EpiCept Corporation (Nasdaq OMX Stockholm Exchange and OTCQX: EPCT) today announced operating and financial results for the fourth quarter and full year ended December 31, 2012, and provided an update on the Company's merger with Immune Pharmaceuticals, Ltd. (Immune).
Robert Cook, Interim President and CEO of EpiCept, commented, "While we are focused on completing the merger with Immune that we announced in November 2012, we also remain committed to advancing our clinical programs to the greatest extent possible. We are working with the National Cancer Institute to initiate the second phase (the Phase II portion) of its study of crolibulin™ in the treatment of anaplastic thyroid cancer. Also, in conjunction with Immune we have renewed talks with several prospective partners concerning the potential out-licensing of AmiKet™. We remain very enthusiastic about the proposed merger with Immune Pharmaceuticals as we believe this transaction will provide EpiCept shareholders the opportunity both to benefit from the further development of EpiCept's pipeline and to share in the enormous potential that exists in Immune's pipeline with bertilimumab and the NanomAb® technology. We expect to close the transaction in the second quarter of 2013."
Immune Pharmaceuticals Ltd., a privately held Israeli company, and EpiCept entered into a definitive merger agreement on November 7, 2012. The transaction, as amended, is anticipated to close during the second quarter of 2013 and is subject to satisfaction of certain customary closing conditions, including approval by a majority of EpiCept shareholders. The combined company will be focused on developing antibody therapeutics and other targeted drugs for the treatment of inflammatory diseases and cancer. Immune's lead product candidate, bertilimumab, is a fully human monoclonal antibody that targets eotaxin-1, a chemokine involved in eosinophilic inflammation, angiogenesis and neurogenesis. Immune is currently initiating, following authorization from Israeli health authorities, a placebo-controlled, double-blind Phase II clinical trial with bertilimumab in 90 patients for the treatment of active moderate-to-severe ulcerative colitis. Immune expects to report results from this trial in 2014.
The companies' collective oncology portfolios comprise Immune's NanomAbs®, a new generation of antibody drug conjugates, and EpiCept's vascular disruption agents. The combined company will continue efforts to secure a partner for EpiCept's Phase III clinical development candidate AmiKet™, for which efficacy has been demonstrated for the treatment of chemotherapy-induced neuropathic pain and post-herpetic neuralgia.
AmiKet™ - a prescription topical analgesic cream designed to provide long-term relief from the pain of peripheral neuropathies, which affect more than 15 million people in the U.S. alone. During 2011 EpiCept met with the U.S. Food and Drug Administration (FDA) and was granted permission by the FDA to initiate the Phase III clinical development of AmiKet™. Fast Track designation was granted in April 2012. The FDA's Fast Track program is designed to facilitate the development and expedite the review of drugs intended to treat serious or life-threatening conditions and address unmet medical needs. The FDA also agreed that a Special Protocol Assessment is available with respect to the protocol for the first Phase III trial in chemotherapy-induced peripheral neuropathy (CIPN). In May 2012 EpiCept received formal scientific advice from the Committee for Medicinal Products for Human Use (CHMP) of the European Medicines Agency (EMA) for the Phase III clinical and nonclinical development and subsequent Marketing Authorization Approval (MAA) filing of AmiKet™ in the treatment of CIPN. In general, the CHMP's requirements are closely aligned with the guidance given EpiCept by the FDA.
Crolibulin™ - a vascular disruption agent (VDA) that has demonstrated potent anti-tumor activity in both preclinical and early clinical studies. In December 2010 the National Cancer Institute initiated a Phase Ib/II trial for crolibulin™ to assess safety and efficacy in combination with cisplatin in patients with anaplastic thyroid cancer. The Phase I safety portion of the trial has completed enrollment, and the Phase II randomized efficacy proof-of-concept study is expected to commence later this year.
Azixa® - a novel small molecule VDA and apoptosis inducer, Azixa® is a lipophilic compound that collects in the brain at significant concentrations. The compound was discovered by EpiCept and licensed to Myrexis, Inc. as part of an exclusive, worldwide development and commercialization agreement. In August 2012 Myrexis terminated its License and Collaboration Agreement with EpiCept relating to Azixa®. In December 2012 Myrexis licensed to EpiCept all of the Myrexis Technology (as defined in the License and Collaboration Agreement) in return for future milestone payments and a royalty on commercial sales. EpiCept is currently analyzing the Myrexis Technology and will determine its future plans for Azixa® in consultation with Immune. Azixa® has received orphan drug status in the U.S. for the treatment of glioblastoma multiforme (GBM).
