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RNN > SEC Filings for RNN > Form 10-Q on 13-Aug-2014All Recent SEC Filings

Show all filings for REXAHN PHARMACEUTICALS, INC.

Form 10-Q for REXAHN PHARMACEUTICALS, INC.


13-Aug-2014

Quarterly Report


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

OVERVIEW

The following discussion should be read in conjunction with the unaudited condensed financial statements and notes thereto set forth in Item 1 of this Quarterly Report on Form 10-Q and the audited condensed financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2013.

Except for the historical information contained herein, the matters discussed in this Quarterly Report on Form 10-Q may be deemed to be forward-looking statements that involve risks and uncertainties. We make such forward-looking statements, pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and other federal securities laws. In this Quarterly Report on Form 10-Q, words such as "believe," "estimate," "expect," "anticipate," "may," "intend" and other similar expressions, are intended to identify forward-looking statements. We caution that forward-looking statements are based largely on our expectations, and are subject to a number of known and unknown risks and uncertainties that are subject to change based on factors that are, in many instances, beyond our control. Actual results, performance or achievements may differ materially from those contemplated, expressed, or implied by the forward-looking statements.

The following factors, among others, could cause our financial performance to differ materially from that expressed in such forward-looking statements:

· our lack of profitability and the need for additional capital to operate our business;

· our drug candidates being in early stages of development, including pre-clinical development;

· our ability to obtain the necessary U.S. and worldwide regulatory approvals for our drug candidates;

· successful and timely completion of clinical trials for our drug candidates;

· demand for and market acceptance of our drug candidates;

· our ability to identify partners and collaborators for the development of certain of our drug candidates and, if identified, to enter into mutually agreeable relationships with those partners and collaborators;

· the availability of qualified third-party researchers and manufacturers for our drug development programs;

· our ability to develop and obtain protection of our intellectual property; and

· other risks and uncertainties, including those detailed from time to time in our filings with the Securities and Exchange Commission (the "SEC").

The following information and any forward-looking statements should be considered in light of factors discussed elsewhere in this Quarterly Report on Form 10-Q, in our Annual Report on Form 10-K for the year ended December 31, 2013, and in our other filings with the SEC.


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These forward-looking statements are made only as of the date hereof, and we undertake no obligation to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise.

We are a clinical biopharmaceutical company dedicated to the discovery, development and commercialization of innovative treatments for cancer patients that target specific proteins that are over expressed in cancer cells and not present in normal healthy tissues. This approach differs from existing chemotherapeutic agents that inhibit the growth of both cancer cells and normal healthy tissues at similar doses. Our pipeline features one oncology candidate in Phase II clinical trials, two oncology candidates in Phase I clinical trials, two drug candidates not currently being actively developed and several other drug candidates in pre-clinical development. Our strategy is to continue building a significant product pipeline of innovative drug candidates that we will commercialize alone or with partners. We intend to initially develop drug candidates for cancers that are orphan indications and then expand into more highly prevalent cancers.

Since our inception, our efforts and resources have been focused primarily on developing our pharmaceutical technologies, raising capital and recruiting personnel. We have no product sales to date, and we will not generate any product sales until we receive approval from the Food and Drug Administration (the "FDA") or equivalent foreign regulatory bodies to begin selling our pharmaceutical candidates. Our major sources of working capital have been proceeds from various private financings, primarily private sales of common stock and debt securities and collaboration agreements with our strategic investors.

Recently Issued Accounting Standards

In June 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2014-10, "Development Stage Entities:
Elimination of Certain Financial Reporting Requirements, Including an Amendment to Variable Interest Entities Guidance in Topic 810, Consolidation." ASU 2014-10 eliminates several of the reporting requirements for development stage entities, including the requirement to present inception to date information in the statements of income, cash flows, and shareholder equity, and to label the financial statements as those of a development stage entity. ASU 2014-10 also clarifies that the guidance in Accounting Standards Codification ("ASC") Topic 275, "Risks and Uncertainties", is applicable to entities that have not commenced principal operations, and eliminates an exception to the sufficiency-of-equity risk criterion for development stage entities, and will require all reporting entities that have an interest in development stage enterprises to apply consistent consolidation guidance for variable interest entities. ASU 2014-10 is effective for all annual reporting periods beginning after December 15, 2014, with early adoption permitted. We adopted ASU 2014-10 during the three months ended June 30, 2014, and removed the incremental reporting requirements for development stage entities from the financial statements for the three and six months ended June 30, 2014.

