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| RPRX > SEC Filings for RPRX > Form 10-K on 13-Mar-2006 | All Recent SEC Filings |
13-Mar-2006
Annual Report
On February 1, 2005, we completed both a follow-on public offering of
4,400,000 shares of our common stock at $4.00 per share and the exercise of the
over allotment provision of 660,000 for a total aggregate sale of 5,060,000
shares of our common stock. All of the shares were offered by us which resulted
in net proceeds to us of approximately $18.1 million.
As of December 31, 2005, we had an accumulated deficit of $94.1 million. Due
to various tax regulations, including change in control provisions in the tax
code, the value of our tax assets to us can be substantially diminished. For
additional information relating to our net operating loss carryforward, see
"Note 6. Federal Income Taxes" of the Notes to Consolidated Financial
Statements. Losses have resulted principally from costs incurred in conducting
clinical trials for our product candidates, in research and development
activities related to efforts to develop our products and from the associated
administrative costs required to support those efforts. There can be no
assurance that we will be able to successfully complete the transition from a
development stage company to the successful introduction of commercially viable
products. Our ability to achieve profitability will depend, among other things,
on successfully completing the clinical development of our products in a
reasonable time frame and at a reasonable cost, obtaining regulatory approvals,
establishing marketing, sales and manufacturing capabilities or collaborative
arrangements with others that possess such capabilities, our and our partners'
ability to realize value from our research and development programs through the
commercialization of those products and raising sufficient funds to finance its
activities. There can be no assurance that we will be able to achieve
profitability or that profitability, if achieved, can be sustained. See "Item 1.
Business - Risk Factors" and "Note 2. Organization and Operations" of Notes to
Consolidated Financial Statements.
Critical Accounting Policies and the Use of Estimates
The preparation of our financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the amounts reported in our financial
statements and accompanying notes. Please see Note 2, "Summary of Significant
Accounting Policies", for a discussion of our critical accounting policies.
Investments-Trading Securities
Management determines the appropriate classification of investments in debt
and equity securities at the time of purchase and re-evaluates such designation
as of each subsequent balance sheet date. Securities for which the Company has
the ability and intent to hold to maturity are classified as "held to maturity".
Securities classified as "trading securities" are recorded at fair value. Gains
and losses on trading securities, realized and unrealized, are included in
earnings and are calculated using the specific identification method. Any other
securities are classified as "available for sale." At December 31, 2005 all
securities were classified as trading securities. The cost basis including
purchased premium for these securities was $14.7 million and $4.8 million at
December 31, 2005 and 2004, respectively.
Marketable securities as of December 31, 2005 consist of only short term
investments. The Company's investments typically include corporate bonds and
notes, Euro-dollar bonds, taxable auction securities and asset-backed
securities. The Company's policy is to require minimum credit ratings of A2/A
and A1/P1 with maturities of up to three years. The average life of the
investment portfolio may not exceed 24 months.
Capitalized Patent Costs
The Company capitalizes the cost associated with building its patent library.
As of December 31, 2005 other assets consist of capitalized patent costs in the
amount of $600,000. Patent costs, which include legal and application costs
related to the patent portfolio, are being amortized over 20 years, or the
lesser of the legal or the estimated economic life of the patent. Amortization
of patent costs was zero, $7,000 and $9,000 in 2005, 2004 and 2003,
respectively.
Of the $600,000 in capitalized patents, $327,000 related to patents for
Proellex, which is being developed as an oral treatment for uterine fibroids and
endometriosis and $273,000 related to Androxal, which is being developed as an
oral treatment for testosterone deficiency.
R&D Expense
Research and development, or R&D expenses include salaries and related
employee expenses, contracted regulatory affairs activities, insurance coverage
for clinical trials and prior product sales, contracted research and consulting
fees, facility costs and internal research and development supplies. The Company
expenses research and development costs in the period they are incurred. These
costs consist of direct and indirect costs associated with specific projects as
well as fees paid to various entities that perform research on behalf of the
Company.
Actual results could differ materially from those estimates. The items in our
financial statements requiring significant estimates and judgments are as
follows:
• The Company has had losses since inception and, therefore, has not been subject to federal income taxes. The Company has accumulated approximately $2.8 million of research and development tax credits. As of December 31, 2005 and 2004, the Company had approximately $84.3 million and $78.5 million, respectively, of net operating loss ("NOL") carry-forwards for federal income tax purposes. Additionally, approximately $1.3 million of NOLs, and approximately $52,000 of research and development tax credits, expired in 2005. Under SFAS No. 109, "Accounting for Income Taxes," an NOL requires the recognition of a deferred tax asset. As the Company has incurred losses since inception, and there is no certainty of future revenues, the Company's deferred tax assets have been reserved in full in the accompanying consolidated financial statements.
