulting
services of $72,000, $72,000 and $60,000 respectively. Thoma was also
reimbursed for expenses of $11,000, $6,000, and $18,000 respectively, in
1998, 1997 and 1996.
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 1998 and 1997 and received $8,000 and
$2,000 in consulting fees and $4,000 and $1,000 in expense
reimbursements, respectively.
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 major shareholder of the Company, was entitled
to yearly cash royalty payments as consideration for the assignment of
patents to the Company. A royalty of $52,500 and $50,000 was payable at
December 31, 1997 and 1996, respectively, and included in the
accompanying consolidated balance sheet. 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.
F-14
<PAGE>
Access Pharmaceuticals, Inc. and Subsidiary
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Three years ended December 31, 1998
NOTE 4 - 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.
NOTE 5 - PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
December 31,
---------------------
1998 1997
---------- ----------
<S> <C> <C>
Laboratory equipment $ 808,000 $ 852,000
Laboratory and building improvements 27,000 25,000
Furniture and equipment 172,000 170,000
---------- ----------
1,007,000 1,047,000
Less accumulated depreciation and amortization 780,000 625,000
---------- ----------
Net property and equipment $ 227,000 $ 422,000
========== ==========
</TABLE>
Depreciation and amortization on property and equipment was $161,000,
$137,000, and $123,000 for the years ended December 31, 1998, 1997 and
1996, respectively.
F-15
<PAGE>
Access Pharmaceuticals, Inc. and Subsidiary
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Three years ended December 31, 1998
NOTE 6 - COMMITMENTS
At December 31, 1998, future minimum lease payments under capital lease
obligations and commitments under noncancelable operating leases were as
follows:
<TABLE>
<CAPTION>
Capital Operating
leases leases
---------- ----------
<S> <C> <C>
1999 $ 107,000 $ 82,000
2000 25,000 87,000
2001 - 91,000
2002 - 85,000
---------- ----------
Total future minimum lease payments 132,000 $ 345,000
Less amount representing interest 9,000 ==========
----------
Present value of minimum capital lease payments 123,000
Less current portion 99,000
----------
Obligations under capital leases,
excluding current portion $ 24,000
==========
</TABLE>
The Company leases certain office and research and development facilities
under an operating lease. Rent expense for the years ended December 31,
1998, 1997 and 1996 was $77,000, $74,000 and $69,000, respectively.
NOTE 7 - STOCKHOLDERS' EQUITY (DEFICIT)
Common Stock
On June 18, 1998, in conjunction with the first closing of a private
placement, the Company effected a recapitalization through a one-for-
twenty reverse stock split of its common stock, $0.04 par value per share
(the "Common Stock"), and 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 and per share amounts have been retroactively restated to reflect
the Recapitalization in the accompanying consolidated financial statements.
F-16
<PAGE>
Access Pharmaceuticals, Inc. and Subsidiary
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Three years ended December 31, 1998
NOTE 7 - STOCKHOLDERS' EQUITY (DEFICIT) - Continued
The Company, assisted by an investment bank, raised in March and April
of 1998, $1,200,000 in gross proceeds less cash issuance costs of $47,000,
from the placement of 48 units, each unit consisting of 8,333 shares of
Common Stock (total of 399,984) and warrants to purchase 8,333 shares of
Common Stock (total of 399,984) 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.
For 1998, issuance costs for all placements totaled $1,466,000, consisting
of $405,000 cash payments for offering and legal expenses and the issuance
of 142,676 shares of Common Stock valued at $385,000 and 179,625
warrants with a fair value of $676,000 calculated using the Black-Scholes
pricing model. The proceeds of the offerings 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
additional capital to fund research and development, working capital,
acquisitions of complementary companies or technologies and general
corporate purposes. There can be no assurances, however, that any
additional funds will be raised.
Warrants
During 1998, a financial advisor received warrants to purchase 15,000
shares of common stock at an exercise price of $4.00 per share at any time
from December 1, 1998 until December 1, 2003, for financial consulting
services rendered in 1998. The fair value of the warrants was $2.48 per
share on the date of the grant using the Black-Scholes pricing model with
the following assumptions: expected dividend yield 0.0%, risk-free interest
rate 4.85%, expected volatility 122% and an expected life of 5 years. Total
fair value of the warrants relating to the consulting services ($37,000) has
been recorded as general and administrative expense and an increase to
additional paid-in capital.
