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ABIO > SEC Filings for ABIO > Form 10-Q on 13-May-2013All Recent SEC Filings

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

Form 10-Q for ARCA BIOPHARMA, INC.


13-May-2013

Quarterly Report


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

This Management's Discussion and Analysis of Financial Condition and Results of Operations contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended and the Private Securities Litigation Reform Act of 1995,These statements include, but are not limited to, statements regarding the Company's anticipated timing for initiation or completion of its clinical trials for any of its product candidates; the potential for Gencaro to be an effective potential treatment for atrial fibrillation and, the Company's ability to fund future operations. Such statements are based on management's current expectations and involve risks and uncertainties. Actual results and performance could differ materially from those projected in the forward-looking statements as a result of many factors, including, without limitation, the risks and uncertainties associated with: the Company's financial resources and whether they will be sufficient to meet the Company's business objectives and operational requirements; the Company's ability to complete a strategic transaction to support the continued development Gencaro, and/or obtain additional financing; the Company's anticipated timing for initiation or completion of its clinical trials for any of its product candidates; the Company's ability to identify, develop and achieve commercial success for products and technologies; drug discovery and the regulatory approval process; estimated timelines for regulatory filings and the implications of interim or final results of the Company's clinical trials; the extent to which the Company's issued and pending patents may protect its products and technology; the potential of the Company's clinical development program to lead to the approval of the Company's New Drug Application for Gencaro; and, the impact of competitive products and technological changes. Actual results and performance could differ materially from those projected in the forward-looking statements as a result of many factors discussed herein and elsewhere. These and other factors are identified and described in more detail in ARCA's filings with the SEC, including without limitation the Company's annual report on Form 10-K for the year ended December 31, 2012, as amended, the Company's Registration Statement on Form S-1 (Registration No. 333-187508), and subsequent filings. Forward-looking statements may be identified by words including "will," "plan," "anticipate," "believe," "intend," "estimates," "expect," "should," "may," "potential" and similar expressions. The Company disclaims any intent or obligation to update these forward-looking statements.

The terms "ARCA," "we," "us," "our" and similar terms refer to ARCA biopharma, Inc.

Overview

ARCA is a biopharmaceutical company whose principal focus is developing genetically-targeted therapies for cardiovascular diseases. Our lead product candidate is Gencaro™ (bucindolol hydrochloride), a pharmacologically unique beta-blocker and mild vasodilator that we plan to evaluate in a new clinical trial for the treatment of atrial fibrillation, or AF, in patients with heart failure and left ventricular dysfunction, or HFREF. We have identified common genetic variations in receptors in the cardiovascular system that we believe interact with Gencaro's pharmacology and may predict patient response to the drug.

We plan to test this hypothesis in a Phase 2b/3 clinical trial of Gencaro, known as GENETIC-AF. We plan to pursue this indication for Gencaro because data from the previously conducted Phase 3 HF trial of Gencaro in 2,708 HF patients, or the BEST trial, suggest that Gencaro may be successful in reducing or preventing AF.

AF is a disorder in which the normally regular and coordinated contraction pattern of the heart's two small upper chambers (the atria) becomes irregular and uncoordinated. The irregular contraction pattern associated with AF causes blood to pool in the atria, predisposing the formation of clots potentially resulting in stroke. AF is considered an epidemic cardiovascular disease with an estimated prevalence of at least 2.7 million Americans in 2010. The approved therapies for the treatment or prevention AF have certain disadvantages in HFREF patients, such as toxic or cardiovascular adverse effects, and most of the approved drugs for AF are contra indicated or have warnings in their prescribing information for such patients. We believe there is an unmet medical need for new AF treatments that have fewer side effects than currently available therapies and are more effective, particularly in HFREF patients.

The GENETIC-AF trial is designed to compare Gencaro to the beta-blocker metoprolol CR/XL in patients with the beta-1 389 arginine homozygous genotype, which we believe responds most favorably to Gencaro. We believe data from the BEST trial indicate that Gencaro may have a genetically regulated effect in reducing or preventing AF, whereas we believe the therapeutic benefit of metoprolol CR/XL does not appear to be enhanced in patients with this genotype. A retrospective analysis of data from the BEST trial shows that the entire cohort of patients in the BEST trial treated with Gencaro had a 41% reduction in the risk of new onset AF (time-to-event) compared to placebo (p = 0.0004). In the BEST DNA substudy, patients with the beta-1 389 arginine homozygous genotype experienced a 74% (p = 0.0003) reduction in risk of AF when receiving Gencaro, based on the same analysis. The beta-1 389 arginine homozygous genotype was present in about 47% of the patients in the BEST pharmacogenetic substudy, and we estimate it is present in about 50% of the US general population.

