OVIT OncoVista Innovative Therapies Inc (CE)

ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Our Management’s Discussion and Analysis contains not only statements that are historical facts, but also statements that are forward-looking (within the meaning of Section 27A of the Securities Act of 1933 (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”)).  Forward-looking statements are, by their very nature, uncertain and risky.  These risks and uncertainties include international, national and local general economic and market conditions; demographic changes; our ability to sustain, manage, or forecast growth; our ability to successfully make and integrate acquisitions; raw material costs and availability; new product development and introduction; existing government regulations and changes in, or the failure to comply with, government regulations; adverse publicity; competition; the loss of significant customers or suppliers; fluctuations and difficulty in forecasting operating results; changes in business strategy or development plans; business disruptions; the ability to attract and retain qualified personnel; the ability to protect technology; and other risks that might be detailed from time to time in our filings with the Commission.

Although the forward-looking statements in this report reflect the good faith judgment of our management, such statements can only be based on facts and factors currently known by them.  Consequently, and because forward-looking statements are inherently subject to risks and uncertainties, the actual results and outcomes may differ materially from the results and outcomes discussed in the forward-looking statements.  You are urged to carefully review and consider the various disclosures made by us in this report and in our other reports as we attempt to advise interested parties of the risks and factors that may affect our business, financial condition, and results of operations and prospects.

As used in this Quarterly Report, the terms “we,” “us,” and “our,” mean OncoVista Innovative Therapies, Inc., our current subsidiary, OncoVista, Inc. (“OncoVista”) and our former subsidiary, AdnaGen A.G. (“AdnaGen”), collectively, unless otherwise indicated.

Overview

We are a biopharmaceutical company developing targeted anticancer therapies by utilizing tumor-associated biomarkers. Our therapeutic strategy is based on targeting the patient’s tumor(s) with treatments that will deliver drugs selectively based upon specific biochemical characteristics of the cancer cells comprising the tumor. Through a combination of licensing agreements, as well as mergers and acquisitions, we have acquired the rights to several technologies with the potential to more effectively treat cancers and significantly improve quality-of-life for patients. We believe that the development of targeted approaches to the administration of anticancer agents should lead to improved outcomes and reduced toxicity.

We expect to be a major participant in the oncology arena through the successful development and commercialization of innovative therapies which, as a result of their lower toxicity and greater efficacy, will increase patient survival rates and enhance patient quality of life. In targeting compounds for acquisition, we focus on candidates that have been previously tested in human clinical trials or animal models, as well as technologies that may improve the delivery or targeting of previously tested, and in some cases marketed, anticancer agents. Our senior management team and our panel of internationally-recognized clinical advisors have made significant contributions to the development of leading drugs currently used in cancer treatment. Management, in conjunction with our advisors, will evaluate in-licensing candidates based on several criteria, including development and registration strategies to be employed, commercialization opportunities and competitive technologies being developed elsewhere.

To date, we have financed our operations principally through offerings of securities exempt from the registration requirements of the Securities Act of 1933 (the “Securities Act”). We are using the proceeds from the sale of our shares in AdnaGen to fund on-going development activities for our drug candidate portfolio.  We estimate that our cash reserves will be sufficient to permit us to continue at our anticipated level of operations for at least 2 to 3 months. However, we anticipate we will need to raise additional capital to support our current operations and fund in-licensing and research and development programs and will further require additional financing at various intervals in the future. We can provide no assurance that additional funding will be available on a timely basis, terms acceptable to us, or at all.

If we are unsuccessful raising additional funding, our business may not continue as a going concern and if sufficient capital is not available, we may be required to delay, further scale back or eliminate one or more of our research and development or acquisition and in-licensing programs or to enter into license or other arrangements with third parties to commercialize products or technologies that we would otherwise seek to develop and commercialize ourselves. In such event, our business, prospects, financial condition, and results of operations may be adversely affected because we may be required to further scale back, eliminate, or delay development or acquisition efforts or product introductions or enter into royalty, sales, or other agreements with third parties in order to commercialize our products. Even if we do find additional funding sources, we may be required to issue securities with greater rights than those currently possessed by holders of our common stock. We may also be required to take other actions that may lessen the value of our common stock or dilute our common stockholders, including borrowing money on terms that are not favorable to us or issuing additional equity securities. If we experience difficulties raising money in the future, our business, prospects, financial condition, and results of operation will be materially adversely affected.

