Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
MEIP > SEC Filings for MEIP > Form 10-Q on 13-Nov-2012All Recent SEC Filings

Show all filings for MEI PHARMA, INC. | Request a Trial to NEW EDGAR Online Pro

Form 10-Q for MEI PHARMA, INC.


13-Nov-2012

Quarterly Report


Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations

Special Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act") and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). All statements other than statements of historical facts contained in this Quarterly Report, including statements regarding the future financial position, business strategy and plans and objectives of management for future operations, are forward-looking statements. The words "believe," "may," "will," "estimate," "continue," "anticipate," "intend," "should," "plan," "expect," and similar expressions, as they relate to us, are intended to identify forward-looking statements. We have based these forward-looking statements largely on current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including, among other things:

• our inability to obtain required additional financing or financing available to us on acceptable terms, or at all, which may cause us to delay, scale-back or eliminate plans related to development of our drug candidates;

• we are in an early stage of clinical studies for our product candidates on which our development plans are based; clinical studies by their nature typically have a high level of risk of failure, and may not produce successful results;

• our inability to maintain or enter into, and the risks resulting from our dependence upon, contractual arrangements necessary for the clinical development, manufacture, commercialization, marketing, sales and distribution of our product candidates;

• costs and delays in the clinical development programs and/or receipt of U.S. Food and Drug Administration (the "FDA") or other required governmental approvals, or the failure to obtain such approvals, for our product candidates;

• our failure to successfully commercialize our product candidates;

• the failure of any products to gain market acceptance;

• our inability to control the costs of manufacturing our products;

• competition and competitive factors;

• our inability to protect our patents or proprietary rights and obtain necessary rights to third party patents and intellectual property to operate our business;

• our inability to operate our business without infringing the patents and proprietary rights of others;

• costs stemming from our defense against third party intellectual property infringement claims;

• general economic conditions;

• technological changes;

• government regulation generally and the receipt of regulatory approvals;

• changes in industry practice; and

• one-time events.

These risks are not exhaustive. Our business and financial performance could also be adversely affected by the factors that are discussed under "Risk Factors" in the Annual Report on Form 10-K for the year ended June 30, 2012, filed on September 18, 2012, as well as factors discussed elsewhere in this report and in our other filings with the Securities and Exchange Commission. Moreover, we operate in a very competitive and rapidly changing environment. New risk factors emerge from time to time and it is not possible for us to predict all risk factors, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.

You should not rely upon forward looking statements as predictions of future events. We cannot assure you that the events and circumstances reflected in the forward looking statements will be achieved or occur. 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.

The following discussion is qualified in its entirety by, and should be read in conjunction with, the more detailed information set forth in the financial statements and the notes thereto appearing elsewhere in this Quarterly Report on Form 10-Q.

Overview

MEI Pharma, Inc. (formerly Marshall Edwards Inc.) is a development-stage oncology company focused on the clinical development of novel small molecules for the treatment of cancer. We were incorporated in Delaware in 2000 as a wholly owned subsidiary of Novogen Limited ("Novogen"). Our common stock is listed on the Nasdaq Capital Market and was previously listed under the symbol "MSHL" through June 30, 2012. On July 2, 2012, in conjunction with the change of our corporate name to MEI Pharma, Inc., our common stock began trading under the symbol "MEIP". As of September 30, 2012, Novogen owned approximately


Table of Contents

60% of the outstanding shares of our common stock, as well as all of the outstanding shares of our Series A Convertible Preferred Stock. Novogen has indicated its intent, subject to shareholder approval, to undertake a capital reduction by making a distribution to the Novogen shareholders of all of its shares of common stock of the Company, including 4,827,000 shares of common stock issuable upon conversion of the Company's Series A Convertible Preferred Stock, but excluding 2,247,168 shares of common stock issuable upon exercise of warrants. This distribution will allow Novogen shareholders to own their proportionate share of the Company's common stock now held by Novogen.

