Unassociated Document
Filed
Pursuant to Rule 424(b)(3)
Registration
No. 333-138782
Prospectus
Supplement No. 2
(to
Prospectus dated April 13, 2007)
This
Prospectus Supplement No. 2 supplements and amends the prospectus dated
April 13, 2007, or the Original Prospectus, and the other Prospectus Supplement
thereto, dated May 15, 2007, which we refer to collectively as the Prospectus.
The Prospectus relates to the sale from time to time of up to 47,798,626 shares
of common stock of VioQuest Pharmaceuticals, Inc., by certain selling
stockholders, including 12,746,612 shares issuable upon the exercise of
outstanding warrants. We will not receive any of the proceeds from the sale
of
shares by the selling stockholders. We will receive proceeds from any cash
exercise of warrants by the selling stockholders.
On
August 8, 2007, we filed with the Securities and Exchange Commission our Quarterly
Report on Form 10-QSB for the three months ended June 30, 2007, a copy of which
is attached without exhibits. The information set forth on the attachment supplements
and amends the information contained in the Prospectus.
This
Prospectus Supplement No. 2 should be read in conjunction with, and
delivered with, the Prospectus and is qualified by reference to the Prospectus
except to the extent that the information in this Prospectus Supplement
No. 2 supersedes the information contained in the Prospectus.
Our
common stock is quoted on the Over-the-Counter Bulletin Board under the symbol
“VQPH.” On August 7, 2007, the last sale price for our common stock as reported
on the OTC Bulletin Board was $0.40.
Investing
in our common stock involves risk. See “Risk Factors” beginning on page 4 of the
Original Prospectus.
Neither
the Securities and Exchange Commission nor any state securities commission
has
approved or disapproved of these securities or determined if the Prospectus
or
this Prospectus Supplement No. 2 is truthful or complete. Any
representation to the contrary is a criminal offense.
The
date
of this Prospectus Supplement No. 2 is August 8, 2007.
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
DC 20549
FORM
10-QSB
x QUARTERLY
REPORT
UNDER SECTION 13 OR 15(d)
OF
THE
SECURITIES EXCHANGE ACT OF 1934
For
the
quarterly period ended June 30, 2007
OR
o TRANSITION
REPORT
UNDER SECTION 13 OR 15(d)
OF
THE
SECURITIES EXCHANGE ACT OF 1934
For
the
transition period from _______ to _______
Commission
File Number 0-16686
VIOQUEST
PHARMACEUTICALS, INC.
(Exact
name of small business issuer as specified in its charter)
Delaware
|
|
58-1486040
|
(State or other jurisdiction of incorporation or organization)
|
|
(I.R.S.
Employer Identification No.)
|
180
Mount
Airy Road, Suite 102, Basking Ridge, New Jersey 07920
(Address
of Principal Executive Offices)
(908)
766-4400
(Issuer’s
telephone number, including area code)
(Former
name, former address and former fiscal year, if changed from last
report)
Check
whether the issuer (1) has filed all reports required to be filed by Section
13
or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been
subject to such filing requirements for the past 90 days. Yes x No o
Indicate
by check mark whether the registrant is a shell company (as defined by Rule
12b-2 of the Exchange Act). Yes o No
x
As
of
August 8, 2007 there were 54,621,119 shares of the issuer’s common stock, $0.001
par value, outstanding.
Traditional
Small Business Disclosure Format (check one): Yes o No x
Index
|
|
Page
|
PART
I
|
FINANCIAL
INFORMATION
|
|
Item
1.
|
Unaudited
Condensed Consolidated Financial Statements
|
1
|
Item
2.
|
Management’s
Discussion and Analysis or
Plan of Operations
|
11
|
Item
3.
|
Controls
and Procedures
|
16
|
PART
II
|
OTHER
INFORMATION
|
|
Item
4.
|
Submission
of Matters to a Vote of Security Holders
|
17
|
Item
6.
|
Exhibits
|
17
|
|
Signatures
|
18
|
|
Index
To Exhibits Filed With This Report
|
19
|
Forward-Looking
Statements
This
Quarterly Report on Form 10-QSB contains statements that are not historical,
but
are forward-looking in nature, including statements regarding the expectations,
beliefs, intentions or strategies regarding the future. In particular, the
“Management’s Discussion and Analysis or Plan of Operations” section in Part I,
Item 2 of this quarterly report includes forward-looking statements that reflect
our current views with respect to future events and financial performance.
We
use words such as we “expect,” “plan,” “anticipate,” “believe,” “intend” and
similar expressions to identify forward-looking statements. A number of
important factors could, individually or in the aggregate, cause actual results
to differ materially from those expressed or implied in any forward-looking
statements. Such factors include, but are not limited to, the
following:
|
·
|
the
possibility that the results of clinical trials will not be successful;
|
|
·
|
the
possibility that our development efforts relating to our product
candidates, including Lenocta™, VQD-002 and Xyfid™, will not be
successful;
|
|
·
|
the
inability to obtain regulatory approval of our product
candidates;
|
|
·
|
our
reliance on third-parties to develop our product
candidates;
|
|
·
|
our
lack of experience in developing and commercializing pharmaceutical
products;
|
|
·
|
the
possibility that our licenses to develop and commercialize our product
candidates may be terminated;
|
|
·
|
our
ability to obtain additional financing;
|
|
·
|
our
ability to protect our proprietary
technology.
|
Other
risks are described under the section entitled “Risk Factors” following Item 1
in Part I of our Annual Report on Form 10-KSB for the year ended December 31,
2006.
PART
I – FINANCIAL INFORMATION
Item
1. Unaudited Condensed Consolidated Financial Statements.
VIOQUEST
PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED BALANCE SHEETS
AS
OF JUNE 30, 2007 (UNAUDITED) AND DECEMBER 31, 2006
|
|
June 30, 2007
(Unaudited)
|
|
December 31, 2006
(Note 1A)
|
|
ASSETS
|
|
|
|
|
|
CURRENT
ASSETS
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
2,830,855
|
|
$
|
2,931,265
|
|
Prepaid
clinical research costs
|
|
|
227,263
|
|
|
273,172
|
|
Deferred
financing costs
|
|
|
601,875
|
|
|
-
|
|
Other
current assets
|
|
|
104,006
|
|
|
168,841
|
|
Current
assets associated with discontinued operations
|
|
|
1,879,133
|
|
|
2,396,435
|
|
Total
Current Assets
|
|
|
5,643,132
|
|
|
5,769,713
|
|
|
|
|
|
|
|
|
|
PROPERTY
AND EQUIPMENT, NET
|
|
|
35,976
|
|
|
43,378
|
|
SECURITY
DEPOSITS
|
|
|
15,232
|
|
|
15,232
|
|
TOTAL
ASSETS
|
|
$
|
5,694,340
|
|
$
|
5,828,323
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
CURRENT
LIABILITIES
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
2,222,982
|
|
$
|
1,031,458
|
|
Accrued
compensation and related taxes
|
|
|
135,224
|
|
|
245,475
|
|
Other
accrued expenses
|
|
|
451,836
|
|
|
180,440
|
|
Note
payable - Paramount BioSciences, LLC
|
|
|
164,623
|
|
|
264,623
|
|
Convertible
notes, net of unamortized debt discount of $1,180,668
|
|
|
1,786,832
|
|
|
-
|
|
Current
liabilities associated with discontinued operations
|
|
|
871,754
|
|
|
1,265,568
|
|
TOTAL
LIABILITIES
|
|
|
5,633,251
|
|
|
2,987,564
|
|
|
|
|
|
|
|
|
|
COMMITMENTS
AND CONTINGENCIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS'
EQUITY
|
|
|
|
|
|
|
|
Preferred
stock; $0.001 par value: 10,000,000 shares authorized, 0 shares issued
and
outstanding at June 30, 2007 and December 31, 2006
|
|
|
-
|
|
|
-
|
|
Common
stock; $0.001 par value: 100,000,000 shares authorized at June 30,
2007
and December 31, 2006, 54,621,119 shares issued and outstanding at
June
30, 2007 and December 31, 2006
|
|
|
54,621
|
|
|
54,621
|
|
Additional
paid-in capital
|
|
|
33,537,551
|
|
|
31,326,694
|
|
Accumulated
deficit
|
|
|
(33,531,083
|
)
|
|
(28,540,556
|
)
|
Total
Stockholders' Equity
|
|
|
61,089
|
|
|
2,840,759
|
|
TOTAL
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
$
|
5,694,340
|
|
$
|
5,828,323
|
|
See
accompanying notes to condensed consolidated financial
statements.
