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HEB > SEC Filings for HEB > Form 10-Q on 8-May-2013All Recent SEC Filings

Show all filings for HEMISPHERX BIOPHARMA INC | Request a Trial to NEW EDGAR Online Pro

Form 10-Q for HEMISPHERX BIOPHARMA INC


8-May-2013

Quarterly Report


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

Special Note Regarding Forward-Looking Statements

Certain statements in this report, including statements under "Item 1. Legal Proceedings" and "Item 1A. Risk Factors" in Part II, contain forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended, which we refer to as the Exchange Act. These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performances or achievements expressed or implied by the forward-looking statements. Forward-looking statements reflect our current views with respect to future events are based on assumptions and are subject to risks, uncertainties and other important factors. We discuss many of these risks, uncertainties and other important factors in greater detail under "Item 1A. Risk Factors" in Part II in this Report. Because the risk factors referred to above and in our Annual Report on Form 10-K for our most recent fiscal year filed with the Securities and Exchange Commission could cause actual results or outcomes to differ materially from those expressed in any forward-looking statements made by us, you should not place undue reliance on any such forward-looking statements.

Further, these forward-looking statements represent our estimates and assumptions only as of the date such forward-looking statements are made. You should carefully read this Report completely and with the understanding that our actual future results may be materially different from what we expect. We can give no assurances that any of the events anticipated by the forward-looking statements will occur or, if any of them do, what impact they will have on our business, results of operations and financial condition. Any forward-looking statement speaks only as of the date on which it is made and we undertake no obligation to update any forward-looking statement or statements to reflect events or circumstances after the date on which such statement is made or reflect the occurrence of unanticipated events. New factors emerge from time to time, and it is not possible for us to predict which will arise. We cannot assess the impact of each factor 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. Any statements in this Report about our expectations, beliefs, plans, objectives, assumptions or future events or performance that are not historical facts are forward-looking statements. You can identify these forward-looking statements by the use of words or phrases such as "believe", "may", "could", "will", "estimate", "continue", "anticipate", "intend", "seek", "plan", "expect", "should", or "would," and similar expressions intended to identify forward-looking statements.

Among the factors that could cause actual results to differ materially from those indicated in the forward-looking statements are risks and uncertainties inherent in our business including, without limitation: the potential therapeutic effect of our products, the possibility of obtaining regulatory approval, our ability to manufacture and sell any products, our ability to enter into arrangements with third party vendors, market acceptance of our products, our ability to earn a profit from sales or licenses of any drugs, our ability to commercially sell current drugs or discover new drugs in the future, changing market conditions, changes in laws and regulations affecting our industry, and issues related to the improvements of and construction at our New Brunswick, New Jersey facility. These activities and the ultimate outcomes are subject to a variety of risks and uncertainties, including but not limited to risks that (i) the FDA may ask for additional data, information or studies to be completed or provided prior to approval; and (ii) the FDA may require additional work related to the commercial manufacturing process to be completed prior to approval or may, in the course of the inspection of manufacturing facilities, identify issues to be resolved. With regard to Hemispherx' New Drug Application ("NDA") for AmpligenŽ to treat Chronic Fatigue Syndrome ("CFS"), we note that there are additional steps which the U.S. Food and Drug Administration ("FDA") has advised Hemispherx to take in our seeking approval. The final results of these and other ongoing activities, and of the FDA review, could vary materially from Hemispherx' expectations and could adversely affect the chances for approval of the AmpligenŽ NDA. Any failure to satisfy the FDA's requirements could significantly delay, or preclude outright, approval of our drugs for commercial sale.

We do not undertake and specifically decline any obligation to publicly release the results of any revisions which may be made to any forward-looking statement to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.

Overview

General

We are a specialty pharmaceutical company headquartered in Philadelphia, Pennsylvania and engaged in the clinical development of new drug therapies based on natural immune system enhancing technologies for the treatment of viral and immune based chronic disorders. We were founded in the early 1970s doing contract research for the National Institutes of Health. Since that time, we have established a strong foundation of laboratory, pre-clinical and clinical data with respect to the development of natural interferon and nucleic acids to enhance the natural antiviral defense system of the human body and to aid the development

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of therapeutic products for the treatment of certain chronic diseases. We have three domestic subsidiaries BioPro Corp., BioAegean Corp., and Core BioTech Corp., all of which are incorporated in Delaware and are dormant. Our foreign subsidiary is Hemispherx Biopharma Europe N.V./S.A. established in Belgium in 1998, which has minimal activity. All significant intercompany balances and transactions have been eliminated in consolidation.

