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ADMP > SEC Filings for ADMP > Form 10-Q on 15-Aug-2016All Recent SEC Filings

Show all filings for ADAMIS PHARMACEUTICALS CORP

Form 10-Q for ADAMIS PHARMACEUTICALS CORP


15-Aug-2016

Quarterly Report


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

Information Relating to Forward-Looking Statements

This Quarterly Report on Form 10-Q includes "forward-looking" statements. These forward-looking statements are not historical facts, but are based on current expectations, estimates and projections about our industry, our beliefs and our assumptions. These forward-looking statements include statements about our strategies, objectives and our future achievement. To the extent statements in this Quarterly Report involve, without limitation, our expectations for growth, estimates of future revenue, our sources and uses of cash, our liquidity needs, our current or planned clinical trials or research and development activities, product development timelines, our future products, regulatory matters, expense, profits, cash flow balance sheet items or any other guidance on future periods, these statements are forward-looking statements. These statements are often, but not always, made through the use of word or phrases such as "believe," "will," "expect," "anticipate," "estimate," "intend," "plan," and "would." These forward-looking statements are not guarantees of future performance and concern matters that could subsequently differ materially from those described in the forward-looking statements. Actual events or results may differ materially from those discussed in this Quarterly Report on Form 10-Q. Except as may be required by applicable law, we undertake no obligation to update any forward-looking statements or to reflect events or circumstances arising after the date of this Report. Important factors that could cause actual results to differ materially from those in these forward-looking statements are in the section entitled "Risk Factors" in the most recent Annual Report on Form 10- K, filed with the Securities and Exchange Commission, and the other risks and uncertainties described elsewhere in this report as well as other risks identified from time to time in our filings with the Securities and Exchange Commission, press releases and other communications. In addition, the statements contained throughout this Quarterly Report concerning future events or developments or our future activities, including concerning, among other matters, current or planned clinical trials, anticipated research and development activities, anticipated dates for commencement of clinical trials, anticipated completion dates of clinical trials, anticipated meetings with the FDA or other regulatory authorities concerning our product candidates, anticipated dates for submissions to obtain required regulatory marketing approvals, anticipated dates for commercial introduction of products, and other statements concerning our future operations and activities, are forward-looking statements that in each instance assume that we are able to obtain sufficient funding in the near term and thereafter to support such activities and continue our operations and planned activities in a timely manner. There can be no assurance that this will be the case. Also, such statements assume that there are no significant unexpected developments or events that delay or prevent such activities from occurring. Failure to timely obtain sufficient funding, or unexpected developments or events, could delay the occurrence of such events or prevent the events described in any such statements from occurring.

Unless the context otherwise requires, the terms "we," "our," and "the Company" refer to Adamis Pharmaceuticals Corporation, a Delaware corporation, and its subsidiaries.

General

Company Overview

We are an emerging pharmaceutical company focused on combining specialty pharmaceuticals and biotechnology to provide innovative medicines for patients and physicians. We are currently primarily focused on our specialty pharmaceutical products. We are currently developing several products in the allergy and respiratory markets, including our Epinephrine PFS product, for the emergency treatment of acute allergic reactions, including anaphylaxis, and a dry powder inhaler technology. Our goal is to create low cost therapeutic alternatives to existing treatments. Consistent across all specialty pharmaceuticals product lines, we intend to submit Section 505(b)(2) New Drug Applications, or NDAs, or Section 505(j) Abbreviated New Drug Applications or ANDAs, to the U.S. Food and Drug Administration, or FDA, whenever possible, in order to potentially reduce the time to market and to save on costs, compared to those associated with Section 505(b)(1) NDAs for new drug products. We also have a number of biotechnology product candidates and technologies, including therapeutic vaccine and cancer product candidates and technologies intended to treat patients with unmet medical needs in the global cancer market. To achieve our goals and support our overall strategy, we will need to raise a substantial amount of funding and make significant investments in equipment, new product development and working capital.

Our USC subsidiary, which is registered as a drug compounding outsourcing facility under Section 503B of the U.S. Food, Drug & Cosmetic Act and the U.S. Drug Quality and Security Act, provides prescription compounded medications, including compounded sterile preparations, and non-sterile compounds to patients, physician clinics, hospitals, surgery centers and other clients throughout most of the United States. USC's product offerings broadly include, among others, corticosteroids, hormone replacement therapies, hospital outsourcing products, injectables, urological preparations, ophthalmic preparations, topical compounds for pain and men's and women's health products. USC's compounded formulations in many circumstances are offered as therapeutic alternatives to drugs approved by the U.S. Food and Drug Administration, or the FDA. USC prepares and provides a broad range of customized stock keeping units to meet the individual requirements of customers located throughout most of the United States. USC also provides certain veterinary pharmaceutical products for animals.