VIOQUEST
PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR
THE THREE AND SIX MONTHS ENDED JUNE 30, 2007 AND 2006
(UNAUDITED)
|
|
For the Three
Months Ended
June 30, 2007
|
|
For the Three
Months Ended
June 30, 2006
|
|
For the Six
Months Ended
June 30, 2007
|
|
For the Six
Months Ended
June 30, 2006
|
|
|
|
|
|
|
|
|
|
|
|
REVENUE
|
|
-
|
|
-
|
|
-
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING
EXPENSES
|
|
|
|
|
|
|
|
|
|
Research
and development
|
|
$
|
950,844
|
|
$
|
327,055
|
|
$
|
2,319,655
|
|
$
|
616,701
|
|
Selling,
general and administrative
|
|
|
1,192,399
|
|
|
1,082,480
|
|
|
2,106,050
|
|
|
1,851,835
|
|
Total
Operating Expenses
|
|
|
2,143,243
|
|
|
1,409,535
|
|
|
4,425,705
|
|
|
2,468,536
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS
FROM OPERATIONS
|
|
|
(2,143,243
|
)
|
|
(1,409,535
|
)
|
|
(4,425,705
|
)
|
|
(2,468,536
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INTEREST
INCOME, NET
|
|
|
6,391
|
|
|
2,084
|
|
|
32,075
|
|
|
49,115
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS
FROM CONTINUING OPERATIONS
|
|
|
(2,136,852
|
)
|
|
(1,407,451
|
)
|
|
(4,393,630
|
)
|
|
(2,419,421
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS
FROM DISCONTINUED OPERATIONS
|
|
|
(335,422
|
)
|
|
(410,900
|
)
|
|
(596,897
|
)
|
|
(1,260,677
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
LOSS
|
|
$
|
(2,472,274
|
)
|
$
|
(1,818,351
|
)
|
$
|
(4,990,527
|
)
|
$
|
(3,680,098
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
LOSS PER COMMON SHARE:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONTINUING
OPERATIONS
|
|
$
|
(0.04
|
)
|
$
|
(0.04
|
)
|
$
|
(0.10
|
)
|
$
|
(0.06
|
)
|
DISCONTINUED
OPERATIONS
|
|
|
(0.01
|
)
|
|
(0.01
|
)
|
|
(0.01
|
)
|
|
(0.04
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
LOSS PER SHARE – BASIC AND DILUTED
|
|
$
|
(0.05
|
)
|
$
|
(0.05
|
)
|
$
|
(0.11
|
)
|
$
|
(0.10
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED
AVERAGE SHARES OUTSTANDING – BASIC AND
DILUTED
|
|
|
46,056,724
|
|
|
38,165,124
|
|
|
46,056,724
|
|
|
38,165,124
|
|
See
accompanying notes to condensed consolidated financial
statements.
VIOQUEST
PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR
THE SIX MONTHS ENDED JUNE 30, 2007
(UNAUDITED)
|
|
|
Common Stock
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Paid-In
|
|
|
Accumulated
Deficit
|
|
|
Stockholders'
Equity
|
|
Balance,
January 1, 2007
|
|
|
54,621,119
|
|
$
|
54,621
|
|
$
|
31,326,694
|
|
$
|
(28,540,556
|
)
|
$
|
2,840,759
|
|
Net
loss
|
|
|
|
|
|
|
|
|
|
|
|
(4,990,527
|
)
|
|
(4,990,527
|
)
|
Fair
value of beneficial conversion feature and warrants issued in conjunction
with convertible notes
|
|
|
|
|
|
|
|
|
1,537,093
|
|
|
|
|
|
1,537,093
|
|
Stock-based
compensation to employees
|
|
|
|
|
|
|
|
|
619,295
|
|
|
|
|
|
619,295
|
|
Stock-based
compensation to consultants and finder
|
|
|
|
|
|
|
|
|
54,469
|
|
|
|
|
|
54,469
|
|
Balance,
June 30, 2007
|
|
|
54,621,119
|
|
$
|
54,621
|
|
$
|
33,537,551
|
|
$
|
(33,531,083
|
)
|
$
|
61,089
|
|
See
accompanying notes to condensed consolidated financial
statements.
VIOQUEST
PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR
THE SIX MONTHS ENDED JUNE 30, 2007 AND 2006
(UNAUDITED)
|
|
For the Six
Months Ended
June 30, 2007
|
|
For the Six
Months Ended
June 30, 2006
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
Net
loss
|
|
$
|
(4,990,527
|
)
|
$
|
(3,680,098
|
)
|
Loss
from discontinued operations
|
|
|
596,897
|
|
|
1,260,677
|
|
Loss
from continuing operations
|
|
|
(4,393,630
|
)
|
|
(2,419,421
|
)
|
Adjustments
to reconcile net loss from continuing operations to net cash used
in
continuing operating activities:
|
|
|
|
|
|
|
|
Depreciation
|
|
|
4,126
|
|
|
2,736
|
|
Stock-based
compensation to employees
|
|
|
534,730
|
|
|
474,936
|
|
Stock-based
compensation to consultants and finder
|
|
|
54,093
|
|
|
37,434
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
Prepaid
clinical research costs
|
|
|
(28,694
|
)
|
|
(164,011
|
)
|
Other
assets
|
|
|
139,438
|
|
|
(91,461
|
)
|
Accounts
payable
|
|
|
1,191,524
|
|
|
276,207
|
|
Accrued
expenses
|
|
|
161,145
|
|
|
132,136
|
|
Net
Cash Used in Continuing Operating Activities
|
|
|
(2,337,268
|
)
|
|
(1,751,444
|
)
|
Net
Cash Used in Discontinued Operating Activities
|
|
|
(356,217
|
)
|
|
(1,857,270
|
)
|
Net
Cash Used in Operating Activities
|
|
|
(2,693,485
|
)
|
|
(3,608,714
|
)
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
Payments
for purchased equipment
|
|
|
(2,277
|
)
|
|
(5,553
|
)
|
Net
Cash Used in Continuing Investing Activities
|
|
|
(2,277
|
)
|
|
(5,553
|
)
|
Net
Cash Used in Discontinued Investing Activities
|
|
|
(26,698
|
)
|
|
(80,213
|
)
|
Net
Cash Used in Investing Activities
|
|
|
(28,975
|
)
|
|
(85,766
|
)
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
Debt
activity:
|
|
|
|
|
|
|
|
Proceeds
from issuance of convertible notes with warrants, net of cash costs
of
$245,450
|
|
|
2,722,050
|
|
|
-
|
|
Repayment
of note payable
|
|
|
(100,000
|
)
|
|
-
|
|
Net
Cash Provided By Continuing Financing Activities
|
|
|
2,622,050
|
|
|
-
|
|
|
|
|
|
|
|
|
|
NET
DECREASE IN CASH AND CASH EQUIVALENTS
|
|
|
(100,410
|
)
|
|
(3,694,480
|
)
|
CASH
AND CASH EQUIVALENTS - BEGINNING OF PERIOD
|
|
|
2,931,265
|
|
|
6,021,399
|
|
CASH
AND CASH EQUIVALENTS - END OF PERIOD
|
|
$
|
2,830,855
|
|
$
|
2,326,919
|
|
|
|
|
|
|
|
|
|
Supplemental
Schedule of Non-Cash Investing and Financing
Activities:
|
|
|
|
|
|
|
|
Value
of warrants issued to the placement agent in connection with issuances
of
convertible notes
|
|
$
|
356,425
|
|
$
|
-
|
|
Value
of beneficial conversion feature related to convertible
notes
|
|
$
|
590,334
|
|
$
|
-
|
|
See
accompanying notes to condensed consolidated financial
statements.
VIOQUEST
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2007 (UNAUDITED)
NOTE
1 SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES AND LIQUIDITY
(A)
Basis of Presentation
The
accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States of America for interim financial information and the rules and
regulations of the Securities and Exchange Commission. Accordingly, the
financial statements do not include all information and footnotes required
by
accounting principles generally accepted in the United States of America for
complete annual financial statements. In the opinion of management, the
accompanying unaudited condensed consolidated financial statements reflect
all
adjustments, consisting of only normal recurring adjustments, considered
necessary for a fair presentation. Interim operating results are not necessarily
indicative of results that may be expected for the year ending December 31,
2007
or for any subsequent period. These unaudited condensed consolidated financial
statements should be read in conjunction with the audited consolidated financial
statements included in the Annual Report on Form 10-KSB of VioQuest
Pharmaceuticals, Inc. for the year ended December 31, 2006. The accompanying
condensed consolidated balance sheet as of December 31, 2006 has been derived
from the audited balance sheet as of that date included in the Form 10-KSB.
As
used herein, the terms the “Company” or “VioQuest” refer to VioQuest
Pharmaceuticals, Inc.
