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| ILE > SEC Filings for ILE > Form 10-Q on 6-Nov-2008 | All Recent SEC Filings |
6-Nov-2008
Quarterly Report
• our ability to develop autologous cellular therapies that have specific applications in cosmetic dermatology, and our ability to explore (and possibly develop) applications for periodontal disease, reconstructive dentistry, treatment of restrictive scars and burns and other health-related markets;
• whether our clinical human trials relating to autologous cellular therapy applications for the treatment of dermal defects, gingival recession, and such other indications as we may identify and pursue can be conducted within the timeframe that we expect, whether such trials will yield positive results, or whether additional applications for the commercialization of autologous cellular therapy can be identified by us and advanced into human clinical trials;
• whether the results of our full Phase III pivotal study will support a successful BLA filing;
• adverse results from, or changes in, any pending or threatened legal proceedings;
• our ability to maintain AMEX continued listing of our common stock;
• our ability to provide and deliver any autologous cellular therapies that we may develop on a basis that is competitive with other therapies, drugs and treatments that may be provided by our competitors;
• our ability to decrease our manufacturing costs for our Isolagen Therapy product candidates through the improvement of our manufacturing process, and our ability to validate any such improvements with the relevant regulatory agencies;
• our ability to reduce our need for fetal bovine calf serum by improved use of less expensive media combinations and different media alternatives;
• our ability to improve our historical pricing model;
• our ability to meet requisite regulations or receive regulatory approvals in the United States, Europe, Asia and the Americas, and our ability to retain any regulatory approvals that we may obtain; and the absence of adverse regulatory developments in the United States, Europe, Asia and the Americas or any other country where we plan to conduct commercial operations;
• a stable currency rate environment in the world, and specifically the countries we are doing business in or plan to do business in;
• continued availability of supplies at satisfactory prices;
• new entrance of competitive products or further penetration of existing products in our markets;
• the effect on us from adverse publicity related to our products or the company itself;
• any adverse claims relating to our intellectual property;
• the adoption of new, or changes in, accounting principles;
• our ability to efficiently integrate our past acquisition and future acquisitions, if any, or any other new lines of business that we may enter in the future;
• our issuance of certain rights to our shareholders that may have anti-takeover effects;
• our dependence on physicians to correctly follow our established protocols for the safe administration of our Isolagen Therapy;
• our ability to effectively and efficiently manage the closure of our UK operation;
• whether past or future amendments to our Informed Consent Forms, based on new knowledge obtained during the execution of our clinical trials or based on changes to the basic design or administration of our clinical trials, give rise to delays in our clinical study timelines; and
• other risks referenced from time to time elsewhere in this report and in our filings with the SEC, including, without limitation, the risks and uncertainties described in Item 1A of our Form 10-K for the year ended December 31, 2007, as well as Part II, Item 1A of this Form 10-Q.
These factors are not necessarily all of the important factors that could cause
actual results of operations to differ materially from those expressed in these
forward-looking statements. Other unknown or unpredictable factors also could
have material adverse effects on our future results. We undertake no obligation
and do not intend to update, revise or otherwise publicly release any revisions
to these forward-looking statements to reflect events or circumstances after the
date hereof or to reflect the occurrence of any unanticipated events. We cannot
assure you that projected results will be achieved.
General
We are an aesthetic and therapeutic development stage company focused on
developing novel skin and tissue rejuvenation products. Our clinical development
product candidates are designed to improve the appearance of skin injured by the
effects of aging, sun exposure, acne and burn scars with a patient's own, or
autologous, fibroblast cells produced by our proprietary Isolagen Process. Our
clinical development programs encompass both aesthetic and therapeutic
indications. Our most advanced indication utilizing the Isolagen Therapy is for
the treatment of nasolabial folds/wrinkles. We also have ongoing studies for the
treatment of acne scars and restrictive burns scars and have recently completed
an open label study related to full face rejuvenation. Refer to Clinical
Development Programs below for further discussion of these clinical programs.
We also develop and market an advanced skin care product line through our Agera
Laboratories, Inc. subsidiary, in which we acquired a 57% interest in
August 2006.