Segment Information

The Company is engaged primarily in the discovery, development and sales of pharmaceutical, biotechnology and other drug products. Accordingly, the Company has determined that it operates in one operating segment.

Recent Developments

Epinephrine Injection USP 1:1000 0.3mg Pre-filled Single Dose Syringe

On May 28, 2014, we submitted a Section 505(b)(2) NDA application to the FDA for approval for sale of our Epinephrine Injection USP 1:1000 0.3mg Pre-filled Single Dose Syringe, or the Epinephrine PFS product. The Epinephrine PFS product delivers a premeasured dose of epinephrine for the emergency treatment of acute allergic reactions, including anaphylaxis. We received a complete response letter ("CRL") from the FDA on March 27, 2015. A CRL is issued by the FDA's Center for Drug Evaluation and Research when it has completed its review of a file and questions remain that preclude the approval of the NDA in its current form. We resubmitted the NDA on December 4, 2015.

On June 6, 2016, we issued a press release announcing that we received a second Complete Response Letter from the FDA regarding our NDA for the Epinephrine PFS product. The CRL indicated that the FDA determined that it could not approve the NDA in its present form. The agency indicated that in order to support approval of the product, the Company must expand its human factors study (patient usability) and reliability study (product stress testing), with new studies, with protocols to be reviewed by the FDA before commencement of the studies. The CRL indicated that the new human factors study would need to provide additional, adequate and satisfactory data and information concerning, among other things, use of the product in different use environments and by different kinds of users and user groups. The CRL included comments on certain other aspects of the product and the materials and data submitted as part of the NDA. The CRL indicated that the agency had reserved comment, if any, on the proposed labeling for the product until the application was otherwise adequate. The FDA indicated that the NDA will remain open until the issues identified in the CRL are resolved.

The Company is continuing to review the CRL and actions that may be responsive to the items raised in the CRL, and the Company plans to request a meeting with the FDA to discuss the CRL. Subsequent to the meeting with the FDA the Company plans to prepare and submit a response to the FDA that addresses the items raised in the CRL. Under the FDA's procedures concerning target response times, the Company believes that the FDA should respond to the Company's additional submission within six months after the Company's responsive submission, though that target deadline may be extended if FDA requests additional data, information, materials or clarification or for other reasons, such as difficulties scheduling an advisory committee meeting, FDA workload issues, or other reasons. The Company remains committed to attempting to obtain FDA approval of the NDA for the Epinephrine PFS product and commercializing the product, and remains hopeful that the issues and questions raised by the FDA in the CRL will be satisfactorily addressed and the product ultimately approved for marketing. However, the Company cannot provide any assurances concerning if or when the NDA will be approved, the timing or outcome of any meeting with the FDA concerning our NDA, what actions will be required in order to satisfy the FDA's issues and questions, and whether the Epinephrine PFS product will ultimately be commercialized. In addition, the Company will be required to devote additional cash resources, which could be significant, in order to respond to the issues raised by the FDA in the CRL and any follow-up requests and to design and manufacture the Epinephrine PFS product in a manner that is satisfactory to the FDA.

APC-1000

The Company is continuing development of the APC-1000 product candidate, a steroid hydrofluoroalkane, or HFA, metered dose inhaler product for asthma. Following discussions with the FDA and additional consideration of the development pathway for the product, the Company has decided to conduct additional development work for APC-1000. As a result, the Company intends, depending on the outcome of several factors including results of the additional development work and obtaining additional funding that will be required to commence a trial, to submit an IND for APC-1000 during the first half of 2017, although there can be no assurances concerning the timing of any such filing or the commencement of a clinical trial relating to APC-1000 after submission of such an IND.