• Marketable securities are reviewed for other-than-temporary impairment at the individual security level in each reporting period. The Company has determined that its marketable securities are not impaired as of December 31, 2005.
• The Company reviews for the impairment of capitalized patent costs whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment loss exists when estimated undiscounted cash flows expected to result from the patent are less than its carrying amount. The impairment loss recognized represents the excess of the patent cost as compared to its estimated fair value. The Company has determined that its capitalized patent costs are not impaired as of December 31, 2005.
RECENT ACCOUNTING PRONOUNCEMENTS
In December 2004, the FASB issued SFAS No. 123 (revised 2004), Share-Based
Payment. SFAS No. 123(R) will require that the compensation cost relating to
share-based payment transactions be recognized in financial statements. That
cost will be measured based on the fair value of the equity or liability
instruments issued. SFAS No. 123(R) covers a wide range of share-based
compensation arrangements including share options, restricted share plans,
performance-based awards, share appreciation rights, and employee share purchase
plans. SFAS No. 123(R) replaces FASB Statement No. 123, Accounting for
Stock-Based Compensation , and supersedes APB Opinion No. 25, Accounting for
Stock Issued to Employees. SFAS No. 123, as originally issued in 1995,
established as preferable a fair value-based method of accounting for
share-based payment transactions with employees. However, that Statement
permitted entities the option of continuing to apply the guidance in APB Opinion
No. 25, as long as the footnotes to financial statements disclosed what net
income would have been had the preferable fair value-based method been used.
Public entities will be required to apply SFAS No. 123(R) as of the first annual
reporting period that begins after June 15, 2005. The Company believes the
impact of the adoption of SFAS No. 123(R) using the modified-prospective method
of adoption based on share-based payments currently awarded to employees is
expected to be approximately $600,000 in additional non-cash compensation
expense in 2006.
Results of Operations
Comparison of Years Ended December 31, 2005 and 2004
Revenues. Total revenue for 2005 increased 147% to $634,000 as compared to
$257,000 for 2004. Research and development grants for 2005 were $4,000 as
compared to $118,000 for 2004 relating to the Company's Small Business
Innovative Research, or SBIR grants.
Interest income increased 506% to $630,000 for 2005 as compared to $104,000
for 2004. The increase is primarily due to an increase in marketable securities
as a result of the completion of our follow-on public offering on February 1,
2005 in which we received approximately $18.1 million in net proceeds, and an
increase in interest rates.
Other income for 2005 was zero as compared to $35,000 for 2004. Other income
in 2004 was from the sale of some of the Company's preclinical phentolamine data
that was to be used for a purpose that does not compete with the Company's
sexual dysfunction technologies.
Research and Development Expenses. R&D expenses include contracted research,
regulatory affairs activities and general research and development expenses. R&D
expenses increased 144% to $6.1 million in 2005 as compared to $2.5 million in
2004. The increased expenses for 2005 is primarily due to an increase in the
Company's clinical development programs for Proellex in the amount of $1.9
million and Androxal in the amount of $1.9 million, partially offset by a
decrease of $308,000 in costs associated with the 2004 write-off of our patent
portfolio related to our vaccine adjuvants, prostate cancer vaccines and hCG
immuno-contraceptive vaccine.
General and Administrative Expenses. General and administrative ("G&A")
expenses increased 27% to $1.9 million for 2005 as compared to $1.5 million for
2004. The increase in expenses is primarily due to an increase in professional
services in the amount of $280,000, which includes a non-recurring $200,000
reimbursement in 2004 of the deductible from the Company's directors' and
officers' insurance policy relating to the Company's previous class action
lawsuit, personnel costs in the amount of $185,000, costs associated with
strategic administrative fees in the amount of $99,000 and investor relations
expenses in the amount of $63,000, offset by a decrease in costs associated with
potential funding activities in the amount of $117,000, and a $60,000 decrease
in non-cash stock option compensation expense.
Comparison of Years Ended December 31, 2004 and 2003
Revenues. Total revenues for 2004 were $257,000 as compared to $1.0 million
for 2003. Research and development grants for 2004 were $118,000 as compared to
$595,000 for 2003 relating to the Company's Small Business Innovative Research,
or SBIR grants.
Interest income decreased 67% to $104,000 for 2004 as compared with $318,000
for 2003 primarily due to lower cash balances due to the Company's completion of
its self tender offer in January 2004.
The Company sold substantially all of its fixed assets for approximate net
proceeds of $225,000 and recognized a gain of $102,000 over their book value for
the year ended 2003.
Other income totaled $35,000 for 2004 as compared to zero for 2003. The
increase in other income was from the sale of some of the Company's preclinical
phentolamine data that is to be used for a purpose that does not compete with
the Company's sexual dysfunction technologies.
Research and Development Expenses. R&D expenses include contracted research,
regulatory affairs activities and general research and development expenses.