Results of Operations

Comparison of the Three and Six Months Ended June 30, 2014 and June 30, 2013

Total Revenues

We had no revenues for the three and six months ended June 30, 2014 or 2013.


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General and Administrative Expenses

General and administrative expenses consist primarily of salaries and related expenses for executive, finance and other administrative personnel, recruitment expenses, professional fees and other corporate expenses, including business development, investor relations, and general legal activities.

General and administrative expenses increased $844,543, or 98.4%, to $1,702,489 for the three months ended June 30, 2014 from $857,946 for the three months ended June 30, 2013. General and administrative expenses increased $1,047,247, or 48.7%, to $3,115,945 for the six months ended June 30, 2014 from $2,068,698 for the six months ended June 30, 2013. The increase is primarily attributable to increases in several expense categories, including investor relations, financial advisory services relating to the Company's financing activities, legal and professional fees related to corporate organizational matters, and proxy solicitation fees for our shareholder meeting. During the three and six months ended June 30, 2014, we engaged additional firms to provide these investor relations and professional services, and some of these firms were compensated with compensatory stock in addition to cash payments.

Research and Development Expenses

Research and development expenses consist primarily of salaries and related personnel costs, fees paid to consultants and outside service providers for laboratory development and other expenses relating to the design, development, testing, and enhancement of our drug candidates. We expense our research and development costs as they are incurred.

Research and development expenses increased $776,277, or 83.9%, to $1,701,407 for the three months ended June 30, 2014, from $925,130 for the three months ended June 30, 2013. Research and development expenses increased $1,495,385, or 101.2%, to $2,972,981 for the six months ended June 30, 2014 from $1,477,596 for the six months ended June 30, 2013. The increase in both the three and six months ended June 30, 2014 is primarily attributable to the clinical trials that were on-going during these periods. During the six months ended June 30, 2014, one of our drug candidates, Archexin, entered a Phase IIa clinical trial to study its safety and efficacy in patients with metastatic renal cell carcinoma ("RCC"), and another drug candidate, RX-3117, entered a Phase Ib clinical trial to study its safety and efficacy in patients with solid tumors.

Patent Fees

Our patent fees decreased $25,806, or 21.3%, to $95,410 for the three months ended June 30, 2014, from $121,216 for the three months ended June 30, 2013. Our patent fees decreased $90,277, or 35.0%, to $167,430 for the six months ended June 30, 2014, from $257,707 for the six months ended June 30, 2013. The decrease is primarily attributable to a partial reduction of our patent fees related to our central nervous system patents, as well as translation fees associated with regionalizing patents in foreign jurisdictions during the three and six months ended June 30, 2013.

Depreciation and Amortization

Depreciation and amortization expense essentially remained flat for the three and six months ended June 30, 2014 compared to the three and six months ended June 30, 2013, increasing $395 and $123, or 4.3%, and 0.7%, respectively.


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Interest Income

Interest income increased $26,602, or 232.7% to $38,035 for the three months ended June 30, 2014 from $11,433 for the three months ended June 30, 2013. Interest income increased $48,875, or 227.8% to $70,326 for the six months ended June 30, 2014 from $21,451 for the six months ended June 30, 2013. The increase is due to an increase in interest rates and higher cash balances on our cash and cash equivalents for the three and six months ended June 30, 2014 compared to the three and six months ended June 30, 2013.

