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LJPC > SEC Filings for LJPC > Form 10-Q on 19-Jul-2013All Recent SEC Filings

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Form 10-Q for LA JOLLA PHARMACEUTICAL CO


19-Jul-2013

Quarterly Report


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

Forward-Looking Statements

The forward-looking statements in this report involve significant risks, assumptions and uncertainties, and a number of factors, both foreseen and unforeseen, could cause actual results to differ materially from our current expectations. Forward-looking statements include those that express a plan, belief, expectation, estimation, anticipation, intent, contingency, future development or similar expression. Accordingly, you should not rely upon forward-looking statements as predictions of future events. The outcome of the events described in these forward-looking statements are subject to the risks, uncertainties and other factors described in "Management's Discussion and Analysis of Financial Condition and Results of Operations" and in the "Risk Factors" contained in our Annual Report on Form 10-K for the year ended December 31, 2012, and in other reports and registration statements that we file with the Securities and Exchange Commission from time to time and as updated in Part II, Item 1A. "Risk Factors" contained in this Quarterly Report on Form 10-Q. We expressly disclaim any intent to update forward-looking statements.

Overview

La Jolla Pharmaceutical Company is a biopharmaceutical company focused on the discovery, development and commercialization of innovative therapeutics for chronic organ failure and cancer. Our drug development efforts are focused on two product candidates: GCS-100 and LJPC-501. GCS-100 targets the galectin-3 protein, which, when overproduced by the human body, has been associated with chronic organ failure and cancer. In January 2013, we initiated a Phase 1/2 clinical trial with GCS-100 for the treatment of chronic kidney disease ("CKD"). The Phase 1 portion of the clinical trial was successfully completed on May 6, 2013. After analysis of the data from the Phase 1/2 clinical study we decided to suspend the Phase 2 portion and expanded it to a three arm randomized 117 patient Phase 2 clinical study. We have started the Phase 2 randomized single blinded clinical trial of GCS-100 for the treatment of CKD. LJPC-501 is a peptide agonist of the renin-angiotensin system, which is designed to help restore kidney function in patients with hepatorenal syndrome ("HRS"). We filed an Investigational New Drug Application ("IND") with the Food and Drug Administration ("FDA") for LJPC-501 on May 31 2013, received acceptance to move forward with our planned Phase 1 clinical trial and plan to initiate the Phase 1 clinical trial in HRS by the end of 2013. On July 12, 2013 the company received and "Orphan Drug Designation" form the FDA Office of Orphan Products Development for LJPC-0712 for treatment on Niemann-Pick type C disease.
LJPC-0712 is commonly known as allopregnanolone, a neurosteriod present in the blood and brain. We also plan to evaluate other opportunities for potential product candidates for the treatment of unmet medical needs.

GCS-100 Overview

GCS-100 is a complex polysaccharide derived from pectin that binds to, and blocks the activity of galectin-3, a type of galectin. Galectins are a member of a family of proteins in the body called lectins. These proteins interact with carbohydrate sugars located in, on the surface of, and in between cells. This interaction causes the cells to change behavior, including cell movement, multiplication, and other cellular functions. The interactions between lectins and their target carbohydrate sugars occur via a carbohydrate recognition


domain, or CRD, within the lectin. Galectins are a subfamily of lectins that have a CRD that bind specifically to -galactoside sugar molecules.

Galectins have a broad range of functions, including regulation of cell survival and adhesion, promotion of cell-to-cell interactions, growth of blood vessels, regulation of the immune response and inflammation.

Over-expression of galectin-3 has been implicated in a number of human diseases, including chronic organ failure and cancer. This makes modulation of the activity of galectin-3 an attractive target for therapy in these diseases.

