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AMPE > SEC Filings for AMPE > Form 10-Q on 7-May-2014All Recent SEC Filings

Show all filings for AMPIO PHARMACEUTICALS, INC.

Form 10-Q for AMPIO PHARMACEUTICALS, INC.


7-May-2014

Quarterly Report


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

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This discussion should be read in conjunction with Ampio Pharmaceuticals, Inc.'s historical consolidated financial statements. The following discussion and analysis contain forward-looking statements that involve risks and uncertainties. Actual results could differ materially from those projected in the forward-looking statements. For additional information regarding these risks and uncertainties, please see Part II, Item 1A of this Form 10-Q, "Risk Factors," and the risk factors included in Ampio's Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 14, 2014.

Overview

Ampio maintains an Internet website at www.ampiopharma.com. Information on or linked to the Company website is not incorporated by reference into this Quarterly Report on Form 10Q. Filings with the SEC can also be obtained at the SEC's website, www.sec.gov.

We are a development stage biopharmaceutical company focused on primarily developing compounds that decrease inflammation by (i) inhibiting specific pro-inflammatory compounds by affecting specific pathways at the protein expression and at the transcription level; (ii) activating specific phosphatase or depleting available phosphate needed for the inflammation process; and
(iii) decreasing vascular permeability. We are also focused on monetizing our sexual dysfunction portfolio and diagnostic platform.

Acquisition

On March 23, 2011, we acquired all of the outstanding stock of DMI BioSciences, Inc. ("BioSciences") for 8,667,905 shares of our common stock (the "merger stock"). We acquired BioSciences in order to obtain all rights to Zertane, BioScience's male sexual dysfunction drug for premature ejaculation ("PE"). The business combination occurred following the satisfaction or waiver of all conditions to closing. As called for in the merger agreement, Ampio issued 405,066 shares of merger stock to holders of BioSciences in-the-money stock options and warrants, 500,000 shares of merger stock to holders of two BioSciences promissory notes in extinguishment of the notes, and placed 250,000 shares of merger stock in an indemnification escrow until December 31, 2011. The


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remaining 7,512,839 shares of merger stock were issued to the holders of BioSciences common stock on a pro rata basis. As required by the merger agreement, at the closing BioSciences donated back to Ampio's capital 3,500,000 shares of Ampio common stock formerly owned by BioSciences. Ampio separately issued 212,693 options in replacement of 250,850 BioSciences options that were "out-of-the-money" as of the date of execution of the merger agreement. On June 17, 2011, an additional 223,024 options were issued in exchange for 98,416 previously issued shares of Ampio stock pursuant to an agreement with three former BioSciences option holders. During 2011, we filed a claim on the indemnification escrow and were awarded 95,700 shares of Ampio stock to reflect the full value of the 223,024 options issued in exchange for the shares relinquished. On December 31, 2011, the remaining 154,300 indemnification escrow shares were allocated to the appropriate shareholders. All shares donated back, relinquished and escrow shares awarded to Ampio have been cancelled.

Financing History/Overview

On February 28, 2011, we issued an aggregate of 1,281,852 shares of our common stock in retirement of the Senior Convertible Debentures issued to 21 holders of such debentures. The convertible debentures were previously issued in five tranches. The first tranche consisted of $430,000 in principal amount issued in August 2010 to two directors and an affiliate of one of those directors. The next three tranches consisted of $1.38 million in principal amount issued in October, November and December 2010 to 19 unaffiliated holders (seven of whom were already our shareholders), and the remaining tranche in January 2011 was an increase of $382,000 in principal amount of debentures purchased by five holders who originally purchased debentures in November 2010. The principal amount of the debentures and accrued interest were converted into our common stock at $1.75 per share. Debentures held by two directors and an affiliate of one director were converted on the same terms as debentures held by unaffiliated parties. The debenture holders were collectively issued warrants to purchase 256,389 shares of our common stock as additional consideration for the purchase of the debentures. The exercise price of the warrants associated with the Senior Convertible Debentures was fixed at $1.75 per share and the warrants expired on December 31, 2013. All of the warrants were exercised prior to expiration.

