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CXM > SEC Filings for CXM > Form 10-Q on 14-Nov-2012All Recent SEC Filings

Show all filings for CARDIUM THERAPEUTICS, INC.

Form 10-Q for CARDIUM THERAPEUTICS, INC.


14-Nov-2012

Quarterly Report


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis is intended to help you understand our financial condition and results of operations for the three and nine months ended September 30, 2012. You should read the following discussion and analysis together with our unaudited condensed consolidated financial statements and the notes to the condensed consolidated financial statements included under Item 1 in this report, as well as the risk factors and other information included Part II, Item 1A, in our annual report on Form 10-K for our year ended December 31, 2011 (our "2011 Annual Report"), and other reports and documents we file with the United States Securities and Exchange Commission ("SEC"). Our future financial condition and results of operations will vary from our historical financial condition and results of operations described below.

Overview

We are a medical technology company primarily focused on the development and commercialization of a portfolio of novel products and devices for cardiovascular and ischemic disease, wound healing and tissue repair.

Since we were initially funded in October 2005, we have made four strategic acquisitions and sold one business unit. We are currently operating in three primary business lines. Our Cardium Biologics business is developing innovative cardiovascular product candidates. Our Tissue Repair Company subsidiary is developing and commercializing a late-stage line of regenerative medicine product candidates. Finally our MedPodium Health Sciences subsidiary is developing and marketing a line of nutraceuticals and other healthy lifestyle products and recently acquired the products and assets of To Go Brands, Inc.

Our business is focused on the acquisition and strategic development of product opportunities or businesses having the potential to address significant unmet medical needs, and having definable pathways to commercialization, and on partnering or other monetization following the achievement of corresponding development objectives. Consistent with our overall business strategy, as our product opportunities and businesses are advanced and corresponding valuations established, we intend to consider various corporate development transactions designed to place our product candidates into larger organizations or with partners having existing commercialization, sales and marketing resources, and a need for innovative products. Such transactions could involve the sale, partnering or other monetization of particular product opportunities or businesses.

More detailed information about our products, product candidates, our intended efforts to develop our products and our business strategy is included in our 2011 Annual Report.

Recent Developments

During 2012, we have concentrated our operations on the following activities:

• advancing our clinical study for Generx, the APSIRE clinical study, initially for the international markets

• commercializing our initial Excellagen product through planned strategic partnerings and development of new product extensions based on our custom formulated collagen product platform for additional wound healing applications

• Building our nutraceutical initiative, which has recently been expanded through our acquisition of To Go Brands; and

• Continuing to review acquisitions of other businesses, product opportunities and technologies on favorable economic terms consistent with our long-term business strategy.

Generx® Commercial Development Plans

Generx (alferminogene tadenovec/CardioNovo™) is a DNA-based angiogenic therapy being developed for the potential treatment of myocardial ischemia due to advanced coronary artery disease. Generx is designed to stimulate and promote the growth of supplemental collateral vessels to enhance myocardial blood flow (perfusion) following a one-time intracoronary administration from a standard cardiac infusion catheter in patients who have insufficient blood flow due to atherosclerotic plaque build-up in the coronary arteries.

In 2012, we initiated a follow-on clinical study of Generx involving approximately 100 patients at up to nine leading medical centers in Russia, and using SPECT imaging as a key clinical endpoint. The clinical study began in the first quarter of 2012. If the trial is successful, we hope to gain approval to sell Generx in Russian and other eastern European countries, where treatment with Generx may serve as a lower cost alternative to traditional surgery and stents. We also believe that having additional clinical evidence confirming the safety and effectiveness of Generx for improving coronary collateral circulation in men and women with severe coronary artery disease could potentially be used to optimize and broaden commercial development pathways in the U.S. and other industrialized countries.

Commercial Advancement of Excellagen®

On October 10, 2011, our Tissue Repair Company subsidiary received a 510(k) premarket notification from the U.S. Food and Drug Administration (FDA) for its fibrillar collagen-based Excellagen topical gel for wound healing of diabetic foot ulcers and other dermal wounds. Our 510(k) filing covers Excellagen's use as a wound care management medical device for topical application by health care professionals for patients with dermal wounds, which can include diabetic ulcers, pressure ulcers, venous ulcers, tunneled/undermined wounds, surgical and trauma wounds, second degree burns, and other types of wounds.