Our current strategic focus is derived from four applications of our two core pharmaceutical technology platforms AmpligenŽ and Alferon N InjectionŽ. The commercial focus for AmpligenŽ includes application as a treatment for Chronic Fatigue Syndrome ("CFS") and as an influenza vaccine enhancer (adjuvant) for both therapeutic and preventative vaccine development. Alferon N InjectionŽ is a U.S. Food and Drug Administration ("FDA") approved product with an indication for refractory or recurring genital warts. AlferonŽ LDO (Low Dose Oral) is a formulation under development targeting influenza.

We own and operate a 43,000 sq. ft. FDA approved facility in New Brunswick, NJ that produces AlferonŽ and AmpligenŽ. The facility enhancement project is in its final stage with construction complete. Approximately $7,494,000 has been spent to date on the project through March 31, 2013 with approximately $7,051,000 financed through a Margin Account with an effective interest rate of approximately 2.50%. While facility upgrades are being undertaken to the AlferonŽ manufacturing process, this project has not impacted our capability to manufacture the AmpligenŽ drug substance intermediates needed for the final production steps. The production of new AlferonŽ Active Pharmaceutical Ingredient ("API") inventory will not commence until the capital improvement and validation phases are complete. While the facility had been granted approval of its Biological License Application ("BLA") by the FDA for AlferonŽ, this status will need to be reaffirmed upon the completion of the facility's enhancements prior to commercial sale of newly produced AlferonŽ. Once we have obtained a reaffirmation of FDA BLA status and have begun production of new AlferonŽ API, the FDA will be required to provide approval as to the quality and stability of the final product. We anticipate that it will take until the second half of 2014 before we will have newly produced AlferonŽ that can be commercially sold. We outsource certain components of our research and development, manufacturing, marketing and distribution while maintaining control over the entire process through our quality assurance group and our clinical monitoring group. We cannot provide any guarantee that the facility will necessarily pass a pre-approval inspection for AmpligenŽ or AlferonŽ manufacture, which are conducted in separately dedicated areas within the overall New Brunswick manufacturing complex.

On February 1, 2013, we received a Complete Response Letter ("CRL") from the FDA declining to approve our new drug application ("NDA") for AmpligenŽ for CFS. The FDA said Hemispherx should conduct at least one additional clinical trial, complete various nonclinical studies and perform a number of data analyses. In its CRL, the FDA set forth the reasons for this action and provided recommendations to address certain of the outstanding issues. The Agency stated that the submitted data do not provide substantial evidence of efficacy of AmpligenŽ for the treatment of CFS and that the data do not provide sufficient information to determine whether the product is safe for use in CFS due to the limited size of the safety database and multiple discrepancies within the submitted data. We plan to request an end-of-review conference with the FDA as a precursor to a possible submission of a formal appeal to the Office of New Drugs in the FDA's Center for Drug Evaluation and Research regarding the Agency's decision. The purpose of the conference would be to review all of the issues raised in the Agency's CRL as well as to discuss the corroborating data and experiences of clinicians and patients who have seen the benefits of AmpligenŽ therapy.

Our principal executive office is located at One Penn Center, 1617 JFK Boulevard, Philadelphia, Pennsylvania 19103, and our telephone number is 215-988-0080.

AmpligenŽ

AmpligenŽ is an experimental drug currently undergoing clinical development for the treatment of Chronic Fatigue Syndrome ("CFS"). As noted above and discussed below, the FDA in its recent CRL declined to approve our NDA for the treatment of CFS with AmpligenŽ. Over its developmental history, AmpligenŽ has received various designations, including Orphan Drug Product Designation (FDA), Treatment IND (e.g., treatment investigational new drugs, or "Emergency" or "Compassionate" use authorization) with Cost Recovery Authorization (FDA) and "promising" clinical outcome recognition based on the evaluation of certain summary clinical reports ("AHRQ" or Agency for Healthcare Research and Quality). AmpligenŽ represents the first drug in the class of large (macromolecular) RNA (nucleic acid) molecules to apply for NDA review. Based on the results of published, peer reviewed pre-clinical studies and clinical trials, we believe that AmpligenŽ may have broad-spectrum anti-viral and anti-cancer properties.

