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BPTH > SEC Filings for BPTH > Form 10-K on 31-Mar-2014All Recent SEC Filings

Show all filings for BIO-PATH HOLDINGS INC

Form 10-K for BIO-PATH HOLDINGS INC


31-Mar-2014

Annual Report


ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

In addition to historical information, this annual report on Form 10-K contains forward-looking statements that involve risks and uncertainties, which may cause our actual results to differ materially from plans and results discussed in forward-looking statements. We encourage you to review the risks and uncertainties, discussed in the section entitled "Risk Factors," and the "Note Regarding Forward-Looking Statements," included elsewhere in this Form 10-K. The risks and uncertainties can cause actual results to differ significantly from those forecasted in forward-looking statements or implied in historical results and trends.

The following discussion should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this annual report on Form 10-K.

Overview

We were formed under the name of Ogden Golf Co. Corporation. We terminated our retail golf store operations in December 2006. On February 14, 2008, we acquired Bio-Path Subsidiary in a reverse merger transaction (the "Merger"). In connection with the Merger, we changed our name to Bio-Path Holdings, Inc., we acquired Bio-Path Subsidiary as a wholly owned subsidiary and we appointed new officers and directors. In connection with the Merger, we also increased our authorized capital stock and adopted a stock incentive plan. The Merger and related matters are further described in a Form 8-K filed with the SEC on February 19, 2008. Subsequent to the Merger, we changed our fiscal year end from June 30th to December 31st.

Bio-Path Subsidiary was formed to finance and facilitate the development of novel cancer therapeutics. Our plan was to acquire licenses for drug technologies from MD Anderson, to fund clinical and other trials for such technologies and to commercialize such technologies. We currently maintain the License Agreement with MD Anderson. The License Agreement specifically provides drug delivery platform technology with composition of matter intellectual property that enables systemic delivery of antisense. The Company is currently developing only the liposomal antisense delivery technology and products. Bio-Path's business plan is to act efficiently as an intermediary in the process of translating newly discovered drug technologies into authentic therapeutic drugs candidates. Our strategy is to selectively license potential drug candidates for certain cancers, and, primarily utilizing the comprehensive drug development capabilities of MD Anderson, to advance these candidates into initial human efficacy trials (Phase IIa), and out-license and/or market each successful potential drug to a pharmaceutical company.

Plan of Operation

See Item 1 of this Form 10-K.

Results of Operations

Results of Operations for the twelve months ended December 31, 2013 and December 31, 2012.

Revenues. We have no operating revenues since our inception.

Research and Development Expenses. Our research and development expense was $1,518,885 for the twelve month period ended December 31, 2013; an increase of $386,173 over the twelve month period ended December 31, 2012. The increase in research and development expense for the twelve months ended December 31, 2013 compared to the comparable period ended December 31, 2012 was primarily due to a $316,308 increase in expense for drug product material used in our clinical trial due to higher drug doses being administered to patients, and approximately $60,450 for new preclinical testing programs undertaken in 2013. Our research and development expense was $5,844,481 for the period from inception through December 31, 2013. Research and development expense-related party was $115,705 for the twelve month period ended December 31, 2013, a decrease of $348,165 compared to the comparable twelve month period ended December 31, 2012. The decrease in research and development expense-related party was due primarily to a decrease in technology impairment expense for the twelve month period ended December 31, 2013. Research and development expenses-related party was $1,179,325 for the period from inception through December 31, 2013.

General and Administrative Expenses. Our general and administrative expenses were $1,634,650 for the twelve month period ended December 31, 2013; an increase of $648,553 compared to the 12 month period ended December 31, 2012. The increase in general and administrative expense for the twelve month period ended December 31, 2013 compared to the twelve month period ended December 31, 2012 was due to an increase in stock option expense for management, officers and directors totaling $661,861, a non-cash expense that is based upon the Black Scholes fair value of the options grants. Excluding stock option expense, general administrative expenses for the twelve month period ended December 31, 2013 were $13,308 lower than the comparable period ended December 31, 2012. General and administrative expenses were $8,694,113 for the period from inception through December 31, 2013.

