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AMPE > SEC Filings for AMPE > Form 10-Q on 8-Aug-2014All Recent SEC Filings

Show all filings for AMPIO PHARMACEUTICALS, INC.

Form 10-Q for AMPIO PHARMACEUTICALS, INC.


8-Aug-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 10-Q. Filings with the SEC can also be obtained at the SEC's website, www.sec.gov.

We are a biopharmaceutical company focused primarily on 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 a diagnostic platform.

Financing History/Overview

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 $4,653,000 in gross proceeds. Net proceeds were $3,980,000 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, were $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 with the Securities and Exchange Commission on April 16, 2014 which was amended on June 19, 2014 to launch an Initial Public Offering to raise capital for filing an Investigational New Drug application, 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 $63,425,000 after underwriter fees and cash offering expenses.

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.


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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 was 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 is as 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.

• 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 were randomized to receive either a 4 mL single injection of Ampion or saline placebo control. The clinical effects of acute treatment on osteoarthritic pain were 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 was 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) in the first quarter of fiscal 2015.

MULTIPLE INJECTIONS Study

On June 30, 2014, we announced that we have started patient enrollment for the MULTIPLE INJECTIONS STUDY using Ampio™ for patients with mostly severe or very severe osteoarthritis of the knee for which there is no current non-surgical therapy. This trial is different from our prior clinical trials as those trials primarily focused on pain reduction using the WOMAC scale, while this study will explore the possibility of additional clinical benefits and regeneration of cartilage. This study will have two phases. Phase I will analyze safety and no placebo will be used, all patients will receive a 4ml doses of Ampion™. Phase II will evaluate the efficacy, cartilage formation as well as safety and the patients will be randomized 1:1, Ampion™ vs. Saline. This second phase will begin after the Phase I safety data is analyzed. Each patient will commit to 13 total clinical visits over the duration of 52 weeks. High resolution MRI's will be conducted at baseline, week 12, week 24 and week 52 and will be analyzed by a specialized radiologist expert in quantifying cartilage formation. At the same time, knee aspiration will be performed and the synovial fluids will be analyzed by proteomic tools and for specific cartilage regeneration and stem cell biomarkers. Each patient will also keep a detailed activity and. exercise log so that positive lifestyle changes can be followed. As we have used the WOMAC scale to evaluate the efficacy of our prior trials, in and of itself is a very subjective measure in that it reports only pain in the prior 48 hours. If patients increased their activity levels because Ampion™ reduced their pain, they could have experienced discomfort as a result of increased activity alone. Thus, Ampion™ may provide more clinical benefit than reduction of pain and this MULTIPLE INJECTIONS STUDY is designed to explore that possibility.


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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. On July 22, 2014, Ampio moved into its new headquarters, manufacturing and research facility.

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 and (ii) 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 are planning a pilot trial for Crohn's disease which we expect to start in the third quarter of fiscal 2014.

OPTINA for Diabetic Macula Edema

On June 25, 2014, it was announced that we informed the FDA of our intent to reduce the patient sample size in the OptimEyes Study for the treatment of Diabetic Macular Edema (oral treatment with Optina™). This trial was intended to enroll 450 patients and was powered at 95%. The present enrollment of over 355 patients provides an adequate power of 88% which the company believes is more than sufficient for statistical evaluation. By reducing the sample size, we expect data from this study by the end of the fourth quarter 2014.

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. On April 22, 2014, Luoxis announced that the company had signed a long-term research agreement with a global, US-based pharmaceutical company. Through this research agreement the company will utilize their RedoxSYS™ oxidation-reduction potential (ORP) diagnostic system to assess the therapeutic effects of several investigational compounds with different target indications. The research agreement provides for Luoxis' participation in multiple global studies being conducted by the pharmaceutical company.

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 later 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. On April 16, 2014, Vyrix filed a Form S-1 with the Securities and Exchange Commission relating to a proposed initial public offering of Vyrix common stock. Vyrix has a prepaid balance of approximately $521,000 related to the potential offering costs which will be offset against future proceeds.

Known Trends or Future Events

We have not generated any significant revenues and have therefore incurred significant net losses since our inception in December 2008. The assets we purchased from BioSciences in April 2009 generated minimal revenues prior to their


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acquisition. Although we have raised capital in the past and raised net proceeds of $63.4 million, $29.0 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.

Newly Issued Accounting Pronouncements

In June 2014, the FASB issued ASU 2014-10, "Development Stage Entities (Topic 915)". The guidance eliminates the definition of a development stage entity thereby removing the incremental financial reporting requirements from U.S. GAAP for development stage entities, primarily presentation of inception to date financial statements. The provisions of the amendments are effective for Ampio's calendar year 2015, however, early adoption is permitted and, accordingly, we have elected to implement the guidance in our second quarter 2014 financial statements.

On May 28, 2014, the FASB issued ASU 2014-09 regarding ASC Topic 606, Revenue from Contracts with Customers. The standard provides principles for recognizing revenue for the transfer of promised goods or services to customers with the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance will be effective for our fiscal year beginning February 1, 2017. Early adoption is not permitted. We are currently evaluating the accounting, transition and disclosure requirements of the standard and cannot currently estimate the financial statement impact of adoption.