Unrealized Gain/ (Loss) on Fair Value of Warrants

Our warrants are recorded as liabilities at fair value, and the warrants are valued using a lattice model. Changes in the fair value of warrants are recorded as an unrealized gain or loss in our statement of operations. During the three months ended June 30, 2014 and 2013, we recorded an unrealized gain
(loss) on the fair value of our warrants of $3,665,365 and $(1,206,656), respectively. During the six months ended June 30, 2014 and 2013, we recorded an unrealized loss on the fair value of our warrants of $7,995,159 and $837,754, respectively. Estimating fair values of warrants requires the development of significant and subjective estimates that may, and are likely to, change over the duration of the warrant with related changes to external market factors. The large unrealized gain for the three months ended June 30, 2014 primarily resulted from a decreased stock price of the underlying common stock at June 30, 2014, compared to March 31, 2014, while the large unrealized loss for the six months ended June 30, 2014 primarily resulted from an increased stock price of the underlying common stock at June 30, 2014 compared to December 31, 2013.

Financing Expense

We incurred $206,172 of financing expenses during the six months ended June 30, 2014, related to our registered direct offering in January 2014. We did not incur financing expenses during the six months ended June 30, 2013.

Net Income (Loss)

As a result of the above, net income (loss) for the three and six months ended June 30, 2014 was $194,464, and ($14,406,035) or $0.00 and ($0.08) per share, respectively, compared to ($3,108,750) and ($4,638,855) or ($0.03) and ($0.04) per share, for the three and six months ended June 30, 2013.


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Research and Development Projects

Research and development costs are expensed as incurred. Research and development costs consist primarily of salaries and related personnel costs, costs to acquire pharmaceutical products and product rights for development and amounts paid to contract research organizations, hospitals and laboratories for the provision of services and materials for drug development and clinical trials. Costs incurred in obtaining the license rights to technology in the research and development stage that have no alternative future uses are expensed as incurred. Our research and development programs are related to our oncology clinical stage drug candidates, Archexin, RX-3117 and Supinoxin, and our pre-clinical stage drug candidates, RX-0047-Nano, Archexin-Nano and RX-21101. As we expand our clinical studies, we will enter into additional development agreements. Significant additional expenditures will be required if we complete our clinical trials, start new trials, apply for regulatory approvals, continue development of our technologies, expand our operations and bring our products to market. The eventual total cost of each clinical trial is dependent on a number of uncertainties such as trial design, the length of the trial, the number of clinical sites and the number of patients. The process of obtaining and maintaining regulatory approvals for new therapeutic products is lengthy, expensive and uncertain. Because the successful development of our most advanced drug candidates, Archexin, RX-3117 and Supinoxin, is uncertain, and because RX-0047-Nano, Archexin-Nano, and RX-21101 are in early-stage development, we are unable to estimate the costs of completing our research and development programs, the timing of bringing such programs to market and, therefore, when material cash inflows could commence from the sale of these drug candidates, if any. If these projects are not completed as planned, our results of operations and financial condition would be negatively affected.

Archexin®

Archexin is a potential best-in-class, potent inhibitor of the protein kinase phosphorylated Akt-1, which is over expressed in cancer cells and which we believe plays a critical role in cancer cell proliferation, survival, angiogenesis, metastasis and drug resistance. Archexin has received "orphan drug" designation from the FDA, for RCC, glioblastoma, ovarian cancer, stomach cancer and pancreatic cancer. That designation provides tax incentives for clinical research and a waiver of user fees. In addition, a drug that is approved for its orphan-designated use receives seven years of exclusivity after approval, during which the FDA generally cannot approve another product with the same active moiety for the same indication.

In August 2012, we announced top line results of an open label 2-stage Phase IIa clinical trial for Archexin that was designed to assess the safety and efficacy of Archexin in combination with gemcitabine. Gemcitabine is used to treat pancreatic, breast, ovarian and lung cancers. Gemcitabine is a member of a group of chemotherapy drugs known as anti-metabolites. It prevents cells from making DNA and RNA, which stops cell growth and causes cells to die. Stage 1 was the dose-finding portion of the study, and Stage 2 was the dose-expansion portion of the study using the dose identified in Stage 1 administered with gemcitabine. The study enrolled 31 subjects aged 18 to 65 with metastatic pancreatic cancer at nine centers in the United States and India. The primary endpoint was overall survival following four cycles of therapy with a six month follow-up. For those evaluable patients, the study demonstrated that treatment with Archexin in combination with gemcitabine provided a median survival rate of 9.1 months compared to the historical survival data of 5.65 months for standard single agent gemcitabine therapy. The most frequent reported adverse events were constipation, nausea, abdominal pain and pyrexia, regardless of relatedness.