The
accompanying consolidated financial statements include the accounts of VioQuest
Pharmaceuticals, Inc. and its subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation. The functional
currency of Chiral Quest, Ltd., Jiashan, China, a wholly-owned, discontinued
subsidiary of the Company, is the United States Dollar. As such, all transaction
gains and losses are recorded in discontinued operations.
On
September 29, 2006, the Company’s Board of Directors determined to seek
strategic alternatives with respect to the Company’s Chiral Quest, Inc.
subsidiary (“Chiral Quest”), which included a possible sale or other disposition
of the operating assets of that business. Accordingly, the chiral products
and
services operations and the assets of Chiral Quest are presented in these
financial statements as discontinued operations. Chiral Quest had accounted
for
all sales of the Company from its inception. The Company’s continuing
operations, which have not generated any revenues, will focus on the remaining
drug development operations of VioQuest Pharmaceuticals, Inc. and accordingly,
the Company has only one segment. As a result of these reclassifications, the
Company no longer provides segment reporting. No provision has been made to
reduce the carrying amounts of the assets of the discontinued operations as
they
approximate their estimated net realizable values. See Note 2. On July 16,
2007,
the Company completed the sale of Chiral Quest, as described in Note
7.
The
consolidated balance sheets as of June 30, 2007 and December 31, 2006 and the
consolidated statements of operations for the three and six months ended June
30, 2007 and 2006 include reclassifications to reflect discontinued
operations.
(B)
Nature of Operations
Since
August 2004, the Company has focused on acquiring technologies for
purposes
of development and commercialization of pharmaceutical drug candidates for
the
treatment of oncology and antiviral diseases and disorders for which there
are
unmet medical needs. Since October 2005, the Company has held license rights
to
develop and commercialize its two oncology drug candidates, Lenocta™ (Sodium
Stibogluconate), formerly VQD-001, an inhibitor of specific protein tyrosine
phosphatases, and VQD-002 (Triciribine-Phosphate), an inhibitor of activated
Akt. The rights to these two oncology drug candidates, Lenocta™ and VQD-002, are
governed by license agreements with The Cleveland Clinic Foundation and the
University of South Florida Research Foundation, respectively. In March 2007,
the Company acquired license rights to develop and commercialize Xyfid™, an
adjunctive therapy for a common and serious side effect of cancer chemotherapy.
The Company’s rights to Xyfid™ are governed by a license agreement with
Asymmetric Therapeutics, LLC and Onc Res, Inc., as assigned to the Company
by
Fiordland Pharmaceuticals, Inc. See Note 3.
(C)
Liquidity
Since
inception, the Company has incurred an accumulated deficit of $33,531,083
through
June 30, 2007. For the three and six months ended June 30, 2007, the Company
had
losses from continuing operations of $2,136,852 and $4,393,630, respectively,
and used $2,337,268 of cash in continuing operating activities for the six
months ended June 30, 2007.
VIOQUEST
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2007 (UNAUDITED)
Management
expects the Company’s losses from continuing operations to increase over the
next several years, due to the expansion of its drug development business,
and
related costs associated with the clinical development programs of Lenocta™,
VQD-002 and Xyfid™. These matters raise substantial doubt about the ability of
the Company to continue as a going concern. The
accompanying condensed consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As of June 30,
2007,
the Company had working capital of $9,881 and cash and cash equivalents of
$2,830,855. The Company has incurred negative cash flow from operations since
its inception. The Company has spent, and expects to continue to spend,
substantial amounts in connection with executing its business strategy,
including planned development efforts relating to the Company’s drug candidates,
clinical trials and other research and development efforts.
On
July
16, 2007 the Company completed the sale of Chiral Quest, which resulted in
gross
proceeds to the Company of $1,700,000, as well as the assumption by the
purchaser of approximately $1,000,000 of liabilities. See Note 7. On June 29,
2007 and July 3, 2007, the Company also received gross proceeds of $3,700,000
from the sale of 8% convertible promissory notes. See Note 6. As a result of
the
cash proceeds to the Company from those transactions, together with the
Company’s existing cash, management anticipates that the Company’s capital
resources will be adequate to fund its operations through the end of the fiscal
year 2007.
Management
also expects that additional financing will be required by the first quarter
of
2008 to fund continuing operations. The other most likely sources of additional
financing include the private sale of the Company’s equity or debt securities,
including bridge loans to the Company from third party lenders. However, changes
may occur that would consume available capital resources before that time.
The
Company’s working capital requirements will depend upon numerous factors, which
include the progress of its drug development and clinical programs, including
associated costs relating to milestone payments, maintenance and license fees,
manufacturing costs, patent costs, regulatory approvals and the hiring of
additional employees.
Additional
capital that may be needed by the Company in the future may not be available
on
reasonable terms, or at all. If adequate financing is not available, the Company
may be required to terminate or significantly curtail its operations, or enter
into arrangements with collaborative partners or others that may require the
Company to relinquish rights to certain of its technologies or potential markets
that the Company would not otherwise relinquish.
(D)
Stock-Based Compensation
The
Company issued options
and warrants to purchase an aggregate of 236,000
and 4,210,671
shares of
its
common
stock
during
the three and six months ended June 30, 2007, respectively.
Generally,
stock options and warrants granted to employees and non-employee directors
during the three and six months ended June 30, 2007 and 2006 vest as to 33%
of
the shares on each of the first, second and third anniversaries of the grant
date. The exception to the vesting of shares over three years for options
granted to employees and non-employee directors is a stock option to purchase
150,000 shares of common stock granted to a non-employee director in the first
quarter of 2006, of which 75,000 vested immediately and 75,000 vested on the
first anniversary of the grant date.
Stock
options and warrants granted to parties other than employees and non-employee
directors vest over individually agreed upon terms. The Company granted
2,964,671 warrants that vested immediately to investors and placement agents
that participated in the June 29, 2007 financing relating to the issuance and
sale of 8% convertible promissory notes. See Note 6.
The
Company also granted 100,000 warrants that vest immediately to a non-employee
advisor as partial consideration for a finder’s fee for services relating to the
Company’s acquisition of rights under a license agreement for Xyfid™, as well as
certain technical analyses related to Xyfid™. The Company also granted 3,334
stock options that vest immediately to a non-employee scientific advisory board
member.
Following
the vesting periods, options are exercisable until the earlier of 90 days after
an employee’s employment with the Company terminates or the tenth anniversary of
the initial grant, subject to adjustment under certain conditions. The
Company recorded total compensation charges in the three and six months ended
June 30, 2007 related to the fair value of continuing and discontinued employee
and non-employee director stock option grants of $324,718 and $619,295,
respectively.
The
Company uses the Black-Scholes option pricing model
to calculate the fair value of options and warrants granted under Statement
of Financial Accounting Standards (“SFAS”) No. 123R, Share-based Payment
(“SFAS 123R”), during
the three and six months ended June 30, 2007. The key assumptions for this
valuation method include the expected term of the option, stock price
volatility, risk-free interest rate, dividend yield, exercise price and
forfeiture rate. Many of these assumptions are judgmental and highly sensitive
in the determination of compensation expense. Under the assumptions indicated
below, the weighted average fair values of the stock options issued at the
dates
of grant in the three and six months ended June 30, 2007 were $0.54 and $0.52,
respectively.
VIOQUEST
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2007 (UNAUDITED)
The
table
below indicates the key assumptions used in the valuation calculations for
options granted in the three and six months ended June 30, 2007 and
2006:
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
|
Term
|
|
|
7
years
|
|
|
7
years
|
|
|
7
years
|
|
|
7
years
|
|
Volatility
|
|
|
238
|
%
|
|
217
|
%
|
|
232-238
|
%
|
|
210-217
|
%
|
Dividend
yield
|
|
|
0.0
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
Risk-free
interest rate
|
|
|
4.6-4.9
|
%
|
|
5.0
|
%
|
|
4.6-4.9
|
%
|
|
4.4-5.0
|
%
|
Forfeiture
rate
|
|
|
22
|
%
|
|
23
|
%
|
|
22
|
%
|
|
22-23
|
%
|
The
following table summarizes information about the Company’s stock options as of
and for the six months ended June 30, 2007:
|
|
Number of
Options
|
|
Weighted
Average
Exercise Price
|
|
Weighted Average
Remaining Contractual
Life (Years)
|
|
Aggregate
Intrinsic Value
|
|
Balance,
January 1, 2007
|
|
|
5,384,807
|
|
$
|
0.99
|
|
|
|
|
|
|
|
Granted
|
|
|
946,000
|
|
$
|
0.54
|
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
Forfeited
or expired
|
|
|
(55,800
|
)
|
|
-
|
|
|
|
|
|
|
|
Outstanding
at June 30, 2007
|
|
|
6,275,007
|
|
$
|
0.92
|
|
|
8.2
|
|
|
-
|
|
Exercisable
at June 30, 2007
|
|
|
2,821,743
|
|
$
|
1.12
|
|
|
7.4
|
|
|
-
|
|
As
of
June 30, 2007, there was $1,126,448 of unrecognized compensation costs related
to stock options. These costs are expected to be recognized over a weighted
average period of approximately 1.8 years.