Net Loss. Our net loss was $3,266,013 for the twelve month period ended December 31, 2013 compared to a loss of $2,582,537 for the twelve month period ended December 31, 2012. The increase in the net loss for the twelve month period ended December 31, 2013 compared to the comparable twelve month period ended December 31, 2012 was due to an increase in research and development and general and administrative expenses more than offsetting a decrease in research and development expense-related party. Net loss per share, both basic and diluted, was $0.05 per share for the twelve month period ended Decembers 31, 2013 compared to $0.04 per share for the twelve month period ended December 31, 2012. Our net loss was $15,397,296 for the period from inception through December 31, 2013, and net loss per share, both basic and diluted, was $0.31 for the period from inception through December 31, 2013. Included in the net loss for the period from inception through December 31, 2013 is other income of $320,623, comprised of $81,127 in interest income and other income of $244,479 representing a grant received from the U.S. Government.

Liquidity and Capital Resources

Since our inception, we have funded our operations primarily through private placements and direct public and private sales of our capital stock. We expect to finance our foreseeable cash requirements through cash on hand, cash from operations, public or private equity offerings and debt financings.
Additionally, we will be seeking collaborations and license arrangements for our product candidates. We may seek to access the public or private equity markets whenever conditions are favorable.

At December 31, 2013, we had cash of $3,551,832 compared to $534,046 at December 31, 2012. The increase in cash balances during the twelve month period ended December 31, 2013 results from $5,330,946 in net proceeds received from the sale of shares of the Company's common stock, offset to some extent by $2,313,160 in cash used in operations. We currently have no lines of credit or other arranged access to debt financing.

Net cash used in operations during the twelve months ended December 31, 2013 was $2,313,160 compared to net cash used in operating activities of $1,993,404 for the comparable twelve month period ended December 31, 2012. Inasmuch as we have not yet generated revenues, our entire expenses of operations are funded by proceeds from the sale of the shares of the Company's common stock and other capital raising efforts.

Net cash provided by financing activities in 2013 was $5,330,946 compared to $1,600,198 for 2012. Since inception through December 31, 2013, we have net cash provided from financing activities of $13,790,331. We believe that our available cash at December 31, 2013, together with the proceeds received from the registered direct public offering described below, will be sufficient to fund our liquidity and capital expenditure requirements through the first quarter of 2016.

On November 5, 2013, we filed a shelf registration statement on Form S-3 with the SEC, which was declared effective by the SEC on January 13, 2014. The shelf registration statement was filed to register the offering and sale of up to $100 million of our common stock, preferred stock, warrants to purchase common stock or preferred stock or any combination thereof, either individually or in units. The foregoing does not constitute an offer to sell or the solicitation of an offer to buy securities, and shall not constitute an offer, solicitation or sale in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of that jurisdiction.

On January 15, 2014, we entered into a securities purchase agreement, as amended, with the Sabby Investors, pursuant to which the Company agreed to sell an aggregate of 5,000,000 shares of its common stock and warrants to purchase a total of 2,500,000 shares of its common stock to the Sabby Investors for gross proceeds of approximately $15,000,000. The net proceeds to the Company from the registered direct public offering, after deducting the placement agent's fees and expenses, the Company's estimated offering expenses, and excluding the proceeds from the exercise of the warrants issued in the offering, were approximately $13,750,000. The offering closed on January 21, 2014. We will use the net proceeds from this offering and sale of securities for working capital and general corporate purposes in order to support implementation of our current business plan.

Future Capital Needs

We anticipate that we will need to raise additional funds to continue our business model. Inasmuch as we have received limited income from operations, we are required to depend upon the sale of our securities as our principal sources of cash for the foreseeable future. There can be no assurance that we will be able to continue to raise cash through the sale of our securities in the future. The amount and pace of research and development work that we can do or sponsor, and our ability to commence and complete the clinical trials that are required in order for us to obtain FDA and foreign regulatory approval of products, depend upon the amount of money we have. We have attempted to reduce overhead expenses due to the limited amount of funds available. Future research and clinical study costs are not presently determinable due to many factors, including the inherent uncertainty of these costs and the uncertainty as to timing, source, and amount of capital that will become available for these projects.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

Contractual Obligations and Commitments

Bio-Path has entered into the License Agreement with MD Anderson. A summary of certain material terms of the License Agreement is detailed in Item 1 of this Form 10-K.

