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| MEIP > SEC Filings for MEIP > Form 10-Q on 12-Feb-2013 | All Recent SEC Filings |
12-Feb-2013
Quarterly Report
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 and may not produce successful results;
the results of pre-clinical studies and completed clinical trials are not necessarily predictive of future results, and our current drug candidates may not have favorable results in later studies or trials;
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". In December 2012, Novogen distributed to its shareholders substantially all of its MEI Pharma common stock.
Our business purpose is the development of drugs for the treatment of cancer. We are currently focused on the clinical development of our three lead drug candidates, Pracinostat, ME-143and ME-344. 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, placebo-controlled Phase II trial of Pracinostat in combination with azacitidine in patients with MDS during 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").
Relationship with Novogen
Novogen was our majority shareholder from our inception through December 3, 2012. On such date, Novogen completed the distribution of substantially all of its MEI Pharma common stock to its shareholders. Historically, we licensed from Novogen the rights to Novogen patents and applications for our lead isoflavone-based drug candidates, as well as other compounds. Additionally, Novogen historically provided research and development services and administrative and finance services to us under service agreements. Our license agreements with Novogen were terminated in May 201,1 in conjunction with our purchase of a portfolio of isoflavone-related assets from Novogen, which we refer to as the "Isoflavone Transaction". The service agreements with Novogen were terminated in December 2010.
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 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 December 31, 2012 and 2011
We incurred losses of $2,754,000 and $1,541,000 for the three months ended December 31, 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 $277,000 to $1,338,000 for the three months ended December 31, 2012 compared to $1,061,000 for the three months ended December 31, 2011. The increase is primarily due to costs associated with Phase I clinical trial costs and drug manufacturing costs for ME-143 and ME-344.
General and Administrative: General and administrative expenses increased by $522,000 to $1,418,000 for the three months ended December 31, 2012 compared to $896,000 for the three months ended December 31, 2011. The increase primarily relates to professional and consulting expenses, and stock-based compensation expenses.
Other income or expense: We received interest on cash and cash equivalents of $2,000 for the three months ended December 31, 2012 and $2,000 for the three months ended December 31, 2011. Additionally, during the year ended June 30, 2011, we issued securities that were accounted for as derivative liabilities. As of December 31, 2011, our obligations related to these securities were contractually completed, resulting in the elimination of the derivative liabilities and a corresponding net decrease in their value of $423,000 during the three months ended December 31, 2011, which was recorded as non-operating income.
Six Months Ended December 31, 2012 and 2011
We incurred losses of $5,218,000 and $3,153,000 for the six months ended December 31, 2012 and 2011, respectively.
Research and Development: Research and development expenses consist primarily of clinical trial costs (including payments to 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 $785,000 to $2,890,000 for the six months ended December 31, 2012, compared to $2,105,000 for the six months ended December 31, 2011. The increase is primarily due to costs associated with Phase I clinical trial costs and drug manufacturing costs for ME-143 and ME-344.
General and Administrative: General and administrative expenses increased by $547,000 to $2,332,000 for the six months ended December 31, 2012 compared to $1,785,000 for the six months ended December 31, 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, professional and consulting expenses, and stock-based compensation expenses.
Other income or expense: We received interest on cash and cash equivalents of $5,000 for the six months ended December 31, 2012 and $5,000 for the six months ended December 31, 2011. Additionally, during the year ended June 30, 2011, we issued securities that were accounted for as derivative liabilities. As of December 31, 2011, our obligations related to these securities were contractually completed, resulting in the elimination of the derivative liabilities and a corresponding net decrease in their value of $1,125,000 during the six months ended December 31, 2011, which was recorded as non-operating income. Additionally, during the six months ended December 31, 2011, we recorded a reversal of a prior expense of $14,000 in conjunction with amending the Series A Warrant terms pursuant to the Supplemental Agreement, based on the fair value of the Amended Series A Warrants. In connection with the Supplemental Agreement, we incurred financing costs in the amount of $406,000 during the six months ended December 31, 2011.
