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

Show all filings for ARCA BIOPHARMA, INC.

Form 10-Q for ARCA BIOPHARMA, INC.


13-Aug-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

We are 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.

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.

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 in HFREF patients recently diagnosed with persistent AF and having beta-1 389 arginine homozygous genotype. The primary endpoint of GENETIC-AF, time to recurrent symptomatic AF or mortality, 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 have a genetic variant of the beta-1 adrenergic receptor that we believe responds most favorably to Gencaro. In addition to measuring the primary endpoint of recurrent symptomatic AF or all-cause mortality, an additional efficacy measure in the Phase 2B portion of GENETIC-AF will be AF burden, defined as a patient's percentage of time in AF per day, regardless of symptoms. 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. The GENETIC-AF Data Safety Monitoring Board (DSMB) will analyze selected data from the Phase 2B portion of the trial and determine whether the trial should proceed to Phase 3 and enroll an additional 420 patients. The DSMB will make their determination based on analysis of selected trial data after 200 patients have been enrolled and have completed 24 weeks of follow-up, the period for measuring the trial's primary end-point. The interim analysis will focus on available data regarding AF event rates, AF burden, and safety. Should the DSMB interim analysis conclude the data is consistent with the pre-trial statistical assumptions and


that the data indicates potential for achieving statistical significance for the Phase 3 endpoint, then the DSMB may recommend the study proceed to Phase 3. The DSMB may also recommend changes to the study design before potentially proceeding to Phase 3, or it may recommend that the study not proceed to Phase
3. The Company believes the Phase 2B portion of the study would take approximately two and one-half years to complete from the time the first patient is enrolled until the planned DSMB interim analysis of data from the initial 200 patients. The trial is designed to compare Gencaro to the beta-blocker Toprol 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 Toprol 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.

Medtronic, Inc., a leader in medical technologies to improve the treatment of chronic diseases including cardiac rhythm disorders, has signed a collaboration agreement with us to collaborate on the GENETIC-AF trial. Under the collaboration with Medtronic, ARCA plans to conduct a substudy that will include continuous monitoring of the cardiac rhythms of all 200 patients enrolled during the Phase 2B portion, and an additional 100 patients in the Phase 3 portion, of GENETIC-AF. 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 us at the close of the Phase 2B portion of the trial. 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, we 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, we completed a public equity offering in June 2013 to initiate the Phase 2B/3 GENETIC-AF trial and fund ongoing operations. In light of the substantial additional time and costs associated with the development of Gencaro, we will need to raise a significant amount of capital on acceptable terms to finance the completion of GENETIC-AF and our ongoing operations. We anticipate that our current cash and cash equivalents will be sufficient to fund our operations through at least the end of 2014. However, 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 clinical 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 June 30, 2013 was $246,000 compared to $322,000 for the corresponding period of 2012, a decrease of approximately $76,000. R&D expense was $427,000 for the six months ended June 30, 2013 as compared to $744,000 for the corresponding period of 2012, a decrease of $317,000.

Clinical research & development expense decreased $79,000 for the three months and $163,000 for the six months ended June 30, 2013 primarily due to reduced personnel costs from staff furloughs implemented in the third quarter of 2012.
Clinical research & development expense increased $44,000 for the three months ended June 30, 2013 primarily due to increased consulting costs attributable to the restart of our clinical development activities compared to the corresponding period of 2012.

Regulatory and manufacturing process costs decreased $40,000 for the three months and $145,000 for the six months ended June 30, 2013 compared to the corresponding periods of 2012. The decreases in both the three and six month periods ended June 30, 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.

R&D expenses for the remainder of 2013 are expected to increase from those of the first half of 2013 as we initiate our GENETIC-AF clinical trial.


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 $952,000 for the three months ended June 30, 2013 as compared to $823,000 for the corresponding period in 2012, an increase of $129,000. For both of the six month periods ended June 30, 2013 and 2012, SG&A expense was approximately $1.8 million. The increase in the three months ended June 30, 2013 as compared to the corresponding period of 2012 is comprised of increased personnel costs of approximately $96,000 attributable to bonus payments made in June 2013, and an increase in consulting costs of approximately $47,000 primarily attributable to activities supporting our financing efforts.

In the six months ended June 30, 2013 as compared to the corresponding period of 2012, total SG&A costs increased approximately $34,000. The change included increased costs for legal, consulting , and outside support services of approximately $175,000 primarily attributable to the special shareholder meeting held in the first quarter of 2013 and in support of our financing efforts.
These increases were offset by reduced personnel, travel, and board of director costs of approximately $134,000 attributable to staff furloughs and other cost reduction efforts implemented in the third quarter of 2012.

SG&A expenses for the remainder of 2013 are expected to increase from those of the first half of 2013 as we increase our activities to support initiation of our GENETIC-AF clinical trial.

