ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion should be read in conjunction with our financial statements and the notes thereto which appear elsewhere in this report. The results shown herein are not necessarily indicative of the results to be expected in any future periods. This discussion contains forward-looking statements based on current expectations, which involve uncertainties. Actual results and the timing of events could differ materially from the forward-looking statements as a result of a number of factors. Readers should also carefully review factors set forth in other reports or documents that we file from time to time with the Securities and Exchange Commission.
Company Goal - FDA Approval and Commercialization of Oral Interferon. Amarillo Biosciences, Inc. (OTCBB: AMAR), is the world leader in the development of low-dose interferon for oral delivery and is conducting Phase 2 clinical studies testing oral interferon in animal and human diseases. We have changed our focus from Orphan Diseases (small markets) to treatment of diseases with large markets to attract large pharma partners. Our funding strategy is to seek private placement and partner funding to complete Phase 2 clinical studies for influenza, chronic cough in COPD patients, and hepatitis C; then seek large pharma partners to fund and help with the regulatory approval process in the US and Europe. We believe that our technology and the large, billion-dollar markets for these disease indications will attract global pharma partners sometime later this year or early next year.
Intellectual Property
Our portfolio consists of patents with claims that encompass method of use or treatment with interferon and composition of matter and manufacturing. We currently own or license five patents related to low-dose orally delivered interferon, and one issued patent on our dietary supplement. We have completed more than 100 pre-clinical (animal) and human studies of the safety and efficacy of low-dose orally delivered interferon.
Technology - Non-toxic Interferon
Injectable interferon is FDA-approved to treat some neoplastic, viral and autoimmune diseases. Many patients experience moderate to severe side effects that result in discontinuance of injectable interferon therapy. Our main product is a natural human interferon alpha delivered into the oral cavity as a lozenge in low (nanogram) doses. The lozenge dissolves in the mouth where interferon binds to surface (mucosal) cells in the mouth and throat resulting in stimulation of immune mechanisms. Orally delivered interferon has been shown to activate hundreds of immune system genes in the peripheral blood. Human studies have shown that oral interferon is safe and effective against viral and autoimmune diseases. Oral interferon is given in concentrations 10,000 times less than that usually given by injection. The Company's low dose formulation results in almost no side effects; high dose injectable interferon causes adverse effects in at least 50% of recipients.
Governmental or FDA approval is required for our principal products. Our progress toward approval is discussed under each specific indication, below.
Influenza
Influenza, commonly referred to as the flu, is an infectious disease caused by RNA viruses of the family Orthomyxoviridae that affects birds and mammals. The most common symptoms of the disease are chills, fever, sore throat, muscle pains, severe headache, coughing, weakness/fatigue and general discomfort. Influenza spreads around the world in seasonal epidemics, resulting in the deaths of between 250,000 and 500,000 people every year, up to millions in some pandemic years. On average 41,400 people died each year in the United States between 1979 and 2001 from influenza. Two publications in the April 2009 issue of the Journal of Virology report that interferon placed in the nose of guinea pigs or ferrets significantly suppresses replication of influenza virus. These publications reinforce the Company's view that low-dose interferon is protective against influenza.
Further support of the efficacy of oral interferon against influenza was generated by The University of Western Australia in a Phase 2 clinical trial with 200 healthy volunteers during the 2009 winter cold/flu season in Australia. The study found that volunteers who took oral interferon had less severe cold/flu symptoms, compared to volunteers who received placebo. Publication of these results is pending.
In January 2011, CytoPharm, Inc., ABI's licensee for Taiwan and China, launched an influenza treatment study in Taiwan. Up to 60 patients being treated with Tamiflu for influenza A infection of less than 48 hours duration may be randomly assigned to co-treatment with oral IFN or placebo. The aim of the study is to examine whether the combination of oral IFN and Tamiflu is superior to Taimflu alone in the treatment of influenza illness.
Chronic Cough in COPD
COPD affects approximately 10% of the population over 40, is a growing problem, and is the 4th leading cause of death in the world. Chronic obstructive pulmonary disease (COPD) is a clinical condition with a progressive airflow limitation that is poorly reversible and characteristic of chronic bronchitis and emphysema. The causes of COPD include tobacco smoke, occupational dusts, chemicals, vapors and environmental pollutants. COPD is estimated to affect more that 600 million people worldwide. There are no effective therapies for emphysema, nor are there efficient clinical management strategies.