Development Programs

Our most advanced product candidate is Cordycepin (OVI-123) which is in Phase I/II clinical trials for refractory leukemia patients who express the enzyme TdT. We have received orphan drug designation from the FDA for Cordycepin which affords us seven years of market exclusivity once the drug is approved for marketing. We initiated a Phase I/II trial based on the “original” ADA-sensitive compound in the second quarter of 2008. The trial was being conducted at two U.S. centers (The Dana Farber Cancer Institute in Boston, Massachusetts and the Cancer Therapy Research Center at the University of Texas Health Sciences Center at San Antonio, Texas) and was designed to enroll up to 24 patients in the first stage and up to 20 patients in the second stage. The primary objective of the 1 ^st phase of the study is to determine the maximally tolerated dose (“ MTD ”) and the recommended dose (RD) of Cordycepin, given one hour following a fixed dose of the ADA inhibitor Pentostatin, in patients with refractory TdT-positive leukemia. The primary objectives of the 2 ^nd phase of the study will be to determine the single and multiple dose pharmacokinetics of Cordycepin given one hour following a fixed dose of Pentostatin and to measure and quantify any clinical responses following administration of Cordycepin/Pentostatin at the recommended dose in 20 subjects. Secondary objectives will include assessing the pharmacokinetics efficacy and safety at the MTD. We anticipate a total time period of 18 months for the trial during which patients will receive Cordycepin for three consecutive days repeated every 28 days. Patients will be eligible for re-treatment if all dose-related toxicities have been resolved by day 28 and there is no evidence of disease progression. Subjects may receive treatment until disease progression and will be followed for at least 30 days after the last administration of study drug.  In October 2009, after enrolling five patients in this clinical trial, we placed the clinical trial on administrative hold until such time that additional capital can be raised. We engaged a clinical research organization (“CRO”) in France to do additional pre-clinical in-vitro evaluations of Cordycepin and the ADA inhibitor Pentostatin with the intent of gaining a better understanding of the inhibition effects of Pentostatin on Cordycepin. We are in the process of reinitiating the Phase I/II clinical trial to determine the maximum tolerated dose, and expect to start enrolling patients in 2014 if additional financing is available.

One of our L-nucleoside conjugate candidates, OVI-117, is a conjugate of an L-nucleoside  (L-uridine) and the highly toxic compound 5’-fluorodeoxyuridine monophosphate (FdUMP), a thymidylate synthase (TS) inhibitor. We have accumulated in vitro and in vivo data indicating that several of the L-nucleoside conjugates are effective against various types of cancer. To date, OVI-117 has undergone two proof-of-concept studies in animals, as both a single agent and as a multi-agent combination therapy with oxaliplatin. We have completed Good Laboratory Practice (“GLP”) animal drug safety studies in two species for OVI-117. The Investigational New Drug application (IND) was submitted to the FDA on June 2, 2012 and approved by the FDA on July 5, 2012. We engaged a contract manufacturer and a clinical batch of OVI-117 is available for use in our proposed Phase 1 trial. The clinical protocol has been written and a principal investigator engaged. We believe that OVI-117 should be ready to enter Phase I clinical trials in 2014 if additional financing is available.

Other Research and Development Plans

In addition to conducting Phase I and Phase II clinical trials, we plan to conduct pre-clinical research to accomplish the following:

Other Strategic Plans

In addition to developing our existing anti-cancer drug portfolio, we plan to obtain rights to additional drug candidates or diagnostic technologies through licensing, partnerships, and mergers/acquisitions. Our efforts in this area will be guided by business considerations (cost of the opportunity, fit with existing portfolio, etc.) as well as input from our clinical advisory board regarding likelihood of successful clinical development and marketing approval. Our goal is to create a well-balanced product portfolio including lead molecules in different stages of development and addressing different medical needs.

Results of Operations

Three Months Ended June 30, 2014 and 2013

Research and development. Research and development expenses decreased by approximately $91,000, or approximately 42%, to approximately $125,000 for the three months ended June 30, 2014, as compared to approximately $216,000 for the three months ended June 30, 2013. The decrease in 2014 is primarily due to reduced activities in the Phase 1 trials due to a lack of sufficient capital.

General and administrative. General and administrative expenses increased by approximately $27,000, or approximately 20%, to approximately $163,000 for the three months ended June 30, 2014, as compared to approximately $136,000 for the three months ended June 30, 2013. The increase was due primarily to an increase in legal and professional fees from prior year.

Other Income (Expense) . Other income decreased $699,000, or 743% to loss of approximately $605,000 for the three months ended June 30, 2014 compared to income of approximately $94,000 for the three months ended June 30, 2013. The decrease was primarily due to an increase in the fair value of the derivative liability of approximately $604,000.

Six months ended June 30, 2014 and 2013

Research and development. Research and development expenses decreased by approximately $179,000 or 39%, to approximately $275,000 for the six months ended June 30, 2014, as compared to approximately $454,000 for the six months ended June 30, 2013. The decrease in 2014 is primarily due to reduced activities in the Phase 1 trials due to a lack of sufficient capital.

General and administrative. General and administrative expenses decreased by approximately $35,000 or 12%, to approximately $258,000 for the six months ended June 30, 2014, as compared to approximately $293,000 for the six months ended June 30, 2013. The decrease was due primarily to a decrease in consulting expense for professional services and legal and professional fees.

Other Income (Expense) . Other income decreased $708,000 or 1747% to loss of approximately $667,000 for the six months ended June 30, 2014 compared to income of approximately $40,000 for the six months ended June 30, 2013. The decrease was primarily attributed to an increase in the fair value of the derivative liability of approximately $666,000.