F-17
<PAGE>
Access Pharmaceuticals, Inc. and Subsidiary
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Three years ended December 31, 1998
NOTE 7 - STOCKHOLDERS' EQUITY (DEFICIT) - Continued
In connection with the aforementioned offerings of units and common stock
in 1998, warrants to purchase a total of 579,627 shares of common stock
were issued. All of the warrants are exercisable immediately at $3.00 per
share and expire five years from date of issuance.
During 1997, 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
financial consulting services rendered in 1997. The fair value of the
warrants was $5.00 per share on the date of the grant using the Black-
Scholes pricing model with the following assumptions: 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.
During 1996, 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:
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.
On October 5, 1995, the Company entered into an agreement with a
shareholder for the sale of 2,390 units. Each unit consisted of one share of
common stock and a warrant to purchase one-half share of common stock.
The exercise price for the warrants is $3.00 per share. The warrants are
exercisable until October 5, 1999.
The Company also has warrants outstanding to purchase 6,795 shares of
common stock at $3.00 per share. These warrants expire in September
2001. Units consisting of an option to purchase 25,000 shares of common
stock and warrants to purchase 35,000 shares of common stock at prices
ranging from $50 to $125 per share expired in January 1999.
F-18
<PAGE>
Access Pharmaceuticals, Inc. and Subsidiary
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Three years ended December 31, 1998
NOTE 8 - STOCK OPTION PLANS
The Company adopted a new stock option plan, as amended (the "1995
Stock Awards Plan"), on January 25, 1996 and reserved 548,271 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 option plan (the "1987 Stock Awards Plan") and
API's stock option plan ("API Stock Option Plan"). Options granted under
the plans generally vest ratably over a four to five 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, 1998, there were 241,771 additional shares available for
grant under the 1995 Stock Awards Plan. Concurrently with the
Recapitalization on June 18, 1998, all stock options granted under the 1995
Stock Option Plan were cancelled and new stock options were issued to
directors, employees and consultants. The fair value of options was
estimated at the date of grant using the Black-Scholes option pricing model
with the following weighted average assumptions used for grants in fiscal
1998, 1997 and 1996, respectively: dividend yield of 0% for all periods;
volatility of 122%, 129%, and 100%; risk-free interest rates of 4.84%,
5.6% and 6.0% and expected lives of four years for all periods. The
weighted average fair values of options granted were $2.40, $13.00 and
$18.40 per share during 1998, 1997 and 1996, respectively.
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>
December 31,
---------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Net loss
As reported $(3,397,000) $(4,441,000) $(11,462,000)
Pro forma (3,583,000) (4,614,000) (11,563,000)
Basic and diluted loss per share
As reported ($1.28) ($2.80) ($7.68)
Pro forma ($1.35) ($2.91) ($7.75)
</TABLE>
F-19
<PAGE>
Access Pharmaceuticals, Inc. and Subsidiary
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Three years ended December 31, 1998
NOTE 8 - STOCK OPTION PLANS - Continued
Summarized information for the 1995 Stock Awards Plan is as follows:
<TABLE>
<CAPTION>
Weighted-
average
exercise
Shares price
---------- ----------
<S> <C> <C>
Outstanding options at January 1, 1996 - $ -
Granted 33,299 26.40
Forfeited (1,800) 28.80
----------
Outstanding options at December 31, 1996 31,499 26.20
Granted 8,217 13.00
Forfeited (7,566) (27.60)
----------
Outstanding options at December 31, 1997 32,150 20.40
Granted 306,500 3.00
Forfeited (32,150) (20.40)
----------
Outstanding options at December 31, 1998 306,500 3.00
==========
Exercisable at December 31, 1996 - -
Exercisable at December 31, 1997 8,950 25.60
Exercisable at December 31, 1998 142,500 3.00
</TABLE>
At December 31, 1998, the exercise price of 302,000 options was $3.00,
of 3,500 options was $2.94 and of 1,000 options was $2.08. The weighted-
average remaining life was 9.5 years.