On March 31, April 8 and April 18, 2011, we closed private placements of our common stock (the "2011 Private Placement"). A total of 5,092,880 shares of common stock were issued resulting in gross proceeds of $12,732,200, of which we received net proceeds of $10,916,538, after placement agent commissions, non-accountable expenses and other offering costs. The placement agent also received 509,288 warrants valued at $888,664 in connection with the closing. We applied a portion of the private placement proceeds in March and April 2011 to pay accrued expenses, to pay accrued salaries owed to certain of our officers, to reduce accounts payable, and to repay a $100,000 promissory note to Michael Macaluso, our chief executive officer and chairman of the board.

In December 2011, we completed a registered direct offering of our common stock. A total of 2,220,255 shares were issued at a price of $4.25 per share resulting in gross proceeds of $9,436,084, of which we received net proceeds of $8,454,001, after placement agent commissions, non-accountable expenses and other offering costs. No warrants were issued.

In July 2012, we completed an underwritten public offering for the sale of 5,203,860 shares of common stock at a price of $3.25 per share. Gross proceeds to Ampio were $16,912,545 with net proceeds of $15,353,150 after underwriter fees and cash offering expenses. We also issued warrants to purchase 138,462 shares of common stock to the underwriters. These warrants have an exercise price of $4.0625 and can be exercised from the period July 12, 2013 through July 12, 2017. Certain shareholders also became selling shareholders and received gross proceeds of $926,575 from the offering of 285,100 shares as provided in the registration statement.

In January 2013, we formed a subsidiary, Luoxis Diagnostics, Inc. ("Luoxis") to focus on the development and commercialization of our Oxidation Reduction Potential ("ORP") technology platform. Luoxis was funded through a private placement which had a final closing on May 31, 2013 with $4,652,500 in gross proceeds. Net proceeds were $3,980,290 after placement agent and legal fees. Prior to the private placement, Ampio incurred all of the costs associated with the development of the ORP platform. As a result of the private placement, Ampio now owns 80.9% of Luoxis.

In September 2013, we completed a registered direct placement offering for the sale of 4,600,319 shares of common stock at a price of $5.50 per share. Our net proceeds from this offering, after deducting our estimated offering expenses, was $25.0 million.

In November 2013, we formed a subsidiary, Vyrix Pharmaceuticals, Inc. ("Vyrix") to focus on obtaining FDA approval and commercialization of our premature ejaculation product, Zertane, and to further develop our combination product, Zertane - ED. Vyrix filed a Form S-1 on April 16, 2014 to launch an Initial Public Offering to raise capital for filing an IND, conducting clinical trials and obtaining FDA approval.

On March 5, 2014, we completed an underwritten public offering for the sale of 9,775,000 shares of common stock at a price of $7.00 per share. Gross proceeds were $68,425,000 with net proceeds of $63,425,223 after underwriter fees and cash offering expenses.


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We currently have a Form S-3 on file with the Securities and Exchange Commission that has $60 million remaining to register Ampio common stock and warrants. The Form S-3 was declared effective on January 22, 2014.

Product Update

We continue to execute our business plan and continue to progress forward on our main drug candidates and our device development.

AMPION for Osteoarthritis of the Knee (OAK)

SPRING Study

On April 9, 2014, we announced that the results of the 20 week extension of the Ampion SPRING study would be presented by Dr. Nathan Wei, MD of The Arthritis Treatment Center in Frederick, MD at the Western Orthopedic Association Conference in July 2014. This 20-week extension of a multicenter, randomized, vehicle-controlled, double-blind study evaluated the safety and efficacy of a single intra-articular injection of Ampion treatment of inflammation-associated pain in symptomatic OAK. A summary of the results follows:

• Ninety-seven patients who received a 4 mL intra-articular injection of Ampion or vehicle control were followed for an additional 8 weeks beyond the initial 12-week endpoint of the SPRING study. Efficacy measures included changes from baseline in Western Ontario and McMaster Universities Osteoarthritis (WOMAC) pain and function subscores. Patients were considered "responders" if they achieved ³40% improvement in WOMAC pain and function.

• In a subgroup of patients with moderate-to-severe OAK (Kellgren-Lawrence grades 3-4; n=64), there were statistically significant improvements in WOMAC pain (mean change from baseline -0.99 vs -0.65) (p=0.005) and function scores (-0.85 vs -0.58) (p=0.04) over 20 weeks for patients who received Ampion compared with vehicle control, respectively.