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We initiated a Phase IIa clinical proof-of-concept clinical trial of Archexin in January 2014 to study its safety and efficacy in patients with metastatic RCC. In the trial, Archexin will be administered in combination with everolimus (Afinitor®), and will be conducted in two stages. The first stage will be dose ranging, with up to three dose groups with three RCC patients each, to determine its maximal tolerated dose ("MTD") in combination with everolimus. Once the MTD has been determined, thirty RCC patients eachwill be randomized to either Archexin in combination with everolimus or everolimus alone, in a ratio of 2:1. Rexahn plans to complete the initial safety component of this study in the fourth quarter of 2014 or early 2015. We own one issued U.S. patent for Archexin.

RX-3117

RX-3117 is a small molecule nucleoside compound with an anti-metabolite mechanism of action, and we believe it has therapeutic potential in a broad range of cancers including colon, lung, and pancreatic cancer. RX-3117 has also been shown to be effective in inhibiting the growth of gemcitabine-resistant human cancers and in improving overall survival in pre-clinical animal models. We completed an exploratory Phase I clinical study of RX-3117 in 2012 that demonstrated the oral bioavailability of RX-3117 in humans with no adverse effects reported in the study. In January 2014, we initiated a Phase Ib clinical trial to study the safety, tolerability, dose-limiting toxicities and MTD of RX-3117 in patients with solid tumors. Secondary endpoints will include characterizing the pharmacokinetic profile of RX-3117 and evaluating the preliminary anti-tumor effects of RX-3117. Rexahn has completed testing of three dose groups (30, 60 and 100mg) and is in the middle of recruiting the fourth dose group (150mg). Based on the progress of the RX-3117 clinical development program and the level of interest expressed from a number of oncology-focused pharmaceutical companies, Rexahn is continuing its discussions with multiple companies to explore collaborative business structures in an effort to maximize the potential upside value of the program.

Supinoxin (RX-5902)

Supinoxin is a potential first-in-class small molecule that inhibits the phosphorylation of p68 RNA helicase, a protein that we believe plays a key role in cancer growth, progression and metastasis. Phosphorylated p68, which is highly expressed in cancer cells, but not in normal cells, results in up-regulation of cancer-related genes and a subsequent proliferation or tumor growth of cancer cells. Supinoxin selectively blocks phosphorylated p68, thereby decreasing the proliferation or growth of cancer cells. In pre-clinical tissue culture models and in-vivo xenograft models, Supinoxin has demonstrated single-agent tumor growth inhibition synergism with cytotoxic agents and activity against drug resistant cancer cells. In particular, in in-vivo xenograft models of human RCC and pancreatic cancer, treatment with Supinoxin on days 1 to 20 in mouse models produced a survival benefit beyond 65 days. In July 2012, we submitted an investigational new drug ("IND") application to the FDA for Supinoxin. We initiated a Phase I clinical trial in August 2013 to study Supinoxin's safety and efficacy in patients with solid tumors. Four doses (25mg, 50mg, 100mg, and 150mg) have been tested and the MTD of Supinoxin has not yet been achieved. Testing in the fifth dose group (225mg) is ongoing.

Pre-clinical Pipeline

Archexin-Nano, RX-0047-Nano and RX-21101 are all in a pre-clinical stage of development.

Research and Development Process

We have engaged third-party contract research organizations and other investigators and collaborators, such as universities and medical institutions, to conduct our pre-clinical studies, toxicology studies and clinical trials. Engaging third-party contract research organizations is typical practice in our industry. However, relying on such organizations means that the clinical trials and other studies described above are being conducted at external locations and that the completion of these trials and studies is not within our direct control. Trials and studies may be delayed due to circumstances outside our control, and such delays may result in additional expenses for us.