Our business purpose is the development of novel therapies for cancer. We are currently focused on the clinical development of our three lead drug candidates, Pracinostat, ME-143 and ME-344 and Pracinostat has been tested in more than 150 patients in multiple Phase I and exploratory Phase II clinical trials, including advanced hematologic malignancies such as myelodysplastic syndrome (MDS), acute myeloid leukemia and myelofibrosis. We expect to initiate a randomized Phase II clinical trial of Pracinostat in combination with azacitidine in patients with MDS by the second quarter of calendar year 2013. Results from a Phase I clinical trial of intravenous ME-143 in heavily treated patients with solid refractory tumors were presented at the American Society of Clinical Oncology Annual Meeting in June 2012. A Phase I clinical trial of intravenous ME-344 in patients with solid refractory tumors is ongoing. In May 2011, we completed the acquisition of certain assets and intellectual property, including those related to ME-143 and ME-344, from Novogen, in accordance with the terms of an Asset Purchase Agreement, dated as of December 21, 2010, between us, Novogen and Novogen Research Pty Limited. In August 2012, we completed the acquisition of certain assets and intellectual property, including those related to Pracinostat, from S*BIO Pte Ltd ("S*Bio").

As of September 30, 2012, our existing cash balances were approximately $3.7 million. We believe that our existing cash balances, excluding expected future proceeds from the 2012 PIPE, will be sufficient to fund our operations until early calendar year 2013. Changes to our research and development plans or other changes affecting our operating expenses may affect actual future use of existing cash resources. In any event, however, we intend to pursue one or more capital raising transactions, whether through the sale of equity securities or the entry into strategic partnerships, in order to continue the development of our lead drug candidates and financing to fund our operations in the future. On November 4, 2012, the Board of Directors of the Company approved, and on November 5, 2012 Novogen provided its written consent with respect to, the issuance of 55,000,000 units to the 2012 PIPE Purchasers for an aggregate purchase price of $27,500,000 pursuant to the Securities Purchase Agreement by and among the Company and the 2012 PIPE Purchasers dated as of November 4, 2012. Each unit will consist of one share of common stock and warrants to acquire 0.70 shares of common stock at an exercise price of $0.52 per share. The units will consist of an aggregate of 55,000,000 shares of common stock and warrants exercisable for an aggregate of 38,500,000 shares of Common Stock. The stockholder approval provided by Novogen by written consent will become effective 20 days after we mail an information statement describing the proposed transaction to our other stockholders. In addition to the effectiveness of the stockholder approval, the transaction is subject to our entry into a registration rights agreement providing customary registration rights to the 2012 PIPE Purchasers, as well as our entry into a governance agreement with each of the 2012 PIPE Purchasers and certain other customary closing conditions. Pursuant to the governance agreement, we will agree, among other things, to increase the size of the Board of Directors of the Company from six members to seven members and to provide each of the 2012 PIPE Purchasers who beneficially owns at least 10% of our outstanding common stock the right to designate one nominee for election to the Board of Directors. In addition, we have agreed to use our best efforts to hold an annual meeting of stockholders within three months of the closing of the issuance of the units to consider, among other things, an amendment to our certificate of incorporation to eliminate our classified Board of Directors.

If the 2012 PIPE is not completed, we may be required to reduce or cease our operations.

Critical Accounting Policies and Estimates

Management's discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, expenses and related disclosures. Actual results could differ from those estimates. We believe the following accounting policies to be critical to the judgments and estimates used in the preparation of our financial statements.

Clinical Trials Expenses and Accruals

Estimates have been used in determining the expense and accrued liability under certain clinical trial contracts where services have been performed but not yet invoiced. Generally, the costs associated with clinical trial contracts are based on the number of patients in each trial, the service contracts associated with clinical sites, service providers and drug development contracts. The length of time before actual amounts can be determined will vary, and are therefore estimated, depending on length of the drug administration cycles and the timing of the invoices by the clinical trial partners and contractors.

Share-based Compensation

Share-based compensation expense for employees and directors is recognized in the statement of operations based on estimated amounts, including the grant date fair value and the expected service period. For stock options, we estimate the grant date fair value using a binomial valuation model, which requires the use of multiple subjective inputs including estimated future volatility, expected forfeitures and the expected term of the awards. We estimate our expected future volatility based on our stock's historical price volatility. Our stock's future volatility may differ from our estimated volatility at the grant date. Share-based compensation


Table of Contents

recorded in our statement of operations is based on awards expected to ultimately vest and has been reduced for estimated forfeitures. Our estimated forfeiture rates may differ from actual forfeiture rates which would affect the amount of expense recognized during the period. We recognize the value of the awards on a straight-line basis over the awards' requisite service periods. The requisite service period is generally the time over which our share-based awards vest.

Results of Operations

Three Months Ended September 30, 2012 and 2011

We incurred losses of $2,464,000 and $1,612,000 for the three months ended September 30, 2012 and 2011, respectively.