EP1013/F573 - a di-peptide small-molecule compound with a potent inhibitory effect on caspases, a class of enzymes involved in cell death and inflammation. Drug efficacy has been shown in animal models relating to liver failure, brain ischemia and myocardial infarction. In April 2012 EpiCept announced that new preclinical research for EP1013 (now renamed F573) concluded that the compound is a new therapeutic drug candidate for the treatment of late-stage viral infection-induced hepatitis. The data were published in the Chinese Pharmacological Bulletin (2102 Volume 28 (1):136-139). EpiCept licensed rights to a series of patents for EP1013/F573 in China, Japan other key territories to GNI Group Ltd. to develop this drug for liver diseases.
Additional Merger Information
The terms of the merger agreement between EpiCept and Immune provide that, upon the closing of the transaction, EpiCept will issue shares of its common stock to Immune shareholders in exchange for all of the outstanding shares of Immune. EpiCept shareholders will retain approximately 19 percent ownership of the combined company and Immune shareholders will receive approximately 81 percent, calculated on an adjusted fully diluted basis, assuming the full drawdown of $0.5 million in equity capital that is available from Immune pursuant to the Second Amendment to the Merger Agreement and Plan of Reorganization that was signed in February 2013. The proportionate ownership of the combined company by EpiCept and Immune shareholders is subject to further adjustment based upon the size of certain specified liabilities of EpiCept at the merger effective time, and initially excludes the exercise or conversion of certain EpiCept options and warrants whose exercise/conversion prices are significantly higher than the current trading price of EpiCept's common stock.
The combined company will be named Immune Pharmaceuticals Inc. and have dual headquarters in Herzliya-Pituach, Israel and in the New York City area, with research laboratories in Rehovot, Israel. Daniel Teper, PharmD, Chief Executive Officer of Immune Pharmaceuticals Ltd., will be the Chairman and CEO of the combined company. Dr. David Sidransky, Director of Head and Neck Research Division, Professor of Oncology at the Johns Hopkins School of Medicine, and a former Vice Chairman of the Board of Directors of ImClone Systems, will be the Vice Chairman of the Board of the combined company. The combined company plans to assume EpiCept's common stock listings on the OTCQX and on the NASDAQ OMX Stockholm Exchange.
Financial and Operating Highlights
EpiCept's net loss for the fourth quarter of 2012 was $0.9 million, or $0.01 per share, compared with a net loss of $3.5 million, or $0.05 per share for the fourth quarter of 2011. The net loss for the full year 2012 was $2.6 million, or $0.07 per share, compared with a net loss of $15.7 million, or $0.23 per share, for the full year 2011.
Fourth Quarter 2012 vs. Fourth Quarter 2011
The Company recognized revenue of $0.1 million during the fourth quarter of 2012, a decrease of $0.1 million compared with $0.2 million in the fourth quarter of 2011. The decrease was primarily related to lower revenue recognition from upfront license fees and milestone payments received from the Company's strategic partners.
Cost of Goods Sold
Cost of goods sold in the fourth quarters of 2012 and 2011 was $6,000 and $0.3 million, respectively. Cost of goods sold in the 2011 quarter consisted primarily of a $0.3 million expense for Ceplene® inventory the Company believed would not be sold prior to reaching its product expiration date.
Selling, General and Administrative (SG&A) Expense
SG&A expense in the fourth quarter of 2012 decreased by 10%, or $0.1 million, to $0.9 million from $1.0 million in the fourth quarter of 2011. The decrease was primarily related to lower salary-related expenses resulting from the departure of the Company's CEO in the third quarter of 2012.
Research and Development Expense
Research and development expense in the fourth quarter of 2012 decreased by 98%, or $1.5 million, to $38,000 from $1.6 million in the fourth quarter of 2011. This decrease was primarily related to a $0.7 million milestone payment that was recorded in 2006 and reversed in 2012 as the licensee failed to request payment of the milestone fee within the six year statute of limitations, lower clinical trial expenses in connection with the sale of EpiCept's rights to Ceplene® in Europe and certain Pacific Rim countries in June 2012 and lower salary-related expenses resulting from a reduction of staff in 2012.
Other Income (Expense)
Other income (expense) during the fourth quarters of 2012 and 2011 amounted to net income of $22,000 and net expense of $0.8 million, respectively. The primary component of other income in the fourth quarter of 2012 was a foreign exchange gain, partially offset by interest expense. The primary component of other expense in 2011 was interest expense on the Company's senior secured debt and foreign exchange loss.