GENETIC-AF is planned as a multi-center, randomized, double-blind clinical trial designed to compare the safety and efficacy of Gencaro to an active comparator, metoprolol CR/XL, in beta-1 389 arginine homozygous genotype HFREF patients recently


diagnosed with persistent AF. The primary endpoint will be measured over a twenty-four week period after the patient's AF has been electrically cardioverted through the administration of a direct current shock to restore normal heart rhythm. We have created an adaptive design for GENETIC-AF, which we plan to initiate with a Phase 2b study in approximately 200 HFREF patients with recent onset, persistent AF who also have a genetic variant of the beta-1 adrenergic receptor which we believe responds most favorably to Gencaro. The secondary endpoint of the proposed Phase 2b portion of the trial will be AF burden, as defined as a patient's actual percentage of time in AF, regardless of symptoms. Under the proposed design, all 200 patients in the Phase 2b portion of the trial will have AF burden measured by continuous monitoring, either by previously implanted cardiac resynchronization or defibrillation devices, or newly or previously inserted loop recorders. At the end of enrollment of the first 200 patients, the primary endpoint of the combination of recurrent symptomatic AF or all-cause mortality, and the secondary endpoint of AF burden will be evaluated by the trial's Data and Safety Monitoring Board for evidence of an efficacy signal. If a sufficient efficacy signal is detected and acceptable safety is observed, the trial could then proceed to the Phase 3 portion of the trial. We estimate that GENETIC-AF could begin approximately six months after we obtain sufficient funding and we believe the Phase 2b study would take approximately two years to complete after initiation.

Medtronic, Inc., a leader in medical technologies to improve the treatment of chronic diseases, including cardiac rhythm disorders, has entered into a Clinical Trial Collaboration Agreement, dated April 18, 2013 (the "Agreement") with us to collaborate on the Phase 2b portion of GENETIC-AF. Under the collaboration, we plan, with the support of Medtronic, to conduct a substudy that will include continuous monitoring of the cardiac rhythms of all 200 patient enrolled during the Phase 2b portion of GENETIC-AF. Each patient will have heart rhythm monitoring via a Medtronic device, either a previously implanted cardiac resynchronization or defibrillation device, or a previously or newly inserted Reveal loop recorder. The collaboration substudy will measure AF burden, defined as a patient's actual time in AF regardless of symptoms. In determining the presence of an efficacy signal in the Phase 2b portion of the trial. AF burden will be evaluated along with time to mortality or recurrent AF, which will also be the Phase 3 primary endpoint.

The collaboration will be administered by a joint ARCA-Medtronic committee. Medtronic will use its proprietary CareLink System to collect and analyze the cardiac rhythm data from the implanted Medtronic devices and provide the data to ARCA at the close of the Phase 2b portion of the trial. The parties will negotiate in good faith to agree on the substudy protocol, specifying the elements of the substudy and of the cardiac rhythm data collection and analysis to be provided for the substudy by Medtronic by August 15, 2013. Medtronic will support the reimbursement process for patients enrolled in the Phase 2b portion, and will provide financial support of unreimbursed costs for a certain number of patients in the Phase 2b portion up to a certain maximum amount per patient. If GENETIC-AF proceeds to Phase 3, ARCA will seek to enroll an additional 100 patients in the substudy, and Medtronic will provide the agreed-on CareLink System cardiac rhythm data collection and analysis for the Phase 3 portion of the substudy, and support the reimbursement process.

We have been granted patents in the U.S., Europe, and other jurisdictions for methods of treating AF and HF patients with Gencaro based on genetic testing, which we believe will provide market exclusivity for these uses of Gencaro into at least 2026 in the U.S. and into 2025 in Europe. In addition, we believe that if Gencaro is approved, a Gencaro patent will be eligible for patent term extension based on our current clinical trial plans which, if granted, may provide market exclusivity for Gencaro into 2029 or 2030 in the U.S. and Europe.

