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HEB > SEC Filings for HEB > Form 10-Q on 2-Nov-2012All Recent SEC Filings




Quarterly Report

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

Special Note Regarding Forward-Looking Statements

Certain statements in this report, including statements under "Item 1. Legal Proceedings" and "Item 1A. Risk Factors" in Part II, contain forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended, which we refer to as the Exchange Act. These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performances or achievements expressed or implied by the forward-looking statements. Forward-looking statements reflect our current views with respect to future events are based on assumptions and are subject to risks, uncertainties and other important factors. We discuss many of these risks, uncertainties and other important factors in greater detail under "Item 1A. Risk Factors" in Part II in this Report. Because the risk factors referred to above and in our Annual Report on Form 10-K for our most recent fiscal year filed with the Securities and Exchange Commission could cause actual results or outcomes to differ materially from those expressed in any forward-looking statements made by us, you should not place undue reliance on any such forward-looking statements.

Further, these forward-looking statements represent our estimates and assumptions only as of the date such forward-looking statements are made. You should carefully read this Report completely and with the understanding that our actual future results may be materially different from what we expect. We can give no assurances that any of the events anticipated by the forward-looking statements will occur or, if any of them do, what impact they will have on our business, results of operations and financial condition. Any forward-looking statement speaks only as of the date on which it is made and we undertake no obligation to update any forward-looking statement or statements to reflect events or circumstances after the date on which such statement is made or reflect the occurrence of unanticipated events. New factors emerge from time to time, and it is not possible for us to predict which will arise. We cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Any statements in this Report about our expectations, beliefs, plans, objectives, assumptions or future events or performance that are not historical facts are forward-looking statements. You can identify these forward-looking statements by the use of words or phrases such as "believe", "may", "could", "will", "estimate", "continue", "anticipate", "intend", "seek", "plan", "expect", "should", or "would," and similar expressions intended to identify forward-looking statements.

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Among the factors that could cause actual results to differ materially from those indicated in the forward-looking statements are risks and uncertainties inherent in our business including, without limitation: the potential therapeutic effect of our products, the possibility of obtaining regulatory approval, our ability to manufacture and sell any products, our ability to enter into arrangements with third party vendors, market acceptance of our products, our ability to earn a profit from sales or licenses of any drugs, our ability to discover new drugs in the future, changing market conditions, changes in laws and regulations affecting our industry, and issues related to the improvements and construction at of our New Brunswick, New Jersey facility. Recently we disclosed that we had filed with the FDA our Complete Response in support of the AmpligenŽ New Drug Application ("NDA") for Chronic Fatigue Syndrome Treatment. Please note that the remaining steps to potentially gain FDA approval of the AmpligenŽ NDA, the final results of these and other ongoing activities could vary materially from our expectations and could adversely affect the chances for approval of the AmpligenŽ NDA. These activities and the ultimate outcomes are subject to a variety of risks and uncertainties, including but not limited to risks that (i) the FDA may ask for additional data, information or studies to be completed or provided prior to approval; (ii) the FDA may require additional work related to the commercial manufacturing process to be completed prior to approval or may, in the course of the inspection of manufacturing facilities, identify issues to be resolved; (iii) the FDA may determine that the complete response submitted by us is not "complete," potentially requiring us to conduct additional activities before we can re-file, if at all, the complete response; and (iv) until completion of the FDA review of the AmpligenŽ NDA, including the Advisory Committee review, and final approval of the product and prescribing information, if any, the specific patient population for which AmpligenŽ may be indicated will not be known. Any failure to satisfy the FDA's requirements could significantly delay, or preclude outright, approval of the AmpligenŽ NDA.

We do not undertake and specifically decline any obligation to publicly release the results of any revisions which may be made to any forward-looking statement to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.



We are a specialty pharmaceutical company based in Philadelphia, Pennsylvania and engaged in the clinical development of new drug therapies based on natural immune system enhancing technologies for the treatment of viral and immune based chronic disorders. We were founded in the early 1970s doing contract research for the National Institutes of Health. Since that time, we have established a strong foundation of laboratory, pre-clinical and clinical data with respect to the development of natural interferon and nucleic acids to enhance the natural antiviral defense system of the human body and to aid the development of therapeutic products for the treatment of certain chronic diseases. We have three domestic subsidiaries BioPro Corp., BioAegean Corp., and Core BioTech Corp., all of which are incorporated in Delaware and are dormant. Our foreign subsidiary is Hemispherx Biopharma Europe N.V./S.A. established in Belgium in 1998, which has minimal activity. All significant intercompany balances and transactions have been eliminated in consolidation.