As
of
June 30, 2007, an aggregate of 1,224,993 shares remained available for future
grants and awards under the Company’s stock incentive plan, which covers stock
options and restricted stock awards. The Company issues unissued shares to
satisfy stock option exercises and restricted stock awards.
(E)
Warrants Issued With Convertible Debt
The
Company accounts for the value of warrants and the intrinsic value of beneficial
conversion rights arising from the issuance of convertible debt instruments
with
nondetachable conversion rights that are in-the-money at the commitment date
pursuant to the consensuses for EITF Issue No. 98-5, EITF Issue No. 00-19 and
EITF Issue No. 00-27. Such values are determined by allocating an appropriate
portion of the proceeds received from the debt instruments to the debt and
warrants based on their relative fair value. The fair value allocated to the
warrants is recorded as additional paid-in capital and as debt discount, which
is charged to interest expense over the term of the debt instrument. The
intrinsic value of the beneficial conversion rights at the commitment date
may
also be recorded as additional paid-in capital and debt discount as of that
date
or, if the terms of the debt instrument are contingently adjustable, may only
be
recorded if a triggering event occurs and the contingency is
resolved.
(F)
Loss Per
Share
Basic
net
loss per share is calculated by dividing net loss by the weighted-average
number
of common shares outstanding for each period presented excluding 8,564,395
common shares held in escrow to be released based upon the achievement of
clinical milestones of Lenocta™ and VQD-002, as a result of the acquisition of
Greenwich Therapeutics, Inc. in 2005. Diluted net loss per share is the same
as
basic net loss per share, since potentially dilutive shares from the assumed
exercise of stock options and stock warrants would have had an antidilutive
effect because the Company incurred a net loss during each period presented.
At
June 30, 2007, there were 34,429,457 potentially dilutive shares excluded
from
the calculation, which was comprised of 19,590,055 warrants, 8,564,395
shares
held in escrow, and 6,275,007 stock options. At June 30, 2006, there were
27,128,366 shares excluded.
VIOQUEST
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2007 (UNAUDITED)
NOTE
2 DISCONTINUED
OPERATIONS
On
September 29, 2006, the Company’s Board of Directors determined to seek
strategic alternatives for the operations of its Chiral Quest subsidiary, which
included a possible sale or other disposition of the operating assets of that
business. On April 10, 2007, the Company entered into a definitive agreement
to
sell all of the outstanding capital stock of Chiral Quest to Chiral Quest
Acquisition Corp. (the “Purchaser”). The Company’s stockholders approved the
sale of Chiral Quest at the annual meeting held on May 24, 2007, and the
transaction was completed on July 16, 2007. See Note 7. Accordingly, the
business and assets of Chiral Quest are presented in these financial statements
as discontinued operations. No provision has been made to reduce the carrying
amounts of the assets of discontinued operations as they approximate their
net
realizable values. At June 30, 2007 and December 31, 2006, the current assets
of
discontinued operations totaled $1,879,133
and
$2,396,435 respectively, which consisted of accounts receivable, inventories,
prepaid expenses, fixed assets, net of accumulated depreciation, patents, net
of
accumulated amortization, security deposits and prepaid rent. Current
liabilities as of June 30, 2007 and December 31, 2006 associated with
discontinued operations totaled $871,754 and $1,265,568 respectively, which
consisted of accounts payable, accrued expenses and deferred revenues. Revenues
from discontinued operations for the three and six months ended June 30, 2007
totaled $680,581 and $1,484,365, respectively, and revenues for the three and
six months ended June 30, 2006 totaled $857,320 and $1,456,196, respectively.
Loss from discontinued operations for the three and six months ended June 30,
2007, which consisted of revenues less cost of goods sold, management and
consulting fees, research and development, selling, general and administrative
expenses and depreciation and amortization, totaled $335,422 and $596,897
respectively. Loss from discontinued operations for the three and six months
ended June 30, 2006, totaled $410,900 and $1,260,677, respectively.
NOTE
3 LICENSE
AGREEMENT
On
March
29, 2007, the Company acquired exclusive license rights to Xyfid™, a
pharmaceutical product candidate being developed for the treatment and
prevention of Hand-Foot Syndrome, or HFS, a common, often dose-limiting and
potentially life-threatening complication of several chemotherapy drugs. The
Company’s rights
to
Xyfid™ are governed by a license agreement with Asymmetric Therapeutics, LLC and
Onc Res, Inc., as assigned to the Company by Fiordland Pharmaceuticals, Inc.,
an
entity affiliated with Dr. Rosenwald, who is a significant stockholder of the
Company. In
consideration for the rights under the license agreement, the Company paid
to
the licensor an aggregate $300,000 for license related fees, and $37,000 for
patent prosecution costs. In addition, the Company paid to a third party finder
a cash fee of $20,000 and a five-year warrant to purchase 300,000 shares of
the
Company’s common stock at an exercise price of $0.50 per share. The right to
purchase the shares under the warrant vests in three equal installments of
100,000 each, with the first installment being immediately exercisable, and
the
remaining two installments vesting upon the achievement of certain clinical
development and regulatory milestones relating to Xyfid™. The Company recognized
approximately $50,000 of expense in the first quarter of 2007 when the first
100,000 warrants vested. In consideration of the license, the Company is
required to make payments upon the achievement of various clinical development
and regulatory milestones, which total up to $6.2 million in the aggregate.
The
license agreement further requires the Company to make payments of up to an
additional $12.5 million in the aggregate upon the achievement of various
commercialization and net sales milestones. The Company will also be obligated
to pay a royalty on net sales of the licensed product.
NOTE
4 EMPLOYMENT
AGREEMENT
On
February 1, 2007 the Company entered into an employment agreement with Edward
C.
Bradley, M.D., as its Chief Scientific Officer. The agreement is for an
indefinite term beginning on February 1, 2007 and provides for an initial base
salary of $330,000, plus an annual target bonus of up to 20% of base salary
based upon his personal performance and an additional amount
of
up to 10% of base salary based upon Company performance. Pursuant to the
employment agreement, Dr. Bradley received a stock option to purchase 700,000
shares of the Company’s common stock. The option vests in three equal annual
installments, commencing in February 2008 and will be exercisable at a price
per
share equal to $0.55. The stock option had an approximate fair value of $363,000
at the date of grant based on the Black-Scholes option pricing model, which
is
being amortized over three years. The employment agreement also entitles Dr.
Bradley to certain severance benefits. In the event that the Company terminates
Dr. Bradley’s employment without cause, then Dr. Bradley is entitled to receive
his then annualized base salary for a period of six months. If Dr. Bradley’s
employment is terminated without cause, and within a year of a change of
control, then Dr. Bradley is entitled to receive his then annualized base salary
for a period of one year, and he is entitled to receive any bonuses he has
earned at the time of his termination.
VIOQUEST
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2007 (UNAUDITED)
NOTE
5 NOTE
PAYABLE
On
October 18, 2005, as a result of the Company’s acquisition of Greenwich
Therapeutics, Inc. (“Greenwich”), a New York-based biotechnology company, the
Company assumed outstanding indebtedness of Greenwich of $823,869, all of which
was payable to Paramount BioSciences, LLC, an affiliate of Paramount BioCapital,
Inc. (“Paramount”), pursuant to a promissory note dated October 17, 2005. Dr.
Lindsay A. Rosenwald is the Chairman, CEO and sole stockholder of Paramount
and
a substantial stockholder of the Company. As of June 30, 2007, approximately
$165,000 of principal and $21,000 of accrued interest remained outstanding
under
the Note. On July 17, 2007, the Company paid the outstanding balance under
the
promissory note.
NOTE
6 CONVERTIBLE
NOTES
On
June
29, 2007 and July 3, 2007, the Company issued and sold a series of 8%
convertible promissory notes (the “Bridge Notes”) in the aggregate principal
amount of $3,700,000 with a term of one year from the date of final closing.