F-20
<PAGE>
Access Pharmaceuticals, Inc. and Subsidiary
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Three years ended December 31, 1998
NOTE 8 - STOCK OPTION PLANS - Continued
All issued options and stock appreciation rights ("SAR's") under the
Chemex 1987 Stock Awards Plan 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 Non- Weighted-
Incentive Employee Average
Stock Director Exercise
Options SAR's Plan Price
-------- -------- -------- --------
<S> <C> <C> <C>
<C>
Outstanding awards at January 1, 1996 48,804 16,933 13,956 $39.80
Forfeited (7,569) - (5,046) 51.40
Exercised (1,371) (6,736) - 3.00
-------- -------- -------- --------
Outstanding awards at December 31, 1996 39,864 10,197 8,910 40.80
Forfeited (1,125) - (3,660) 72.40
-------- -------- -------- --------
Outstanding awards at December 31, 1997 38,739 10,197 5,250 38.00
Forfeited (6,153) (2,500) (2,750) (47.75)
-------- -------- -------- --------
Outstanding awards at December 31, 1998 32,586 7,697 2,500 35.49
======== ======== ========
</TABLE>
All options outstanding were exercisable at each year end.
Further information regarding options outstanding at December 31, 1998
is summarized below:
<TABLE>
<CAPTION>
Weighted average
---------------------
Number of Remaining Exercise
Range of exercise prices of shares life price
- ------------------------ --------- --------- ---------
<S> <C> <C> <C>
$0.0 7,700 4.68 $ 0.00
$17.50 - $35.00 21,128 5.10 23.85
$40.00 - $64.40 7,081 1.85 47.41
$78.80 - $102.60 6,874 4.00 98.71
--------
42,783
========
</TABLE>
F-21
<PAGE>
Access Pharmaceuticals, Inc. and Subsidiary
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Three years ended December 31, 1998
NOTE 9 - INCOME TAXES
Income tax expense differs from the statutory amounts as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Income taxes at U.S. statutory rate $(1,155,000) $(1,510,000) $(3,897,000)
Change in valuation allowance 1,142,000 1,185,000 954,000
Items not deductible for tax 13,000 325,000 2,943,000
------------ ------------ ------------
Total tax expense $ - $ - $ -
============ ============ ============
</TABLE>
Deferred taxes are provided for the temporary differences between the
financial reporting bases and the tax bases of the Company's assets. The
temporary differences that give rise to deferred tax assets were as follows:
<TABLE>
<CAPTION>
December 31,
--------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Deferred tax assets
Net operating loss carryforwards $17,101,000 $14,266,000 $13,107,000
General business credit carryforwards 443,000 434,000 408,000
Property and equipment 24,000 - -
------------ ------------ ------------
Gross deferred tax assets 17,568,000 14,700,000 13,515,000
Valuation allowance (17,568,000) (14,700,000) (13,515,000)
------------ ------------ ------------
Net deferred taxes $ - $ - $ -
============ ============ ============
</TABLE>
During 1998, the Company's gross deferred tax asset increased by
$2,612,000 due to losses and a revision of approximately $1,470,000
to the December 31, 1997 net operating loss based on a reconciliation
with the filed tax return. The valuation allowance was increased by a
corresponding amount.
At December 31, 1998, the Company had approximately $50,700,000 of
net operating loss carryforwards and approximately $1,300,000 of general
business carryforwards. These carryforwards expire at varying amounts
through 2013. As a result of the merger on January 25, 1996, a change in
control occurred for federal income tax purposes which limits the utilization
of pre-merger net operating loss carryforwards related to Chemex to
approximately $530,000 per year.
F-22
<PAGE>
Access Pharmaceuticals, Inc. and Subsidiary
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Three years ended December 31, 1998
NOTE 10 - CONTINGENCIES
The Company's products will require clinical trials, U.S. Food and Drug
Administration 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 competes with specialized biotechnology
companies and major pharmaceutical companies. Many of these
competitors have substantially greater resources than the Company.
The Company is not currently a party to any material legal proceeding.
NOTE 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. 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.
F-23
<PAGE>
Access Pharmaceuticals, Inc. and Subsidiary
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Three years ended December 31, 1998
NOTE 12 - SUBSEQUENT EVENTS
On March 1, 1999, the Company and a wholly owned subsidiary of the
Company entered into a merger agreement with Virologix Corporation
("Virologix"), whereby Virologix will become a wholly owned subsidiary
of the Company. The closing of the merger is subject to certain conditions,
including the condition that the Company raise at least $3.0 million in
equity financing.