Going Concern
At September 30, 2008, we had cash and cash equivalents of $7.0 million and
working capital of $4.5 million (including cash and cash equivalents). We
believe that our existing capital resources are adequate to finance our
operations through approximately January 15, 2009, under our normal operating
conditions. As such, we estimate that we will require additional cash resources
prior to January 15, 2009 based upon our current operating plan and condition.
Through September 30, 2008, we have been primarily engaged in developing our
initial product technology. In the course of our development activities, we have
sustained losses and expect such losses to continue through at least 2009. We
expect to finance our operations primarily through our existing cash and any
future financing, including the sale of assets. However, there exists
substantial doubt about our ability to continue as a going concern.
We will require additional capital to continue our operations past approximately
January 15, 2009. There is no assurance that we will be able to obtain any
additional capital to finance our efforts, through asset sales, equity or debt
financing, or any combination thereof, on satisfactory terms or at all.
Additionally, no assurance can be given that any such financing, if obtained,
will be adequate to meet our ultimate capital needs and to support our growth.
If adequate capital cannot be obtained on a timely basis and on satisfactory
terms, our operations would be materially negatively impacted. Further, if we do
not obtain additional funding, or anticipate additional funding, prior to
January 15, 2009, we may enter into bankruptcy, and possibly cease operations.
We filed a shelf registration statement on Form S-3 during June 2007, which was
subsequently declared effective by the SEC. The shelf registration allowed us
the flexibility to offer and sell, from time to time, up to an original amount
of $50 million of common stock, preferred stock, debt securities, warrants or
any combination of the foregoing in one or more future public offerings. In
August 2007, we sold under this shelf registration statement 6,746,647 shares of
common stock to institutional investors, raising proceeds of $13.8 million, net
of offering costs. We may offer and sell up to an additional $36.2 million of
securities pursuant to this shelf registration.
Our ability to complete additional offerings, including any additional offerings
under our shelf registration statement, is dependent on the state of the debt
and/or equity markets at the time of any proposed offering, and such market's
reception of our company and the offering terms. In addition, our ability to
complete an offering may be dependent on the status of our clinical trials,
which cannot be predicted. There is no assurance that capital in any form would
be available to us, and if available, on terms and conditions that are
acceptable.
In addition, since the middle of 2008 the prices for corporate equity and debt
securities have declined, and that decline in prices accelerated in September
and October 2008. We believe these price declines are the result of the credit
crisis and other indications of economic contraction, which have caused
investors to shift funds from corporate equity and debt securities to securities
which are perceived to possess a lower degree of risk. An investment in our
equity or debt securities would most likely be considered to involve a high
degree of risk. As a result, the market conditions described above may increase
the difficulty we will have in completing any equity or debt financing.
As a result of the conditions discussed above, and in accordance with generally
accepted accounting principles in the United States, there exists substantial
doubt about our ability to continue as a going concern, and our ability to
continue as a going concern is contingent, among other things, upon our ability
to secure additional adequate financing or capital prior to January 15, 2009. If
we are unable to obtain additional sufficient funds during this time, we will be
required to terminate or delay our efforts to obtain regulatory approval of one,
more than one, or all of our product candidates, curtail or delay the
implementation of manufacturing process improvements and/or delay the expansion
of our sales and marketing capabilities. Any of these actions would have an
adverse effect on our operations, the realization of our assets and the timely
satisfaction of our liabilities. Further, if we do not obtain additional
funding, or anticipate additional funding, prior to January 15, 2009, we may
enter into bankruptcy, and possibly cease operations. Our financial statements
are presented on a going concern basis, which contemplates the realization of
assets and satisfaction of liabilities in the normal course of business. The
financial statements do not include any adjustments relating to the
recoverability of the recorded assets or the classification of liabilities that
may be necessary should it be determined that we are unable to continue as a
going concern.
Subsequent Event
An interest payment of $1.6 million was due by the Company on November 3, 2008,
which has not been paid as of November 6, 2008. No event of default has occurred
with respect to the unpaid interest which was due on November 3, 2008, as our
related indenture agreement defines an interest payment default as a failure in
the payment of any interest when it becomes due and payable, and continuance of
such default for a period of 30 days. If the interest payment is not paid within
the 30 days from November 3, 2008, or by approximately December 3, 2008, then
our $90 million of subordinated notes will become due upon demand. We are
currently pursuing dual paths, including pursuing potential financing
alternatives as well as continuing potential strategic partnership discussions.