Liquidity and Capital Resources
Our sources of liquidity include our cash and cash equivalents. Our existing cash balances were approximately $26.9 million as of December 31, 2012. 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 $90.3 million since inception and expect to incur operating losses and generate negative cash flows from operations for the foreseeable future. In order to continue the development of our lead drug candidates, at some point in the future we may pursue one or more capital transactions, whether through the sale of equity securities or entry into strategic partnerships.
Sources and Uses of Our Cash
Net cash used in operations for the six months ended December 30, 2012 was $4,647,000 compared to $3,504,000 in the six months ended December 31, 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 $25,326,000 during the six months ended December 31, 2012. Cash raised during the six months ended December 31, 2012 reflected net proceeds of $25,326,000 raised through the issuance of common stock and warrants in our "December 2012 private placement. Net cash provided by financing activities was $4,637,000 during the six months ended December 31, 2011. Cash raised during the six months ended December 31, 2011 reflected net proceeds of $1,094,000 raised through the issuance of common stock from the exercise of Series B warrants and $3,949,000 through the issuance of common stock to Novogen. Additionally, during the six months ended December 31, 2011, we paid $406,000 in financing costs associated with amending the terms of securities that had been issued as part of the May 2011 private placement.
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 3,676 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. On January 3, 2013, we entered into an amendment to the lease ("First Lease Amendment"). The First Lease Amendment extends the lease term through June 2015. In addition, it adds expansion space of approximately 2,511 square feet of office space, which co-terminates with the extension of the original lease in June 2015. The additional expansion space portion of the lease begins on the later of February 1, 2013 or upon the completion of certain improvements to be performed by the landlord. Once both the original space extension and the expansion space portion of the lease become effective, we will lease approximately 6,187 square feet of space at a monthly rental rate of $17,014 to $18,252 during the term of the lease.
License Agreement
On September 28, 2012, we entered into a license agreement with CyDex Pharmaceuticals, Inc. ("CyDex"). Under the license agreement, CyDex granted to us an exclusive, nontransferable license to intellectual property rights relating to Captisolฎ for use with the our two lead isoflavone-based drug compounds. We agreed to pay to CyDex a non-refundable license issuance fee, future milestone payments, and royalties on future sales. Contemporaneously with the license agreement, we entered into a commercial supply agreement with Cydex pursuant to which we agreed to purchase 100% of its requirements for Captisol from CyDex. We may terminate both the license agreement and the supply agreement for convenience at any time upon 90 days' prior written notice.
Corporate Developments
December 2012 Private Placement
On December 18, 2012, we completed the sale (the "December 2012 private placement") of 9,166,665 shares (the "Initial Shares") of common stock and warrants (the "Warrants") to purchase an additional 6,416,665 shares (the "Warrant Shares" and, together with the Initial Shares, the "Shares") of common stock for an aggregate offering price of $27.5 million, pursuant to the terms a Securities Purchase Agreement, dated November 4, 2012, between us and certain accredited investors identified therein. As a result of the December 2012 private placement, two of the investors, Vivo Ventures Fund VII, L.P. ("Vivo") and New Leaf Ventures II, L.P. ("New Leaf") own in excess of 20% of our outstanding common stock.