Data from a Phase 2 clinical study at Texas Tech University shows that treatment with oral interferon leads to a rapid and significant reduction in the cough associated with idiopathic pulmonary fibrosis (IPF), resulting in improved quality of life. Blinded, controlled studies in the US and Canada showed that oral interferon relieves chronic coughing in horses with COPD-like disease. A proof-of-concept study of low-dose oral interferon as treatment of chronic cough is ongoing at Texas Tech University. This clinical study is a Phase 2, randomized, double-blind, placebo-controlled, parallel trial in which 40 eligible volunteers with IPF- or COPD-associated chronic cough will be randomly assigned to one of two groups in equal numbers to receive either oral interferon or placebo lozenges. Treatment will be given three times daily for 4 weeks, and patients will be followed for 4 weeks post-treatment to assess durability of response. The study will evaluate the ability of oral interferon to reduce the frequency and severity of chronic cough, compared to placebo.
Hepatitis C
ABI's licensee CytoPharm, Inc. is funding an ongoing Phase 2 study of oral interferon treatment of hepatitis C virus-infected patients in Taiwan. The study is exploring the ability of oral interferon to reduce virologic relapse in patients who have completed standard therapy with pegylated interferon plus Ribavirin. Up to 50% of patients with certain genotypes of HCV relapse after receiving standard therapy, so reducing this relapse rate will represent a major breakthrough in the management of HCV. Completion of the study is expected by the end of 2011 with final results to be available in early 2012. Enrollment was completed in 2010 with 167 subjects.
Strategic Alliance with HBL
Hayashibara Biochemical Laboratories, Inc. ("HBL") was established in 1970 to engage in research and development. It is a subsidiary of Hayashibara Company, Ltd., a privately-owned Japanese holding corporation with diversified subsidiaries. For more than 130 years, the Hayashibara Company, Ltd. and its predecessors have been applying microbiological technology to the starch industry for the production of maltose and other sugars.
In 1981, HBL established the Fujisaki Institute to accelerate development of industrial methods for the production of biologics and to sponsor clinical trials for such products. In 1985, HBL built the Fujisaki Cell Center to support basic research. In 1987, HBL successfully accomplished the mass production of human cells in an animal host by producing human cells in hamsters. This made it possible to economically produce a natural form of human interferon alpha and other biologics. HBL also has developed and obtained patents for technology relating to the production of interferon alpha-containing lozenges by which the stability of the interferon alpha activity can be maintained for up to 24 months at room temperature and up to five years if the product is refrigerated. We believe that the use of such lozenges gives us advantages over competitive technologies in terms of cost, taste and ease of handling. On March 13, 1992, we entered into a Joint Development and Manufacturing/Supply Agreement with HBL (the "Development Agreement"). Such Development Agreement was subsequently amended on
January 17, 1996; May 10, 1996; and September 7, 2001. The current expiration date of the Development Agreement is March 12, 2014, at which time it will automatically renew for an additional three (3) years, unless the parties agree otherwise. Among other things, the Development Agreement provides us with a source of natural human interferon alpha for use in the Company's interferon alpha-containing products.
HBL is part of the Hayashibara Group of companies, which announced on February 2, 2011 on its website in Japan that it had filed a petition for corporate reorganization with the Tokyo District Court. In a letter to customers dated February 2, 2011, Mr. Hideki Matsushima, who has been appointed by the Tokyo District Court to be the provisional administrator of HBL, made the following statement, "We believe that we will be able to ensure a stable supply of our products, since we have been permitted by the Tokyo District Court to pay our debts to our suppliers related to the purchase of raw materials for our products, on the condition that our suppliers will continue to do business with us under the pre-existing payment terms and conditions." Based on this statement from Mr. Matsushima, ABI does not expect any disruption in the supply of interferon or ACM from HBL.
Strategic Alliance with Nobel.
A licensing and supply agreement was executed in September 2004 with a Turkish pharmaceutical company, NOBEL ILAC SANAYII VE TICARET A.S., providing the rights to oral low-dose interferon-alpha for the treatment of Behcet's disease in Turkey and in Azerbaijan, Bosnia & Herzegovina, Bulgaria, Croatia, Georgia, Kazakhstan, Kyrghyzstan, Macedonia, Romania, Russia, Saudi Arabia, Slovenia, Tajikistan, Turkmenistan, Uzbekistan, and Federal Republic of Yugoslavia.
Strategic Alliance with Bumimedic.
