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| ILE > SEC Filings for ILE > Form 10-Q on 15-May-2009 | All Recent SEC Filings |
15-May-2009
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 and our BLA filing will result in approval of our product candidate;
• adverse results from, or changes in, any pending or threatened legal proceedings;
• our ability to maintain NYSE Amex 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; 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, 2008, 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.
Overview
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 and has recently completed Phase III
clinical studies, and the related Biologics License Application ("BLA") has been
filed with the Food and Drug Administration ("FDA"). During 2009 we completed
one of two Phase II/III studies for the treatment of acne scars. During 2008 we
completed our open-label Phase II study related to full face rejuvenation.
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 and Bankruptcy
At March 31, 2009, we had cash and cash equivalents of $0.8 million and negative
working capital of $(90.0) million. On April 30, 2009, we raised $0.4 million of
net cash proceeds through the issuance of eight secured promissory notes (see
Subsequent Events discussion below). We believe that our existing capital
resources are adequate to sustain our operation through approximately May 2009,
under our current, reduced operating plan.
As previously disclosed, we are currently seeking commitments for
debtor-in-possession financing in connection with the possible filing of a
voluntary petition for reorganization relief under Chapter 11 of Title 11 of the
United States Code ("Bankruptcy Code"). If we are successful in obtaining
commitments for such financing in sufficient amounts, it is likely that we will
file such a petition. We currently have no legal commitments for such financing,
and there is no assurance that such financing will be available to us on
satisfactory terms, if at all. If we are unable to secure commitments for
sufficient debtor-in-possession financing prior to the end of May 2009, which is
the date on which we expect to exhaust our existing capital resources, it is
likely we will cease operations and we may file a petition for protection from
creditors under Chapter 7 of the Bankruptcy Code.
As of March 31, 2009, we had $89.7 million of subordinated, convertible debt
which could be called due by the debt holders as early as November 2009, or
earlier upon certain events of default. Further, approximately $1.5 million of
interest related to this debt was due on May 1, 2009. We did not pay the
interest of $1.5 million which was on due May 1, 2009, and we do not currently
have the cash or available funding to do so (see Subsequent Events discussion
below with respect to this unpaid interest).
Currently the credit and equity markets both in the United States and
internationally are severely contracted, which has made our task of raising
additional debt or equity capital extremely difficult. In addition, the
existence of the $89.7 million of subordinated, convertible debt, which could be
called due as early as November 2009 by the bond holders, has made our task of
raising additional debt or equity capital extremely difficult. Our ability to
complete a transaction may be dependent on the status of our FDA regulatory
milestones and our clinical trials, and in particular, the status of our
indication for the treatment of nasolabial folds, the status of the related
Biologics License Application, and the status of our Phase II/III acne scar
trial, which cannot be predicted. There is no assurance that funding in any form
would be available to us, and if available, on terms and conditions that are
acceptable.
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 prior to approximately the end of
May 2009. If we do not obtain additional funding, or do not anticipate
additional funding, prior approximately the end of May 2009, we will likely
cease operations. Further, if we do raise additional cash resources prior to the
end of approximately May 2009, it will most likely be raised as
debtor-in-possession financing in connection with a Chapter 11 bankruptcy. If we
enter into bankruptcy, it is likely that our common stock and common stock
equivalents would become severely diluted or worthless, and that our creditors
will receive significantly less than what is owed to them.
Subsequent Events
The following events occurred subsequent to March 31, 2009:
Secured Promissory Notes
On April 30, 2009, we entered into secured promissory notes and security
agreements (the "Notes") with eight lenders pursuant to which we borrowed an
aggregate of $0.5 in principal amount. The net proceeds were $0.4 million, net
of fees and commissions. The Notes bear interest at a rate of 20% per annum with
principal and interest on the Notes due on the earlier of June 20, 2009 or the
date that we file for voluntary or involuntary bankruptcy.
If an event of default under the Notes occurs, the holders of the Notes may
declare the Notes to be due and payable. An event of default will occur: (a) if
we default in the payment of the Notes or any other amounts payable to the
holders of the Notes; (b) if we default in the performance of or compliance with
any material term contained in the agreements pursuant to which the Notes were
issued and such default shall not have been remedied within five business days
after written notice to us; or (c) if we default (as principal or guarantor or
other surety) in the payment of any principal of or premium or interest on any
indebtedness for borrowed money, excluding the interest due May 1, 2009 on our
pre-existing subordinated notes. The default rate of interest shall be 25% per
annum from the date of any event of default under the Notes.
If we receive debtor-in-possession financing in any bankruptcy proceeding, the
holders of the Notes shall have the right to exchange the face amount of the
Notes, plus any accrued but unpaid interest, into such debtor-in-possession
financing on the same terms and conditions as the debtor-in-possession financing
on a pari passu basis and on a dollar-for-dollar basis. We are required to
redeem the Notes with a 25% premium on the then outstanding principal plus
accrued but unpaid interest, upon the (i) receipt of proceeds from the sale of
any of our assets or the assets of any of our subsidiaries, excluding sales in
the ordinary course of business by Agera Laboratories, Inc. ("Agera");
(b) receipt of the proceeds from any insurance policy held by us or any of our
subsidiaries or pursuant to which we or any of our subsidiaries are
beneficiaries; and (c) receipt of proceeds from the sale of any equity of us or
our subsidiaries or issuance of any indebtedness of by us or any of our
subsidiaries. To secure the repayment of the Notes, we granted the holders of
the Notes a security interest in and a lien on our 57% equity interest in Agera.
