EpiCept Reports Third Quarter 2012 Operating and Financial Results

  EpiCept Reports Third Quarter 2012 Operating and Financial Results

            Conference Call Begins at 9:00 A.M. Eastern Time Today

Business Wire

TARRYTOWN, N.Y. -- November 14, 2012

Regulatory News:

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 22.5percent ownership of the
    combined company and Immune shareholders receiving approximately
    77.5percent, 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.

Conference Call

EpiCept will host a conference call to discuss these results and answer
questions on November 14, 2012 beginning at 9:00 a.m. Eastern time.

To participate in the live call, please dial from the United States or Canada
(877) 809-8594 or from international locations (706) 758-9407 (please
reference access code 70213691). The conference call will also be broadcast
live in listen-only mode on the Internet and may be accessed at
www.epicept.com. The webcast will be archived for 90 days.

A telephone replay of the call will be available for seven days by dialing
from the United States or Canada (855) 859-2056 or from international
locations (404) 537-3406 (please reference reservation number 70213691).

Additional Information

In connection with the proposed merger transaction, EpiCept will file a proxy
statement with the U.S. Securities and Exchange Commission (SEC)seeking
appropriate shareholder approval. SHAREHOLDERS OF EPICEPT AND OTHER INVESTORS
ARE URGED TO READ THE PROXY STATEMENT (INCLUDING ANY AMENDMENTS OR SUPPLEMENTS
TO THE PROXY STATEMENT) REGARDING THE PROPOSED TRANSACTION WHEN IT BECOMES
AVAILABLE BECAUSE IT WILL CONTAIN IMPORTANT INFORMATION. EpiCept’s
shareholders will be able to obtain a copy of the proxy statement, as well as
other filings containing information about Immune and EpiCept, without charge,
at the SEC’s Internet site (www.sec.gov). Copies of the proxy statement and
the filings with the SEC that will be incorporated by reference in the proxy
statement can also be obtained, without charge, by directing a request to
EpiCept Corporation, 777 Old Saw Mill River Rd, Tarrytown, NY 10591,
Attention: Investor Relations, Telephone: (914) 606-3500.

Participants in the Solicitation

EpiCept and its directors and executive officers and Immune and its directors
and executive officers may be deemed to be participants in the solicitation of
proxies from the shareholders of EpiCept in connection with the proposed
transaction. Information regarding the special interests of these directors
and executive officers in the merger transaction will be included in the proxy
statement of EpiCept referred to above. Additional information regarding the
directors and executive officers of EpiCept is also included in EpiCept’s
proxy statement for its 2011 Annual Meeting of Stockholders, which was filed
with the SEC on April28, 2011. Additional information regarding the directors
and executive officers of EpiCept is also included in EpiCept’s registration
statement Post-Effective Amendment No.1 to Form S-3 on Form S-1, which was
filed with the SEC on April6, 2012. These documents are available free of
charge at the SEC’s web site (www.sec.gov) and from Investor Relations at
EpiCept at the address described above.

This communication shall not constitute an offer to sell or the solicitation
of an offer to buy any securities, nor shall there be any sale of securities
in any jurisdiction in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of
any such jurisdiction. No offering of securities shall be made except by means
of a prospectus meeting the requirements of Section10 of the Securities Act
of 1933, as amended (the “Act”). The securities issued in exchange for all of
the outstanding shares of Immune will not be and have not been registered
under the Act and may not be offered or sold in the United States absent
registration or an applicable exception from registration requirements.

The merger agreement and any accompanying issuance of shares by Immune
Pharmaceuticals are not, under any circumstances, to be construed as an
advertisement or a public offering of securities in Israel. Any public offer
or sale of securities in Israel may be made only in accordance with the
Israeli Securities Act-1968 (which requires, inter alia, the filing of a
prospectus in Israel or an exemption therefrom).