However, there can be no assurance that any such potential financing alternative
will be successfully completed on terms acceptable to us, or completed at all.
Further, there can be no assurance that our current potential strategic
partnership discussions will be completed on terms acceptable to us, or
completed at all.
Recent Management Changes
In January 2008, Mr. Declan Daly assumed the role of our Chief Executive
Officer. Our former Chief Executive Officer, Mr. Nicholas L. Teti, Jr.,
continues to serve as Chairman of the Board of Directors and as a consultant to
the company. In March 2008, Mr. Todd J. Greenspan assumed the role of Chief
Financial Officer.
Clinical Development Programs
Our product development programs are focused on the aesthetic and therapeutic
markets. These programs are supported by a number of clinical trial programs at
various stages of development.
Our aesthetics development programs include product candidates to treat targeted
areas or wrinkles and to provide full-face rejuvenation that includes the
improvement of fine lines, wrinkles, skin texture and appearance. Our
therapeutic development programs are designed to treat acne scars, restrictive
burn scars and dental papillary recession. All of our product candidates are
non-surgical and minimally invasive. Although the discussions below include
estimates of when we expect trials to be completed, the prediction of when a
clinical trial will be completed is subject to a number of factors and
uncertainties.
Aesthetic Development Programs
Wrinkles/Nasolabial Folds - Phase III Trials: In October 2006, we reached an
agreement with the U.S. Food and Drug Administration, or FDA, on the design of a
Phase III pivotal study protocol for the treatment of nasolabial folds (lines
which run from the sides of the nose to the corners of the mouth). The
randomized, double-blind protocol was submitted to the FDA under the agency's
Special Protocol Assessment, or SPA. Pursuant to this assessment process, the
FDA has agreed that our study design for two identical trials, including subject
numbers, clinical endpoints, and statistical analyses, is adequate to provide
the necessary data that, depending on the outcome, could form the basis of an
efficacy claim for a marketing application. The pivotal Phase III trials are
evaluating the efficacy and safety of Isolagen Therapy against placebo in
approximately 400 subjects total with approximately 200 subjects enrolled in
each trial. We completed enrollment of the study and commenced injection of
subjects in early 2007. These injections were completed in January 2008 and the
preliminary trial data results were disclosed in August 2008. The Phase III
preliminary trial data results indicated statistically significant efficacy
results for the treatment of nasolabial folds. The Phase III data analysis,
including safety results, was disclosed in October 2008. We are preparing the
associated Clinical Study Reports and Biologics License Application (BLA) for
submission to the FDA. We currently expect to submit the BLA during the first
half of 2009.
Refer to Part II, Item 1A of this Form 10-Q for a discussion of certain of our
risk factors.
Full Face Rejuvenation - Phase II Trial: In March 2007 we commenced an open
label (unblinded) trial of approximately 50 subjects. Injections of Isolagen
Therapy began to be administered in July 2007. This trial was designed to
further evaluate the safety and use of Isolagen Therapy to treat fine lines and
wrinkles for the full face. Five investigators across the United States
participated in this trial. The subjects received two series of injections
approximately one month apart. In late December 2007, all 45 remaining subjects
completed injections. The subjects are being followed for twelve months
following each subject's last injection. Preliminary data results related to
this trial were disclosed in August 2008, which included top line positive
efficacy results related to this open label Phase II trial.
Therapeutic Development Programs
Acne Scars - Phase II/III Trial: In November 2007, we commenced an acne scar
Phase II/III study. This study currently includes approximately 95 subjects.
This placebo controlled trial is designed to evaluate the use of our Isolagen
Therapy to correct or improve the appearance of acne scars. Each subject will
serve as their own control, receiving Isolagen Therapy on one side of their face
and placebo on the other. The subjects will receive three treatments two weeks
apart. The follow-up and evaluation period will be complete four months after
each subject's last injection.