Virologix is a privately held company focused on the development of
product candidates for the prevention and treatment of viral diseases,
including HIV. Under the terms of the agreement, the Virologix
shareholders will receive 1,000,000 shares of common stock of the
Company. It is anticipated that the closing of the acquisition will take place
during the second quarter of 1999.
F-24
<PAGE>
Access Pharmaceuticals, Inc. and Subsidiaries
(a development stage company)
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
September 30, 1999 December 31, 1998
------------- -------------
ASSETS (unaudited)
<S> <C> <C>
Current assets
Cash and cash equivalents $ 2,026,000 $ 1,487,000
Accounts receivable 3,000 -
Prepaid expenses and other current assets 31,000 54,000
------------- -------------
Total current assets 2,060,000 1,541,000
------------- -------------
Property and equipment, at cost 1,016,000 1,007,000
Less accumulated depreciation
and amortization (880,000) (780,000)
------------- -------------
136,000 227,000
------------- -------------
Licenses, net 590,000 425,000
Investments 150,000 150,000
Goodwill 2,423,000 -
Other assets 8,000 8,000
------------- -------------
Total assets $ 5,367,000 $ 2,351,000
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued expenses $ 721,000 $ 395,000
Accrued insurance premiums 4,000 38,000
Deferred revenues 155,000 -
Current portion of obligations under
capital leases 50,000 99,000
------------- -------------
Total current liabilities 930,000 532,000
------------- -------------
Obligations under capital leases, net
of current portion - 24,000
------------- -------------
Total liabilities 930,000 556,000
------------- -------------
Commitments and contingencies - -
Stockholders' equity
Preferred stock - $.01 par value;
authorized 2,000,000 shares;
none issued or outstanding - -
Common stock - $.01 par value;
authorized 20,000,000 shares;
issued and outstanding, 6,036,582
at September 30, 1999 and
3,429,402 at December 31, 1998 60,000 34,000
Additional paid-in capital 29,920,000 24,906,000
Deficit accumulated during the
development stage (25,543,000) (23,145,000)
------------- -------------
Total stockholders' equity 4,437,000 1,795,000
------------- -------------
Total liabilities and
stockholders' equity $ 5,367,000 $ 2,351,000
============= =============
</TABLE>
The accompanying notes are an integral part of these statements.
F-25
<PAGE>
Access Pharmaceuticals, Inc. and Subsidiaries
(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
1999 1998 1999 1998 Sept 30, 1999
------------ ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Revenues
Research and development $ - $ - $ - $ - $ 2,711,000
Option income - - - - 2,149,000
Licensing revenues - - - - 325,000
------------ ------------ ------------ ------------ -------------
Total revenues - - - - 5,185,000
------------ ------------ ------------ ------------ -------------
Expenses
Research and development 349,000 481,000 1,042,000 1,417,000 11,407,000
General and administrative 293,000 319,000 1,205,000 1,069,000 9,532,000
Depreciation and amortization 84,000 39,000 177,000 169,000 1,446,000
Write-off of excess purchase price - - - - 8,894,000
------------ ------------ ------------ ------------ -------------
Total expenses 726,000 839,000 2,424,000 2,655,000 31,279,000
------------ ------------ ------------ ------------ -------------
Loss from operations (726,000) (839,000) (2,424,000) (2,655,000) (26,094,000)
------------ ------------ ------------ ------------ -------------
Other income (expense)
Interest and miscellaneous income 18,000 29,000 37,000 37,000 869,000
Interest expense (3,000) (4,000) (11,000) (18,000) (191,000)
------------ ------------ ------------ ------------ -------------
15,000 25,000 26,000 19,000 678,000
------------ ------------ ------------ ------------ -------------
Loss before income taxes (711,000) (814,000) (2,398,000) (2,636,000) (25,416,000)
Provision for income taxes - - - - 127,000
------------ ------------ ------------ ------------ -------------
Net loss $ (711,000) $ (814,000) $(2,398,000) $(2,636,000) $(25,543,000)
============ ============ ============ ============ =============
Basic and diluted loss per
common share $ (0.13) $ (0.24) $ (0.58) $ (1.10)
============ ============ ============ ============
Weighted average basic and diluted
common shares outstanding 5,469,021 3,322,668 4,116,746 2,393,068
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-26
<PAGE>
Access Pharmaceuticals, Inc. and Subsidiaries
(a development stage company)
Condensed Consolidated Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
Nine Months ended September 30, February 24, 1988
---------------------------- (inception) to
1999 1998 September 30, 1999
------------ ------------ -------------