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• At 20 weeks, the percentage of patients in the moderate-to-severe subgroup who reported a reduction in pain was significantly higher for patients who received Ampion (50%) compared to those who received vehicle control (25%) (p=0.04).

• Similar rates and severity of adverse events were observed in the Ampion and vehicle control groups. A single injection of Ampion™ was associated with sustained improvements in knee pain over 20 weeks. (p=0.005)

Ongoing STEP Pivotal Trial.

On January 13, 2014, we announced the first patient injection in the phase III pivotal clinical trial of Ampion for the acute treatment of OAK. The Phase III STEP study has been designed to enroll 500 patients and the primary endpoint is reduction in pain for the patients treated with Ampion compared to saline placebo control at 12 weeks. STEP is a randomized, placebo-controlled, double-blind study in which patients with osteoarthritis knee pain will be randomized to receive either a 4 mL single injection of Ampion or saline placebo control. The clinical effects of acute treatment on osteoarthritic pain will be evaluated during clinic visits at 6, 12, and 20 weeks using WOMAC osteoarthritis Index and the Patient's Global Assessment (PGA) of disease severity. Safety will be assessed by recording adverse events, concomitant medications, physical examination, vital signs and clinical laboratory tests. On February 18, 2014, we announced the completion of enrollment and dosing of 500 patients. Topline results are anticipated in the third quarter of 2014 and we expect to file the Biologic License Application (BLA) later this year.

Ampion Manufacturing Facility

On December 16, 2013, we announced a ten-year lease of a multi-purpose facility located in the Denver metropolitan area. Renovation began in January 2014 and will provide commercial scale, FDA compliant, state-of-the-art, cGMP manufacturing of Ampion, an advanced research and development laboratory as well as a sufficient office space to consolidate all operations of the Company in a single facility. Total cost of the facility is estimated to be $10 million. Our new manufacturing facility will initially provide registration batches of Ampion supporting the BLA. Once the manufacturing operation is approved by the FDA for commercial production, the facility is expected to have an annual production capacity of approximately ten million doses of Ampion. More than 50% of the raw material, HSA, required to meet this capacity has already been secured through a long-term, non-exclusive, supply agreement. We anticipate that the new facility will be fully operational by summer 2014.

Future Development

We also intend to study Ampion for therapeutic applications outside of osteoarthritis of the knee. We expect to engage development partners to study Ampion in various conditions including: (i) acute and chronic inflammatory conditions; (ii) degenerative bone disease; and (iii) respiratory and allergic disorders. Based on the continuing evaluation, we are also studying Ampion's effects on cellular behavior to indicate potential effects on disease modification across multiple conditions. If successful, we believe these additional formulations and potential therapeutic indications will supplement the Ampion clinical portfolio, and will enable clinical applications in large therapeutic markets where there are significant unmet needs. Specifically, we were planning pilot trials in Australia for (1) multiple injections for OAK to evaluate cartilage formations, (2) Crohn's disease and (3) Chronic Obstructive Pulmonary Disease (COPD), however, we have recently decided to move those trials to the United States for the purpose of surrogate endpoint development in accordance with FDA processes.

OPTINA for Diabetic Macula Edema

Our Optina trials are continuing and we have enrolled 346 patients, or 77%, out of the 450 required to complete the trial.

SUBSIDIARIES

Luoxis Diagnostics, Inc.

On April 2, 2014, Luoxis announced that it had obtained CE Marking in Europe for its RedoxSYS Diagnostic System, a blood-based platform for assessing the level of oxidative stress in the body. This regulatory clearance allows Luoxis to engage in strategic market development activities designed to establish the clinical utility of the RedoxSys system in the critical care setting and position Luoxis for a launch in Europe, which is currently anticipated for 2015. Luoxis also announced on April 22, 2014, that it obtained Health Canada Class II Medical Device approval for its RedoxSYS Diagnostic System which will allow development of the Canadian market.


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Vyrix Pharmaceuticals, Inc.