Our current strategic focus is derived from four applications of our two core pharmaceutical technology platforms AmpligenŽ and Alferon N InjectionŽ. The commercial focus for AmpligenŽ includes application as a treatment for Chronic Fatigue Syndrome ("CFS") and as a vaccine enhancer (adjuvant) for therapeutic and/or preventative development related to influenza and cancer treatments. Alferon N InjectionŽ is a U.S. Food and Drug Administration ("FDA") approved product with an indication for refractory or recurring genital warts. AlferonŽ LDO (Low Dose Oral) is a formulation currently under development targeting influenza.

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We own and operate a 43,000 sq. ft. FDA approved facility in New Brunswick, NJ that produces AlferonŽ and AmpligenŽ. In December 2011, our Board of Directors (the "Board") reevaluated its facility enhancement project to focus on upgrading the facility to provide for a high volume, more cost effective manufacturing process for Alferon N InjectionŽ, AlferonŽ LDO and AmpligenŽ. In this regard, the Board increased the funding allocated to this project from $4.4 million to $6.5 million, and then again in June 2012 to $7.2 million. The project is in an active construction phase with approximately $5,761,000 spent to date through September 30, 2012 and financed through a Margin Account with an effective interest rate of approximately 3.0%, as compared to $1,695,000 at December 31, 2011. While facility upgrades are being undertaken to the AlferonŽ manufacturing process, this project has not impacted our capability to manufacture the AmpligenŽ drug substance final intermediates. The production of new AlferonŽ Active Pharmaceutical Ingredient ("API") inventory will not commence until the capital improvement and validation phases are complete. Due to the necessity to redirect many of our resources to the AmpligenŽ NDA application process and efforts towards the pre-approval inspection for AmpligenŽ manufacturing, the validation phase of the AlferonŽ manufacturing project has been delayed until we have completed our focus on the NDA process. While the facility had been granted approval of its Biological License Application ("BLA") by the FDA for AlferonŽ, this status will need to be reaffirmed upon the completion of the facility's upgrades for AlferonŽ. Once we begin production of new AlferonŽ API, we anticipate that it will take approximately nine to twelve months before we will have AlferonŽ that can be commercially sold.

An element of the June 8, 2012 meeting with the FDA was the FDA's requirement that our New Brunswick manufacturing facility would be ready for GMP pre-approval inspection related to AmpligenŽ at the time of submission of our complete response submission. In an attempt to accomplish this task, we have redirected many of our resources to the AmpligenŽ NDA submission and our preparedness for the FDA pre-approval inspections by reassigning personnel, and hiring additional staff, consultants and various independent contractors. We cannot provide any guarantee that the facility will necessarily pass a pre-approval inspection for AmpligenŽ or AlferonŽ manufacture, which are conducted in separately dedicated areas within the overall New Brunswick manufacturing complex. See "AmpligenŽ" below.

We outsource certain components of our research and development, manufacturing, marketing and distribution while maintaining control over the entire process through our quality assurance group and our clinical monitoring group.


AmpligenŽ is an experimental drug currently undergoing clinical development for the treatment of Myalgic Encephalomyelitis/Chronic Fatigue Syndrome ("ME/CFS"). Over its developmental history, AmpligenŽ has received various designations, including Orphan Drug Product Designation (FDA), Treatment IND (e.g., treatment investigational new drugs, or "Emergency" or "Compassionate" use authorization) with Cost Recovery Authorization (FDA) and "promising" clinical outcome recognition based on the evaluation of certain summary clinical reports ("AHRQ" or Agency for Healthcare Research and Quality). AmpligenŽ represents the first drug in the class of large (macromolecular) RNA (nucleic acid) molecules to apply for New Drug Application ("NDA") review. Based on the results of published, peer reviewed pre-clinical studies and clinical trials, we believe that AmpligenŽ may have broad-spectrum anti-viral and anti-cancer properties. Over 1,000 patients have participated in the AmpligenŽ clinical trials representing the administration of more than 90,000 doses of this drug.

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Nucleic acid compounds represent a potential new class of pharmaceutical products that are designed to act at the molecular level for treatment of human diseases. There are two forms of nucleic acids, DNA and RNA. DNA is a group of naturally occurring molecules found in chromosomes, the cell's genetic machinery. RNA is a group of naturally occurring informational molecules which orchestrate a cell's behavior which, in turn, regulates the action of groups of cells, including the cells which compromise the body's immune system. RNA directs the production of proteins and regulates certain cell activities including the activation of an otherwise dormant cellular defense against viruses and tumors. Our drug technology utilizes specifically-configured RNA. Our double-stranded RNA drug product, trademarked AmpligenŽ, is an experimental, unapproved drug, that would be administered intravenously. AmpligenŽ has been assigned the generic name rintatolimod by the United States Adopted Names Council (USANC) and has the chemical designation poly(I) poly(C12,U).