Interest and Other Income

Interest and other income was $1,000 in the three months and six months ended June 30, 2013 and June 30 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.

Interest and Other Expense

Interest and other expense was approximately $2,000 in the three months ended June 30, 2013 and June 30, 2012, and $3,000 for the six months ended June 30, 2013 and June 30, 2012. Based on our current capital structure, interest expense for 2013 is expected to be minimal.

Liquidity and Capital Resources

Cash and Cash Equivalents





                                       June 30,          December 31,
                                         2013                2012

             Cash and cash equivalents $  20,374         $       2,920

As of June 30, 2013, we had total cash and cash equivalents of approximately $20.4 million, as compared to $2.9 million as of December 31, 2012. The net increase of $17.5 million in the six month period reflects the $19.3 million of net proceeds from our stock offerings completed, less approximately $1.7 million of cash used to fund operating activities and approximately $109,000 in payments on a vendor financing arrangement during the six months ended June 30, 2013.

Cash Flows from Operating, Investing and Financing Activities





                                                       Six Months Ended June 30,
                                                        2013                2012
Net cash (used in) provided by:
Operating activities                                 $    (1,740 )        $  (2,633 )
Investing activities                                         (17 )               (1 )
Financing activities                                      19,211               (127 )
Net increase (decrease) in cash and cash equivalents $    17,454          $  (2,761 )


Net cash used in operating activities for the six months ended June 30, 2013 decreased approximately $893,000 compared with the same period in 2012 primarily due to decreased R&D and SG&A expenses discussed above and due to increased accounts payable and accrued liabilities.

Net cash used in investing activities for the six months ended June 30, 2013 was approximately $17,000, representing investment in capitalized equipment compared to $1,000 used in investing activities in the six months ended June 30, 2012.

Net cash provided by financing activities was $19.2 million for the six months ended June 30, 2013 representing $19.3 million of net proceeds from three equity financings completed during the period, less $109,000 in payments on a vendor finance agreement. Net cash used in financing activities of $127,000 for the six months ended June 30, 2012 consisted of $61,000 in costs incurred in 2012 related to the equity financing completed in December 2011 and $66,000 in payments on a vendor finance agreement.

Sources and Uses of Capital

Our primary sources of liquidity to date have been capital raised from issuances of shares of our preferred and common 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.

We have completed three equity-financing transactions in 2013 and raised approximately $19.3 million, net of offering costs. 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.
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. 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.

On June 4, 2013, we sold shares of our Series A Convertible Preferred Stock (Preferred Stock) and warrants to purchase common stock in a public offering for aggregate gross proceeds of $20 million. We issued 125,000 shares of Preferred Stock and warrants to up to purchase 6,250,000 shares of common stock at a at a purchase price of $160 per share of Preferred Stock. The net proceeds, after deducting placement agent fees and other offering expenses payable by us, were approximately $17.9 million. Each share of Preferred Stock is convertible into 100 shares of the Company's Common Stock at any time at the option of the holder. The Warrants have an exercise price of $1.60 per share, will expire on the five year anniversary of the date of issuance, and were exercisable immediately upon issuance. Our Chief Executive Officer participated in the offering, purchasing 781 shares of Preferred Stock and warrants to purchase 39,050 shares of common stock.

We believe these financings have positioned us to initiate our GENETIC-AF Phase 2B/3 clinical trial for which we currently anticipate initiating patient enrollment in the first quarter of 2014. Our ability to execute our GENETIC-AF Phase 2B trial in accordance with our projected time line depends on a number of factors, including, but not limited to, the following:

· recruitment and formation of key oversight committees

· selection and successfully entering into agreements with clinical research organizations for managing the clinical trial

· recruitment of sufficient clinical trial sites and enrollment of patients

· our ability to control costs associated with the clinical trial and our operations;

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

· the market price of our stock and the availability and cost of additional equity capital from existing and potential new investors; general economic and industry conditions affecting the availability and cost of capital;


· 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 will likely be necessary for us to complete both Phase 2B and Phase 3 of the GENETIC-AF clinical trial and submit for FDA approval of Gencaro. Such financing would likely result in 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 anticipate that our current cash and cash equivalents will be sufficient to fund our operations through at least the end of 2014. However, our forecast of the period of time through which our financial resources will be adequate to support our current and forecasted operations could vary materially.

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 as special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements.

Indemnifications

In the ordinary course of business, we enter into contractual arrangements under which we may agree to indemnify certain parties from any losses incurred relating to the services they perform on our behalf or for losses arising from certain events as defined within the particular contract. Such indemnification obligations may not be subject to maximum loss clauses. We have entered into


indemnity agreements with each of our directors, officers and certain employees. Such indemnity agreements contain provisions, which are in some respects broader than the specific indemnification provisions contained in Delaware law. We also maintain an insurance policy for our directors and executive officers insuring against certain liabilities arising in their capacities as such.

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