In the fourth quarter of 2013, Bio-Path entered into two project plan agreements with the Company's drug substance manufacturer and its final drug product manufacturer for the manufacture and delivery of final drug product for expected delivery in the first quarter of 2014. Subsequent scheduling now has this drug product arriving mid-second quarter 2014. The project plans require the Company to pay approximately $270,000 in various stages as the drug substance and final product are manufactured and delivered to the Company. Of this amount, $51,364 has been paid for by the Company, which is carried on the Balance Sheet as Prepaid Drug Product for Testing. This amount substantially represents the entire financial commitments to the drug substance and the drug product manufacturers for the new batch of drug product. The drug product is anticipated to be delivered to the Company in the second quarter of 2014 and the Balance Sheet item Prepaid Drug Product for Testing totaling $51,364 will be expensed when received.

In April 2009, we entered into an agreement with ACORN CRO, a full service, oncology focused clinical research organization, to provide Bio-Path with a contract medical advisor and potentially other clinical trial support services. Concurrent with signing the agreement, Bradley G. Somer, M.D., serves as Bio-Path's Medical Officer and medical liaison for the conduct of the Company's Phase I clinical study of liposomal BP-100-1.01 in refractory or relapsed AML, CML, ALL and MDS.

Inflation

The Company does not believe that inflation will negatively impact its business plans.

Critical Accounting Policies

The preparation of financial statements in conformity with generally accepted accounting principles ("GAAP") in the United States has required the management of the Company to make assumptions, estimates and judgments that affect the amounts reported in the financial statements, including the notes thereto, and related disclosures of commitments and contingencies, if any. The Company considers its critical accounting policies to be those that require the more significant judgments and estimates in the preparation of financial statements, including the following:

Principles of Consolidation. The consolidated financial statements include the accounts of Bio-Path Holdings, Inc., and its wholly-owned subsidiary Bio-Path, Inc. All intercompany accounts and transactions have been eliminated in consolidation.

Related Party. Based on its stock ownership in the Company, MD Anderson Cancer Center meets the criteria to be deemed a related party of Bio-Path Holdings. For the years ending December 31, 2013 and 2012, MD Anderson related party research and development expense was $115,705 and $463,870, respectively. MD Anderson related party research and development expense for the year ending December 31, 2013 included clinical trial hospital expense of $52,050, and license expense of $63,655 including license maintenance fees of $50,000 and $13,655 in patent expenses not capitalized in the technology license other asset. As of December 31, 2013, the Company had $100,000 in accrued license payments payable due to the related party for the annual maintenance fee and past patent expenses for the Company's Technology License, and $52,050 in accrued R&D related expense for the clinical trial. See Notes 4, 5 and, 6 to our consolidated financial statements included elsewhere in this annual report on Form 10-K. For the year ended December 31, 2012, the Company had $463,870 in R&D related party expense for the clinical trial, license maintenance fee and technology impairment, accounts payable related party of $8,582 for patent expenses not capitalized in the technology license and accrued license payments payable related party of $100,000 for the annual maintenance fee and past patent expenses, and $26,000 accrued expense related party for clinical trial hospital expenses.

Cash and Cash Equivalents. The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents.

Concentration of Credit Risk. Financial instruments that potentially subject the Company to a significant concentration of credit risk consist of cash. The Company maintains its cash balances with one major commercial bank, JPMorgan Chase Bank. The balances are insured by the Federal Deposit Insurance Corporation up to $250,000. As a result, as of December 31, 2013, $3,301,832 of the Company's cash balances was not covered by the FDIC. As of December 31, 2012 the Company had $534,046 in cash on-hand, of which $284,046 was not covered by Federal Deposit Insurance Corporation insurance.