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Collaboration and License Agreements

In July 2013, we entered into an exclusive license agreement with the University of Maryland, Baltimore for a novel drug delivery platform, Nano-Polymer-Drug Conjugate Systems. This platform combines existing chemotherapeutic agents with a proprietary polymer carrier that contains a signaling moiety to direct the agents into a tumor. RX-21101 is our first drug candidate utilizing this platform and is a conjugated form of docetaxel, a common chemotherapy agent.

In October 2013, we entered into an exclusive license agreement with the Ohio State Innovation Foundation, an affiliate of the Ohio State University, for a novel oligonucleotide drug delivery platform, Lipid-Coated Albumin Nanoparticle ("LCAN"). The LCAN platform incorporates both cationic lipid and cationized albumin that can form an electrostatic complex with oligonucleotides and be co-encapsulated by lipids. Archexin-Nano is our first drug candidate to be developed with this platform.

Liquidity and Capital Resources

Operating Activities

Cash used in operating activities was $5,527,773 for the six months ended June 30, 2014. The operating cash flows during the six months ended June 30, 2014 reflect our net loss of $14,406,035, which includes an unrealized loss on fair value of warrants of $7,995,159 and a net increase of cash components of working capital and other non-cash charges totaling $888,103. Cash used in operating activities was $4,055,248 for the six months ended June 30, 2013.

Cash provided by investing activities was $103,760 for the six months ended June 30, 2014, which consisted of a decrease in restricted cash of $117,974 offset by $14,214 for the purchase of equipment. Cash provided by investing activities for the six months ended June 30, 2013 was $521,313.

Cash provided by financing activities was $24,840,470 for the six months ended June 30, 2014, which consisted of net proceeds of $18,634,247 from our registered direct public offering in January 2014, $258,955 from the exercise of stock options and $5,947,268 from the exercise of stock warrants. Cash provided by financing activities was $26,739 for the six months ended June 30, 2013.

We will need to raise additional capital through public or private equity or debt offerings or through arrangements with strategic partners or other sources in order to continue to develop our drug candidates. There can be no assurance that additional capital will be available when needed or on terms satisfactory to us, if at all. If we are not able to raise sufficient additional capital, we will have to reduce our research and development activities. We will first reduce research and development activities associated with our pre-clinical compounds. To the extent necessary, we will then reduce our research and development activities related to some or all of our clinical drugs.

Contractual Obligations

We have a variety of contractual obligations, as more fully described in our annual report on Form 10-K. These obligations include, but are not limited to, contractual obligations in connection with license agreements (including related milestone payments), lease payments, employee compensation and incentive program expenses, and contracts with various vendors for research and development services. As of June 30, 2014, the total contract value of our agreements with vendors for research and development services was approximately $28,200,000, and we had made payments totaling $21,608,667 under the terms of the agreements.


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Current and Future Financing Needs

We have incurred negative cash flow from operations since we started our business. We have spent, and expect to continue to spend, substantial amounts in connection with implementing our business strategy, including our planned product development efforts, our clinical trials and our research and development efforts. We will need to raise additional capital through public or private equity or debt offerings or through arrangements with strategic partners or other sources in order to continue to develop our drug candidates. There can be no assurance that additional capital will be available when needed or on terms satisfactory to us, if at all. If we are not able to raise sufficient additional capital, we will have to reduce our research and development activities. The Company believes that its cash, cash equivalents, and marketable securities will be sufficient to cover its cash flow requirements for its current activities for at least the next 24 months.

The actual amount of funds we will need to operate is subject to many factors, some of which are beyond our control. These factors include the following:

· the progress of our product development activities;

· the number and scope of our product development programs;

· the progress of our pre-clinical and clinical trial activities;

· the progress of the development efforts of parties with whom we have entered into collaboration agreements;

· our ability to maintain current collaboration programs and to establish new collaboration arrangements;

· the costs involved in prosecuting and enforcing patent claims and other intellectual property rights; and

· the costs and timing of regulatory approvals.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.


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