About EpiCept Corporation

EpiCept is focused on the development and commercialization of pharmaceutical
products for the treatment of pain and cancer. The Company's pain portfolio
includes AmiKet™, a prescription topical analgesic cream in late-stage
clinical development designed to provide effective long-term relief of pain
associated with peripheral neuropathies. The Company's product Ceplene^®, when
used concomitantly with low-dose IL-2 is intended as remission maintenance
therapy in the treatment of AML for adult patients who are in their first
complete remission. The Company sold all of its rights to Ceplene^® in Europe
and certain Pacific Rim countries and a portion of its remaining Ceplene^®
inventory to Meda AB in June 2012. Ceplene^® is licensed to MegaPharm Ltd. to
market and sell in Israel and EpiCept has retained its rights to Ceplene^® in
all other countries, including countries in North and South America. The
Company has other oncology drug candidates in clinical development that were
discovered using in-house technology and have been shown to act as vascular
disruption agents in a variety of solid tumors.

Forward-Looking Statements

This news release and any oral statements made with respect to the information
contained in this news release contain forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. You are urged
to consider statements that include the words “may,” “will,” “would,” “could,”
“should,” “believes,” “estimates,” “projects,” “potential,” “expects,”
“plans,” “anticipates,” “intends,” “continues,” “forecast,” “designed,”
“goal,” or the negative of those words or other comparable words to be
uncertain and forward-looking. Such forward-looking statements include
statements which express plans, anticipation, intent, contingency, goals,
targets, future development and are otherwise not statements of historical
fact. These statements are based on our current expectations and are subject
to risks and uncertainties that could cause actual results or developments to
be materially different from historical results or from any future results
expressed or implied by such forward-looking statements. Factors that may
cause actual results or developments to differ materially include: the risk
that we may be unable to complete the proposed merger transaction with Immune
Pharmaceuticals, the risks associated with the adequacy of our existing cash
resources and our ability to continue as a going concern, the risks associated
with our ability to continue to meet our obligations under our existing debt
agreements, the risk that Azixa^® will not receive regulatory approval or
achieve significant commercial success, the risk that clinical trials for
AmiKet™ or crolibulin^TM will not be successful, the risk that AmiKet™ or
crolibulin^TM will not receive regulatory approval or achieve significant
commercial success, the risk that we will not be able to find a partner to
help conduct the Phase III trials for AmiKet™ on attractive terms, a timely
basis or at all, the risk that Ceplene^® will not receive regulatory approval
or marketing authorization in the United States or Canada, the risk that
Ceplene^® will not achieve significant commercial success, the risk that our
other product candidates that appeared promising in early research and
clinical trials do not demonstrate safety and/or efficacy in larger-scale or
later-stage clinical trials, the risk that we will not obtain approval to
market any of our product candidates, the risks associated with dependence
upon key personnel, the risks associated with reliance on collaborative
partners and others for further clinical trials, development, manufacturing
and commercialization of our product candidates; the cost, delays and
uncertainties associated with our scientific research, product development,
clinical trials and regulatory approval process; our history of operating
losses since our inception; the highly competitive nature of our business;
risks associated with litigation; and risks associated with our ability to
protect our intellectual property. These factors and other material risks are
more fully discussed in our periodic reports, including our reports on Forms
8-K, 10-Q and 10-K and other filings with the U.S. Securities and Exchange
Commission. You are urged to carefully review and consider the disclosures
found in our filings which are available at www.sec.gov or at www.epicept.com.
You are cautioned not to place undue reliance on any forward-looking
statements, any of which could turn out to be wrong due to inaccurate
assumptions, unknown risks or uncertainties or other risk factors.

Selected financial information follows:

EpiCept Corporation and Subsidiaries                       
(Unaudited)
Selected Consolidated Balance Sheet
Data
(in $000s)
                                              September 30,       December 31,
                                              2012                2011
                                                                  
Cash and cash equivalents                     $  1,131            $  6,378
Restricted cash                                  1,178               70
Inventory                                        6                   360
Property and equipment, net                      72                  120
Total assets                                  $  2,866            $  7,521
                                                                  
Accounts payable and other accrued            $  4,024            $  3,333
liabilities
Deferred revenue                                 7,881               12,947
Notes and loans payable                          3,932               8,022
Total stockholders’ deficit                      (13,168  )          (17,146 )
Total liabilities and stockholders’           $  2,866            $  7,521
deficit