We filed a pre-Investigational New Drug application, or pre-IND, for a Phase III
clinical trial program in July 2007 together with our protocol. In
September 2007, the IND was accepted by the FDA. We held an investigator meeting
in early November 2007 and commenced biopsies shortly thereafter. Injections of
subjects began in February 2008 and were completed in October 2008. Subject
observations are currently ongoing.
In connection with this acne scar program, we have developed a validated photo
guide for use in the evaluators' assessment of acne study subjects. We had
originally designed the acne scar clinical program as two randomized,
double-blind, Phase III, placebo-controlled trials. However, our evaluator
assessment scale and photo guide have not previously been utilized in a clinical
trial. In November 2007, the FDA recommended that we consider conducting a Phase
II study in order to address certain study issues, including additional
validation related to our evaluator assessment scale. As such, we modified our
clinical plans to initiate a single Phase II/III trial. This Phase II/III study,
which is powered to demonstrate efficacy, will allow for a closer assessment of
the evaluator assessment scale and photo guide. Upon successful completion of
the Phase II/III study, we expect to initiate a subsequent, additional Phase III
trial. We believe that the two trials may have the potential to form the basis
of a licensure submission to the FDA.
Restrictive Burn Scars - Phase II Trial: In January 2007, we met with the FDA to
discuss our clinical program for the use of Isolagen Therapy for restrictive
burn scar patients. This Phase II trial will evaluate the use of Isolagen
Therapy to improve range of motion, function and flexibility, among other
parameters, in existing restrictive burn scars in approximately 20 patients. We
are currently in the process of screening and enrolling subjects at three
academic burn centers across the United States. However, it is likely that we
will delay the screening and enrollment in this trial until such time as we
raise sufficient additional financing.
Dental Study - Phase II Trial: In late 2003, we completed a Phase I clinical
trial for the treatment of condition relating to periodontal disease,
specifically to treat Interdental Papillary Insufficiency. In the second quarter
of 2005, we concluded the Phase II dental clinical trial with the use of
Isolagen Therapy and subsequently announced that investigator and subject visual
analog scale assessments demonstrated that the Isolagen Therapy was
statistically superior to placebo at four months after treatment. Although
results of the investigator and subject assessment demonstrated that the
Isolagen Therapy was statistically superior to placebo, an analysis of objective
linear measurements did not yield statistically significant results.
In 2006, we commenced a Phase II open-label dental trial for the treatment of
Interdental Papillary Insufficiency. This single site study included 11
subjects. We are identifying a development strategy for this indication as we do
not expect to fund an additional trial related to this application.
Agera Skincare Systems
We market and sell a skin care product line through our majority-owned
subsidiary, Agera Laboratories, Inc., which we acquired in August 2006. Agera
offers a complete line of skincare systems based on a wide array of proprietary
formulations, trademarks and nano-peptide technology. These skincare products
can be packaged to offer anti-aging, anti-pigmentary and acne treatment systems.
Agera markets its products in both the United States and Europe (primarily the
United Kingdom).
Closure of the United Kingdom Operation
In the fourth quarter of 2006, our Board of Directors approved the closing of
the United Kingdom operation. On March 31, 2007, we completed the closure of the
United Kingdom manufacturing facility. With the closure of the United Kingdom
operation on March 31, 2007, our European operations (both the United Kingdom
and Switzerland) and Australian operations have been presented in the financial
statements as discontinued operations for all periods presented. See Note 5 of
Notes to Consolidated Financial Statements.
Critical Accounting Policies
The following discussion and analysis of financial condition and results of
operations are based upon our consolidated financial statements, which have been
prepared in conformity with accounting principles generally accepted in the
United States of America. Our significant accounting policies are more fully
described in Note 3 of the Notes to the Consolidated Financial Statements.
However, certain accounting policies and estimates are particularly important to
the understanding of our financial position and results of operations and
require the application of significant judgment by our management or can be
materially affected by changes from period to period in economic factors or
conditions that are outside of the control of management. As a result they are
subject to an inherent degree of uncertainty. In applying these policies, our
management uses their judgment to determine the appropriate assumptions to be
used in the determination of certain estimates. Those estimates are based on our
historical operations, our future business plans and projected financial
results, the terms of existing contracts, our observance of trends in the
industry, information provided by our customers and information available from
other outside sources, as appropriate. The following discusses our significant
accounting policies and estimates.