On April 9, 2014, Vyrix entered into a Distribution and License Agreement (the "Paladin Agreement") with Endo Ventures Limited, which recently acquired Paladin Labs Inc. ("Paladin"), whereby Paladin has exclusive rights to market, sell and distribute Zertane in Canada, the Republic of South Africa, certain countries in Sub Saharan Africa, Colombia and Latin America. The Paladin Agreement expires on a country by country basis the latter of fifteen years after the first commercial sale of the product in that country or expiration of market exclusivity for Zertane in that country. Paladin paid $250,000 to Vyrix upon signing the Paladin Agreement and may make milestone aggregating up to $3,025,000 based upon achieving Canadian and South African product regulatory approval and achieving specific sales goals. In addition, the Paladin Agreement provides that Paladin pay royalties based on sales volume.

Known Trends or Future Events

We have not generated any significant revenues and have therefore incurred significant net losses totaling $74.5 million since our inception in December 2008. The assets we purchased from BioSciences in April 2009 generated minimal revenues prior to their acquisition. Although we have raised capital in the past and raised net proceeds of $63.4 million, $29 million, $15.4 million and $19.4 million through the sale of common stock in the first quarter of 2014 and the years, 2013, 2012 and 2011, respectively, we cannot assure you that we will be able to secure such additional financing, if needed, or that it will be adequate to execute our business strategy. Even if we obtain additional financing, it may be costly and may require us to agree to covenants or other provisions that will favor new investors over existing shareholders.

We expect to incur losses from operations for the foreseeable future. We expect to incur substantial research and development expenses, including expenses related to clinical trials and commercialization of Ampion and Optina. We also intend to limit the extent of these losses by entering into co-development, licensing or collaboration agreements with one or more strategic partners. We also intend to monetize the men's health products of Vyrix and the ORP diagnostic device of Luoxis, either through sales or initial public offerings. At this time, due to the risks inherent in the clinical trials and the stage of development of our product candidates, we are unable to estimate with any certainty the additional costs we will incur for the continued development of our product candidates for commercialization as clinical development timelines, probability of success, and development costs vary widely.

Significant Accounting Policies and Estimates

Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of the consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. On an on-going basis, management evaluates its estimates and judgments, including those related to recoverability of long-lived assets, fair value of our derivative instruments, allowances and contingencies. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The methods, estimates, and judgments used by us in applying these most critical accounting policies have a significant impact on the results we report in our financial statements.

Our significant accounting policies and estimates are included in our 2013 Annual Report reported on Form 10-K, filed with the SEC on February 14, 2014. During the first three months of 2014, there were no significant changes to our significant accounting policies and estimates.

Results of Operations - March 31, 2014 Compared to March 31, 2013

Results of operations for the three months ended March 31, 2014 (the "2014 quarter") and the three months ended March 31, 2013 (the "2013 quarter") reflected losses of approximately $10,472,000 and $4,208,000, respectively. These losses include non-cash charges related to derivative expense, stock-based compensation, common stock issued for services and depreciation and amortization in the amount of $1,104,000 in the 2014 quarter and $831,000 in the 2013 quarter.

Revenue

We are a development stage enterprise and have not generated material revenue in our operating history. The $12,500 license revenue recognized in the 2014 quarter and 2013 quarter represents the amortization of the upfront payment received on our license agreement. The initial payment of $500,000 from the license agreement of Zertane with a Korean pharmaceutical company was deferred and is being recognized over 10 years.


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Expenses

Research and Development

Research and development costs are summarized as follows:



                                                 Three Months Ended March 31,
                                                    2014                2013
      Labor                                    $       399,000       $   318,000
      Patent costs                                     609,000           462,000
      Stock-based compensation                         719,000           155,000
      Clinical trials and sponsored research         6,623,000         1,684,000
      Consultants and Other                             64,000           168,000

                                               $     8,414,000       $ 2,787,000

Research and development costs consist of labor, research and development of patents and intellectual property, stock-based compensation as well as drug development and clinical trials. Costs of research and development increased $5,627,000, or 202%, for the 2014 quarter compared to the 2013 quarter. The increase is principally the result of clinical trials for Ampion and Optina, and the Luoxis development of its ORP platform. Stock-based compensation increased due to the incremental stock options awarded in Ampio, Luoxis and Vyrix and the continuing vesting of awards granted in previous years.