In first quarter 2012, we initiated market introduction of Excellagen in the U.S. and also announced our first international agreement for the sales and marketing of Excellagen with BL&H Co. Ltd., a South Korean pharmaceutical company. We also entered into a logistics and cold chain services agreement with Smith Medical Partners, a subsidiary of H. D. Smith focused on distribution of specialty, brand and generic pharmaceuticals, vaccines, injectables and medical/surgical materials. Smith Medical Partners provides practitioners with valuable product insights, information about patient assistant programs and can provide next-day delivery to all 50 states, allowing physicians and wound care clinics to receive Excellagen swiftly and reliably.

During the second quarter of 2012 we entered into an agreement with UK-based Angel Biomedical Limited, a subsidiary of Angel Biotechnology Holdings plc to manufacture Excellagen's formulated collagen. In addition to the manufacturing, Angel Biomedical Limited agreed to assist us to facilitate filing for a CE Mark for Excellagen's marketing and sale in the European Union and in other countries recognizing CE Mark approval. Additionally, Angel Biomedical will assist us in establishing its own Device Master File with the FDA's Center for Devices and Radiological Health covering the process for manufacturing Excellagen formulated fibrillar collagen gel.

We have entered into an agreement with Advanced Biosciences Research, an affiliate of bioRASI, for the planned commercialization of Cardium's professional-use Excellagen topical wound care management product in Russia and the nine additional member countries comprising the Commonwealth of Independent States (CIS). Under this agreement, bioRASI will be responsible for the registration and approval for the marketing and sales of Excellagen in the Russian Federation, and will assist us to develop an infrastructure plan for the marketing, sales and distribution of Excellagen in Russia and the CIS following final market approval. bioRASI is the sponsor and development partner responsible for the management and regulatory compliance of our Generx DNA-based


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cardiovascular angiogenic biologic Phase 3 / registration study for the treatment of patients with myocardial ischemia due to coronary disease which is currently underway in Russia. We intend to continue to promote Excellagen for sale in the U.S. and internationally and are in discussions with additional potential partners to commercialize Excellagen.

Commercialization of MedPodium® Modern Lifestyle Product Line

On December 20, 2011 we licensed a portfolio of nutraceutical, pharmaceutical and medical food product opportunities with Source One Global Partners, LLC ("SourceOne"). In exchange for the license we issued 1.5 million restricted shares of our common stock. The shares of common stock are being held in escrow for nine months and are subject to release at future dates thereafter based on our advancement of certain jointly-developed products. Under terms of the licensing arrangement, we received a fully-paid-up license to commercialize formulations of various SourceOne ingredients to be marketed as nutraceuticals, pharmaceuticals and/or medical foods. In addition, we can designate up to ten products to be jointly developed by the parties, with cash and other resources to be contributed jointly under a profit-share arrangement. We expect to develop additional nutriceuticals for the Medpodium product line under this license agreement.

Under the SourceOne agreement, we also made an equity investment in the form of unregistered, restricted shares of our common stock to acquire an option to purchase to a 15% ownership interest in SourceOne Global Partners. The option was acquired through the issuance into escrow of 1.5 million shares of our common stock which were recorded at a value of $0.29 per share based on the closing price of our stock on December 19, 2011, and is exercisable for an exercise fee of $10,000. The shares of our common stock issued for the option are held in escrow and are subject to release in four allotments at 6, 9, 12 and 18 months following the closing date. During the nine months ended September 30 2012, 750,000 shares have been released from the escrow account. We also have certain rights to maintain our proportionate ownership interest in SourceOne, and a right of first refusal to acquire SourceOne on the terms that SourceOne were to offer a third-party acquiror.

In December 2011, we launched MedPodium Nutra-Apps®, small, pharmaceutically-sealed, tasteless, easy-use capsules in pocket-sized packaging that are designed to address the unique needs of today's highly mobile and technology-driven millennial consumers (aged 20-35). The launch included Neo-Energy® a dietary supplement capsule that provides a customized blend of natural caffeine, green tea leaf extract and Vitamin B3 (Niacin). Each of Neo-Energy's small, easy-to-use capsules provide an amount of caffeine comparable to commonly-sold energy shots or a premium coffee, or multiple cans (about 20 ounces) of various energy drinks. We also launched Neo-Carb Bloc as a dietary supplement featuring a custom formulation of white kidney bean extract that has been shown to reduce the enzymatic digestion of dietary starches contained in many carbohydrate-rich foods such as pastas, rice, crackers, breads, pastries, potato chips, and donuts.*

During second quarter 2012, we introduced our new MedPodium Neo-Chill Nutra-App® at the National Association of Chain Drug Stores (NACDS) Marketplace 2012. MedPodium's Neo-Chill Nutra-App® contains 200 mg Suntheanine®, a 100% pure L-theanine amino acid also found in green tea, which clinical studies have shown to promote an alert state of relaxation without drowsiness and to promote mental clarity and focus.* The company's business strategy is focused on building relationships with distributors to handle product placement to retailers.