Error in Classification

Patent costs were previously classified as research and development, however, it was determined that these costs were incorrectly classified and, therefore, have been reclassified as general and administrative expense for all periods presented. Patent costs consist of legal and filing fees related to obtaining and maintaining patents and should have been excluded from research and development activities as set forth in the Financial Accounting Standard Board's Accounting Standards Codification topic 730, Research and Development. The impact of the correction of this error in classification decreased research and development expenses and correspondingly increased general and administrative expenses for the three months ended June 30, 2014 and 2013 by $662,397 and $512,246, respectively, and for the six months ended June 30, 2014 and 2013 by $1,271,656 and $973,850, respectively. The correction of this error had no impact on our total operating expenses or our net loss for all periods presented.


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Results of Operations - June 30, 2014 Compared to June 30, 2013

Results of operations for the three months ended June 30, 2014 (the "2014 quarter") and the three months ended June 30, 2013 (the "2013 quarter") reflected losses of approximately $8,933,000 and $6,593,000, respectively. These losses include in part non-cash charges related to derivative expense, stock-based compensation, common stock issued for services, amortization of prepaid research and development and depreciation and amortization, collectively in the amount of $1,714,000 in the 2014 quarter and $951,000 in the 2013 quarter. The non-cash charges increased in the 2014 quarter primarily due to the increase in stock-based compensation associated with the hiring of new employees related to ongoing Ampion and Optina clinical trials and moving into the new manufacturing facility.

Results of operations for the six months ended June 30, 2014 (the "2014 period") and the six months ended June 30, 2013 (the "2013 period") reflected losses of approximately $19,404,000 and $10,802,000, respectively. These losses include in part non-cash charges related to derivative expense, stock-based compensation, common stock issued for services, amortization of prepaid research and development and depreciation and amortization, collectively in the amount of $2,818,000 in the 2014 period and $1,782,000 in the 2013 period. The non-cash charges increased in the 2014 period primarily due to the increase in stock-based compensation as discussed above.

Revenue

We have not generated material revenue in our operating history. The $21,000 and $13,000 license revenue recognized in the 2014 quarter and 2013 quarter, respectively, represents the amortization of the upfront payments received on our license agreements. 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. The initial payment of $250,000 from the license agreement of Zertane with a New Zealand-based supplier was deferred and is being recognized over seven years.

Expenses

Research and Development

Research and development costs are summarized as follows:



                                             Three Months Ended June 30,            Six Months Ended June 30,
                                               2014                2013               2014              2013
Labor                                     $       480,000       $   346,000      $      879,000      $   664,000
Stock-based compensation                          459,000           426,000           1,178,000          581,000
Clinical trials and sponsored research          4,550,000         3,886,000          11,162,000        5,570,000
Sponsored research - related party                 66,000                -               78,000               -
Consultants and Other                              79,000            79,000             142,000          247,000

                                          $     5,634,000       $ 4,737,000      $   13,439,000      $ 7,062,000

Research and development costs consist of labor, stock-based compensation as well as drug development and clinical trials. Costs of research and development increased $897,000, or 18.9%, for the 2014 quarter compared to the 2013 quarter and $6,377,000, or 90.3%, for the six month period ended June 30, 2014 compared to the same period in 2013. 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 $597,000, or 102.8%, for the six month period ended June 30, 2014 compared to the same period in 2013 due to the incremental stock options awarded in Ampio, Luoxis and Vyrix and the continuing vesting of awards granted in previous years.


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General and Administrative

General and administrative costs are summarized as follows:



                                            Three Months Ended June 30,            Six Months Ended June 30,
                                              2014                2013               2014              2013
Labor                                    $       461,000       $   269,000      $    1,168,000      $   485,000
Stock-based compensation                       1,146,000           346,000           1,478,000          878,000
Patent costs                                     663,000           512,000           1,272,000          974,000
Professional fees                                372,000           114,000             818,000          284,000
Occupancy, travel and other                      624,000           442,000           1,145,000          795,000
Directors fees                                    62,000            49,000             129,000           90,000

                                         $     3,328,000       $ 1,732,000      $    6,010,000      $ 3,506,000

General and administrative costs increased $1,596,000, or 92.1% for the 2014 quarter compared to the 2013 quarter. The increase is primarily due to increased stock-based compensation and professional fees. For the six month period ended June 30, 2014 general and administrative costs increased $2,504,000, or 71.4%, compared to the same period in 2013 primarily as a result of increased professional staffing and professional fees.

Net Cash Used in Operating Activities

During the six month period ended June 30, 2014, our operating activities used approximately $18.2 million in cash which was less than the net loss of $19.4 million primarily as a result of the non-cash stock-based compensation and accounts payable offset by prepaid research and development - related party and prepaid expenses.

In the same period of 2013, the use of cash was $8.7 million which was less than the net loss of $10.8 million principally as a result of non-cash stock-based compensation and accounts payable.

Net Cash Used in Investing Activities

During the six month period ended June 30, 2014, cash was used to acquire manufacturing machinery and equipment. Purchase of fixed assets increased to $5.9 million compared to $0.3 million for the same period in 2013, which increase reflects purchases for Ampio's new manufacturing facility.

Net Cash from Financing Activities

Net cash provided by financing activities in the six month period ended June 30, 2014 reflects gross proceeds from the public offering of $68.4 million offset by costs related to the offering of $5.0 million. In the same period during 2013, net cash provided by financing activities of $4.1 million reflects the net proceeds from the Luoxis private financing of $4.0 million and $0.1 million from the exercise of stock options and warrants.

Liquidity and Capital Resources

As a 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 June 30, 2014, we had cash and cash equivalents totaling $65.6 million and $3.6 million in accounts payable. Based upon our current expectations, we believe our capital resources at June 30, 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 . . .

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