Clinical trials of AmpligenŽ already conducted by us include studies of the potential treatment of ME/CFS, Hepatitis B, HIV and cancer patients with renal cell carcinoma and malignant melanoma. All of these potential uses will require additional clinical trials to generate the safety and effectiveness data necessary to support regulatory approval.

In July 2008, the FDA accepted for review our NDA for AmpligenŽ to treat CFS, originally submitted in October 2007. We are seeking marketing approval for the first-ever treatment for CFS and the NDA for AmpligenŽ is the first ever accepted for review by the FDA for systemic use of a toll-like receptor 3 ("TLR-3") therapy to treat any condition. In November 2009, we received a Complete Response Letter ("CRL") from the FDA which described specific additional recommendations related to the AmpligenŽ NDA. In accordance with its 2008 Complete Response procedure, the FDA reviewers determined that they could not approve the application in its present form and provided specific recommendations to address the outstanding issues. Most notably, the FDA stated that the two primary clinical studies submitted with the NDA did not provide credible evidence of efficacy of AmpligenŽ and recommended at least one additional clinical study which shows convincing effect and confirms safety in the target population. The FDA indicated that the additional study should be of sufficient size and sufficient duration (six months) and include appropriate monitoring to rule out the generation of autoimmune disease. In addition, patients in the study should be on more than one dose regimen, including at least 300 patients on dose regimens intended for marketing. In the Non-Clinical area, the FDA recommended among other things that we complete rodent carcinogenicity studies in two species. While as part of the NDA submission we had requested that these studies be waived, this waiver had not been granted by the FDA in their CRL. Under the Product Quality section of the CRL, the FDA recommended that we submit additional data and complete various analytical procedures. The collection of these data and the completion of these procedures is already part of our ongoing Quality Control, Quality Assurance program for AmpligenŽ manufacturing under current Good Manufacturing Practice ("cGMP") guidelines and our manufacturing enhancement program. On January 14, 2010, we submitted reports of new preclinical data regarding AmpligenŽ in response to certain issues raised in the FDA's CRL.

In May 1997, the FDA approved an open-label treatment protocol, ("AMP 511"), allowing patient access to AmpligenŽ for treatment in an open-label safety study under which severely debilitated CFS patients have the opportunity to be on AmpligenŽ to treat this very serious and chronic condition. The data collected from the AMP 511 protocol through a consortium group with active clinical sites in New York City, NY, Charlotte, NC, Miami, FL, Incline Village, Nevada, and Salt Lake City, UT, provides safety data on the use of AmpligenŽ in patients to identify adverse events that occur in a patient to determine if it is related to the drug being tested or other health problems identified in trial participants. As of September 30, 2012, we had thirty-three patients participating in this open label treatment protocol with twenty-five taking treatment and eight on drug holiday. We are establishing an enlarged data base of clinical safety information which we believe will provide further documentation regarding the absence of autoimmune disease associated with AmpligenŽ treatment. We believe that continued efforts to understand existing data, and to advance the development of new data and information, ultimately supports our re-filing of the AmpligenŽ NDA.

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In November 2010, Hemispherx announced the publication of new analyses of data from the AMP-516 Trial also showed that patients on AmpligenŽ reduced their use of concomitant medications compared to patients receiving placebo. In particular, AmpligenŽ patients reduced their use of medications which may prolong the QT interval. Prolongation of the QT interval is a known risk factor for sudden cardiac death and arrhythmias. A greater portion of the placebo patients were found to have a significant prolongation of the QT interval compared to patients who had received AmpligenŽ, thereby creating a cardiac risk situation in the CFS patients. Cardiac death is one of three major causes of premature death in CFS, which affects predominantly women in their 40s.

In March 2012, a new peer reviewed analysis of data from the AMP-516 Trial was published showing that the proportions of AmpligenŽ patients with exercise improvements of at least 25% and at least 50% were, respectively, 1.7 and 1.9-fold greater than those patients on placebo. A continuous responder analysis which examined response improvements from 25% to 50% in 5% increments showed a greater improvement in exercise tolerance for patients receiving AmpligenŽ versus placebo at every 5% increment above 25%.