Research and Development: Research and development expenses consist primarily of clinical trial costs (including payments to contract research organizations or CROs), pre-clinical study costs, cost to manufacture our drug candidates for pre-clinical and clinical studies and salaries and other personnel costs. Research and development expenses increased by $508,000 to $1,552,000 for the three months ended September 30, 2012 compared to $1,044,000 for the three months ended September 30, 2011. The increase is primarily due to Phase I clinical trial costs and drug manufacturing costs associated with ME-344.

General and Administrative: General and administrative expenses increased by $25,000 to $914,000 for the three months ended September 30, 2012 compared to $889,000 for the three months ended September 30, 2011. The increase primarily relates to legal fees and other costs associated with the issuance of common stock to S*Bio in conjunction with the purchase of Pracinostat.

Other income or expense: We received interest on cash and cash equivalents of $3,000 for the three months ended September 30, 2012 compared to $3,000 for the three months ended September 30, 2011. Additionally, during the year ended June 30, 2011, we issued securities that are accounted for as derivative liabilities. As of September 30, 2011, the derivative liabilities were revalued to $423,000, resulting in a net decrease in value of $702,000 during the three months ended September 30, 2011, based primarily upon a change in the terms of Series A warrants and exercise of Series B warrants, which had been accounted for as derivative liabilities. The decrease in value was recorded as non-operating income for the three months ended September 30, 2011. Additionally, we recorded a reversal of a prior expense of $14,000 in conjunction with amending the Series A Warrant terms, based on the fair value of the Amended Series A Warrants. During the three months ended September 30, 2011, we also made cash payments of $365,000 to certain of our investors in conjunction with an agreement to modify the terms of Series A and Series B warrants and we paid $32,000 in other expenses related to the agreement. These expenses were recorded as "Financing Costs".

Liquidity and Capital Resources

Our sources of liquidity include our cash and cash equivalents. Our existing cash balances were approximately $3.7 million as of September 30, 2012. We believe that an existing cash balances, excluding expected future proceeds from the 2012 PIPE, will be sufficient to fund our operations until early calendar year 2013. Our current business operations are focused on continuing the clinical development of our three lead drug candidates, Pracinostat, ME-143 and ME-344. Changes to our research and development plans or other changes affecting our operating expenses may affect actual future use of existing cash resources. To date, we have obtained cash and funded our operations primarily through the sale of equity securities. We have accumulated losses of $87.6 million since inception and expect to incur operating losses and generate negative cash flows from operations for the foreseeable future. We will need additional financing to fund our operations in the future, including the continued development of our drug candidates. We intend to seek additional capital through one or more equity transactions; As described under "Overview" above, on November 4, 2012, we entered into the Securities Purchase Agreement with the 2012 PIPE Purchasers, which we expect to close in the second quarter of fiscal year 2013. However, there can be no assurances that the transactions contemplated by the Securities Purchase Agreement, or any other equity transactions that we may pursue, will be completed. If the Company is unable to obtain additional funds on favorable terms or at all, the Company may be required to cease or reduce its operations. Our independent certified public accountants have stated that at June 30, 2012, there is substantial doubt about the Company's ability to continue as a going concern.

Sources and Uses of Our Cash

Net cash used in operations for the three months ended September 30, 2012 was $2,487,000 compared to $1,730,000 in the three months ended September 30, 2011 due to our net loss resulting from expenses incurred for research and development and general and administrative costs.

Net cash provided by financing activities was $2,672,000 during the three months ended September 30, 2011. There was no cash provided by financing activities during the three months ended September 30, 2012. Cash raised during the three months ended September 30, 2011 reflected net proceeds of $1,094,000 raised through the issuance of common stock from the exercise of Series B warrants and $1,975,000 through the issuance of common stock to Novogen. Additionally, during the three months ended September 30, 2011 we paid $397,000 in financing costs associated with amending the terms of securities that had been issued as part of the May 2011 private placement.


Table of Contents

Contractual Obligations

We have contracted with various consultants and third parties to assist us in pre-clinical research and development and clinical trials work for our leading drug compounds. The contracts are terminable at any time, but obligate us to reimburse the providers for any time or costs incurred through the date of termination. Additionally, we have employment agreements with certain of our current employees that provide for severance payments and accelerated vesting for share-based awards if their employment is terminated under specified circumstances.

