EpiCept third quarter revenue increases to $0.9 million

EpiCept CorporationNov 14 2012

EpiCept Corporation (Nasdaq OMX Stockholm Exchange and OTCQX: EPCT) (the Company) today reported a net loss for the three months ended September 30, 2012 of $1.1 million and a net loss for the nine months ended September 30, 2012 of $1.7 million. These compare with net losses for the three and nine months ended September 30, 2011 of $5.4 million and $12.2 million, respectively. The Company also provided additional information with respect to its recently-announced signing of a definitive merger agreement with Immune Pharmaceuticals, Ltd.

Robert Cook, Interim President and CEO of EpiCept, commented, "During the third quarter we focused our attention on concluding an agreement with a merger partner that is interested in our products and in implementing a strategy to enable AmiKet™ to realize value for the Company's shareholders. We are enthusiastic about the proposed merger with Immune Pharmaceuticals as we believe the combined company will provide EpiCept's shareholders with a broad, attractive portfolio of product candidates that address unmet medical needs and have significant market potential. Monoclonal antibodies, a field in which Immune Pharmaceuticals has particular expertise, are an exciting area for pharmaceutical development. We are pleased that the combined company intends to re-energize EpiCept's efforts to obtain a partner to pursue the Phase III development of AmiKet™. Additionally, we believe that EpiCept's vascular disruption agents Azixa^® and crolibulin™ are promising, targeted oncology drug candidates that may further benefit from Immune Pharmaceuticals' expertise in nanotherapeutics."

Business Highlights

• Immune Pharmaceuticals Ltd., a privately held Israeli company, and EpiCept announced on November 8, 2012 that they have entered into a definitive merger agreement. The transaction is anticipated to close during the first quarter of 2013 and is subject to satisfaction of certain customary closing conditions, including the approval of the shareholders of EpiCept. 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 a placebo-controlled, double-blind Phase II clinical trial with bertilimumab for the treatment of ulcerative colitis.
  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.
  The terms of the merger agreement 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, with EpiCept shareholders retaining approximately 22.5 percent ownership of the combined company and Immune shareholders receiving approximately 77.5 percent, calculated on an adjusted fully diluted basis. The proportionate ownership of the combined company by the EpiCept and Immune shareholders is subject to adjustment based upon the size of certain specified liabilities of EpiCept at the merger effective time and does not initially include 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 have dual headquarters in Herzliya-Pituach, Israel and in the New York City area, with research laboratories in Rehovot, Israel. Daniel Teper, PharmD, the Chief Executive Officer of Immune Pharmaceuticals, will become 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. Immediately following the merger effective time, the board of directors of the combined company will consist of the then-current directors of Immune plus Mr. Cook, who will also serve as the CFO. The combined company plans to assume EpiCept's common stock listings on the OTCQX and on the NASDAQ OMX Stockholm Exchange.
  The signing of the definitive merger agreement with Immune Pharmaceuticals met the November 15, 2012 deadline imposed on the Company by its senior lender, MidCap Financial LLP. The loan is expected to be restructured and assumed by the combined company at the closing of the merger.
• On August 28, 2012, EpiCept received notice of termination of the License and Collaboration Agreement, dated November 19, 2003, with Myrexis, Inc. Myrexis has elected to terminate its efforts to develop and commercialize any product covered under the License, including its drug candidate Azixa™. As a result of the termination of the agreement, all rights and licenses granted under the License by the Company to Myrexis have reverted to the Company. The Company is currently negotiating a new agreement with Myrexis to secure rights to the Myriad Technology as set forth in the License Agreement.

Financial and Operating Highlights

EpiCept's net loss attributable to common stockholders for the third quarter of 2012 was $2.8 million, or $0.03 per share, compared with a net loss attributable to common stockholders of $5.4 million, or $0.08 per share, for the third quarter of 2011. Net loss attributable to common stockholders for the third quarter of 2012 includes $1.6 million of deemed dividends on convertible preferred stock. EpiCept's net loss attributable to common stockholders for the nine months ended September 30, 2012 was $5.3 million, or $0.06 per share, compared with a net loss attributable to common stockholders of $12.2 million, or $0.18 per share, for the nine months ended September 30, 2011. The net loss attributable to common stockholders for the nine months ended September 30, 2012 includes $3.6 million of deemed dividends on convertible preferred stock.