On June 8, 2012, the Company and its consultants met with the FDA to discuss certain aspects of the CRL relating to its NDA for AmpligenŽ for the treatment of severely debilitated patients with CFS. Upon our review of the FDA Minutes from this meeting that we received on July 6, 2012, we believe the key points from the meeting to be undertaken by the Company in conjunction with its complete response include the following:

ˇ The FDA agreed to accept, for review, in Hemispherx' complete response new analyses of data from the AMP-516 Trial. Whether these data provide adequate evidence of efficacy will ultimately be a review issue, and there can be no assurance the FDA will conclude the data are adequate to support approval of the AmpligenŽ NDA;

ˇ As AmpligenŽ is a new molecular entity, the FDA anticipates that the data submitted in the NDA would be presented at a public FDA Advisory Committee meeting;

ˇ The FDA requires that the Company's complete response include all information necessary for review at the time of filing and that it address all deficiencies identified in the CRL;

ˇ Our New Brunswick manufacturing facility would be expected to be ready for GMP pre-approval inspection at the time of the complete response; and

ˇ We will include in the complete response a request for postponement of rodent carcinogenicity study requirements and a justification for this request.

The FDA also advised that whether the new analyses provide adequate evidence of AmpligenŽ's efficacy in treating CFS will ultimately be an Advisory Committee ("AC") review issue. The Company submitted the complete response to the FDA on July 31, 2012 in support of AmpligenŽ's NDA for CFS. The FDA acknowledged in writing receipt of the Company's complete response stating, "We consider this a complete, class 2 response to our November 25, 2009, action letter." Based on its designation of our July 31, 2012 submission as a class 2 response, FDA has indicated that its Prescription Drug User Fee Act ("PDUFA") review goal for completing its review is February 2, 2013. The FDA's agreement to review the complete response does not commit the FDA to approve the AmpligenŽ NDA. Further, no guarantee can be made at this time that the facility will necessarily pass a pre-approval inspection to produce raw materials to manufacture AmpligenŽ, which is conducted in a separately dedicated area within the overall New Brunswick manufacturing complex. As a result of the FDA meeting, Hemispherx has redirected many of its resources to the AmpligenŽ NDA submission and our preparation for the FDA pre-approval inspections by reassigning personnel, hiring additional staff, consultants and various independent contractors.

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The FDA has scheduled the AC meeting to discuss the AmpligenŽ NDA on December 20, 2012. No guarantee can be made at this time that FDA will hold the AC meeting as currently scheduled or that FDA will complete its review of the NDA by the February 2, 2013 review goal.

On July 12, 2012, we filed a new drug application for AmpligenŽ with the ANMAT (Administracion Nacional de Medicamentos, Alimentos y Tecnologia Medica), the agency responsible for the national regulation of drugs, foods and medical technology in Argentina, under the ANMAT's Orphan Drug regulations. We believe that the approval of AmpligenŽ as an Orphan Drug should allow reimbursement by the Health Services Authority (SSS), the central health authority in Argentina for patients seeking treatment for ME/CFS.

There are multiple reasons for fatigue and the accurate diagnosis of CFS remains one of exclusion and adherence to strict diagnostic guidelines. We had reported at the IACFS/ME Biennial Conference held on September 22-25, 2011, in Ottawa, Ontario, Canada on new data for the potential development of a blood test for CFS that would allow greater accuracy and reduced cost in its diagnosis. This experimental approach utilized by Chronix Biomedical ("Chronix"), tests fragments of DNA released into the bloodstream during the process of apoptosis or programmed cell death reflect alterations in specific regions of the chromosome, which can be detected as distinctive "signatures" in cell-free blood-borne DNA as a function of disease process. Hemispherx and Chronix intend to continue to collaborate in the utilization of this approach towards the development of a diagnostic tool for CFS with extension of the technology to more powerful Massively Parallel Sequencing Platforms in order to increase the statistical power per sample analyzed and explore whether the technology can be used to identify how different persons with CFS will respond to AmpligenŽ as compared to placebo. However, developments have been paused pending Chronix' implementation of its planned next generation of sequencing equipment and Hemispherx' current need to give priority to AmpligenŽ's NDA responsibilities. While we believe that finding an accurate diagnostic for CFS is useful, we do not believe that development of new diagnostic tools is a prerequisite to FDA approval of a CFS treatment, including AmpligenŽ.