<S> <C> <C> <C>
Cash flows form operating activities:
Net loss $(2,398,000) $(2,636,000) $(25,543,000)
Adjustments to reconcile net loss
to net cash used in operating activities:
Write-off of excess purchase price - - 8,894,000
Warrants issued in payment of
consulting expense 296,000 - 865,000
Research expenses related to
common stock granted - 9,000 100,000
Depreciation and amortization 177,000 169,000 1,446,000
Deferred revenue 155,000 - 45,000
Licenses (100,000) - (100,000)
Change in operating assets and
liabilities:
Accounts receivable (3,000) 1,000 (4,000)
Prepaid expenses and other
current assets 23,000 39,000 (32,000)
Other assets - 2,000 (6,000)
Accounts payable and
accrued expenses (142,000) (145,000) (2,000)
------------ ------------ -------------
Net cash used in operating activities (1,992,000) (2,561,000) (14,337,000)
------------ ------------ -------------
Cash flows from investing activities:
Capital expenditures (3,000) (4,000) (1,171,000)
Sales of capital equipment - - 15,000
Purchase of Virologix (102,000) - (102,000)
Purchase of Tacora, net of cash acquired - - (124,000)
Other investing activities - (50,000) (150,000)
------------ ------------ -------------
Net cash used in investing activities (105,000) (54,000) (1,532,000)
------------ ------------ -------------
Cash flows from financing activities:
Proceeds from notes payable (80,000) - 641,000
Payments of principal on obligations
under capital leases (73,000) (149,000) (700,000)
Cash acquired in merger with Chemex - - 1,587,000
Proceeds from stock issuances, net 2,789,000 4,556,000 16,367,000
------------ ------------ -------------
Net cash provided by
financing activities 2,636,000 4,407,000 17,895,000
------------ ------------ -------------
Net increase in cash and cash
equivalents 539,000 1,792,000 2,026,000
Cash and cash equivalents at
beginning of period 1,487,000 438,000 -
------------ ------------ -------------
Cash and cash equivalents at
end of period $ 2,026,000 $ 2,230,000 $ 2,026,000
============ ============ =============
Cash paid for interest $ 11,000 $ 18,000 $ 188,000
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
Equipment purchases financed through
capital leases - - 82,000
Net liabilities assumed in acquisition
of Tacora Corporation - - 455,000
Net liabilities assumed in acquisition
of Virologix Corporation 362,000 - 362,000
</TABLE>
The accompanying notes are an integral part of these statements.
F-27
<PAGE>
Access Pharmaceuticals, Inc. and Subsidiaries
(a development stage company)
Notes to Condensed Consolidated Financial Statements
Nine Months Ended September 30, 1999 and 1998
(unaudited)
(1) Interim Financial Statements
The consolidated balance sheet as of September 30, 1999 and the
consolidated statements of operations for the three and nine months
ended and cash flows for the nine months ended September 30,
1999 and 1998 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 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, 1998. The results of operations for the
period ended September 30, 1999 are not necessarily indicative of
the operating results which may be expected for a full year. The
consolidated balance sheet as of December 31, 1998 contains
financial information taken from the audited financial statements
as of that date.
(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 first quarter of 2000. The Company is
dependent on raising additional capital to fund the development of
its technology and to implement its business plan. Such dependence
will continue at least until the Company begins marketing products
resulting from its technologies.
If prior to the end of January 2000 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 second quarter of 2000.
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. If the Company is unable to raise
additional capital in the near term, it may be forced to suspend
operations.
The Company will require substantial funds to conduct research
and development programs, preclinical studies and clinical trials of
its potential products, including research and development with
respect to the newly acquired technology resulting from the
acquisition of Virologix. 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, including the sale
of up to an additional $5 million of common stock at a price of $2
per share in the Company's current equity offering, 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 or that any
additional closings of its current equity offering will occur. 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.
The Independent Auditor's Report on the Company's 1998
consolidated financial statements included an emphasis paragraph
regarding the uncertainty of the Company's ability to continue as
a going concern.