Current Clinical Study

In December 2012, we announced that the FDA's Division of Cardiovascular and Renal Products had accepted our IND, which included a clinical trial protocol designed to study GCS-100 in patients with CKD. In January 2013, we initiated a Phase 1/2 clinical trial with GCS-100 in patients with CKD. The trial is designed in two parts. Part A (Phase 1) will evaluate the safety of single, ascending doses of GCS-100 and determine a maximum tolerated dose. Part B (Phase
2) will evaluate the safety and activity of multiple doses of GCS-100. Part B is designed to measure activity and will include various markers of kidney function. Part A of the clinical trial has been completed and Part B has been suspended.

Part B of the Phase 1/2 trial was suspended after analysis of the Phase 1 data in order to move forward with a new Phase 2 randomized single blinded clinical study of GCS-100 for the treatment of CKD. The Phase 2 clinical trial will dose up to 117 patients weekly up to eight weeks randomized 1:1:1 in three dosing groups, placebo, 1.5 mg/m2, and 30 mg/m2, with the primary endpoint being change in eGFR from baseline compared to placebo and the secondary endpoint being safety. This Phase 2 trial has stared to enroll patients and we expect to receive data from the study during the first quarter of 2014.

LJPC-501 Overview

LJPC-501 is a peptide agonist of the renin-angiotensin system that acts to help the kidneys balance body fluids and electrolytes. Studies have shown that LJPC-501 may improve renal function in patients with HRS. HRS is a life-threatening form of progressive renal failure in patients with liver cirrhosis or fulminant liver failure. In these patients, the diseased liver secretes vasodilator substances (e.g., nitric oxide and prostaglandins) into the bloodstream that cause under-filling of blood vessels. This low-blood-pressure state causes a reduction in blood flow to the kidneys. As a means to restore systemic blood pressure, the kidneys induce both sodium and water retention, which contribute to ascites, a major complication associated with HRS.

HRS is categorized into two types, based on the rapidity of the progression of renal failure as measured by a marker called serum creatinine. Type 1 HRS is the more rapidly progressing type and is characterized by a 100% increase in serum creatinine to > 2.5 mg/dL within two weeks. Fewer than 10% of people with Type 1 HRS survive hospitalization, and the median survival is only a few weeks. Type 2 HRS is slower progressing, with serum creatinine rising gradually; however, patients with Type 2 HRS can develop sudden renal failure and progress to Type 1 HRS. Although ascites occurs in both Type 1 and Type 2 HRS, recurrent ascites is a major clinical characteristic of Type 2 HRS patients, and median survival is only four to six months. We estimate that HRS affects an estimated 90,000 people in the United States, and most of these patients will die from this disease.

In February 2013, we conducted a meeting with the FDA to discuss the design for a clinical trial studying LJPC-501 in patients suffering from HRS. Based on feedback from this meeting, we filed an IND on May 31, 2013 and received acceptance to move forward with our planned Phase 1 clinical study of LJPC-501 for the treatment of HRS. We plan to initiate the Phase 1 clinical trial of LJPC-501for the treatment of HRS by the end of 2013.

Critical Accounting Policies and Estimates

The discussion and analysis of our financial condition and results of operations are based on our unaudited condensed financial statements, which have been prepared in accordance with United States generally accepted accounting principles. The preparation of these unaudited condensed financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We evaluate our estimates on an ongoing basis. We base our estimates on historical experience and on other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ materially from these estimates under different assumptions or conditions.

There have been no material changes to the critical accounting policies as previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2012 filed on April 1, 2013.


Results of Operations

Revenue. There was no revenue for the three and six months ended June 30, 2013 and 2012.

Research and Development Expense. During the three months ended June 30, 2013, we incurred $0.7 million in research and development expense, which was primarily related to costs associated with the Phase 1 clinical study and preparation for the Phase 2 clinical study of GCS-100, and $0.3 million in stock compensation expense, compared to $0.03 million in research and development expense during the three months ended June 30, 2012, which was primarily related to costs associated with the preclinical study of GCS-100. We expect research and development expenditures to continue to increase going forward as we continue to develop GCS-100 and commence clinical studies of LJPC-501.