We are seeking commitments for debtor-in-possession financing in connection with
the possible filing of a voluntary petition for reorganization relief under
Chapter 11 of the Bankruptcy Code. If we are successful in obtaining commitments
for such financing in sufficient amounts, it is likely that we will file such a
petition. We currently have no legal commitments for such financing, and there
is no assurance that such financing will be available to us on satisfactory
terms, if at all. If we are unable to secure sufficient debtor-in-possession
financing, we will likely cease operations and we may file a petition for
protection from creditors under Chapter 7 of the Bankruptcy Code.
NYSE Amex Delisting Procedures
On May 6, 2009, we were advised that due to the foregoing, the NYSE Amex LLC,
formerly known as the American Stock Exchange ("NYSE Amex"), would be
immediately halting trading in our common stock. We were further advised that we
will receive a notice from the NYSE Amex that the exchange intends to delist our
common stock from listing on the NYSE Amex, which delisting will occur
approximately seven days from the receipt of such notification if we determine
not to appeal such decision. If our common stock is delisted from the NYSE Amex,
we intend to apply to have our common stock quoted on the OTC Bulletin Board as
soon as practicable after the delisting. If the our common stock is delisted
from the NYSE Amex, we do not anticipate that the trading of our common stock
will recommence prior to the exchange's delisting of the common stock and our
quotation on the OTC Bulletin Board.
Subordinated, Convertible Notes and Related Interest Payment
We did not make an interest payment of approximately $1.5 million that was due
on May 1, 2009 to the holders of $89.7 million (as of March 31, 2009) in
principal amount of subordinated notes issued by us. No event of default has
occurred with respect to the unpaid interest because the indenture agreement
governing the subordinated notes 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 May 1, 2009, or by approximately May 30, 2009,
then our subordinated, convertible notes will become due upon demand.
In April 2009, certain note holders converted an additional $2.2 million of the
subordinated, convertible notes into our common shares at a conversion rate of
approximately $9.16 per common share (or approximately 246,600 of additional
common shares issued in total), pursuant to the original terms of the
subordinated, convertible notes. In May 2009, a note holder converted an
additional $8.1 million of the subordinated, convertible notes into the
Company's common shares at a conversion rate of approximately $9.16 per common
share (or approximately 881,250 of additional common shares issued in total),
pursuant to the original terms of the subordinated, convertible notes. As of
May 13, 2009, there is approximately $79.3 million of remaining principal amount
of subordinated, convertible notes, which are due to be repaid as early as
November 1, 2009, or earlier upon certain events of default, by the Company.
We do not have the cash or available resources to pay the $1.5 million of
interest which was due on May 1, 2009, nor do we have the cash or available
resources to pay the remaining $79.3 million of subordinated, convertible notes.
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. Currently, under our reduced operating plan, we
have suspended activity on all of our trials.
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 may 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. Also, please refer to Part I, Item 1A of our Form 10-K for the
year ending December 31, 2008 for a discussion of certain of our risk factors
related to our clinical development programs, as well as other risk factors
related to our business.
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
evaluated the efficacy and safety of Isolagen Therapy against placebo in
approximately 400 subjects total with approximately 200 subjects enrolled in
each trial. The injections were completed in January 2008 and the trial data
results were disclosed in October 2008. The Phase III 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 submitted the related Biologics License
Application (BLA) to the FDA in March 2009. In May 2009, the FDA accepted our
BLA submission for filing. The acknowledgment of the filing from the FDA does
not mean that the FDA has issued a license nor does it represent any evaluation
of the adequacy of the data submitted. The filing review by the FDA is only a
preliminary review, and deficiencies may be indentified during the FDA's
complete review of the application.
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 were followed for twelve months following
each subject's last injection. 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 included approximately 95 subjects. This placebo
controlled trial was designed to evaluate the use of our Isolagen Therapy to
correct or improve the appearance of acne scars. Each subject served as their
own control, receiving Isolagen Therapy on one side of their face and placebo on
the other. The subjects received three treatments two weeks apart. The follow-up
and evaluation period was completed four months after each subject's last
injection. In March 2009, we disclosed certain trial data results, which
included statistically significant efficacy results for the treatment of
moderate to severe acne scars. Compilation of safety data and data related to
the validation of the study photo guide assessment scale discussed below is
ongoing and is also subject to additional financing.
In connection with this acne scar program, we developed a 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, was powered to demonstrate
efficacy, and has allowed for a closer assessment of the evaluator assessment
scale and photo guide that is ongoing. We expect to initiate a subsequent,
additional Phase III trial, subject to sufficient financial resources. 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 would 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.
However, we have delayed 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. The study was previously placed on internal hold due to our financial
resource constraints. We currently do not expect to fund additional trial
efforts 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 primarily 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 Unaudited 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 critical accounting policies and estimates.
Going Concern: As disclosed in Note 2 to the Consolidated Financial Statements,
management has concluded that substantial doubt exists about the Company's
ability to continue as a going concern. This conclusion is based on estimates of
our future spending and future funding required during 2009. We will be required
to obtain additional capital in May 2009 to continue and expand our operations.
There is no assurance that we will be able to obtain any such additional funding
as we need to finance these efforts, through asset sales, equity or debt
financing, or any combination thereof, or on satisfactory terms or at all (refer
to Going Concern and Bankruptcy discussion above). Further, if we do raise
additional cash resources prior to the end of approximately May 2009, it will
most likely be raised as debtor-in-possession financing in connection with a
Chapter 11 bankruptcy.
At March 31, 2009, our cash and cash equivalents was $0.8 million. For the
quarter ended March 31, 2009, our cash used for operations was $(2.0) million.
Further, we have interest and debt due during 2009 for which we do not have the
available funding to pay when due. These factors, as well as our future spending
estimates, are important factors in concluding that substantial doubt exists
about our ability to continue as a going concern. We believe these estimates are
particularly important to the understanding of our financial position.
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