(3) Private Placement
The Company has engaged an investment bank to assist the
Company in raising funds to support the Company's research
F-28
<PAGE>
and development activities, working capital requirements, acquisitions
of complementary companies or technologies and general corporate
purposes. On July 20, 1999, with the assistance of the investment
bank, the Company completed the first closing of an offering of up
to $8 million of common stock at a per share price of $2.00 (the
offering), receiving gross proceeds of $3.0 million in such first closing,
less issuance costs of $213,000, from the private placement of
1,500,000 shares of Common Stock. The placement agent for such
offering received warrants to purchase 160,721 shares of Common
Stock at $2.00 per share, in accordance with the offering terms
and elected to receive 106,217 shares of Common Stock in lieu of
certain sales commissions and expenses. There can be no
assurances that any additional closings of the private placement
will take place.
If and when the Company satisfies all listing requirements, including
minimum share price and net equity equirements, 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) Merger
On July 20, 1999 and simultaneously with the first closing of the
offering, Access Holdings, Inc., a Delaware corporation and a
wholly-owned subsidiary of the Company (the "Merger Sub")
merged with and into Virologix Corporation, a Delaware
corporation ("Virologix"), the separate existence of the Merger
Sub ceased, and Virologix became a wholly-owned subsidiary of
the Company and each outstanding share of Virologix' common
stock was converted into 0.231047 shares of the Company's
common stock, representing 999,963 shares of common stock of
the Company. The transaction has been accounted for as a
purchase.
The following table reflects unaudited consolidated pro forma
results of operations of Access and Virologix on the basis that the
acquisition had taken place at the beginning of each period
presented. Such pro forma amounts are not necessarily indicative
of what the actual consolidated results of operations might have
been if the acquisition had been effective at the beginning of the
respective periods.
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
------------------------- ------------------------
1999 1998 1999 1998
----------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Revenue $ - $ - $ - $ -
Net loss (731) (1,032) (2,738) (3,302)
Basic and diluted
net loss per share $ (0.12) $ (0.17) $ (0.45) $ (0.66)
</TABLE>
F-29
<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
Prospectus Summary 1
Access Pharmaceuticals, Inc. 1
Risk Factors 2
Use of Proceeds 8
Price Range of Common Stock and Dividend
Policy 9
Capitalization 10
Management's Discussion and Analysis of
Financial Condition and Results of
Operations 11
Business 19
Management 30
Executive Compensation 32
Certain Relationships and Related
Transactions 34
Description of Capital Stock 35
Security Ownership of Certain
Beneficial Owners and Management 37
Selling Stockholders 38
Plan of Distribution 39
Legal Matters 40
Experts 40
Index to Financial Statements F-1
2,926,083 SHARES
LOGO
Access Pharmaceuticals, Inc.
COMMON STOCK
PROSPECTUS
___________, 2000
<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 our common stock offer hereby are as
follows:
SEC registration fee $3,042
Printing and engraving expenses 500
Legal fees and expenses 10,000
Accounting fees and expenses 5,000
Blue Sky fees and expenses (including legal fees) 1,000
Transfer agent and registrar fees and expenses 0
Miscellaneous 10,458
--------
Total $30,000
========
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
<PAGE>
DGCL or (iv) any transactions for which the director derived an improper
personal benefit. The By-Laws of the Registrant 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 Access.
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 December 22, 1999 the Company issued 3,181 shares of Common Stock
to creditors of Tacora Corporation due to milestones met by the Company in
connection with the Merger Agreement between the Company and Tacora
Corporation.
On July 20, 1999 and October 18, 1999, respectively, the Company sold to
21 individual accredited investors an aggregate of 1,551,000 shares of
Common Stock at $2.00 per share. The placement agent for such offering
received warrants to purchase 165,721 shares of Common Stock at $2.00 per
share in accordance with the offering terms and elected to receive 106,217
shares of Common Stock in lieu of certain sales commissions and expenses.
The Company raised an aggregate of $3,102,000 in gross proceeds. The
shares issued in the Private Placement have not been registered; however, a
registration statement for the resale of such shares is planned to be filed 30
days after the final closing of the Private Placement. The Company relied on
Section 4(2) and/or 3(b) of the Securities Act of 1933 and the provisions of
Regulation D as exemptions from the registration thereunder. 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.