Stock-Based Compensation: In December 2004, the Financial Accounting Standards
Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS")
No. 123 (revised 2004), "Share-Based Payment" ("SFAS No. 123 (R)"). SFAS No. 123
(R) replaces SFAS No. 123, "Accounting for Stock-Based Compensation," supersedes
APB Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB No. 25"),
and amends SFAS No. 95, "Statement of Cash Flows." SFAS No. 123 (R) requires
entities to recognize compensation expense for all share-based payments to
employees and directors, including grants of employee stock options, based on
the grant-date fair value of those share-based payments, adjusted for expected
forfeitures.
We adopted SFAS No. 123(R) as of January 1, 2006 using the modified prospective
application method. Under the modified prospective application method, the fair
value measurement requirements of SFAS No. 123(R) is applied to new awards and
to awards modified, repurchased, or cancelled after January 1, 2006.
Additionally, compensation cost for the portion of awards for which the
requisite service has not been rendered that were outstanding as of January 1,
2006 is recognized as the requisite service is rendered on or after January 1,
2006. The compensation cost for that portion of awards is based on the
grant-date fair value of those awards as calculated for pro forma disclosures
under SFAS No. 123. Changes to the grant-date fair value of equity awards
granted before January 1, 2006 are precluded.
The fair value of stock options is determined using the Black-Scholes valuation
model, which is consistent with our valuation techniques previously utilized for
awards in footnote disclosures required under SFAS No. 123. Prior to the
adoption of SFAS No. 123(R), we followed the intrinsic value method in
accordance with APB No. 25 to account for our employee and director stock
options. Historically, substantially all stock options have been granted with an
exercise price equal to the fair market value of the common stock on the date of
grant. Accordingly, no compensation expense was recognized from substantially
all option grants to employees and directors prior to the adoption of SFAS
No. 123(R). However, compensation expense was recognized in connection with the
issuance of stock options to non-employee consultants in accordance with EITF
96-18, "Accounting for Equity Instruments That are Issued to Other than
Employees for Acquiring, or in Conjunction with Selling Goods and Services."
SFAS No. 123(R) did not change the accounting for stock-based compensation
related to non-employees in connection with equity based incentive arrangements.
The adoption of SFAS No. 123(R) requires additional accounting related to the
income tax effects and additional disclosure regarding the cash flow effects
resulting from share-based payment arrangement. SFAS No. 123(R) resulted in the
recognition of compensation expense of $0.2 million and $0.5 million for three
months ended September 30, 2008 and 2007, respectively, and $0.5 million and
$1.4 million for the nine months ended September 30, 2008 and 2007,
respectively, related to our employee and director stock options. No stock
options were issued during the three months ended September 30, 2008. During the
three months ended September 30, 2007, we granted stock options to purchase
0.2 million shares of our common stock. As of September 30, 2008, there was
$0.9 million of total unrecognized compensation cost related to non-vested
director and employee stock options which vest over time. That cost is expected
to be recognized over a weighted-average period of 2.1 years. As of
September 30, 2008, there was $0.3 million of total unrecognized compensation
cost related to performance-based, non-vested employee stock options. That cost
will begin to be recognized when the performance criteria within the respective
performance-base option grants become probable of achievement.
During December 2005, the board of directors approved the full vesting of all
unvested, outstanding stock options issued to current employees and directors.
The board decided to take this action (the "acceleration event") in anticipation
of the adoption of SFAS No. 123 (R). As a result of this acceleration event,
stock options to purchase approximately 1.4 million shares of our common stock
were vested that would have otherwise vested during 2006 and later periods. At
the time of the acceleration event, the unamortized grant date fair value of the
affected options was approximately $3.6 million (for SFAS No. 123 and SFAS
No. 148 pro forma disclosure purposes), which was charged to pro forma expense
in the fourth quarter of 2005. Substantially all of the unvested employee stock
. . .
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