We believe that nucleic acid compounds represent a potential new class of pharmaceutical products as they are designed to act at the molecular level for treatment of human diseases. There are two forms of nucleic acids, DNA and RNA. DNA is a group of naturally occurring molecules found in chromosomes, the cell's genetic machinery. RNA is a group of naturally occurring informational molecules which orchestrate a cell's behavior which, in turn, regulates the action of groups of cells, including the cells which compromise the body's immune system. RNA directs the production of proteins and regulates certain cell activities including the activation of an otherwise dormant cellular defense against viruses and tumors. Our drug technology utilizes

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specifically-configured RNA. Our double-stranded RNA drug product, trademarked AmpligenŽ, is an experimental, unapproved drug, that would be administered intravenously. AmpligenŽ has been assigned the generic name rintatolimod by the United States Adopted Names Council (USANC) and has the chemical designation poly(I) poly(C12U).

Clinical trials of AmpligenŽ already conducted by us include studies of the potential treatment of CFS, Hepatitis B, HIV and cancer patients with renal cell carcinoma and malignant melanoma. All of these potential uses will require additional clinical trials to generate the safety and effectiveness data necessary to support regulatory approval.

In May 1997, the FDA approved an open-label treatment protocol, ("AMP 511"), allowing patient access to AmpligenŽ for treatment in an open-label safety study under which severely debilitated CFS patients have the opportunity to be on AmpligenŽ to treat this very serious and chronic condition. The data collected from the AMP 511 protocol through a consortium group with active clinical sites in New York City, NY, Charlotte, NC, Miami, FL, Incline Village, NV, Salt Lake City, UT and Los Altos, CA, provide safety information regarding the use of AmpligenŽ in patients with CFS. As of March 31, 2013, we had thirty-two patients participating in this open label treatment protocol with twenty-three taking treatment and nine on drug holiday. We are establishing an enlarged data base of clinical safety information which we believe will provide further documentation regarding the absence of autoimmune disease associated with AmpligenŽ treatment. We believe that continued efforts to understand existing data, and to advance the development of new data and information, will ultimately support our filings of the AmpligenŽ NDA and/or the design of future clinical studies.

On December 20, 2012, the FDA held a meeting of its Arthritis Advisory Committee ("AAC") to discuss the AmpligenŽ NDA. The AAC questions and the results of the members' voting thereon were as follows:
• "Considering the totality of the data, is there substantial evidence of efficacy for Ampligen for the treatment of patients with chronic fatigue syndrome (CFS)?" The AAC voted 9 no, 4 yes and 1 AAC member did not vote;

• "Has the safety of Ampligen been adequately assessed and characterized for the treatment of chronic fatigue syndrome (CFS)?" The AAC voted 9 no, 4 yes and 1 AAC member did not vote;

• "Is the safety profile of Ampligen adequate for approval for the treatment of CFS?" The AAC voted 8 yes, 5 no and 1 non-vote; and

• "Based on the information included in the briefing materials and presentations, has the applicant provided sufficient efficacy and safety data to support marketing of Ampligen for the treatment of CFS?" The AAC voted 8 no, 5 yes and 1 non-vote.

The AAC based its voting on a review of data from the AmpligenŽ clinical development program included as part of our NDA submission. This submission included data on nine studies conducted in patients with CFS, including two randomized double-blind, placebo-controlled studies and seven open-label studies. The trials were designed to evaluate safety, tolerability and efficacy in the approximately 845 patients (589 unique subjects suffering from severely debilitating CFS) who received AmpligenŽ.

On February 1, 2013, we received a CRL from the FDA declining to approve Hemispherx' NDA for AmpligenŽ for CFS. In its CRL, the FDA communicated that Hemispherx should conduct at least one additional clinical trial, complete various nonclinical studies and perform a number of data analyses. The additional clinical study should address, among other things, AmpligenŽ's efficacy in treating CFS patients, be of sufficient size and duration to assess the safety of AmpligenŽ and be sufficient to determine appropriate dosing. The FDA set forth the reasons for this action and provided recommendations to address certain of the outstanding issues. The FDA stated that the submitted data do not provide substantial evidence of efficacy of AmpligenŽ for the treatment of CFS and that the data do not provide sufficient information to determine whether the product is safe for use in CFS due to the limited size of the safety database and multiple discrepancies within the submitted data. In addition to the safety and effectiveness issues recommended to be addressed in at least one additional clinical trial, the CRL states that Hemispherx should conduct complete rodent carcinogenicity studies in two species prior to approval and also conduct additional animal toxicology studies providing more comprehensive evaluation of AmpligenŽ fragments and degradation products. The CRL also requests evaluation of variation between lots of AmpligenŽ tested in the development process and recommends tighter control of the AmpligenŽ manufacturing process.