In January 2006, a license and distribution agreement was executed with Bumimedic (Malaysia) Sdn. Bhd, a Malaysian pharmaceutical company that is a part of the Antah HealthCare Group, to market our low-dose interferon (natural human IFN) in Malaysia. Bumimedic will seek registration for our natural human IFN and commence marketing the product after approval. The terms of the agreement call for Bumimedic to manufacture lozenges from bulk natural human IFN (supplied by Hayashibara Biochemical Laboratories); package the lozenges and distribute them to local hospitals, pharmacies and clinics in Malaysia. Pursuant to the agreement, the Company will receive a series of payments, in three stages: upon formal execution of the distribution agreement, upon regulatory approval, and upon production. The Company will also receive a royalty on the sale of the natural human IFN.
Strategic Alliance with CytoPharm.
In November 2006, the Company entered into a License and Supply Agreement with CytoPharm, Inc., a Taipei, Taiwan-based biopharmaceutical company whose parent company is Vita Genomics, Inc., the largest biotech company in Taiwan, specializing in pharmacogenomics and is a specialty Clinical Research Organization. Under the terms of the Agreement, CytoPharm and its subsidiary will conduct all clinical trials, and seek to obtain regulatory approvals in both China and Taiwan (the "Territory") to launch our low dose oral interferon in the Territory for influenza and hepatitis B ("HBV") and hepatitis C ("HCV") indications. According to the Agreement, CytoPharm will make payments to the Company upon reaching certain milestones and will also pay royalties on low dose oral interferon sales in the Territory.
In March 2008, the Company entered into a Supply Agreement for Animal Health with CytoPharm, Inc. Under the terms of the Agreement, CytoPharm will conduct all clinical trials, and seek to obtain regulatory regulatory approvals in China and Taiwan (the "Territory") to launch
our low dose oral interferon in the Territory for treatment of diseases and other healthcare applications of swine, cattle and poultry. CytoPharm will make payments to us upon reaching certain milestones and will also pay royalties on low dose oral interferon sales in the Territory.
Strategic Alliance with Intas Pharmaceuticals.
On January 7, 2010, the Company entered into a License and Supply Agreement with Intas Pharmaceuticals Ltd., an India-based pharmaceutical company with three decades of experience in the healthcare industry and a global presence in 42 countries worldwide. Under the terms of the agreement, Intas will pay the Company a royalty on net sales in India and Nepal after marketing approval is obtained.
Strategic Alliance with Cadila Healthcare On October 18, 2010, the Company entered into a License and Supply Agreement with Cadila Healthcare of Amedabad, India. The Company will supply anhydrous crystalline maltose (ACM) to Cadila for sale as an active ingredient in nutraceutical and healthcare products for human consumption to relieve dry mouth in India and Nepal.
Strategic Alliance with Oasis Diagnostics On January 12, 2011, the Company entered into a License and Supply Agreement with Oasis Diagnostics of Vancouver, WA. The Company will supply ACM to Oasis for sale as an active ingredient in nutraceutical and healthcare products for human consumption to relieve dry mouth in China, Taiwan and the Americas.
Equity Funding. In the first quarter of 2011, the Company sold 200 unregistered shares of preferred stock for $100 per share, convertible to common stock with a $0.10 conversion price. Net proceeds from the stock sale were $18,000 after payment of $2,000 in commissions.
Results of Operations for Quarters Ended March 31, 2011 and 2010:
Revenues. During the quarter ended March 31, 2011, $1,320 from dietary supplement sales was generated compared to $96 for the quarter ended March 31, 2010, an increase of $1,224 (1275%). During the quarter ended March 31, 2011, $1,400 of ACM sales was generated compared to no ACM sales for the quarter ended March 31, 2010, an increase of $1,400 (100%).
Research and Development Expenses. Research and development expenses of $86,945 were incurred for the quarter ended March 31, 2011, compared to $101,288 for the quarter ended March 31, 2010, a decrease of $14,343 (14%). The decrease was mostly because oral warts, influenza and hepatitis C costs and personnel costs were lower in the first quarter of 2011. The oral warts in HIV+ patients and influenza studies were mostly completed in 2009.
Selling, General and Administrative Expenses. Selling, general and administrative expenses of $111,224 were incurred for the first quarter in 2011, compared to $175,162 for the first quarter of 2010, a decrease of $63,938 (37%). Most of this decrease was due to lower salaries, Black-Scholes option expense, PR/IR, insurance and stock grants than in the first quarter of 2011.
Change in Fair Value of Derivative Instruments. Change in fair value of derivative instruments was realized as a $610 loss in the first quarter of 2011 compared to $63,733 gain in the first quarter of 2010. Derivative liabilities increased $610 from December 31, 2010 to March 31, 2011.