Intangible Assets/Impairment of Long-Lived Assets. As of December 31, 2013, Other Assets totaled $1,411,518 for the Company's technology license, comprised of $2,500,374 in value acquiring the Company's technology license and its intellectual property, less accumulated amortization of $1,088,856. The technology value consists of $836,207 in cash paid or accrued to be paid to MD Anderson, plus 3,138,889 shares of common stock granted to MD Anderson valued at $2,354,167 less $690,000 for impairment expense taken in December of 2011 and June of 2012. See Note 1 to our consolidated financial statements included elsewhere in this annual report on Form 10-K. This value is being amortized over a fifteen year (15 year) period from November 7, 2007, the date that the technology license became effective. The Company accounts for the impairment and disposition of its long-lived assets in accordance with generally accepted accounting principles (GAAP). Long-lived assets are reviewed for events of changes in circumstances which indicate that their carrying value may not be recoverable. The Company estimates that approximately $160,000 will be amortized per year for each future year for the current value of the technology licenses acquired until approximately 2022. As of December 31, 2012 Other Assets totaled $1,572,143 comprised of $2,500,374 in value acquiring the Company's technology licenses and its intellectual property, less accumulated amortization of $928,231.

Research and Development Costs. Costs and expenses that can be clearly identified as research and development are charged to expense as incurred in accordance with GAAP. Advance payments, including nonrefundable amounts, for goods or services that will be used or rendered for future R&D activities are deferred and capitalized. Such amounts will be recognized as an expense as the related goods are delivered or the related services are performed. If the goods will not be delivered, or services will not be rendered, then the capitalized advance payment is charged to expense. For the year 2013, the Company had $1,518,885 of costs classified as research and development expense and $115,705 of related party research and development expense. Of the research and development expense totaling $1,518,885, $160,625 was for amortization of the technology license, $32,879 was for stock options expense for individuals involved in research and development activities, $389,911 for drug substance batches, $17,897 for drug storage and transportation, $502,940 for final drug product material, $85,494 for clinical trial expense, $79,648 for advisory services, $63,655 for license expense and the balance of approximately $185,836 was for drug product testing, clinical trial hospital expense, patient data management system development and other R&D activities. Of the $115,705 related party research and development expense, $52,050 was comprised of clinical trial hospital costs, $50,000 for technology license maintenance fees and $13,655 in patent expenses not capitalized in technology license-Other Assets. For the year 2012, the Company had $1,132,712 of costs classified as research and development expense and $463,870 of related party research and development expense.

Stock-Based Compensation. The Company has accounted for stock-based compensation under the provisions of GAAP. The provisions require us to record an expense associated with the fair value of stock-based compensation. We currently use the Black-Scholes option valuation model to calculate stock based compensation at the date of grant. Option pricing models require the input of highly subjective assumptions, including the expected price volatility. Changes in these assumptions can materially affect the fair value estimate.

Net Loss Per Share. In accordance with GAAP and SEC Staff Accounting Bulletin ("SAB") No. 98, basic net loss per common share is computed by dividing net loss for the period by the weighted average number of common shares outstanding during the period. Although there were warrants and stock options outstanding during 2013 and 2012, no potential common shares shall be included in the computation of any diluted per-share amount when a loss from continuing operations exists. Consequently, diluted net loss per share as presented in the financial statements is equal to basic net loss per share for the years 2013 and 2012. The calculation of Basic and Diluted earnings per share for 2013 did not include 4,848,298 shares and 10,000 shares issuable pursuant to the exercise of vested common stock options and vested warrants, respectively, as of December 31, 2013 as the effect would be anti-dilutive. The calculation of Basic and Diluted earnings per share for 2012 did not include 3,296,354 shares and 10,000 shares issuable pursuant to the exercise of vested common stock and vested warrants, respectively, as of December 31, 2012 as the effect would be anti-dilutive.

Comprehensive Income. Comprehensive income (loss) is defined as all changes in a company's net assets, except changes resulting from transactions with shareholders. At December 31, 2013 and 2012, the Company has no reportable differences between net loss and comprehensive loss.

Use of Estimates. The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the Company's consolidated financial statements and accompanying notes. On an ongoing basis, the Company evaluates its estimates and judgments, which are based on historical and anticipated results and trends and on various other assumptions that the Company believes to be reasonable under the circumstances. By their nature, estimates are subject to an inherent degree of uncertainty and, as such, actual results may differ from the Company's estimates.

Income Taxes. Deferred income tax assets and liabilities are determined based upon differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse.

New Accounting Pronouncements. From time to time, new accounting pronouncements are issued by FASB that are adopted by the Company as of the specified effective date. If not discussed, management believes that the impact of recently issued standards, which are not yet effective, will not have a material impact on the Company's financial statements upon adoption.

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