The
face value of the Bridge Notes issued on June 29, 2007 and July 3, 2007, was
$2,967,500 and $732,500, respectively. The Company incurred commissions and
related costs in association with the Bridge Notes of $245,450 and $50,750
(as
explained below) for the June 29, 2007 and July 3, 2007 financings,
respectively. The Company also issued to investors five-year warrants (“Bridge
Warrants”) to purchase an aggregate of approximately 2,430,000 shares of the
Company’s common stock at an exercise price of $0.40 per share, which had a fair
value of $736,935 and $172,301 as of June 29, 2007 and July 3, 2007,
respectively. The Company allocated proceeds from the sale to the Bridge
Warrants of $590,334 and $139,489 as of June 29, 2007 and July 3, 2007,
respectively, based on their relative fair values to the fair value of the
Bridge Notes, which was recorded as a discount to the Bridge Notes. Gross
proceeds allocated to the Bridge Notes were $2,377,166 for the June 29, 2007
issuances, and $593,011 for the July 3, 2007 issuances. The discount associated
with the value of the warrants will be amortized to interest expense over the
term of the Bridge Notes.
As
a
result of the allocation of proceeds to the Bridge Warrants, the Bridge Notes
contained a Beneficial Conversion Feature (“BCF”) of $590,334 for the June 29,
2007 financing, and $139,489 for the July 3, 2007 financing, which was
attributable to an effective conversion price for the Company’s common stock
that was less than the market value on the date of issuance. This amount was
recorded as additional debt discount and additional paid-in capital, which
reduced the initial carrying value of the Bridge Notes to $1,786,832 for the
June 29, 2007 financing and $453,521 for the July 3, 2007 financing. The
discount associated with the BCF will also be amortized to interest expense
over
the term of the Bridge Notes.
In
connection with the Bridge Notes, the Company issued five-year warrants to
placement agents to purchase an aggregate of 1,202,500 shares of common stock,
which are exercisable at a price of $0.42 per share. Based on the Black-Scholes
option pricing model, the warrants have a fair value of $356,425 for the June
29, 2007 financing and $73,441 for the July 3, 2007 financing. Additionally,
the
Company incurred commissions of $205,450, a non-accountable expense allowance
of
$35,000 to the placement agents and escrow fees of $5,000 for the June 29,
2007
financing and commissions of $50,575 for the July 3, 2007 financing. The Company
engaged Paramount as one of its placements agents. Dr. Lindsay A. Rosenwald
is
the Chairman, CEO and sole stockholder of Paramount and a substantial
stockholder of the Company. Stephen C. Rocamboli, the Company’s chairman, was
employed by Paramount at the time of the Company’s engagement. Of the total
consideration provided to the placement agents, the Company issued warrants
to
Paramount to purchase 450,000 shares of common stock and paid
commissions of approximately $119,700. The fair value of the warrants,
commissions and fees totaling $601,875 for the June 29, 2007 financing have
been
recognized as deferred financing fees as of June 30, 2007, which will be
amortized over the term of the Bridge Notes.
The
following assumptions were used for the Black-Scholes calculations for the
warrants related to the Bridge Notes:
Term
|
|
|
5
years
|
|
Volatility
|
|
|
240
|
%
|
Dividend
yield
|
|
|
0.0
|
%
|
Risk-free
interest rate
|
|
|
4.9-5.0
|
%
|
NOTE
7 SUBSEQUENT
EVENT
On
July
16, 2007, the Company completed the sale of all of the outstanding stock of
its
Chiral Quest, Inc. subsidiary to the Purchaser. The sale was made pursuant
to a
Stock Purchase and Sale Agreement dated April 10, 2007, as amended on June
8,
2007 (the “Purchase Agreement”), between the Company and Purchaser. In
accordance with the terms of the Purchase Agreement, the Company received
$1,700,000 in cash, plus the Purchaser assumed liabilities in the aggregate
amount of approximately $1,000,000. In addition, the Company agreed to pay
approximately $197,000 in accrued compensation costs related to a severance
agreement and retention bonuses payable to certain key employees. The chairman
and a principal owner of the Purchaser is Dr. Xumu Zhang. Dr. Zhang co-founded
Chiral Quest and had been a director of the Company from February 2003 to May
2007.
VIOQUEST
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2007 (UNAUDITED)
The
following proforma balance sheet has been prepared under the assumption that
the
Company completed both the sale of Chiral Quest and the July 3, 2007 Bridge
Notes as of June 30, 2007:
|
|
June 30, 2007
(Proforma)
|
|
ASSETS
|
|
|
|
CURRENT
ASSETS
|
|
|
|
Cash
and cash equivalents
|
|
$
|
5,218,971
|
|
Prepaid
clinical research costs
|
|
|
227,263
|
|
Deferred
financing costs
|
|
|
725,891
|
|
Other
current assets
|
|
|
104,006
|
|
Current
assets associated with discontinued operations
|
|
|
-
|
|
Total
Current Assets
|
|
|
6,276,131
|
|
|
|
|
|
|
PROPERTY
AND EQUIPMENT, NET
|
|
|
35,976
|
|
SECURITY
DEPOSITS
|
|
|
15,232
|
|
TOTAL
ASSETS
|
|
$
|
6,327,339
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
|
|
CURRENT
LIABILITIES
|
|
|
|
|
Accounts
payable
|
|
$
|
2,222,982
|
|
Accrued
compensation and related taxes
|
|
|
331,985
|
|
Other
accrued expenses
|
|
|
451,836
|
|
Note
payable - Paramount BioSciences, LLC
|
|
|
164,623
|
|
Convertible
notes, net of unamortized debt discount
|
|
|
2,240,354
|
|
Current
liabilities associated with discontinued operations
|
|
|
-
|
|
TOTAL
LIABILITIES
|
|
|
5,411,780
|
|
|
|
|
|
|
STOCKHOLDERS'
EQUITY
|
|
|
|
|
Preferred
stock
|
|
|
-
|
|
Common
stock
|
|
|
54,621
|
|
Additional
paid-in capital
|
|
|
33,889,970
|
|
Accumulated
deficit
|
|
|
(33,029,032
|
)
|
Total
Stockholders' Equity
|
|
|
915,559
|
|
TOTAL
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
$
|
6,327,339
|
|
Item
2. Management’s
Discussion and Analysis or Plan of Operations.
Overview
Through
our drug development business, we acquire, develop, and commercialize innovative
products for the treatment of key unmet medical needs in cancer and
immunological diseases. Through our acquisition of Greenwich Therapeutics,
Inc.
in October 2005, we obtained the rights to develop, manufacture, use,
commercialize, lease, sell and/or sublicense Lenocta™ (Sodium Stibogluconate)
and VQD-002 (Triciribine Phosphate) through license agreements with The
Cleveland Clinic Foundation and the University of South Florida Research
Foundation, respectively. We have initiated four Phase I/IIa clinical trials
since acquiring the license rights to Lenocta™ and VQD-002. In March 2007, we
obtained an exclusive, worldwide license to certain patents relating to Xyfid™
from Fiordland Pharmaceuticals, Inc.
|
·
|
Lenocta™
(Sodium Stibogluconate).
Lenocta™ is a pentavalent antimonial drug that has been in use for over 50
years in parts of Africa and Asia for the treatment of leishmaniasis
(a
protozoan disease). According to the World Health Organization
leishmaniasis currently threatens 350 million men, women, and children
in
88 countries around the world. This drug is currently being used
to treat
U.S. military personnel serving in parts of the world where leishmaniasis
is prevalent. In collaboration with the U.S. Army, we are pursuing
development of Lenocta™ in the treatment of leishmaniasis and anticipate
filing a new drug application, or NDA, with the U.S. Food and Drug
Administration, or FDA, in the second half of 2007. In December 2006,
Lenocta™ received orphan drug designation by the FDA for the treatment of
leishmaniasis. In addition to the treatment for leishmaniasis, several
preclinical studies, especially those conducted at the Cleveland
Clinic,
have showed that Lenocta™ is an inhibitor of multiple protein tyrosine
phosphatases (PTPases), specifically the SRC homology PTPase (SHP-1
&
SHP-2) and PTB-1B. These intracellular enzymes are involved in signaling
pathways of many receptor-linked tyrosine kinases which are involved
in
growth, proliferation and differentiation of cancer cells. Inhibition
of
these enzymes with Lenocta™ can trigger apoptosis, or cell death, of
cancerous tumors. This cytotoxic effect, coupled with its potential
ability to enhance the body’s immune system, through improved cytokine
signaling and t-cell formation, suggest that Lenocta™ has potential as an
anti-cancer agent. It is well known that one major mechanism of regulating
the proliferation, growth and apoptosis of cancer cells involves
activation of cellular pathways, especially protein tyrosine kinase
pathways; the Jak/Stat pathway is a particularly important protein
tyrosine kinase pathway. It is also known that interferon and other
cytokines exert their anti-cancer effects via the Jak/Stat pathway.