On September 28, 2012 we acquired substantially all of the assets, business and product portfolio of privately-held To Go Brands, Inc., a Nevada corporation. To Go Brands develops, markets and sells a portfolio of over 25 products, including nutraceutical powder mixes, supplements and chews to support healthy lifestyles. The product line includes antioxidant-rich drink mixes in convenient stick packs that are designed to pour directly into a water bottle, as well as mix packages for home use and capsule-based dietary supplements, including Trim Energy Green Coffee Bean™, which supports healthy weight loss. * These products are sold through food, drug and mass channels at retailers including Whole Foods®, CVS®, Kroger®, GNC ®, Jewel-Osco®, Ralph's Supermarkets®, Meijr®, and the Vitamin Shoppe® and from the company's web-based store. Based on our acquisition, To Go Brands will be responsible for coordinating the commercial activity of our MedPodium Products.

* Note: These statements have not been evaluated by the Food and Drug Administration, these products are not intended to diagnose, treat, or prevent any disease.

Critical Accounting Policies and Estimates

Our condensed consolidated financial statements included in Item 1 of this report have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). The preparation of our financial statements in accordance with GAAP requires that we make estimates and assumptions that affect the amounts reported in our financial statements and their accompanying notes.

We have identified certain policies such as derivative liabilities and stock option compensation expense that are calculated using the Black-Scholes and Binomial Option Models that we believe are important to the portrayal of our financial condition and results of


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operations. These policies require certain estimates and assumptions, and the application of significant judgment by our management. We base our estimates on our historical experience, industry standards, and various other assumptions that we believe are reasonable under the circumstances. Actual results could differ from these estimates under different assumptions or conditions. An adverse effect on our financial condition, changes in financial condition, and results of operations could occur if circumstances change that alter the various assumptions or conditions used in such estimates or assumptions. If we were to undervalue derivative liabilities or stock option compensation expense we would understate the expense recognized in our condensed consolidated statements of operations. Conversely if we were to overvalue derivative liabilities and stock option compensation expenses we would overstate the expense recognized in our condensed consolidated statements of operations.

Our other significant accounting policies are described under Item 7 of our 2011 Annual Report and in the notes to the condensed consolidated financial statements included in this report.

Results of Operations

Three months ended September 30, 2012 compared to September 30, 2011.

Revenues for the three months ended September 30, 2012 were $5,589 and were generated from our continuing distribution of our MedPodium Nutra-Apps and initial sales from our Excellagen topical gel. There were no revenues for the three months ended September 30, 2011. We expect to continue to generate revenues from sales of all our product lines during the balance of 2012.

Cost of sales for the three months ended September 30, 2012 was $3,640. There were no costs of sales for the three months ended September 30, 2011.

Research and development expenses for the three months ended September 30, 2012 were $508,342 compared to $578,891 for the three months ended September 30, 2011. The decrease of $70,549 was primarily due to reductions in expenses related to the development of our Excellagen product which is now commercially ready.

Selling, general and administrative expenses for the three months ended September 30, 2012 were $1,389,731 compared to $1,180,199 for the three months ended September 30, 2011. The increase of $209,532 was due to increases selling expenses for the promotion and marketing of our MedPodium Nutra-Apps and Excellagen product lines.

Change in fair value of derivative liability was $0 for the three months ended September 30, 2012, and $157,628 for the three months ended September 30, 2011. The derivative liability was associated with down round price protection in certain warrants that expired during the first quarter of 2012 and therefore there was no gain or loss recorded during the three months ended September 30, 2012.

Interest income for the three months ended September 30, 2012 was $1,204 compared to $1,622 for the same three month period last year. The $418 decrease in interest income for the three month period when compared to the same period last year was due to the decrease in cash available for investment during the respective periods. Interest expense for the three months ended September 30, 2011 was $353 at September 30, 2011. There was no interest expense incurred during the three months ended September 30, 2012.

Nine months ended September 30, 2012 compared to September 30, 2011.

Revenues for the nine months ended September 30, 2012 were $39,241 and were generated from our continuing distribution of our MedPodium Nutra-Apps and initial sales from our Excellagen topical gel. There were no revenues for the nine months ended September 30, 2011. We expect to continue to generate revenues from sales of all our products lines during the balance of 2012.