Also on July 20, 1999 and simultaneously with the first closing of the private
placement, Access Holdings, Inc., a Delaware corporation and a wholly-
owned subsidiary of the Company (the "Merger Sub") merged with and into
Virologix Corporation, a Delaware corporation ("Virologix"), the separate
existence of the Merger Sub ceased, and Virologix became a wholly-owned
subsidiary of the Company and each outstanding share of Virologix' common
stock was converted into 0.231047 shares of the Company's common stock,
representing 999,963 shares of common stock of the Company. Certain of the
shareholders of Virologix signed a six month lockup agreement and others
signed a one year lockup. The shares issued in conjunction with the merger
have not been registered; however, a registration statement for the resale of
such shares is required to be effective on or before January 20, 2000. The
Company relied on Section 4(2) and/or 3(b) of the Securities Act of 1933 and
the provisions of Regulation D as exemptions from the registration
thereunder.
On April 27, 1999 the Company offered to Wolfe Axelrod Associates, in
connection with its consulting with the Company, warrants to purchase
100,000 shares of Common Stock at $2.93 per share. The warrants expire
April 27, 2004.
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 44,525
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
<PAGE>
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 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)
2.2 Agreement of Merger and Plan of Reorganization, dated May 23, 1997
among the Company, Access Holdings, Inc and Tacora Corporation
(Incorporated by reference to Exhibit 10.11 of the Company's Form 10-K for
the year ended December 31, 1997)
2.3 Agreement of Merger and Plan of Reorganization, dated as of February
23, 1999 among the Company, Access Holdings, Inc. and Virologix
Corporation (Incorporated by reference to Exhibit 2.2 of the Company's
Form 8-K filed on August 3, 1999)
3.0 Articles of incorporation and bylaws:
3.1 Certificate of Incorporation (Incorporated by Reference to Exhibit 3(a)
of the Company's Form 8-B dated July 12, 1989, Commission File Number
9-9134)
3.2 Certificate of Amendment of Certificate of Incorporation filed August
21, 1992
3.3 Certificate of Merger filed January 25, 1996. (Incorporated by
reference to Exhibit E of the Company's Registration Statement on Form S-4
dated December 21, 1995, Commission File No. 33-64031)
3.4 Certificate of Amendment of Certificate of Incorporation filed January
25, 1996. (Incorporated by reference to Exhibit E of the Company's
Registration Statement on Form S-4 dated December 21, 1995, Commission
File No. 33-64031)
3.5 Amended and Restated Bylaws (Incorporated by reference to Exhibit 3.1
of the Company's Form 10-Q for the quarter ended June 30, 1996)
<PAGE>
3.6 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)
3.7 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
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 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)
*10.3 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)
10.4 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).
10.5 Patent Purchase Agreement dated April 5, 1994 between David F.
Ranney and Access Pharmaceuticals, Inc. (Incorporated by reference to
Exhibit 10.16 of the Company's Form 10-K for the year ended December 31,
1995)
10.6 First Amendment to Patent Purchase Agreement dated January 23,
1996 between David F. Ranney and Access Pharmaceuticals, Inc.
(Incorporated by reference to Exhibit 10.17 of the Company's Form 10-K for
the year ended December 31, 1995)
10.7 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)
10.8 Platinate HPMA Copolymer Royalty Agreement between The School of
Pharmacy, University of London and the Company dated November 19, 1996
10.9 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)
10.10 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)
10.11 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)
10.12 Sales Agency Agreement. (Incorporated by reference to Exhibit 10.14
of the Company's Form 10Q for the quarter ended June 30, 1998)
10.13 Registration Rights Agreement. (Incorporated by reference to Exhibit
10.15 of the Company's Form 10Q for the quarter ended June 30, 1998)
*10.14 Employment Agreement of Mr. Kerry P. Gray (Incorporated by
reference to the Company's Registration Statement on Form SB-2 dated
January 11, 1999, Commission File No. 333-62463)
10.15 Letter Agreement between the Company and David F. Ranney
(Incorporated by reference to the Company's Registration Statement on Form
SB-2 dated January 11, 1999, Commission File No. 333-62463)
10.16 License Agreement between Block Drug Company and the Company
dated December 21, 1998 (Certain portions are subject to a grant of
confidential treatment) (Incorporated by reference to Exhibit 10.11 of the
Company's Form 10-K for the year ended December 31, 1998)
10.17 Sales Agency Agreement (Incorporated by reference to Exhibit 10.18
of the Company's Form 10Q for the quarter ended September 30, 1999)
<PAGE>
10.18 Registration Rights Agreement (Incorporated by reference to Exhibit
10.18 of the Company's Form 10Q for the quarter ended September 30,
1999)
21. Subsidiaries of the registrant
23(a) Consent of Bingham Dana LLP (included in Exhibit 5.1)
23(b) Consent of Grant Thornton LLP
23(c) Consent of KPMG LLP
23(d) Consent of Smith, Anglin & Co.