In July 2010, we entered into a lease arrangement to rent approximately 3,700 square feet of office space for 33 months beginning in July 2010 for monthly rental rates ranging from $10,109 to $10,734 over the lease term, plus other pass-through charges. We have two options to extend the lease term for one year each at the market rate in effect at the time of renewal.

License Agreement

On September 28, 2012, the Company entered into a license agreement with CyDex Pharmaceuticals, Inc. ("CyDex"). Under the license agreement, CyDex granted to the Company an exclusive, nontransferable license to intellectual property rights relating to Captisolฎ for use with the Company's two lead isoflavone-based drug compounds. The Company agreed to pay to CyDex a non-refundable license issuance fee, future milestone payments, and royalties on future sales. Contemporaneously with the license agreement, the Company and CyDex entered into a commercial supply agreement pursuant to which the Company agreed to purchase 100% of its requirements for Captisol from CyDex. The Company may terminate both the license agreement and the supply agreement for convenience at any time upon 90 days' prior written notice.

Corporate Developments

Nasdaq

On March 27, 2012, we received notice from Nasdaq stating that, based on the closing bid price for our common stock for the last 30 consecutive business days, we no longer meet the $1.00 per share minimum bid price requirement for continued inclusion on the Nasdaq Capital Market under Nasdaq Rule 5550(a)(2). The notification letter stated that we would be afforded a grace period of 180 calendar days, or until September 24, 2012, to regain compliance with the minimum bid price requirement in accordance with Nasdaq Rule 5810(c)(3)(A). In order to regain compliance, shares of our common stock must maintain a minimum closing bid price of at least $1.00 per share for a minimum of ten consecutive business days during the grace period. On September 25, 2012, the Company received a determination letter from NASDAQ notifying the Company that we had not regained compliance with the Rule during the 180 calendar day period and that the Company's common stock is therefore subject to delisting from The Nasdaq Capital Market, unless the Company requests a hearing before the NASDAQ Listing Qualifications Panel (the "Panel"). On October 2, 2012, the Company timely requested a hearing before the Panel to present its plan to regain compliance with Nasdaq Rule 5550(a)(2), which request automatically stayed the delisting of the Company's securities pending at least the issuance of the Panel's decision following the hearing, which was held on November 1, 2012, where the Company requested an exception from compliance with Nasdaq Rule 5550(a)(2) through February 11, 2013 to evidence compliance with all applicable requirements for continued listing. On November 8, 2012, the Company was notified by the Panel that it granted the Company's request for continued listing subject to the condition that on or before February 11, 2013, the Company shall have evidenced a closing bid price of $1.00 or more for a minimum of ten prior consecutive trading days. In order to fully comply with the terms of the exception from compliance with Nasdaq Rule 5550(a)(2), the Company must be able to demonstrate compliance with all requirements for continued listing on the NASDAQ Capital Market. In the event the Company is unable to do so, its common stock may be delisted from The NASDAQ Stock Market. The Company intends to effect a one-for-ten reverse stock split in order to regain compliance with the minimum closing bid price requirements set forth in the Rule, which has been approved by Novogen as our majority stockholder. The Company will prepare an information statement to be filed with the SEC that will provide additional important information concerning the reverse stock split and which must be mailed to stockholders at least 20 days prior to the effectiveness of the stockholder approval provided by Novogen. See Note 6 - "Stockholders' Equity" for additional information.

During 2010, we received deficiency notices from Nasdaq regarding non-compliance with the minimum stockholders' equity and the minimum Market Value of Publicly Held Shares in accordance with Nasdaq Listing Standards for the Nasdaq Global Market. On March 7, 2011, a Nasdaq Hearing Panel granted us until May 16, 2011 to evidence compliance with the stockholders equity and minimum Market Value of Publicly Held Shares requirement. On March 23, 2011, we received a positive response from the Nasdaq Listing Qualifications Staff indicating that our request for a transfer and continued listing on the Nasdaq Capital Market had been granted. Our common stock began trading on the Nasdaq Capital Market effective with the open of business on March 16, 2011.

Recent Accounting Pronouncements

See Item 1 of Part I, "Notes to Financial Statements- Note 1- Organization and Summary of Significant Accounting Policies".

  Add MEIP to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for MEIP - All Recent SEC Filings
Sign Up for a Free Trial to the NEW EDGAR Online Pro
Detailed SEC, Financial, Ownership and Offering Data on over 12,000 U.S. Public Companies.
Actionable and easy-to-use with searching, alerting, downloading and more.
Request a Trial      Sign Up Now


Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.