Going Concern and Management Plan

Our independent registered public accounting firm has included a "going concern" explanatory paragraph in its report on our consolidated financial statements for the years ended December 31, 2016 and 2015 indicating that we have sustained substantial losses from continuing operations and have used, rather than provided, cash in its continuing operations, and incurred recurring losses from operations and have limited working capital to pursue our business alternatives, and that these factors raise substantial doubt about our ability to continue as a going concern. As of June 30, 2016, we had cash of approximately $417,000, an accumulated deficit of approximately $81.1 million, and liabilities of approximately $14.3 million. Even with the proceeds from our July 2016 private placement financing transaction and our recent registered direct offering of shares of common stock and warrants, we will need significant funding to continue operations, satisfy our obligations and fund the future expenditures that will be required to conduct the clinical and regulatory work to develop our product candidates and to support our other activities. Such additional funding may not be available, may not be available on reasonable terms, and could result in significant additional dilution to our stockholders. If we do not obtain required additional equity or debt funding, our cash resources will be depleted and we could be required to materially reduce or suspend operations, which would likely have a material adverse effect on our business, stock price and our relationships with third parties with whom we have business relationships, at least until additional funding is obtained.

The above conditions raise substantial doubt about our ability to continue as a going concern. The condensed consolidated financial statements included elsewhere herein for the three months and six months ended June 30, 2016, were prepared under the assumption that we would continue our operations as a going concern, which contemplates the realization of assets and the satisfaction of liabilities during the normal course of business. In preparing these condensed consolidated financial statements, consideration was given to our future business as described elsewhere herein, which may preclude us from realizing the value of certain assets. Our unaudited condensed consolidated financial statements do not include any adjustments that may result from the outcome of this uncertainty. This basis of accounting contemplates the recovery of our assets and the satisfaction of liabilities in the normal course of business. Without additional funds from debt or equity financing, sales of assets, sales or out-licenses of intellectual property or technologies, or from a business combination or a similar transaction, after expenditure of our existing cash resources we would exhaust our resources and would be unable to continue operations.

Our management intends to attempt to secure additional required funding through equity or debt financings, sales or out-licensing of intellectual property assets, seeking partnerships with other pharmaceutical companies or third parties to co-develop and fund research and development efforts, or similar transactions. However, there can be no assurance that we will be able to obtain any required additional funding. If we are unsuccessful in securing funding from any of these sources, we will defer, reduce or eliminate certain planned expenditures and delay development or commercialization of some or all of our products. If we do not have sufficient funds to continue operations, we could be required to seek bankruptcy protection or other alternatives that could result in our stockholders losing some or all of their investment in us.

Results of Operations

Six Months Ended June 30, 2016 and 2015

Revenues.

Revenues were approximately $1,928,000 and $0 for the six months ended June 30, 2016 and 2015, respectively. The revenues for the six-month period ended June 30, 2016, consist of and reflect our acquisition of USC effective April 11, 2016, but do not include revenues of USC before the closing date of the acquisition. Revenues for the six-month period were adversely affected by the suspension of production of USC's sterile compounded formulations, product recall and remediation efforts in the third and fourth quarters of 2015 and the first quarter of 2016. USC resumed production and sales of compounded sterile formulations in March and April 2016. The suspension of production and sales of compounded sterile formulations adversely affected USC's relationships with certain of its customers and with certain of USC's independent contractors and sales representatives, and is expected to continue to adversely affect sales of compounded sterile compounded formulations.

Cost of Sales.

Cost of sales were approximately $1,346,000 and $0 for the six months ended June 30, 2016 and 2015, respectively. Our cost of sales includes direct and indirect costs to manufacture formulations and sell products, including active pharmaceutical ingredients, personnel costs, packaging, storage, shipping and handling costs, the write-off of obsolete inventory and other related expenses.

Research and Development Expenses. Our research and development costs are expensed as incurred. Non-refundable advance payments for goods and services to be used in future research and development activities are recorded as an asset and are expensed when the research and development activities are performed. Research and development costs were approximately $6,831,000 and $2,625,000 for the six months ended June 30, 2016 and 2015, respectively. The increase in research and development expenses was primarily due to the additional expense in product development, consisting mostly of expenditures related to clinical trials, product testing and product validation of approximately $3,652,000 relating to our Epinephrine PFS product candidate, APC-2000 and APC-5000 product candidates and somewhat offset by a reduction on development costs of our APC 1000 and APC 3000 product candidates. Compensation expense, which includes salaries, stock options, employee benefits and bonus accrual, increased by approximately $542,000 for the first half of 2016 compared to the comparable period of the prior year because of salary increase, new hires, additional stock option grants and monthly accrual of bonus.