EpiCept Corporation and Subsidiaries
(Unaudited)
Selected Consolidated Statement of Operations Data
(in $000s except share and per share data)
                                                        
                     Three Months Ended Sept. 30,              Nine Months Ended Sept. 30,
                       2012              2011                 2012              2011
                                                                                    
Product net          $ —                  $ 34                 $ 583                $ 35
revenues
Licensing and         871                241                7,131              702        
other revenues
Total net             871                275                7,714              737        
revenues
Operating
expenses:
Cost of
product net            —                    51                   396                  411
revenues
Selling,
general and            852                  1,977                3,667                5,413
administrative
Research and          1,104              2,617              3,363              6,292      
development
Total
operating             1,956              4,645              7,426              12,116     
expenses
Income (loss)
from                  (1,085     )        (4,370     )        288                (11,379    )
operations
Other income
(expense):
Interest               —                    4                    3                    10
income
Foreign
exchange               207                  (621       )         (57        )         38
(loss) gain
Warrant
amendment              —                    —                    (936       )         —
expense
Interest              (254       )        (409       )        (997       )        (870       )
expense
Other income          (47        )        (1,026     )        (1,987     )        (822       )
(expense), net
Net loss
before income          (1,132     )         (5,396     )         (1,699     )         (12,201    )
taxes
Income taxes          —                  (1         )        (2         )        (4         )
Net loss             $ (1,132     )       $ (5,397     )       $ (1,701     )       $ (12,205    )
Deemed
dividends on
convertible           (1,624     )        —                  (3,550     )        —          
preferred
stock
Loss
attributable         $ (2,756     )       $ (5,397     )       $ (5,251     )       $ (12,205    )
to common
stockholders
                                                                                    
Basic and
diluted loss         $ (0.03      )       $ (0.08      )       $ (0.06      )       $ (0.18      )
per common
share
                                                                                    
Weighted
average common         84,618,394           71,003,667           81,826,154           67,406,765
shares
outstanding


EpiCept Corporation and Subsidiaries
(Unaudited)
Selected Consolidated Statement of Cash Flows Data
(in $000s)

                                              Nine Months Ended Sept. 30,
                                                   2012           2011
                                                                   
Net cash used in operating activities            $ (4,189  )       $ (10,085 )
Net cash (used in) provided by investing           (1,107  )         111
activities
Net cash provided by financing activities          60                18,156
Effect of exchange rate changes on cash           (11     )        (1      )
Net (decrease) increase in cash and cash           (5,247  )         8,181
equivalents
Cash and cash equivalents at beginning of         6,378           2,435   
year
Cash and cash equivalents at end of year         $ 1,131          $ 10,616  


EpiCept Corporation and Subsidiaries
(Unaudited)
Selected Consolidated Statement of Stockholders’ Deficit Data
(in $000s)

                                                 Nine Months Ended Sept. 30,
                                                   2012              2011
                                                                   
Stockholders’ deficit at beginning of year       $ (17,146 )       $ (14,135 )
                                                                   
Net loss for the period                            (1,701  )         (12,205 )
Stock-based compensation expense                   394               753
Foreign currency translation adjustment            47                (83     )
Share and warrant issuance                         2,833             11,416
Warrant amendment expense                          936               —
Exercise of warrants                              1,469           —       
                                                                   
Stockholders’ deficit at end of year             $ (13,168 )       $ (14,254 )


EpiCept had 92,220,376 shares outstanding as of October 31, 2012. EpiCept
expects to release its results for the year ending December 31, 2012 on or
about February 28, 2013.

*Azixa is a registered trademark of Myrexis, Inc.

EPCT-GEN

Contact:

EpiCept Corporation:
Robert W. Cook, (914) 606-3500
rcook@epicept.com
or
Media:
Feinstein Kean Healthcare
Greg Kelley, (617) 577-8110
gregory.kelley@fkhealth.com
or
Investors:
LHA
Kim Sutton Golodetz, (212) 838-3777
kgolodetz@lhai.com
or
Bruce Voss, (310) 691-7100
bvoss@lhai.com
@LHA_IR_PR
 
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