To support the continued development of Gencaro, including the planned GENETIC-AF clinical trial and our ongoing operations, we are pursuing a public equity offering to fund the Phase 2b portion of the GENETIC-AF trial and our general and administrative costs through its projected completion. We may also seek additional funding that could allow us to operate while we continue to pursue financing options, a strategic combination, partnering, and licensing opportunities. If we are delayed in obtaining funding or are unable to complete a strategic transaction, we may discontinue our development activities on Gencaro or discontinue our operations. We believe our cash and cash equivalents balance as of March 31, 2013 will be sufficient to fund our operations, at our current cost structure, through September 2013. We are unable to assert that our current cash and cash equivalents are sufficient to fund operations beyond that date, and as a result, there is substantial doubt about our ability to continue as a going concern beyond September 2013. Changing circumstances may cause us to consume capital significantly faster or slower than we currently anticipate. We have based these estimates on assumptions that may prove to be wrong, and we could exhaust our available financial resources sooner than we currently anticipate.

Results of Operations

Research and Development Expenses

Research and development, or R&D, expense is comprised of research & development, regulatory and manufacturing process development activities and costs. Our R&D expense continues to be almost entirely generated by our activities relating to the development of Gencaro. Research and Development expense for the three months ended March 31, 2013 was $181,000 compared to $422,000 for the corresponding period of 2012, a decrease of approximately $241,000.


Research & development expense decreased $135,000 for the three months ended March 31, 2013 due to reduced personnel costs from staff furloughs implemented in the third quarter of 2012 and decreased consulting costs attributable to reductions in our clinical development activities compared to the corresponding period of 2012.

Regulatory and manufacturing process costs decreased $105,000 for the three months ended March 31, 2013 compared to the corresponding periods of 2012. The decrease for the three months ended March 31,2013 compared to the corresponding period of 2012 is primarily due to reduced personnel costs from staff furloughs implemented in the third quarter of 2012.

Our R&D expenses are contingent upon our ability to raise substantial additional funding or complete a strategic transaction. Should we receive funds from one or a combination of these sources, R&D expense in future periods could be substantially higher as we initiate our planned GENETIC-AF clinical trial. Until substantial additional funding is obtained, R&D expenses for the remainder of 2013 are expected to be comparable to those incurred in the respective quarters of 2012.

Selling, General and Administrative Expenses

Selling, general and administrative expenses, or SG&A, primarily consist of personnel costs, consulting and professional fees, insurance, facilities and depreciation expenses, and various other administrative costs.

SG&A expense was $889,000 for the three months ended March 31, 2013 as compared to $984,000 for the corresponding period in 2012, a decrease of $95,000. The decrease in the three months ended March 31, 2013 as compared to the corresponding period of 2012 is comprised of reduced personnel, travel and board of director costs of approximately $230,000 attributable to staff furloughs and other cost reduction efforts implemented in the third quarter of 2012. These decreases were partially offset by increased costs for accounting, legal, consulting, and outside support services of approximately $136,000, which increases are primarily attributable to the special proxy report and shareholder meeting held during the quarter to approve the 1 for 6 reverse split of the common stock.

SG&A expenses for the remainder of 2013 are expected to be comparable to 2012 levels but are contingent upon our ability to raise substantial additional funding or complete a strategic transaction. Should we receive funds from one or a combination of these sources, SG&A expense in future periods could be substantially higher as we increase our activities to support initiation of our GENETIC-AF clinical trial.

Interest and Other Income

Interest and other income was less than $1,000 in the three months ended March 31, 2013 and March 31, 2012. The amounts and related change between years are nominal to our overall operations. We expect interest income to continue to be nominal in 2013 due to low investment yields and declining cash and cash equivalent investment balances.

Interest and Other Expense

Interest and other expense was approximately $1,000 in the three months ended March 31, 2013 and March 31, 2012. Based on our current capital structure, interest expense for 2013 is expected to be minimal.

Liquidity and Capital Resources

Cash and Cash Equivalents



                                           March 31,    December 31,
                                             2013           2012

                Cash and cash equivalents    $ 3,537         $ 2,920

As of March 31, 2013, we had total cash and cash equivalents of approximately $3.5 million, as compared to $2.9 million as of December 31, 2012. The net increase of $.6 million in the three month period reflects the $1.4 million of net proceeds from our stock offerings completed during the quarter, less approximately $764,000 of cash used to fund operating activities for the three months ended March 31, 2013.