General and Administrative

General and administrative costs are summarized as follows:



                                           Three Months Ended March 31,
                                              2014                2013
           Labor                         $       707,000       $   216,000
           Stock-based compensation              332,000           532,000
           Professional fees                     446,000           170,000
           Occupancy, travel and other           521,000           353,000
           Directors fees                         67,000            41,000

                                         $     2,073,000       $ 1,312,000

General and administrative costs increased $761,000, or 58%, for the 2014 quarter compared to the 2013 quarter. The increase is primarily due to increased professional staffing and occupancy, travel and other. These other expenses also include insurance, listing and filing fees and investor relations.

Net Cash Used in Operating Activities

During the 2014 quarter, our operating activities used approximately $8.5 million in cash which was less than the net loss of $10.5 million primarily as a result of the non-cash stock based compensation and accounts payable offset by prepaid research and development - related party.

In the 2013 quarter, the use of cash was $3.6 million which was less than the net loss of $4.2 million principally as a result of non-cash stock-based compensation.

Net Cash Used in Investing Activities

During the 2014 quarter, cash was used to acquire manufacturing machinery and equipment. Fixed assets reflect purchases for Ampio's new manufacturing facility.

Net Cash from Financing Activities

Net cash provided by financing activities in the 2014 quarter reflects gross proceeds from the public offering of $68.4 million with net proceeds of $63.4 million.


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In the 2013 quarter, net cash provided by financing activities of $3.1 million reflects the proceeds from the Luoxis private financing of $2.9 million and $0.1 million from the exercise of stock options.

Liquidity and Capital Resources

As a development stage biopharmaceutical company, we have not generated significant revenue as our primary activities are focused on research and development, advancing our primary product candidates, and raising capital. As of March 31, 2014, we had cash and cash equivalents totaling $78.2 million and $4.4 million in accounts payable. Based upon our current expectations, we believe our capital resources at March 31, 2014 will be sufficient to fund our currently planned operations into the first half of 2016. This estimate is based on a number of assumptions that may prove to be wrong, and we could exhaust our available cash and cash equivalents earlier than presently anticipated. We may be required or choose to seek additional capital to expand our clinical development activities for Ampion and Optina. This could be necessary either assuming positive results of our ongoing clinical trials or if we face challenges or delays in connection with those trials. Additional funding will be required for the commercial launch of Ampion and Optina. We also may choose to seek additional capital to maintain minimum cash balances that we deem reasonable and prudent. We intend to evaluate the capital markets from time to time to determine whether to raise additional capital in the form of equity, convertible debt or otherwise, depending on market conditions relative to our need for funds at such time, and we may seek to raise additional capital should we conclude that such capital is available on terms that we consider to be in the best interests of us and our stockholders. Vyrix has also filed a Form S-1 to raise capital for advancing its lead product, Zertane, however, there can be no assurance that this capital raise will be successful or adequate to fund the commercialization of Zertane.

We have prepared a budget for 2014 which reflects cash requirements for fixed, on-going expenses such as payroll, legal and accounting, patents and overhead at an average cash burn rate of between $700,000 and $900,000 per month. The cash we raised in March 2014 will be used for working capital and general corporate purposes including continuation and completion of our Ampion and Optina clinical trials, submission of a BLA relating to Ampion, a NDA relating to Optina, the build out of our new office and manufacturing facility, acquisition of manufacturing equipment, and the potential hiring of manufacturing personnel. The total of these expenditures is estimated to be in the range of $25 million to $28 million. As additional funding is required, it will be necessary to raise additional capital and/or enter into licensing or collaboration agreements. At this time, we expect to satisfy our future cash needs through private or public sales of our securities or debt financings. We cannot be certain that financing will be available to us on acceptable terms, or at all. In recent years, volatility in the financial markets has adversely affected the market capitalizations of many pharmaceutical companies and generally made equity and debt financing more difficult to obtain. This volatility, coupled with other factors, may limit our access to additional financing.

If we cannot raise adequate additional capital in the future when we require it, we will be required to delay, reduce the scope of, or eliminate one or more of our research or development programs or our commercialization efforts. We also may be required to relinquish greater or all rights to product candidates at an earlier stage of development or on less favorable terms than we would otherwise choose. This may lead to impairment or other charges, which could materially affect our balance sheet and operating results.

Off Balance Sheet Arrangements

We do not have off-balance sheet arrangements, financings, or other relationships with unconsolidated entities or other persons, also known as "variable interest entities".

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