26 Power of Attorney (For more information, 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 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
<PAGE>
(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 in 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 Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Dallas, Texas, on this
24 the day of January, 2000.
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 24, 2000
/s/ Herbert H. McDade, Jr. Director January 24, 2000
- --------------------------
Herbert H. McDade, Jr.
/s/ J. Michael Flinn Director January 24, 2000
- --------------------------
J. Michael Flinn
/s/ Stephen B. Howell Director January 24, 2000
- --------------------------
Stephen B. Howell
/s/ Max Link Director January 24, 2000
- --------------------------
Max Link
/s/ Howard P. Milstein Director Janaury 24, 2000
- --------------------------
Howard P. Milstein
/s/ Richard Stone Director January 24, 2000
- --------------------------
Richard Stone
/s/ Preston Tsao Director January 24, 2000
- --------------------------
Preston Tsao
/s/ Stephen B. Thompson Chief Financial Janaury 24, 2000
- --------------------------
Stephen B. Thompson Officer, Treasurer
EXHIBIT 5.1
Bingham Dana LLP
150 Federal Street
Boston, MA 02110
Janaury 25, 2000
Access Pharmaceuticals, Inc.
2600 Stemmons Freeway, Suite 176
Dallas, Texas 75207
Re: Registration Statement on Form SB-2
Ladies and Genetlemen:
This opionion is furnished in connection with the registration, pursuant to a
Registration Statement on Form SB-2 under the Securities Act of 1933, as
amended (the "Act"), initially filed with the Securities and Exchange
Commission on January 25, 2000 (the "Registration Statement"), of up to
2,926083 shares (the "Shares") of common stock, par value $0.01 per share
(the "Common Stock"), of Access Pharmaceuticals, Inc., a Delaware
corporation ( the "Company"), to be sold by certain selling stockholders of
the Company.
We have acted as counsel to the Company in connection with the foregoing
registration of the Shares. We have examined and relied upon originals or
copies of such records, instruments, agreements or other documents of the
Company, and certificates of officers of the Company as to certain factual
matters and have made such investigation of law and have discussed with
officers and representatives of the COmpany such questions of fact, as we
have deemed necessary or advisable for purposes of this opinion. In our
examinations, we have assumed the genuineness of all signatures, the
conformity to the originals of all documents reviewed by us as copies, the
authenticity and completeness of all original documents reviewed by us in
original or copy form and the legal competance of each individual executing
any document.
We have further assumed that the registration requirements of the Act and all
applicable requirements of state laws regulating the sale of securities will
have been duly satisfied.
Thsi opinion is limited solely to the Delaware general Corporation Law, as
applioed by courts located in Delaware, the applicable provisions of the
Delaware Consitution and the reported judicial decisions interpreting those
laws.
Based upon and subject to the foregoing, we are of the opinion that the
Shares are legally issued, fully paid and non-assessable.
We herby consent to the filing of this opinion as an exhibit to the Registration
Statement and to the reference to this firm under the heading "Legal Matters"
in the Registration Statement.
Very trylu yours,
/s/ Bingham Dana LLP
- -----------------------
BINGHAM DANA LLP
EXHIBIT 23(b)
Independent Auditors' Consent
The Board of Directors of
ACCESS Pharmaceuticals, Inc.
We consent to the use of our report on the 1998 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 February 12, 1999, contains an explanatory paragraph that
states that the Company has suffered recurring losses from operations and has
incurred negative cash flows from operations since inception and these
matters 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/ GRANT THORNTON LLP
- ------------------------
GRANT THORNTON LLP
Dallas, Texas
January 24, 2000
EXHIBIT 23(c)
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 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
January 24, 2000
EXHIBIT 23(d)
Consent of Independent Auditors
The Board of Directors
ACCESS Pharmaceuticals, Inc.
We consent to the use of our report on the 1994 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.
/s/ Smith Anglin & Co.
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Smith Anglin & Co.
Dallas, Texas
January 24, 2000