Alferon N InjectionŽ

Alferon N InjectionŽ is the registered trademark for our injectable formulation of natural alpha interferon, which was approved by the FDA in 1989 for the treatment of certain categories of genital warts. AlferonŽ is the only natural-source, multi-species alpha interferon currently approved for sale in the U.S. for the intralesional (within lesions) treatment of refractory (resistant to other treatment) or recurring external genital warts in patients 18 years of age or older. Certain types of human papilloma viruses ("HPV") cause genital warts, a sexually transmitted disease ("STD"). The Centers for Disease Control and Prevention ("CDC") estimates that approximately twenty million Americans are currently infected with HPV with another six million becoming newly infected each year.

In January 2012, the ANMAT approved the sale and distribution of Alferon N InjectionŽ (under the brand name "Naturaferon") in Argentina. In June 2010, Hemispherx agreed to provide GP Pharm an option to market Alferon N InjectionŽ, its FDA-approved natural interferon, in Argentina and other Latin American countries. The receipt of the ANMAT approval is the first step of a regulatory process towards the commercial sales of Naturaferon. On September 20, 2012, the Company filed with ANMAT an amended NDA for the use of Alferon N InjectionŽ in patients with chronic hepatitis C who have become refractory to recombinant interferon as a result of the appearance of neutralizing antibodies against recombinant interferon.

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Commercial sales of Alferon N InjectionŽ were halted in March 2008 when our finished goods inventory expired. The production of Alferon N InjectionŽ from the Work-In-Process Inventory was restarted in May 2010, continued into January 2011 with its conversion into API and is completed for the related Final Lot Release Test. To formulate, fill, finish and package ("fill and finish") Alferon N InjectionŽ Drug Product, we require a FDA approved third party Contract Manufacturing Organization ("CMO"). While the Work-In-Process Inventory had expiration dates of September 30, 2012 through March 10, 2013, upon the completion of each inventory lot in the fill, finish and packaging process it is projected that those lots of Alferon N InjectionŽ will then have an expected shelf life of 42 months. In April 2012, FDA reviewers raised certain questions about the status of our existing lots of older Work-In-Process AlferonŽ materials and API, which would need to be released by FDA before those materials could be used in commercial product. The production of new AlferonŽ drug product inventory will not commence until the capital improvements and related validation phases at our New Brunswick manufacturing facility are complete.

In January 2012, we agreed to a Technology, Transfer, Validation and Commercial Supply Agreement with Althea Technologies, Inc. ("Althea") of San Diego, CA, regarding the fill and finish process for Alferon N InjectionŽ. The Technology Transfer process with Althea was completed in May 2012 and included the evaluation of manufacturing and technology transfer feasibility, equipment and/or equipment modification requirements, engineering runs, process definition along with development and approval of the Master Batch Record. At the completion of each inventory lot in the fill, finish and packaging process, it is projected that those lots of Alferon N InjectionŽ will then have an expected shelf life of 42 months. As of September 30, 2012, all but one of our four lots of AlferonŽ Work-In-Process Inventory have completed the fill, finish and packaging process with the final lot to be converted in October 2012. Of the three lots that had completed the fill, finish and packaging process, the first lot was deemed not suitable for commercial sale due to an issue that occurred in the conversion process and therefore its value was reserved by the Company along with any validation samples and product conversion shrinkage from this final production stage for the other lots. Upon analysis and revision of the fill and finish process, the second and third lots were completed with the previous issue in the manufacturing step corrected.

Upon the completion of the fill, finish and packaging protocol, Process Validation of AlferonŽ Work-In-Process lots need to be completed. A minimum of three months of stability tests is required in a Pre-Approval Supplement ("PAS"). Upon receipt of the PAS, the FDA could take up to six months to render an opinion. When the finished product lots obtain approval from the FDA, we will be able to commercially sell Alferon N InjectionŽ in the United States. If we receive a lot release approval from the FDA as to quality and consistency of these materials, and approval for Althea regarding the fill and finish process, we will then be able to utilize the approved lots for commercial sales of Alferon N InjectionŽ. At the completion of the Company's redirection of many of its resources to the AmpligenŽ NDA submission and preparedness for the FDA pre-approval inspections, it is projected that an additional six to nine months may be necessary to determine the status of our existing inventory of Alferon N InjectionŽ for commercial sales.

We are unable to provide any assurances that the FDA will approve the finish product lots produced by Althea. In the absence of FDA approvals for commercial sale of product manufactured from existing Work-In-Process inventory, commercial sales of AlferonŽ in the United States will not resume until new batches of AlferonŽ Active Pharmaceutical Ingredient can be produced and formulated in order that finished product can be filled, finished, packaged and released by the FDA for commercial sale. While at September 30, 2012 and December 31, 2011, the Work-In-Process Inventory had no manufacturing steps to be undertaken at the Company's New Brunswick, NJ facility, it will not be classified as Finished . . .

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