Other Income. During the three-month period ended March 31, 2011, $300 interest and other income was generated compared to no interest and other income for the three-month period ended March 31, 2010.
Net Operating Loss. In the three-month period ended March 31, 2011, the Company's net operating loss was $196,880 compared to a net operating loss for the three-month period ended March 31, 2010 of $276,411, a $79,531 (29%) reduction. The operating loss was lower mostly because the $63,938 (37%) reduction in Selling, General and Administrative expenses.
Net Loss. In the three-month period ended March 31, 2011, the Company's net loss was $220,253 compared to a net loss for the three-month period ended March 31, 2010 of $235,447 a $15,194 (6%) reduction. The operating loss was lower mostly because of the derivative liabilities decrease, due to a return of 12,000,000 warrants to the Company in December 2010.
Liquidity Needs: On March 31, 2011, the Company had available $1,539 cash and had a working capital deficit (current assets less current liabilities) of $3,685,197. Current liabilities include two $1 million notes, $773,486 of accrued interest and $78,360 of accrued expenses owed to Hayashibara Biochemical Laboratories, Inc. (HBL), and $220,000 of notes, and $426 of accrued interest owed to Paul Tibbits. Accrued payroll and vacation expenses owed mostly to officers is $385,021. Derivative liabilities from warrants with embedded variable features valued at $60,394 are also included in the working capital deficit. That leaves approximately $307,657 of accounts payables and accrued expenses in the working capital deficit.
Assuming there is no decrease in current accounts payable, and accounting for various one-time expenses, the Company's negative cash flow for operating activities plus patent filings, the Company's cash burn rate is approximately $66,000 per month. The Company's continued losses and lack of liquidity raise substantial doubt about whether the Company is able to continue as a going concern for a reasonable period of time. The Company's ability to continue as a going concern is dependent upon several factors including, but not limited to, the Company's ability to generate sufficient cash flows to meet its obligations on a timely basis, obtain license and milestone fees, obtain additional financing and continue to obtain supplies and services from its vendors. The Company will need to raise additional funds in order to fully execute its 2011 Plan. The Company is currently pursuing potential investors for funding. In addition, the Company is also pursuing potential pharmaceutical partners to provide upfront license fee payments and funding for clinical studies. There can be no assurance that private placement funding or pharmaceutical partner funding will become available.
Forward-Looking Statements: Certain statements made in this Plan of Operations and elsewhere in this report are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 (the "Act"). Forward-looking statements include, without limitation, any statement that may predict, forecast, indicate or imply future results, performance, achievements, costs or expenses and may contain words such as "believe," "anticipate," "expect," "estimate," "project," "budget," or words or phrases of similar meaning. Forward-looking statements involve risks and uncertainties which may cause actual results to differ materially from those projected in the forward-looking statements.
Such risks and uncertainties are detailed from time to time in reports filed by the Company with the Securities and Exchange Commission, including Forms 8-K, 10-Q and 10-K and include among others the following: promulgation and implementation of regulations by the U.S. Food and Drug Administration ("FDA"); promulgation and implementation of regulations by foreign governmental instru�mentalities with functions similar to those of the FDA; costs of research and development and clinical trials, including without limitation, costs of clinical supplies, packaging and inserts, patient recruitment, trial monitoring, trial evaluation and publication; and possible difficulties in enrolling a sufficient number of qualified patients for certain clinical trials. The Company is also dependent upon a broad range of general economic and financial risks, such as possible increases in the costs of employing and/or retaining qualified personnel and consultants and possible inflation which might affect the Company's ability to remain within its budget forecasts. The principal uncertainties to which the Company is presently subject are its inability to ensure that the results of trials performed by the Company will be sufficiently favorable to ensure eventual regulatory approval for commercial sales, its inability to accurately budget at this time the possible costs associated with hiring and retaining of additional personnel, uncertainties regarding the terms and timing of one or more commercial partner agreements and its ability to continue as a going concern.
The risks cited here are not exhaustive. Other sections of this report may include additional factors which could adversely impact the Company's business and future prospects. Moreover, the Company is engaged in a very competitive and rapidly changing industry.
New risk factors emerge from time to time and it is not possible for management to predict all such risk factors, nor can it assess the impact of all such risk factors on the Company's business, or the extent to which any factor or combination of factors may cause actual results to differ materially from those projected in any forward-looking statements. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual future events.
Zurück