During the six months ended June 30, 2013, we incurred $1.4 million in research and development expense, which was primarily related to costs associated with the Phase 1 clinical study of GCS-100, and $0.7 million in stock compensation expense compared to $0.04 million in research and development expense during the six months ended June 30, 2012, which was primarily related to costs associated with the preclinical study of GCS-100.

General and Administrative Expense. During the three months ended June 30, 2013, general and administrative expense decreased to $2.5 million, compared with $2.9 million for the three months ended June 30, 2012. There was a decrease of $0.4 million in general and administrative expenses for the three months ended June 30, 2013 compared to the same period ended June 30, 2012 due to the absence of legal and other fees associated with the reincorporation in California and the 2012 annual shareholders meeting.

During the six months ended June 30, 2013, general and administrative expense increased to $6.0 million, compared with $3.5 million for the six months ended June 30, 2012. The increase is due to an increase in stock compensation expense of $2.5 million for the six months ended June 30, 2013. During the six months ended June 30, 2013 and June 30, 2012 there was $5.5 million and $3.0 million in stock compensation expense, respectively. After the removal of stock compensation expense, there is no change in general and administrative expenses for the six months ended June 30, 2013 compared to the six months ended June 30, 2012.

Non-Operating Income and Expense. During the three months ended June 30, 2012, non-operating expense as a result of adjustments to the fair value of derivative liabilities was $4.5 million. During the six months ended June 30, 2012, non-operating income as a result of adjustments to the fair value of derivative liabilities was $1.5 million. All derivative liabilities were removed effective December 31, 2012. The removal of the derivative liabilities was due to the removal of the redemption features, removal of the full-ratchet anti-dilution features of the Series C-12 Preferred, Series C-22 Preferred, and the Series D-12 Preferred and the relinquishment of the Series D-22 Warrants.

Other Income/Expense. Other income and other expense, net, for the three months ended June 30, 2013 was $1,000 compared to $1,000 of income for the three months ended June 30, 2012.

During the six months ended June 30, 2013 other income and other expense, net was $2,000 compared to $2,000 of income for the three months ended June 30, 2012.

Preferred Stock Dividend. We accrued dividends payable in-kind on the outstanding Series C-12 Preferred and Series C-22 Preferred of $0.1 million and $0.1 million for the three and six months ended June 30, 2013, respectively. During the three and six months ended June 30, 2012 we accrued $0.1 million and $0.1 million, respectively, for dividends payable in-kind on the outstanding Series C-12 Preferred.

Liquidity and Capital Resources

From inception through June 30, 2013, we have incurred a cumulative net loss of approximately $454.7 million and have financed our operations through public and private offerings of securities, revenues from collaborative agreements, equipment financings and interest income on invested cash balances. From inception through June 30, 2013, we have raised approximately $418.0 million in net proceeds from sales of equity securities.

At June 30, 2013, we had $1.8 million in cash, as compared to $3.4 million of cash at December 31, 2012. At June 30, 2013 we had positive working capital of $1.6 million, compared to negative working capital of $10.1 million at June 30, 2012. Prior to December 31, 2012 our working capital had been largely driven by our derivative liability obligations, which have been eliminated entirely as of December 31, 2012. The decrease in cash resulted from the use of our financial resources to fund our general corporate operations.

In February 2013, we signed a lease agreement (that became effective on April 22, 2013) for office space that we moved into on March 23, 2013. From June 2011 until March 2013, we had a short-term lease for temporary office space.


Effective December 31, 2012, our preferred stockholders exercised a portion of their Series C-22 Warrants, which resulted in the Company receiving $500,000 in net proceeds.

As we use our current cash balances and due to the expansion of the GCS-100 Phase 2 clinical trial, we will need additional capital. We continue to look for alternative sources of funding which, even if available, may be on terms substantially less favorable than current market conditions. Currently we have $10.1 million of outstanding warrants for preferred shares that are in-the-money but do not have a required exercise. If we are unable to raise adequate capital, we may be required to delay our clinical development of GCS-100, LJPC-501 and other research and development operations.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in our financial condition, expenses, results of operations, liquidity, capital expenditures or capital resources.

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