We
filed with the FDA an IND for Lenocta™, which the FDA allowed in August
2006, allowing us to commence clinical trials of Lenocta™. Lenocta™ is
currently being evaluated in combination with IFN a-2b
in a 24-patient investigator-sponsored Phase I clinical trial at
the
Cleveland Clinic Taussig Cancer Center in refractory solid tumors,
lymphoma and myeloma. We are also currently evaluating the safety,
tolerability and activity of Lenocta™ in a separate, company-sponsored
study of up to a 54-patient Phase I/IIa clinical trial at M.D. Anderson
Cancer Center in patients with solid tumors. In the second half of
2007,
we expect to complete patient enrollment in our Phase I clinical
trials
and expect to initiate Phase II clinical
trials.
|
|
·
|
VQD-002
(Triciribine-Phosphate). VQD-002,
a nucleoside, was previously advanced into clinical trials by the
National
Cancer Institute in the 1980s and early 1990s, and showed anti-cancer
activities. More recently, investigators at the Moffitt Cancer Center
of
the University of South Florida were able to demonstrate from preclinical
studies that VQD-002’s mechanism of action is the inhibition of Akt
phosphorylation (protein kinase - B), which is found to be over activated
and over-expressed in various malignancies including breast, ovarian,
colorectal, and pancreatic lymphoma and leukemias. Clinically, the
over
expression of phosphorylated Akt is associated with poor prognosis,
resistance to chemotherapy and shortened survival time of cancer
patients.
We filed with the FDA an IND relating to VQD-002, which was allowed
in
April 2006. Pursuant to this IND, we are currently evaluating the
safety,
tolerability and activity of VQD-002 and its ability to reduce Akt
phosphorylaion in two Phase I/IIa clinical trials, including one
at the
Moffitt Cancer Center in up to 42 patients with hyper-activated,
phosphorylated Akt in colorectal, pancreatic, breast and ovarian
tumors
and a second clinical trial, with up to 40 patients, at the M.D.
Anderson
Cancer Center in hematological tumors, with particular attention
in
leukemia. In the second half of 2007, we expect to complete patient
enrollment in our Phase I clinical trials and expect to initiate
Phase II
clinical trials. Additionally, we expect to initiate several combination
Phase II clinical trials.
|
|
·
|
Xyfid™. Xyfid™
is a topical, adjunctive therapy which has shown early clinical promise
in
the treatment and prevention of Hand-Foot Syndrome, or HFS, a common,
often dose-limiting and potentially life-threatening complication
of
several drug regimens, commonly used in the treatment of patients
with
breast, colon, and other cancers. HFS, also known as palmar-plantar
erythrodysesthesia syndrome, is commonly seen in patients receiving
capecitabine (Xeloda™) and has been associated with other
fluoropyrimidines and anthracyclines. In addition, HFS is being seen
in
patients receiving some of the newer tyrosine kinase class of therapies
sorafenib (Nexavar™). Incidence of HFS can be as high as 50% in patients
receiving initial chemotherapy with higher dose regimens of capecitabine.
In the second half of 2007, we expect to initiate Phase II clinical
trials.
|
To
date,
we have not received approval for the sale of any drug candidates in any market
and, therefore, have not generated any revenues from our drug candidates. The
successful development of our product candidates is highly uncertain.
Product development
costs and timelines can vary significantly for each product candidate and are
difficult to accurately predict. Various laws and regulations also govern or
influence the manufacturing, safety, labeling, storage, record keeping and
marketing of each product. The lengthy process of seeking these approvals,
and
the subsequent compliance with applicable statutes and regulations, require
the
expenditure of substantial resources. Any failure by us to obtain, or any delay
in obtaining, regulatory approvals could materially adversely affect our
business.
Developing
pharmaceutical products is a lengthy and very expensive process. Assuming we
do
not encounter any unforeseen safety issues during the course of developing
our
product candidates, we do not expect to complete the development of a product
candidate until approximately 2008 for the treatment of leishmaniasis, 2009
for
Xyfid™,
and 2010
for oncology indications of VQD-002 and then 2011for oncology indications of
Lenocta™,
if ever.
In addition, as we continue the development of our product candidates, our
research and development expenses will significantly increase. To the extent
we
are successful in acquiring additional product candidates for our development
pipeline, our need to finance further research and development will continue
to
increase. Accordingly, our success depends not only on the safety and efficacy
of our product candidates, but also on our ability to finance the development
of
these product candidates. Our major sources of working capital have been
proceeds from various private financings, primarily private sales of our common
stock and other equity securities.
Research
and development expenses consist primarily of salaries and related personnel
costs, fees paid to consultants and outside service providers for clinical
development, legal expenses resulting from intellectual property protection,
business development and organizational affairs and other expenses relating
to
the acquiring, design, development, testing, and enhancement of our product
candidates, including milestone payments for licensed technology. We expense
our
research and development costs as they are incurred.
Results
of Operations – For the Three Months Ended June 30, 2007 vs. June 30, 2006
Continuing
Operations:
The
Company has had no revenues from its continuing operations through June 30,
2007.
Research
and development, or R&D, expenses for the three months ended June 30, 2007
were $950,844 as compared to $327,055 during the three months ended June 30,
2006. R&D expense consists of clinical development costs, milestone license
fees, maintenance fees paid to our licensing institutions, outside manufacturing
costs, outside clinical research organization costs, regulatory and patent
filing costs associated with our two oncology compounds, Lenocta™
and
VQD-002, currently in clinical trials, in addition to the license acquisition
costs of Xyfid™
in
March 2007.
The
increase in R&D expenses for the three months ended June 30, 2007 is
primarily attributable to the increased clinical development costs related
to
our oncology drug candidates: VQD-002, Lenocta™
and
Xyfid™
of
approximately $497,000, $427,000 and $27,000, respectively. Our R&D expense
increase for the second quarter 2007 is also attributable to increased outside
regulatory and legal fees of approximately $178,000, employee costs of
approximately $212,000 and outside clinical research organization costs of
approximately $171,000, which have been allocated to each of our three
pharmaceutical product candidates. For the remainder of the year, and going
forward, we expect R&D spending related to our existing product candidates
Lenocta™,
VQD-002
and Xyfid™ to continue increasing as we expand our clinical trials.
Selling,
general and administrative, or SG&A, expenses for the three months ended
June 30, 2007 were $1,192,399 as compared to $1,082,480 during the three months
ended June 30, 2006. This increase in SG&A expenses was primarily due to an
increase in employee and non-employee director stock option expense in
accordance with SFAS 123R, additional spending on conference expenses, increased
travel expenses for new business development opportunities and higher
administrative expenses associated with having more employees including our
Chief Scientific Officer hired in February 2007, our Vice President of Clinical
Operations and Regulatory Affairs hired in October 2006, in addition to other
related employee costs such as increased insurance, and employer payroll taxes
and increased rent expense as a result of expanding our leased corporate
headquarters facility in Basking Ridge, New Jersey in November
2006.
Interest
income, net of interest expense for the three months ended June 30, 2007 was
$6,391 as compared to $2,084 for the three months ended June 30, 2006. Interest
income received during the three months ended June 30, 2007 was approximately
$8,000, which was offset by interest expense of approximately $2,000 for the
repayment of the final one third amount of debt owed, of approximately $165,000,
to Paramount BioSciences, LLC, which was assumed as part of our October 2005
acquisition of Greenwich Therapeutics.
Our
loss
from continuing operations for the three months ended June 30, 2007 was
$2,136,852 as compared to $1,407,451 for the three months ended June 30, 2006.
The increased loss from continuing operations for the three months ended June
30, 2007 as compared to the three months ended June 30, 2006 was attributable
primarily to increased R&D expenses, which were related to our drug
development costs, including increased patient enrollment compared to the three
months ended June 30, 2006, increased outside clinical research organization
and
manufacturing costs, maintenance and licensing fees provided to the institutions
we licensed Lenocta™
and
VQD-002 from, in addition to other clinical development costs for the
Lenocta™
and
VQD-002 programs. Additionally, R&D expense increased as a result of
acquiring the worldwide license to certain patents for Xyfid™
in March
2007. SG&A expenses also contributed to the increased net loss for the three
months ended June 30, 2007 as compared to the three months ended June 30, 2006,
primarily due to an increase in employee and non-employee director stock option
expense in accordance with SFAS 123R, additional spending on conference
expenses, increased travel expenses for new business development opportunities
and higher administrative expenses associated with having more employees which
include the Chief Scientific Officer hired in February 2007, the Vice President
of Clinical Operations and Regulatory Affairs hired in October 2006, in addition
to other related employee costs such as increased insurance, and employer
payroll taxes and increased rent expense for the expansion of space for our
leased corporate headquarter facility in Basking Ridge, New Jersey. We expect
losses to continue in the next year from the costs associated with the drug
development process related to developing our drug
candidates.
Discontinued
Operations:
Our
loss
from discontinued operations for the three months ended June 30, 2007 was
$335,422, as compared to $410,900 for the three months ended June 30, 2006.