Selling, General and Administrative Expenses. Selling, general and administrative expenses consist primarily of depreciation and amortization, legal fees, accounting and audit fees, professional/consulting fees and employee compensation. Selling, general and administrative expenses for the six months ended June 30, 2016 and 2015 were approximately $7,199,000 and $5,055,000, respectively. The increase was primarily due to expenses of approximately $2,004,000 relating to our USC subsidiary which we acquired in April 2016. Expenses related to the commercialization activities of Epinephrine PFS product candidate decreased by approximately $617,000 for the first six months of the year compared to the comparable period of 2015. Compensation expense for selling, general and administrative employees increased by approximately $480,000 for the six months ended June 30, 2016 compared to the comparable period of the prior year, primarily due to salary increases, additional stock options granted and monthly accrual of bonus. Other increases in expenditures for the six months ended June 30, 2016 compared to the six months ended June 30, 2015 included increase in board of directors' fees of approximately $24,000 and insurance costs of approximately $60,000, and expenses of approximately $257,000 incurred in connection with the acquisition of U.S. Compounding, Inc. Legal expenses decreased by approximately $64,000 during the six month period ended June 30, 2016 compared to the comparable period of 2015 primarily due to FDA related matters, patents and commercialization related contracts.

Other Income (Expense). Other income for the six month period ended June 30, 2016 and 2015 was approximately $1,325,000 and approximately $894,000, respectively. Other Income (Expense) consists primarily of a change in fair value of warrants, change in fair value of derivative liabilities, and interest expense. The net change in fair value of warrants and derivatives resulted in an income of approximately $1,397,000 for the six months ended June 30, 2016, compared to income of approximately $894,000 for the six months ended June 30, 2015. The cancellation of the liability classified warrants resulted in the recognition of the recorded liability to income. Debt related expense (Interest Expense) for the six month periods ended June 30, 2016 and 2015 was approximately $72,000 and $0, respectively. The increase in debt related expenses for the six month period ended June 30, 2016, in comparison to the same period for fiscal 2015 was due to the working capital loan of $2.0 million and other bank liabilities assumed in relation to the acquisition of USC in April 2016.

Three Months Ended June 30, 2016 and 2015

Revenues.

Revenues were approximately $1,928,000 and $0 for the three months ended June 30, 2016 and 2015, respectively. The revenues for the three-month period ended June 30, 2016, consist of and reflect our acquisition of USC effective April 11, 2016, but do not include revenues of USC before the closing date of the acquisition. Revenues for the three-month period were adversely affected by the suspension of USC's sterile compounded formulations, product recall and remediation efforts in the third and fourth quarters of 2015 and the first quarter of 2016. USC resumed production and sales of compounded sterile formulations in March and April 2016. The suspension of production and sales of compounded sterile formulations adversely affected USC's relationships with certain of its customers and with certain of USC's independent contractors and sales representatives, and is expected to continue to adversely affect sales of compounded sterile compounded formulations.

Cost of Sales.

Cost of sales were approximately $1,346,000 and $0 for the three months ended June 30, 2016 and 2015, respectively. Our cost of sales includes direct and indirect costs to manufacture formulations and sell products, including active pharmaceutical ingredients, personnel costs, packaging, storage, shipping and handling costs, the write-off of obsolete inventory and other related expenses.

Research and Development Expenses. Our research and development costs are expensed as incurred. Non-refundable advance payments for goods and services to be used in future research and development activities are recorded as an asset and are expensed when the research and development activities are performed. Research and development costs were approximately $3,430,000 and $1,270,000 for the three months ended June 30, 2016 and 2015, respectively. The increase in research and development expenses was primarily due to additional expense in product development, consisting mostly of expenditures related to product testing and product validation of approximately $1,674,000. Compensation expense, which includes salaries, stock options, employee benefits and bonus accrual, increased by approximately $478,000 for the three month period ended June 30, 2016 compared to the comparable period of the prior year, primarily due to salary increases, additional stock options granted and monthly accrual of bonus.