Third Quarter and Nine Months 2012 vs. Third Quarter and Nine Months 2011

Revenue

The Company recognized revenue of $0.9 million during the third quarter of 2012, compared with $0.3 million during the third quarter of 2011. The Company recognized revenue of $7.7 million during the nine months ended September 30, 2012, compared with $0.7 million during the nine months ended September 30, 2011. For the third quarter of 2012, revenue consisted primarily of license fee payments, including the recognition of the remaining deferred revenue previously received from Myrexis amounting to $0.7 million. For the third quarter of 2011, revenue consisted primarily of the recognition of license fee payments previously received from strategic alliances.

Cost of Goods Sold

Cost of goods sold in the third quarter of 2011 consisted solely of the costs from the sale of Ceplene^® to Meda AB. Cost of goods sold was $0.4 million for each of the nine months ended September 30, 2012 and 2011, which consisted solely of the costs from the sale of Ceplene^® to Meda AB.

Selling, General and Administrative (SG&A) Expense

SG&A expense in the third quarter of 2012 decreased by approximately 55%, or $1.1 million, to $0.9 million, compared with $2.0 million in the third quarter of 2011. The decrease was primarily attributable to lower legal expenses, lower salary and salary-related expenses and lower investor relations expenses. SG&A expense for the nine months ended September 30, 2012 decreased by approximately 31%, or $1.7 million, to $3.7 million, compared with $5.4 million for the nine months ended September 30, 2011. The Company expects SG&A expenses to trend slightly higher as it proceeds to conclude the merger with Immune Pharmaceuticals.

Research and Development (R&D) Expense

R&D expense in the third quarter of 2012 decreased by 58%, or $1.5 million, to $1.1 millionfrom $2.6 million in the third quarter of 2011. R&D expense for the nine months ended September 30, 2012 decreased by approximately 46%, or $2.9 million, to $3.4 million, compared with $6.3 million for the nine months ended September 30, 2011. The decrease was primarily attributable to lower clinical trial costs for Ceplene^®, lower salary and salary-related expenses and lower patent expenses. The Company's clinical efforts for the nine months ended September 30, 2012 and 2011 were focused on the open-label trial of Ceplene^®, the responsibility for which has now been transferred to Meda AB. Research and development expense is expected to remain at approximately current levels over the next few quarters.

Other Income (Expense)

Other income (expense) during the third quarter of 2012 was net expense of $47,000, compared with net expense of $1.0 million in the third quarter of 2011. Other expense for the nine months ended September 30, 2012 was $2.0 million, compared with other expense of $0.8 million for the nine months ended September 30, 2011. The primary components of other expense in 2012 were warrant amendment expense of $0.9 million, interest expense of $1.0 million related primarily to the Company's senior secured term loan and a foreign exchange loss. The primary component of other expense, net for the nine months ended September 30, 2011 was interest expense of $0.9 million.

Liquidity

EpiCept had $1.1 million in cash and cash equivalents as of September 30, 2012 and an additional $1.1 million in cash that is restricted by the Company's lender. In September 2012 EpiCept reduced the exercise price of certain of its outstanding Common Stock Purchase Warrants, which were issued pursuant to registered direct offerings in February 2012 and April 2012, in return for the immediate cash exercise of all such warrants, resulting in total proceeds to EpiCept of approximately $0.8 million after estimated fees and expenses. Pursuant to the amendment to the Loan and Security Agreement dated August 27, 2012 with MidCap Financial, LLC, EpiCept was given until November 15, 2012 to sign a definitive agreement with respect to a sale of the Company or a partnering transaction for AmiKet™. In November 2012 EpiCept entered into a definitive merger agreement with Immune Pharmaceuticals, which satisfied this requirement. The loan is expected to be restructured and assumed by the combined company at the closing of the merger. Current cash is anticipated to be sufficient to run operations into the first quarter of 2013. See EpiCept's Quarterly Report on Form 10-Q for the period ended September 30, 2012 for a further discussion of the Company's liquidity and cash position.