The
decreased loss from discontinued operations for the three months ended June
30,
2007 as compared to the three months ended June 30, 2006 was primarily
attributable to lower cost of sales, yielding higher gross margins through
the
increased utilization of our China operations for the manufacturing of our
products, in addition to lower employee costs as a result of reductions in
headcount in our Monmouth Junction, New Jersey facility in the fourth quarter
of
2006.
Results
of Operations – For the Six Months Ended June 30, 2007 vs. June 30, 2006
Continuing
Operations:
The
Company has had no revenues from its continuing operations through June 30,
2007.
R&D
expenses for the six months ended June 30, 2007 were $2,319,655 as compared
to
$616,701 during the six months ended June 30, 2006. R&D expense consists of
clinical development costs, milestone license fees, maintenance fees paid to
our
licensing institutions, outside manufacturing costs, outside clinical research
organization costs, regulatory and patent filing costs associated to our two
oncology compounds Lenocta™
and
VQD-002 currently in clinical trials, in addition to the license acquisition
costs of Xyfid™
in
March 2007.
The
Company incurred clinical development costs for its oncology drug candidates
VQD-002 of approximately $974,000, Lenocta™
of approximately $883,000 and Xyfid™ of approximately $462,000.
The
increase in R&D expenses for the six months ended June 30, 2007 is primarily
attributable to the increased clinical development costs related to our clinical
trials and the license acquisition costs for Xyfid™ of approximately $435,000,
which consists of license fees, patent costs, stock options issued as part
of a
finder’s fee, and diligence analysis costs. Additionally, the increased R&D
expense for the six months ended June 30, 2007 is attributable to outside
regulatory and legal fees of approximately $315,000, employee costs of
approximately $366,000, outside clinical research organization costs of
approximately $557,000 and outside manufacturing costs of approximately $17,000,
which have been allocated to each of our three pharmaceutical product
candidates. For the remainder of the year, and going forward, we expect R&D
spending related to our existing product candidates Lenocta™,
VQD-002
and Xyfid™ to continue increasing as we expand our clinical trials.
SG&A
expenses for the six months ended June 30, 2007 were $2,106,050 as compared
to
$1,851,835
during
the six months ended June 30, 2006. This increase in SG&A expenses was due
in part to an increase in recruiting fees for business development and finance
positions of approximately $130,000, additional spending on investor relations
expenses and higher administrative expenses associated with having more
employees, in addition to other related employee costs such as increased
insurance and employer payroll taxes and increased rent expense as a result
of
expanding our leased corporate headquarters facility in Basking Ridge, New
Jersey in November 2006.
Interest
income, net of interest expense for the six months ended June 30, 2007 was
$32,075 as compared to $49,115 for the six months ended June 30, 2006. Interest
income received during the six months ended June 30, 2007 was approximately
$37,000, which was offset by interest expense of approximately $5,000 for the
debt owed of approximately $165,000 to Paramount BioSciences, LLC, which was
assumed as part of our October 2005 acquisition of Greenwich
Therapeutics.
Our
loss
from continuing operations for the six months ended June 30, 2007 was $4,393,630
as compared to $2,419,421 for the six months ended June 30, 2006. The increased
loss from continuing operations for the six months ended June 30, 2007 as
compared to the six months ended June 30, 2006 was attributable to higher
R&D costs related to our drug development efforts, including outside
clinical research organization and manufacturing costs, maintenance and
licensing fees provided to the institutions we licensed Lenocta™
and
VQD-002 from and acquiring the worldwide license to certain patents for
Xyfid™
in March
2007, in addition to other clinical development costs for the Lenocta™,
VQD-002
and Xyfid™
programs. Additionally, SG&A expense increased as a result of additional
recruiting fees of approximately $130,000, additional spending on investor
relations expenses and higher administrative expenses associated with having
more employees.
Discontinued
Operations:
Our
loss
from discontinued operations for the six months ended June 30, 2007 was $596,897
as compared to $1,260,677 for the six months ended June 30, 2006. The decreased
loss from discontinued operations for the six months ended June 30, 2007 as
compared to June 30, 2006 was primarily attributable to increased revenues,
lower cost of sales yielding higher margins attributed to the increased
utilization of our China operations for the manufacturing of our products, in
addition to lower employee costs as a result of reductions in headcount in
our
Monmouth Junction, New Jersey facility in the fourth quarter of
2006.
Liquidity
and Capital Resources
In
August
2004, we decided to focus on acquiring technologies for
purposes
of development and commercialization of pharmaceutical drug candidates for
the
treatment of oncology and antiviral diseases and disorders for which there
are
unmet medical needs. In accordance with this business plan, in October 2005,
we
acquired Greenwich Therapeutics, Inc., a privately-held New York-based
biotechnology company that held exclusive rights to develop and commercialize
two oncology drug candidates: Lenocta™
and
VQD-002. The rights to these two oncology drug candidates are governed by
license agreements with The Cleveland Clinic Foundation and the University
of
South Florida Research Foundation, respectively. As a result of our acquisition
of Greenwich Therapeutics, we hold exclusive rights to develop, manufacture,
use, commercialize, lease, sell and/or sublicense Lenocta™
and
VQD-002. In March 2007, we acquired license rights to develop and commercialize
Xyfid™
an
adjunctive therapy for a common and serious side effect of cancer chemotherapy.
Our rights to Xyfid™ are governed by a license agreement with Asymmetric
Therapeutics, LLC and Onc Res, Inc., as assigned to us by Fiordland
Pharmaceuticals, Inc., an entity affiliated with Dr. Rosenwald, who is a
significant stockholder of our Company.
As
a
result of acquiring the license rights to Lenocta™,
VQD-002
and Xyfid™,
we
immediately undertook funding their development, which has significantly
increased our expected cash expenditures and will continue to increase our
expenditures over the next 12 months and thereafter. The completion of
development of Lenocta™,
VQD-002
and Xyfid™,
all of
which are only in early stages of clinical development, is a very lengthy and
expensive process. Until such development is complete and the FDA (or the
comparable regulatory authorities of other countries) approves Lenocta™,
VQD-002,
or Xyfid™
for
sale, we will not be able to sell these products.
Since
inception, we have incurred an accumulated deficit of $33,531,083 through June
30, 2007. For the three and six months ended June 30, 2007, we had losses from
continuing operations of $2,136,852 and $4,393,630, respectively, and used
$2,337,268 in cash from continuing operating activities. As of June 30, 2007,
we
had working capital of $9,881 and cash and cash equivalents of $2,830,855.
Management expects our losses to increase over the next several years, due
to
the expansion of its drug development business, costs associated with the
clinical development of Lenocta™,
VQD-002
and Xyfid™.
These
matters raise substantial doubt about our ability to continue as a going
concern.
We
anticipate that our capital resources will be adequate to fund our operations
through the end of the fiscal year 2007. Additional financing will be required
within the first quarter of 2008 in order to continue to fund continuing
operations. The other most likely sources of additional financing include the
private sale of our equity or debt securities. However, changes may occur that
would consume available capital resources before that time. Our working capital
requirements will depend upon numerous factors, which include, the progress
of
our drug development and clinical programs, including associated costs relating
to milestone payments, maintenance and license fees, manufacturing costs, patent
costs, regulatory approvals, and the hiring of additional
employees.
Our
net
cash used in continuing operating activities for the six months ended June
30,
2007 was $2,337,268. Our net cash used in operating activities primarily
resulted from a net loss of $4,990,527 offset by a loss from discontinued
operations of $596,897, non-cash items consisting of the impact of expensing
employee and director stock options in accordance with SFAS 123R of $534,730,
the impact of expensing scientific advisory board member consultants’ options
and non-employee finder’s fee options related to the license acquisition of
Xyfid™
in
accordance with Emerging Issues Task Force (“EITF”) 96-18 for $54,093, and
depreciation of $4,126. Other uses of cash in continuing operating activities
include a an increase in prepaid clinical research organization costs of $28,694
attributed to our three oncology compounds’ development, offset by an increase
in other assets of $139,438. Additional increases in cash from continuing
operations included an increase in accounts payable of $1,191,524 and accrued
expenses of $161,145, which was attributed to clinical development costs, legal,
accounting fees, in addition to accrued compensation.
Our
net
cash used in continuing investing activities for the six months ended June
30,
2007 totaled $2,277, which resulted from capital expenditures which were
attributable to the purchases of computer and office equipment for the Basking
Ridge, New Jersey facility.
Our
net
cash provided by continuing financing activities for the six months ended June
30, 2007 was $2,622,050, which was primarily attributed to a series of notes
issued to investors for approximately $2,700,000, net of placement agents’
commissions and other related costs associated with issuing the such notes,
in addition to a partial repayment of debt for $100,000 owed to Paramount
BioSciences, LLC, with an outstanding debt balance of $164,623, and accrued
interest of approximately $21,000, was paid in full during July 2007, which
was
attributable to the acquisition of Greenwich Therapeutics, Inc. in
2005.