Cash Flows from Operating, Investing and Financing Activities



                                                 Three Months Ended March 31,
                                                   2013              2012

     Net cash (used in) provided by:
     Operating activities                           $ (764)          $ (1,656)
     Investing activities                               (9)                 -
     Financing activities                             1,390               (60)
     Net decrease in cash and cash equivalents        $ 617          $ (1,716)

Net cash used in operating activities for the three months ended March 31, 2013 decreased approximately $892,000 compared with the 2012 period primarily due to decreased R&D and SG&A expenses discussed above and due to increased trade payable and accrued liabilities.

Net cash used in investing activities for the three months ended March 31, 2013 was approximately $9,000 representing investment in capitalized equipment compared to $0 used in investing activities in the three months ended March 31, 2012.

Net cash provided by financing activities was $1.4 million for the three months ended March 31, 2013 representing the net proceeds from two equity financings completed during the quarter. Net cash used in financing activities of $60,000 for the three months ended March 31, 2012 were costs incurred in 2012 for preparing and filing the registration statement required for our equity financing completed in December 2011.

Sources and Uses of Capital

Our primary sources of liquidity to date have been capital raised from issuances of shares of our common and preferred stock and funds provided by the merger with Nuvelo. The primary uses of our capital resources to date have been to fund operating activities, including research, clinical development and drug manufacturing expenses, license payments, and spending on capital items.

Considering the substantial additional time and costs associated with the development of Gencaro and our need to raise a significant amount of capital on acceptable terms to finance the planned GENETIC-AF clinical trial and our ongoing operations, we are evaluating strategic alternatives for funding our operations and development programs. We plan to pursue a public equity offering to fund the Phase 2b portion of the GENETIC-AF trial and our general and administrative costs through its projected completion. We may also seek additional funding that could allow us to operate while we continue to pursue financing alternatives, a strategic combination, or partnership to support the continued clinical development of Gencaro, including the planned GENETIC-AF clinical trial.

To date, we have completed two equity-financing transactions in 2013 and raised approximately $1.4 million, net of offering costs. These financings have allowed us to continue operations while we pursue financing options, a strategic combination, partnering, and licensing opportunities, and we may seek more interim funding in 2013. On January 22, 2013, we sold approximately $1 million of our common stock and warrants for common stock in a private placement transaction with accredited investors and our Chief Executive Officer. We issued 356,430 shares of common stock together with warrants to purchase 249,501 shares of common stock. The net proceeds, after deducting placement agent fees and other offering expenses, were approximately $805,000, and these proceeds are being used solely for general working capital purposes. Each unit, consisting of a share of common stock and a warrant to purchase 0.70 shares of common stock, was sold at a purchase price of $2.81 per unit. The warrants were exercisable upon issuance, expire seven years from the date of issuance, and have an exercise price of $2.28 per share. Pursuant to the terms of the Registration Rights Agreements (the Rights Agreements) entered into as part of this and prior Private Placement transactions, we filed a registration statement for the resale of the shares underlying the units sold in these private placements. That registration statement was declared effective by the Securities and Exchange Commission on February 14, 2013. On January 31, 2013, we sold approximately $730,000 of ARCA's common stock and warrants for common stock in a Registered Direct Offering in which we issued 164,636 shares of common stock and warrants to purchase 65,855 shares of common stock. The net proceeds, after deducting placement agent fees and other offering expenses payable by us, was approximately $616,000, and these proceeds are being used solely for general working capital purposes. Each unit, consisting of a share of common stock and a warrant to purchase 0.40 shares of common stock, was sold at a purchase price of $4.43 per unit. The warrants were exercisable upon issuance, expire five years from the date of issuance, and have an exercise price of $4.13 per share. The Registered Direct Offering was effected pursuant to a prospectus supplement filed with the Securities and Exchange Commission on February 1, 2013. The warrant agreements provide for settlement of the warrants in unregistered shares should an effective registration statement or current prospectus not be in place at the time a warrant is exercised.