Full Year 2012 vs. Full Year 2011
During the years 2012 and 2011, the Company recognized revenue of $7.8 million and $0.9 million, respectively. Revenue in 2012 was primarily related to the sale of the Company's rights to Ceplene® to Meda AB for $2.0 million, product revenues from the sale of Ceplene® and recognition of prior upfront licensing fees and milestone payments received from strategic alliances. As a result of the Company's termination of its commercialization agreement with Meda and its license and collaboration agreement with Myrexis, the Company recognized revenue from prior upfront licensing fees and milestone payments received from Meda and Myrexis of $3.8 million and $0.7 million in 2012 and 2011, respectively. Revenue in 2011 was primarily related to the recognition of deferred revenue from the Company's license agreements with its partners, as well as to royalties with respect to certain technology and sales of Ceplene®.
Cost of Goods Sold
Cost of goods sold in 2012 and 2011 was $0.4 million and $0.7 million, respectively, consisting primarily of costs related to the sale of Ceplene®, and a $0.7 million expense in 2011 for Ceplene® inventory the Company believed would not be sold prior to reaching its product expiration date.
Selling, General and Administrative Expense
SG&A expense in 2012 decreased by approximately 28%, or $1.9 million, to $4.6 million from $6.5 million in 2011. The decrease can be attributed to lower salary-related expenses, lower stock-based compensation expense, lower public reporting costs and lower investor relations expenses, as well as costs related to certain financing-related activities in 2011.
Research and Development Expense
Research and development expense in 2012 decreased by approximately 57%, or $4.5 million, to $3.4 million from $7.9 million in 2011. The decrease was primarily attributable to lower clinical trial expenses with the sale of Ceplene® to Meda in June 2012, lower salary-related expenses and lower patent maintenance fees.
Other Income (Expense)
Other income (expense) during 2012 amounted to a net expense of $2.0 million, compared with a net expense of $1.6 million during 2011. The $0.4 million increase was primarily related to a $0.9 million warrant amendment expense, offset by a $0.2 million foreign exchange gain in 2012, compared with a $0.3 million foreign exchange loss in 2011.
EpiCept had approximately $0.2 million in cash and cash equivalents as of December 31, 2012. In addition, EpiCept's lender has restricted $0.8 million of its cash and EpiCept is required to make monthly interest payments on its senior secured term loan. In February 2013 EpiCept entered into an amendment to the Merger Agreement and Plan of Reorganization with Immune that permits Immune to purchase new shares of EpiCept common stock directly from EpiCept at a purchase price of $0.13 per share at any time and from time to time prior to the effective time of the merger. Any shares of EpiCept common stock sold to Immune in such a pre-merger investment will be cancelled at the effective time of the merger, but the relative post-closing ownership percentages in the combined company will be adjusted at the closing such that, for each $100,000 invested by Immune in EpiCept pursuant to such a pre-merger investment (up to an aggregate of $500,000), the post-closing ownership percentage of the pre-closing Immune stockholders in the combined company will be increased by an additional 0.7%. In February 2013, EpiCept received $0.3 million in cash from Immune Pharmaceuticals Ltd. through the issuance of approximately 2.3 million shares of EpiCept common stock. The Company believes that its current cash plus cash available from Immune is sufficient to fund operations into the second quarter of 2013.
EpiCept anticipates the merger with Immune will close during the second quarter of 2013, subject to satisfaction of certain customary closing conditions. However, as additional funds will be required prior to the merger closing, EpiCept is considering various transactions to obtain additional cash resources to fund operations, including additional funding from Immune, the sale or licensing of assets and the sale of equity securities to third parties. If unable to complete such a transaction or otherwise obtain funding on a timely basis, EpiCept may be forced to further reduce expenses or curtail operations.
EpiCept's obligations under its outstanding loan with MidCap Financial LLC are expected to be assumed by the combined company upon closing. Currently, interest only is being paid on the loan on a monthly basis. EpiCept and Immune have agreed to indicative terms and conditions offered by MidCap Financial related to the loan's restructure upon the merger closing. Negotiations are currently ongoing regarding the treatment of the loan prior to the closing of the merger.
EpiCept also announced today that in its Annual Report on Form 10-K for the year ended December 31, 2012, the Company's independent registered public accounting firm is expected to express an unqualified opinion on the December 31, 2012 consolidated financial statements and will include an explanatory paragraph expressing substantial doubt about the Company's ability to continue as a going concern. EpiCept expects to release its interim results for the period ending March 31, 2013 on or about May 10, 2013.