In response to the CRL, we plan to avail ourselves of the opportunity for an "end-of-review" meeting with representatives of the Office of Drug Evaluation II which issued the CRL, in order to clarify and seek to narrow the outstanding issues regarding the further development of AmpligenŽ for the treatment of CFS.

FDA regulations provide a formal dispute resolution process to obtain review of any FDA decision, including a decision not to approve an NDA, by raising the matter with the supervisor of the FDA office that made the decision. The formal dispute

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resolution process exists to encourage open, prompt discussion of scientific
(including, medical) disputes and procedural (including, administrative)
disputes that arise during the drug development, new drug review, and post-marketing oversight processes of the FDA. Depending on the results of the "end-of-review" meeting, we will determine whether or not to submit a formal appeal regarding the FDA's decision under applicable FDA regulations and guidance. Please see "Risks Associated With Our Business" in Item 1A. Risk Factors below.

Until we undertake the end-of-review conference(s) with the FDA, we are unable to reasonably estimate the nature, costs, necessary efforts to obtain FDA clearance or anticipated completion dates of any additional clinical study or studies. Utilizing the industry norms for undertaking a Phase III clinical study, we estimate upon acceptance of the study's design that it would take approximately 18 months to three years to complete a new well-controlled AmpligenŽ clinical study for resubmission to the FDA. Industry norms suggest that it will require three to six months to initiate the study, one to two years to accrue and test patients, three to six months to close-out the study and file the necessary documents with the FDA. The actual duration to complete the clinical study may be different based on the final design of an acceptable Phase III clinical study design, availability of suitable participants and clinical sites along with other factors that could impact the implementation of the study, analysis of results or requirements of the FDA and/or other governmental organizations. The actual duration to complete the clinical study may be different based on the length of time it takes to design the study and obtain FDA's acceptance of the design, the final design of an acceptable Phase III clinical study design, availability of suitable participants and clinical sites along with other factors that could impact the implementation of the study, analysis of results or requirements of the FDA and/or other governmental organizations.

Alferon N InjectionŽ

Alferon N InjectionŽ is the registered trademark for our injectable formulation of natural alpha interferon, which is approved by the FDA in 1989 for the treatment of certain categories of genital warts. AlferonŽ is the only natural-source, multi-species alpha interferon currently approved for sale in the U.S. for the intralesional (within lesions) treatment of refractory (resistant to other treatment) or recurring external genital warts in patients 18 years of age or older. Certain types of human papilloma viruses ("HPV") cause genital warts, a sexually transmitted disease ("STD"). The U.S. Centers for Disease Control and Prevention ("CDC") estimates that "approximately twenty million Americans are currently infected with HPV with another six million becoming newly infected each year. HPV is so common that at least 50% of sexually active men and women get it at some point in their lives." Although they do not usually result in death, genital warts recurrence is common, cause significant morbidity and entail substantial health care costs.

Interferons are a group of proteins produced and secreted by cells to combat diseases. Researchers have identified four major classes of human interferon:
alpha, beta, gamma and omega. Alferon N InjectionŽ contains a multi-species form of alpha interferon. The world-wide market for injectable alpha interferon-based products has experienced rapid growth and various alpha interferon injectable products are approved for many major medical uses worldwide. Alpha interferons are manufactured commercially in three ways: by genetic engineering, by cell culture, and from human white blood cells. All three of these types of alpha interferon are or were approved for commercial sale in the U.S. Our natural alpha interferon is produced from human white blood cells.

The potential advantages of natural alpha interferon over recombinant (synthetic) interferon produced and marketed by other pharmaceutical firms may be based upon their respective molecular compositions. Natural alpha interferon is composed of a family of proteins containing many molecular species of interferon. In contrast, commercial recombinant alpha interferon products each contain only a single species. Researchers have reported that the various species of interferons may have differing antiviral activity depending upon the type of virus. Natural alpha interferon presents a broad complement of species, which we believe may account for its higher activity in laboratory studies. Natural alpha interferon is also glycosylated (partially covered with sugar molecules). Such glycosylation is not present on the currently U.S. marketed recombinant alpha interferons. We believe that the absence of glycosylation may be, in part, responsible for the production of interferon-neutralizing antibodies seen in patients treated with recombinant alpha interferon. Although cell culture-derived interferon is also composed of multiple glycosylated alpha interferon species, the types and relative quantity of these species are different from our natural alpha interferon.