Going Concern and Recent Events

Our consolidated financial statements for the six months ended June 30, 2014 have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. We reported a net loss of approximately $1,200,000, and net cash used in operations of approximately $89,000 for the six months ended June 30, 2014, an accumulated deficit of approximately $24.6 million and total deficit of approximately $4.3 million at June 30, 2014. The Report of the Independent Registered Public Accounting Firm on the Company’s financial statements as of and for the year ended December 31, 2012 includes a “going concern” explanatory paragraph expressing substantial doubt about the Company’s ability to continue as a going concern.

In November 2010, we received approximately $6.0 million as our pro rata portion of the up-front payment from the sale of our shares of AdnaGen as described above. Management believes we now have sufficient capital to meet our anticipated operating cash requirements for the next two to three months.

Our ability to continue as a going concern depends on the success of management’s plans to achieve the following:

Liquidity and Capital Resources

At June 30, 2014, we had cash and cash equivalents of approximately $55,900 compared to approximately $44,900 at December 31, 2013. In order to preserve principal and maintain liquidity, our funds are primarily invested in checking and interest bearing saving accounts with the primary objective of capital preservation. Based on our current projections, we believe that our available resources and cash flow are sufficient to meet our anticipated operating cash needs for the next two to three months. Our ability to continue as a going concern is dependent on our ability to further implement our strategic plan, continue to obtain additional debt and/or equity financing, and generate additional revenues from collaborative agreements.

To date, we have financed our operations principally through proceeds of offerings of securities exempt from the registration requirements of the Securities Act. We can provide no assurance that additional funding will be available on terms acceptable to us, or at all. Accordingly, we may not be able to secure the funding which is required to expand research and development programs beyond their current levels or at levels that may be required in the future. If we cannot secure adequate financing, we may be required to delay, scale back or eliminate one or more of our research and development programs or to enter into license or other arrangements with third parties to commercialize products or technologies that we would otherwise seek to develop and commercialize ourselves. Our future capital requirements will depend upon many factors, including:

Accordingly, we may be required to issue equity or debt securities or enter into other financial arrangements, including relationships with corporate and other partners, in order to raise additional capital. Depending upon market conditions, we may not be successful in raising sufficient additional capital for our short or long-term requirements. In such event, our business, prospects, financial condition, and results of operations would be materially adversely affected.

Operating Activities. For the six months ended June 30, 2014, net cash used in operations decreased $301,000, or 77% to approximately $89,000 compared to approximately $390,000 for the six months ended June 30, 2013. The decrease was primarily due to the reduced activities in the clinical development of our agents due to lack of sufficient capital to start our Phase 1 trials.

Investing Activities. There was no cash provided by investing activities for the six months ended June 30, 2014 or 2013.

Financing activities. For the six months ended June 30, 2014, net cash provided by financing activities increased by $100,000 compared to nil for the six months ended June 30, 2013. The increase is attributed to the bridge loans of $100,000 raised in April 2014.

Recent Accounting Pronouncements

The Company has evaluated all recently issued accounting pronouncements and believes such pronouncements do not have a material effect on the Company’s financial statements.

Critical Accounting Policies

We have identified the policies below as critical to our business operations and the understanding of our results of operations. The impact and any associated risks related to these policies on our business operations are disclosed throughout this section where such policies affect our reported and expected financial results. The preparation of our financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of our financial statements, and the reported amounts of revenues and expenses during the reporting period. There can be no assurance that actual results will not differ from those estimates.

Revenue Recognition. While the Company is not currently recognizing revenues, we anticipate that future revenues will be generated from product sales. The Company expects to recognize revenue from product sales in accordance with SEC, Staff Accounting Bulletin (“SAB”) No. 104, “Revenue Recognition” that requires the Company recognize revenue when each of the following four criteria is met: 1) a contract or sales arrangement exists; 2) products have been shipped or services have been rendered; 3) the price of the products or services is fixed or determinable; and 4) collectability is reasonably assured. The Company anticipates that customers will have no right of return for products sold. Revenues are considered to be earned upon shipment.

Share-Based Compensation. We follow Accounting Standards Codification (“ASC”) 718 “Compensation – Stock Compensation” which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and directors including grants of employee stock options based on estimated fair values. We have used the Black-Scholes option pricing model to estimate grant date fair value for all option grants. The assumptions we use in calculating the fair value of share-based payment awards represent management’s best estimates, but these estimates involve inherent uncertainties and the application of management judgment. As such, as we use different assumptions based on a change in factors, our stock-based compensation expense could be materially different in the future.

Preclinical Study and Clinical Trial Accruals. Substantially all of our preclinical studies and clinical trials are being performed by third-party CROs and other outside vendors. For preclinical studies, we use the percentage of work completed to date and contract milestones achieved to determine the accruals recorded. For clinical trial accruals, we use the number of patients enrolled, period of patient enrollment and percentage of work completed to date to estimate the accruals. We monitor patient enrollment levels and related activities to the extent possible through internal reviews, correspondence and status meetings with CROs and review of contractual terms. Our estimates are dependent on the timeliness and accuracy of data provided by our CROs and other vendors. If we have incomplete or inaccurate data, we may under-or overestimate activity levels associated with various studies or clinical trials at a given point in time. In this event, we could record adjustments to research and development expenses in future periods when the actual activity levels become known. No material adjustments to preclinical study and clinical trial expenses have been recognized to date.