For the nine months ended September 30, 2012 cost of sales was $15,191. There was no cost of sales for the nine months ended September 30, 2011

Research and development expenses for the nine months ended September 30, 2012 were $2,097,675 compared to $1,874,413 for the nine months ended September 30, 2011. The increase of $223,262 was mainly due to increases in expenses related to the development of our Excellagen product during the first quarter of this year which became commercially ready, as well as costs related to our Generx Aspire study.

Selling, general and administrative expenses for the nine months ended September 30, 2012 were $4,358,706 compared to $3,641,620 for the nine months ended September 30, 2011. The increase of $717,086 for the nine month period was primarily due to increases in professional fees, payroll related costs, promoting and marketing costs related to our MedPodium & Excellagen product lines.

Changes in the fair value of derivative liability was a gain of $64,157 for the nine months ended September 30, 2012 compared to a gain of $458,199 for the same nine month period in 2011. The derivative liability relates to down round price protection feature on some of our outstanding warrants. The change in fair value of derivative liability for the nine months ended September 30, 2012 versus 2011 was the result of the reduced number of warrants classified as derivative liabilities as a result of the expiration of the price protection period and warrant redemptions.


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Interest income for the nine months ended September 30, 2012 was $5,885 compared to $10,020 for the same nine month period last year. The $4,135 decrease in interest income for the nine month period when compared to the same period last year was related to the decrease in cash available for investment during the respective periods. Interest expense for the nine months ended September 30, 2012 was $2,114 compared to $4,415 for the nine months ended September 30, 2011 and primarily consisted of charges related to the financing of our annual insurance premiums.

Liquidity and Going Concern

As of September 30, 2012, we had $4,472,131 in cash and cash equivalents, and $50,000 in restricted cash. Our working capital at September 30, 2012 was $4,766,074.

Net cash used in operating activities was $7,068,324 for the nine months ended September 30, 2012 compared to $5,606,574 for the nine months ended September 30, 2011. The increase in net cash used in operating activities was due primarily to testing and process validation costs for our initial inventory of our Excellagen topical treatment gel. Since inception, our operations have consumed substantial amounts of cash and we have had only limited revenues. From inception (December 22, 2003) to September 30, 2012, net cash used in operating activities has been $92,150,085.

Our primary source of liquidity has been cash flows from financing activities and in particular proceeds from sales of our debt and equity securities. Net cash provided by financing activities was $6,835,042 for the nine months ended September 30, 2012. This included a registered direct equity financing with three institutional investors of 17.9 million shares of Cardium common stock priced at $0.28 per share with no warrant coverage for net proceeds of $4.5 million and through the sale of 5.2 million shares of common stock under at-the-market transactions for net proceeds of $1.9 million. From inception (December 22, 2003) to September 30, 2012 net cash provided by financing activities has been $101,019,633.

Net cash used in investing activities since inception has been $4,397,417. At September 30, 2012 we did not have any significant capital expenditure requirements.

We anticipate that negative cash flow from operations will continue for 2012. Although we believe that we have sufficient capital to support our operations through March 30, 2013, we are still a development stage company subject to all the risks and uncertainties that are typical in the lifecycle stage of our business. Our principal business objective is to complete an additional strategic licensing agreement to advance sales of the Excellagen product family and/or another corporate transaction. If we fail to enter into an additional strategic licensing arrangement or generate sufficient product sales, we will not generate sufficient cash flows to cover our operating expenses.

We do not have any unused credit facilities or other sources of capital available to us at this time. We intend to secure additional working capital through sales of additional debt or equity securities. On September 28, 2010, we entered into a Sale Agreement with Brinson Patrick Securities Corporation which enables us to use Brinson Patrick as a sales manager to sell shares of our common stock on a best efforts basis from time to time in "at-the-market" transactions pursuant to our shelf registration statement. During the nine months ended September 30, 2012 we raised $1.9 million under this agreement, all of which was raised during the first quarter of 2012. Other than this at-the-market facility, we do not have any financing arrangements in place at this time, nor can we provide any assurance about the availability or terms of this or any future financing.

Our history of recurring losses and uncertainties as to whether our operations will become profitable raise substantial doubt about our ability to continue as a going concern. Our consolidated financial statements do not include any adjustments related to the recoverability of assets or classifications of liabilities that might be necessary should we be unable to continue as a going concern.

Off-Balance Sheet Arrangements

As of September 30, 2012, we did not have any significant off-balance sheet arrangements.

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