Selling, General and Administrative Expenses. Selling, general and administrative expenses consist primarily of depreciation and amortization, legal fees, accounting and audit fees, professional/consulting fees and employee compensation. Selling, general and administrative expenses for the three months ended June 30, 2016 and 2015 were approximately $4,583,000 and $2,262,000, respectively. The increase was primarily due to our USC subsidiary that we acquired during the second quarter of 2016, of approximately $2,004,000. Expenses related to the commercialization activities related to Epinephrine PFS product decreased by approximately $19,000. Compensation expense for selling, general and administrative employees increased by approximately $136,000 for the three months ended June 30, 2016 compared to the comparable period of the prior year, primarily due to salary increases, new hires, additional stock options granted and monthly accrual of bonus. Other increases in expenditures for the three months ended June 30, 2016 compared to the comparable quarter in 2015 included increase in insurance costs of approximately $54,000, USC acquisition related expenses of approximately $62,000 and increase of approximately $84,000 in other expenses in relation to SEC and proxy expenses, franchise tax, board of directors' fees, patent cost and upgrade of telephones, file sharing service and data server.

Other Income (Expense). Other income (expense) for the three month period ended June 30, 2016 and 2015 was approximately $1,717,000 and approximately ($113,000), respectively. Other Income (Expense) consists primarily of a change in fair value of warrants, change in fair value of derivative liabilities and interest expense. The net change in fair value of warrants and derivatives resulted in an income of approximately $1,789,000 for the three months ended June 30, 2016, compared to expense of approximately $113,000 for the three months ended June 30, 2015. The cancellation of the liability classified warrants resulted in the recognition of the recorded liability to income.
Interest expense for the three months ended June 30, 2016 and 2015 was approximately $72,000 and $0, respectively. The increase in debt related expenses for the three month period ended June 30, 2016, in comparison to the same period for fiscal 2015 was due to the working capital loan of $2.0 million and other bank liabilities assumed in relation to the acquisition of USC in April 2016.

Liquidity and Capital Resources

We have incurred net losses of approximately $12.1 million and $6.8 million for the six months ended June 30, 2016 and 2015, respectively. Since inception, and through June 30, 2016, we have an accumulated deficit of approximately $81.1 million. Since inception and through June 30, 2016 we have financed our operations principally through debt financing, through private issuances of common stock and preferred stock, and through underwritten public offerings of common stock. Since inception and through June 30, 2016, we have raised a total of approximately $79.0 million in debt and equity financing transactions, consisting of approximately $17.8 million in debt financing and approximately $61.2 million in equity financing transactions. We expect to finance future cash needs primarily through proceeds from equity or debt financings, loans, sales of assets, out-licensing transactions, and/or collaborative agreements with corporate partners. We have used the net proceeds from debt and equity financings for general corporate purposes, which have included funding for research and development, selling, general and administrative expenses, working capital, reducing indebtedness, pursuing and completing licenses, acquisitions or investments in other businesses, products or technologies, and for capital expenditures.

Total assets were approximately $29.4 million and $12.1 million as of June 30, 2016 and December 31, 2015, respectively. Current liabilities exceed current assets by approximately $11.8 million at June 30, 2016.

Net cash used in operating activities for the six months ended June 30, 2016 and 2015, was approximately $11.1 million and $6.0 million, respectively. Net cash used in operating activities increased due to additional research and development costs, and increases in SG&A expenses.

Net cash provided by investing activities was approximately $365,000 and $0 for six months ended June 30, 2016 and 2015, respectively. The net cash provided by investing activities increased due to the cash received from the acquisition of USC.

Net cash provided by financing activities was approximately $7.1 million and $10.6 million for the six months ended June 30, 2016 and 2015, respectively. Net cash flows provided by financing activities decreased due to the issuance of common stock in January 2015 that generated net proceeds of approximately $10.6 million whereas, in 2016, capital raised from issuance of preferred stock and warrant conversion totaled $5.1 million and proceeds of bank loan amounted to $2 million.

As noted above under the heading "Going Concern and Management Plan," through June 30, 2016, Adamis had incurred substantial losses. The availability of any required additional funding cannot be assured. If we do not obtain additional equity or debt funding in the near future, our cash resources will be depleted and we will be required to materially reduce or suspend operations. Even if are successful in obtaining additional funding to permit us to continue operations at the levels that we desire, substantial time will pass before we obtain regulatory marketing approval for any products and begin to realize revenues from product sales, and during this period Adamis will require additional funds. No assurance can be given as to the timing or ultimate success of obtaining future funding. As noted under the heading Recent Developments, the Company will be required to devote additional cash resources, which could be significant, in order to respond to the issues and questions raised by the FDA in the CRL regarding our Epinephrine PFS product and to continue development of our other product candidates including APC-1000 and APC-5000, and to support our other operations and activities.

Critical Accounting Policies and Estimates

The discussion and analysis of our financial condition and results of operations . . .

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