Alferon N InjectionŽ [Interferon alfa-n3 (human leukocyte derived)] is a highly purified, natural-source, glycosylated, multi-species alpha interferon product. There are essentially no antibodies observed against natural interferon to date and the product has a relatively low side-effect profile. The recombinant DNA derived alpha interferon formulations have been reported to have decreased effectiveness after one year, probably due to neutralizing antibody formation. Neutralizing antibody formation has not been reported with the use of Alferon N InjectionŽ.

Commercial sales of Alferon N InjectionŽ were halted in March 2008 when our finished goods inventory expired. The production of Alferon N InjectionŽ from the Work-In-Process Inventory was restarted in May 2010, continued into January 2011 with its conversion into API and is completed for the related Final Lot Release Test. To formulate, fill, finish and package ("fill

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and finish") Alferon N InjectionŽ Drug Product, we require a FDA approved third party Contract Manufacturing Organization ("CMO"). In January 2012, we agreed to a Technology, Transfer, Validation and Commercial Supply Agreement with Althea Technologies, Inc. ("Althea") of San Diego, CA, regarding the fill and finish process for Alferon N InjectionŽ. In April 2012, FDA reviewers raised certain questions about the status of our existing lots of older Work-In-Process AlferonŽ materials and AlferonŽ "API", which would need to be released by the FDA before those materials could be used in commercial product.

As of March 31, 2013, all of our existing lots of AlferonŽ Work-In-Process Inventory have completed the fill, finish and packaging process with the need to undertake product quality and stability tests, the results of which would be submitted to the FDA for review. Process Validation of AlferonŽ Work-In-Process lots need to be completed. A minimum of three months of stability tests is required in a Pre-Approval Supplement ("PAS"). Upon submission of the PAS, the data would then be subjected to FDA review. The FDA could take up to six months to render an opinion as to the quality of the product as suitable for commercial sales. We are unable to provide any assurances that the FDA will approve the fill and finish product lots produced by Althea.

In the absence of FDA approvals for commercial sale of product manufactured from existing Work-In-Process inventory, commercial sales of AlferonŽ will not resume until new batches of API can be produced and released by the FDA. While at March 31, 2013 and December 31, 2012, the Work-In-Process Inventory had no manufacturing steps to be undertaken at the Company's New Brunswick, NJ facility, it will not be classified as Finished Goods until it could be confirmed by the FDA that the product can be commercially sold.

The production of new AlferonŽ API inventory will not commence until the capital improvement and validation phases are complete at our New Brunswick, NJ manufacturing facility. The validation phase of the AlferonŽ manufacturing project is currently underway. While the facility had been granted approval of its BLA by the FDA for AlferonŽ, this status will need to be reaffirmed upon the completion of the facility's enhancements prior to commercial sale of newly produced inventory product. Once we have obtained a reaffirmation of FDA BLA status and have begun production of new AlferonŽ API, we will need FDA approval as to the quality and stability of the final product. We anticipate that it will take until the second half of 2014 before we will have newly produced AlferonŽ that can be commercially sold.

In January 2012, the ANMAT approved the sale and distribution of Alferon N InjectionŽ (under the brand name "Naturaferon") in Argentina. In June 2010, Hemispherx agreed to provide GP Pharm an option to market Alferon N InjectionŽ, its FDA-approved natural interferon, in Argentina and other Latin American countries. The receipt of the ANMAT approval is the first step of a regulatory process towards the commercial sales of Naturaferon. On September 20, 2012, the Company filed with ANMAT an amended NDA for the use of Alferon N InjectionŽ in patients with chronic hepatitis C who have become refractory to recombinant interferon as a result of the appearance of neutralizing antibodies against recombinant interferon.

AlferonŽ Low Dose Oral (LDO)

AlferonŽ LDO [Low Dose Oral Interferon Alfa-n3 (Human Leukocyte Derived)] is an experimental low-dose, oral liquid formulation of Natural Alpha Interferon and like Alferon N InjectionŽ, should not cause antibody formation, which is a problem with recombinant interferon. It is an experimental immunotherapeutic believed to work by stimulating an immune cascade response in the cells of the mouth and throat, enabling it to bolster systemic immune response through the entire body by absorption through the oral mucosa. Oral interferon could be economically feasible for patients and logistically manageable in development programs in third-world countries primarily affected by influenza and other emerging viruses. Oral administration of AlferonŽ LDO, with its anticipated affordability, low toxicity, no production of antibodies, and broad range of . . .

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