We have entered into a separate governance agreement with each of Vivo and New Leaf pursuant to which each of them is entitled to propose a candidate for election to our board of directors for consideration by the nominating committee of the board of directors in connection with each annual meeting of our stockholders following the effectiveness of an amended and restated certificate of incorporation eliminating our classified board of directors, and at such other times as such investor may propose. We have agreed to use our best efforts to cause the board of directors to elect one of the candidates proposed by Vivo or New Leaf to serve as Chairman of the board of directors and to cause the board of directors to appoint at least one of any such candidates serving on the board of directors to serve on each standing and special committee of the board of directors . All candidates proposed by Vivo and New Leaf will be presented to the nominating committee for the same consideration as individuals identified by the nominating committee through other means. Each governance agreement will terminate with respect to the applicable investor at the earliest of (i) such time as such investor and its affiliates beneficially owns all of the shares of common stock then outstanding, (ii) such time as such investor and its affiliates beneficially own less than 10% of the shares of common stock then outstanding, or (iii) the effectiveness of certain change of control transactions resulting in continuing stockholders of the Company holding less than 50% of the outstanding voting securities of the Company, its successor entity or a parent or subsidiary of its successor entity. On February 7, 2013, the Board appointed Thomas C. Reynolds, M.D., Ph.D., to fill the vacancy created by the expansion of the size of the Board from six members to seven members that became effective on December 18, 2012. Dr. Reynolds was proposed to the nominating committee of the board of directors pursuant to the terms of the governance agreements. On January 27, 2013, Professor Williams notified the Company of his decision not to stand for re-election to the board of directors at the Company's Annual Meeting to be held on March 26, 2013. As a result, the Company has commenced a search process to fill the vacancy created by Professor Williams's retirement from the board of directors. It is expected that at a future date, a candidate proposed under the governance agreements will be considered by the nominating committee of the board of directors to fill the vacancy that will be created upon Professor Williams's retirement from the board of directors.
Waiver Agreement
On December 5, 2012, we entered into an agreement (the "Waiver Agreement") with Novogen and Novogen Research Pty Limited, a wholly-owned subsidiary of Novogen (together, the "Novogen Parties"), Graham Kelly, an individual ("Kelly"), and Andrew Heaton, an individual ("Heaton"), pursuant to which we granted a limited waiver with respect to certain non-compete provisions contained in the Asset Purchase Agreement dated as of December 20, 2010, between us and the Novogen Parties. In consideration of our grant of the limited waiver, upon the execution of the Waiver Agreement, Novogen surrendered to us for cancellation warrants held by Novogen for the purchase of 166,666 shares of common stock, as adjusted for the 2012 Reverse Stock Split described below.
Reverse Stock Split
On December 18, 2012, we filed a Certificate of Amendment to our Restated Certificate of Incorporation in order to effect a 1-for-6 reverse stock split (the "2012 Reverse Stock Split") of our common stock effective on December 18, 2012. As a result of the 2012 Reverse Stock Split, every six shares of our issued and outstanding common stock were combined into one share of common stock. The 2012 Reverse Stock Split did not change the number of authorized shares of common stock. All financial data and share information in this quarterly report has been presented on an as-adjusted basis to give effect to the 2012 Reverse Stock Split.
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 met 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, we received a determination letter from NASDAQ notifying us that we had not regained compliance with the Rule during the 180 calendar day period and that our common stock was therefore subject to delisting from The Nasdaq Capital Market, unless we requested a hearing before the NASDAQ Listing Qualifications Panel (the "Panel"). On October 2, 2012, we timely requested a hearing before the Panel to present our plan to regain compliance with from compliance with Nasdaq Rule 5550(a)(2), which request automatically stayed the delisting of our securities pending at least the issuance of the Panel's decision following the hearing, which was held on November 1, 2012. On November 8, 2012, we were notified by the Panel that it granted our request for continued listing subject to the condition that on or before February 11, 2013, we shall have evidenced a closing bid price of $1.00 or more for a minimum of ten prior consecutive trading days. On November 26, 2012, we received notice from NASDAQ stating that we had regained compliance with the applicable minimum bid price rule, as required by the Panel's decision on November 8, 2012, and that we were in compliance with all other applicable requirements set forth in the Panel's decision and required for listing on the Nasdaq Capital Market. Accordingly, the Panel determined to continue the listing of the Company's securities on The Nasdaq Stock Market and closed the matter.
Recent Accounting Pronouncements
See Item 1 of Part I, "Notes to Financial Statements- Note 1- Organization and Summary of Significant Accounting Policies".
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