To support the continued development of Gencaro, including the planned GENETIC-AF clinical trial and our ongoing operations, we are pursuing a public equity offering to fund the Phase 2b portion of the GENETIC-AF trial and our general and administrative costs through the trial's projected completion. Our liquidity, and ability to raise additional capital or complete any strategic transaction, depends on a number of factors, including, but not limited to, the following:

· the costs and timing for GENETIC-AF clinical trial in order to gain possible FDA approval for Gencaro;

· the market price of our stock and the availability and cost of additional equity capital from existing and potential new investors;

· our ability to retain the listing of our common stock on the Nasdaq Capital Market;

· general economic and industry conditions affecting the availability and cost of capital;

· potential receipt of government or third party funding to further develop Gencaro or rNAPc2;

· our ability to control costs associated with our operations;

· the costs of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights; and

· the terms and conditions of our existing collaborative and licensing agreements.

The sale of additional equity or convertible debt securities would likely result in substantial additional dilution to our existing stockholders. If we raise additional funds through the incurrence of indebtedness, the obligations related to such indebtedness would be senior to rights of holders of our capital stock and could contain covenants that would restrict our operations. We also cannot predict what consideration might be available, if any, to us or our stockholders, in connection with any strategic transaction. Should strategic alternatives or additional capital not be available to us in the near term, or not be available on acceptable terms, we may be unable to realize value from our assets and discharge our liabilities in the normal course of business which may, among other alternatives, cause us to further delay, substantially reduce or discontinue operational activities to conserve its cash resources.

We currently believe our cash and cash equivalents balance as of March 31, 2013 will be sufficient to fund our operations, at our current cost structure, through September 30, 2013. However, we are unable to assert that these funds are sufficient to fund operations beyond that date, and as a result, there is substantial doubt about our ability to continue as a going concern beyond September 30, 2013. The consolidated financial statements contained in this report have been prepared with the assumption that we will continue as a going concern and will be able to realize our assets and discharge our liabilities in the normal course of business and do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from our inability to continue as a going concern. We may not be able to raise sufficient capital on acceptable terms or at all to continue development of Gencaro or to continue operations and may not be able to execute any strategic transaction.

Critical Accounting Policies and Estimates

A critical accounting policy is one that is both important to the portrayal of our financial condition and results of operation and requires our management's most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Our significant accounting policies are described in Note 1 of "Notes to the Consolidated Financial Statements" included within our 2012 Annual Report on Form 10-K filed with the Securities and Exchange Commission. Following is a discussion of the accounting policies that we believe involve the most difficult, subjective or complex judgments and estimates.

Long-Lived Assets and Impairments

We review long-lived assets whenever events or changes in circumstances indicate that the carrying value of such assets may not be recoverable. As a development stage company, we have not generated positive cash flows from operations, and such cash flows may not materialize for a significant period in the future, if ever. Additionally, we may make changes to our business plan that would result in changes to expected cash flows from long-lived assets. It is reasonably possible that future evaluations of long-lived assets, including changes from our current expected use of long-lived assets, may result in impairments.

Accrued Expenses

As part of the process of preparing our financial statements, we are required to estimate accrued expenses. This process involves identifying services that third parties have performed on our the Company's behalf and estimating the level of service performed and the associated cost incurred for these services as of the balance sheet date. Examples of estimated accrued expenses include contract service fees, such as fees payable to contract manufacturers in connection with the production of materials related to our drug product, and professional service fees, such as attorneys, consultants, and clinical research organizations. We develop estimates of liabilities using our judgment based upon the facts and circumstances known at the time.


Share-based Compensation

Our share-based compensation cost recognized includes: (a) compensation costs for current period vesting of all share-based awards granted prior to January 1, 2006, based on the intrinsic value method, and (b) compensation cost for current period vesting of all share-based awards granted or modified subsequent to January 1, 2006, based on the estimated grant date fair value. We recognize compensation costs for our share-based awards on a straight-line basis over the requisite service period for the entire award, as adjusted for expected forfeitures.

From Inception through December 31, 2005, we accounted for issuances of share-based compensation under the intrinsic-value-based method of accounting. Under this method, compensation expense is generally recorded on the date of grant only if the estimated fair value of the underlying stock exceeds the exercise price.

Off-Balance Sheet Arrangements

We have not participated in any transactions with unconsolidated entities, such . . .

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