As
part
of our plan for additional employees, we anticipate hiring additional full-time
employees in the medical, clinical and business development functions. In
addition, we intend to and will continue to use senior advisors, consultants,
clinical research organizations and third parties to perform certain aspects
of
our products' development, manufacturing, clinical and preclinical development,
and regulatory and quality assurance functions.
At
our
current and desired pace of clinical development of our two products, currently
in Phase I/IIa clinical trials, over the next 12 months we expect to spend
approximately $13.6 million on clinical trials and research and development
(including milestone payments that we expect to be triggered under the license
agreements relating to our product candidates, maintenance fees payments that
we
are obligated to pay to the institutions we licensed our two oncology compounds
from, salaries and consulting fees, pre-clinical and laboratory studies),
approximately $130,000 on facilities, rent and other facilities costs, and
approximately $2.9 million on general corporate and working capital.
Additionally, as of June 30, 2007, we had an outstanding
debt balance due to Paramount BioSciences, LLC of $164,623 and approximately
$21,000 of accrued interest through July 18, 2007, which has been subsequently
paid in full.
On
June
29, 2007 and July 3, 2007 we issued a series of convertible promissory notes
resulting in aggregate gross proceeds of $3.7 million. We also issued to
investors five-year warrants to purchase an aggregate of approximately 2.43
million shares of the Company’s common stock at an exercise price of $0.40 per
share. Based upon the Black-Scholes option pricing model, the investor warrants
are estimated to be valued at approximately $909,000. In connection with the
offering, we engaged Paramount as one of our placements agents. Dr. Lindsay
A.
Rosenwald is the Chairman, CEO and sole stockholder of Paramount and a
substantial stockholder of the Company. Stephen C. Rocamboli, a director of
the
Company, was employed by Paramount at the time of the Company’s engagement. In
consideration for the placement agents’ services, we paid an aggregate of
approximately $256,000 in commissions to the placement agents in connection
with
the offering, of which $119,700 was paid to Paramount. We also paid to placement
agents $35,000 as a non-accountable expense allowance. In addition, we issued
placement agents five-year warrants to purchase an aggregate of approximately
1.2 million shares of common stock, of which 450,000 shares of common stock
were
issued to Paramount, which are exercisable at a price of $0.42 per share. Based
upon the Black-Scholes option pricing model, the placement agents’ warrants are
estimated to be valued at approximately $430,000.
On
July
16, 2007, we completed the sale of our discontinued operation Chiral Quest,
Inc., and received $1.7 million gross proceeds, of which we recognized $197,000
in accrued compensation costs related to a severance agreement and retention
bonuses payable to certain key employees. Additionally, the Purchaser assumed
liabilities in the aggregate amount of approximately $1 million as part of
the
purchase price consideration.
Our
working capital requirements will depend upon numerous factors. For example,
with respect to our drug development business, our working capital requirements
will depend on, among other factors, the progress of our drug development and
clinical programs, including associated costs relating to milestone payments,
license fees, manufacturing costs, regulatory approvals, and the hiring of
additional employees. Additional capital that we may need in the future may
not
be available on reasonable terms, or at all. If adequate financing is not
available, we may be required to terminate or significantly curtail our
operations, or enter into arrangements with collaborative partners or others
that may require us to relinquish rights to certain of our technologies, or
potential markets that we would not otherwise relinquish.
Item
3. Controls and Procedures.
As
of
June 30, 2007, the Company carried out an evaluation, under the supervision
and
with the participation of the Company’s Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the design and operation of our
disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)
of the Securities Exchange Act of 1934, as amended). Based upon that evaluation,
the Chief Executive Officer and Chief Financial Officer concluded that as of
that date the Company’s disclosure controls and procedures were effective in
alerting them on a timely basis to material information required to be disclosed
in the Company’s periodic reports to the Securities and Exchange Commission.
During the three months ended June 30, 2007, there was no change in the
Company’s internal control over financial reporting that materially affected, or
is reasonably likely to materially affect, the Company’s internal control over
financial reporting.
PART
II – OTHER INFORMATION
Item
4. Submission of Matters to a Vote of Security Holders.
The
Company held its Annual Meeting of Stockholders at the Somerset Hills Hotel,
200
Liberty Corner Road in Warren, New Jersey on May 24, 2007. The stockholders
took
the following actions:
(i)
The
stockholders elected five directors to serve until the next Annual Meeting
of
Stockholders. The stockholders present in person or by proxy cast the following
numbers of votes in connection with the election of directors, resulting in
the
election of all nominees:
Nominee
|
|
Votes
For
|
|
Votes
Withheld
|
|
Vincent
M. Aita
|
|
|
33,604,785
|
|
|
359,764
|
|
Daniel
Greenleaf
|
|
|
33,602,585
|
|
|
361,964
|
|
Johnson
Y.N. Lau
|
|
|
33,453,845
|
|
|
510,704
|
|
Stephen
C. Rocamboli
|
|
|
33,241,208
|
|
|
723,341
|
|
Michael
Weiser
|
|
|
33,604,785
|
|
|
359,764
|
|
(ii)
The
stockholders approved the Company’s sale of its Chiral Quest, Inc. subsidiary.
There were 28,628,942 shares cast for the proposal; 178,240 shares cast against
the proposal; 77,619 shares abstained; and there were 5,079,748 broker
non-votes.
(iii)
The
stockholders approved a proposal to authorize an amendment to the Company’s
certificate of incorporation to effect a combination of the Company’s common
stock in the ratio of up to 1-for-10, in the discretion of the Company’s board
of directors. There were 32,889,348 votes cast for the proposal; 1,069,778
votes
were cast against the proposal; 5,423 votes abstained; and there were 0 broker
non-votes.
(iv)
The
stockholders ratified and approved an amendment to the Company’s 2003 Stock
Option Plan increasing the number of shares of common stock authorized for
issuance thereunder to 7,500,000. There were 27,859,098 votes cast for the
proposal; 1,016,420 votes were cast against the proposal; 9,283 votes abstained;
and there were 5,079,748 broker non-votes.
(v)
The
stockholders ratified the appointment of J.H. Cohn LLP as the Company’s
independent registered public accounting firm for 2007. There were 33,500,172
votes cast for the proposal; 379,415 votes were cast against the proposal;
84,962 votes abstained; and there were 0 broker non-votes.
Item
6. Exhibits
Exhibit
No.
|
|
Description
|
4.1
|
|
Form
of senior
convertible promissory note issued by VioQuest Pharmaceuticals, Inc.
on
June 29, 2007 and July 3, 2007 (incorporated by reference to Exhibit
4.1
of the Company’s Form 8-K filed with the SEC on July 6,
2007).
|
4.2
|
|
Form
of warrant issued to investors by VioQuest Pharmaceuticals, Inc.
on June
29, 2007 and July 3, 2007 (incorporated by reference to Exhibit 4.2
of the
Company’s Form 8-K filed with the SEC on July 6, 2007).
|
10.1
|
|
Stock
Purchase and Sale Agreement dated April 10, 2007, between VioQuest
Pharmaceuticals, Inc. and Chiral Quest Acquisition Corp. (incorporated
by
reference to Appendix A to the Company’s Definitive Proxy Statement on
Schedule 14A filed with the SEC on April 25, 2007)
|
10.2
|
|
Amendment
No. 1 dated June 8, 2007 to Stock Purchase and Sale Agreement between
VioQuest Pharmaceuticals, Inc. and Chiral Quest Acquisition Corp.
(incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed
June 12, 2007).
|
10.3
|
|
Form
of Note and Warrant Purchase Agreement between VioQuest Pharmaceuticals
and various investors accepted as of June 29, 2007 and July 3, 2007
(incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed
with the SEC on July 6, 2007).
|
31.1
|
|
Certification
of Chief Executive Officer
|
31.2
|
|
Certification
of Chief Financial Officer
|
32.1
|
|
Certifications
of Chief Executive and Chief Financial Officer pursuant to Section
906 of
the Sarbanes-Oxley Act of 2002.
|
SIGNATURES
In
accordance with the requirements of the Exchange Act of 1934, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly
authorized.
|
VIOQUEST
PHARMACEUTICALS, INC.
|
Date:
August 8, 2007
|
By:
|
/s/
Daniel Greenleaf
|
|
|
Daniel
Greenleaf
President
& Chief Executive Officer
|
Date:
August 8, 2007
|
By:
|
/s/
Brian Lenz
|
|
|
Brian
Lenz
Chief
Financial Officer
|