Following the April 2002 withdrawal of the Company's regulatory application for
VASOMAX in the United Kingdom by Schering-Plough, the Company continued scaling
back non-SBIR grant R&D spending activities through October 2003 to maintain its
cash reserves for future redeployment. R&D expenses increased 14% to
$2.5 million in 2004, as compared with $2.2 million in 2003. The increase in
2004 is primarily due to an increase of $1.0 million related to the Company's
clinical development program for Proellex, an impairment charge against the
Company's patent portfolio related to its vaccine adjuvants, prostate cancer
vaccines and hCG immuno-contraceptive vaccine in the amount of $308,000 which
was offset by a corresponding decrease of $468,000 of costs associated with the
Company's SBIR grant funded R&D, a decrease of $320,000 in costs associated with
Androxal clinical development, a decrease of $122,000 which occurred in 2003
relating to prior employees severance compensation and a decrease of $92,000 in
facilities rent costs due to a decrease in facility size in 2004.
General and Administrative Expenses. G&A expenses decreased 32% to
$1.5 million in 2004 as compared with $2.2 million in 2003. The decrease in
expenses is primarily due to a decrease in the Company's directors' and
officers' insurance premium of $473,000 related to the Company's self tender
offer which was completed in January 2004, costs associated with potential
strategic alternative opportunities of $388,000 and a reduction in professional
services due to a $200,000 reimbursement of the deductible from the Company's
directors' & officers' insurance policy relating to the Company's previous class
action lawsuit which was received in the quarter ended December 31, 2004,
partially offset by an increase in non cash stock option compensation expenses
of $129,000.
Off-Balance Sheet Arrangements
As of December 31, 2005, the Company did not have any off-balance sheet
arrangements.
Liquidity and Capital Resources
Since its inception, the Company has financed its operations primarily with
proceeds from private placements and public offerings of equity securities and
with funds received under collaborative agreements. On February 1, 2005, the
Company completed a public offering of 5,060,000 shares (including the
underwriters' over-allotment option) and received net proceeds of approximately
$18.1 million. The Company's primary use of cash to date has been in operating
activities to fund research and development, including preclinical studies and
clinical trials, and general and administrative expenses. The Company had cash,
cash equivalents and marketable securities of approximately $16.8 million as of
December 31, 2005 as compared to $5.5 million as of December 31, 2004. The
increase in cash balance as of December 31, 2005 as compared to December 31,
2004 is primarily due to the completion of the Company's public offering in
February 2005 described above under "Overview." Excluding maturities and
purchases of marketable securities, net cash of approximately $7.4 million,
$3.0 million, and $3.0 million was used in operating activities during 2005,
2004, and 2003, respectively. The major uses of cash for operating activities
during 2005 was to fund our clinical development programs and associated
administrative costs of $7.4 million and to prepay the majority of our insurance
policies. Cash used in investing activities was $191,000 in 2005 primarily for
investments in technology rights related to our Proellex and Androxal patent
portfolios. Cash provided by financing activities in 2005 was approximately
$18.7 million relating to the follow-on public offering completed in
February 2005 and the exercise of 26,700 stock options.
As of December 31, 2005, the Company had future minimum lease payments under
non-cancelable leases with ongoing terms in excess of one year of $39,000,
$40,000, $40,000, $40,000 and $21,000 in 2006, 2007, 2008, 2009 and 2010,
respectively.
As of December 31, 2005, the Company had non-cancelable purchase orders
relating to the clinical development of both Proellex and Androxal in the
amounts of $5.8 million and $4.9 million, respectively.
The Company has had losses since inception and, therefore, has not been
subject to federal income taxes. The Company has accumulated approximately
$2.8 million of research and development tax credits. As of December 31, 2005
and 2004, the Company had approximately $84.3 million and $78.5 million,
respectively, of net operating loss ("NOL") carry-forwards for federal income
tax purposes. Additionally, approximately $1.3 million of NOLs, and
approximately $52,000 of research and development tax credits expired in the
year 2005. Due to various tax regulations, including change in control
provisions in the tax code the value of this tax asset to the Company can be
substantially diminished. For additional information relating to the Company's
Net Operating Loss carryforward see "Note 6. Federal Income Taxes" of the Notes
to Consolidated Financial Statements."
The Company has experienced negative cash flows from operations since
inception and has funded its activities to date primarily from equity financings
and corporate collaborations. The Company will require substantial funds for
research and development, including preclinical studies and clinical trials of
our product candidates, and to commence sales and marketing efforts if
appropriate, if the FDA or other regulatory approvals are obtained. The Company
believes that its existing capital resources under its current operating plan
will be sufficient to fund the Company's operations through at least
December 31, 2006. There can be no assurance that changes in our current
strategic plans or other events will not result in accelerated or unexpected
expenditures.
The Company's capital requirements will depend on many factors, including the
costs and timing of seeking regulatory approvals of the Company's products; the
problems, delays, expenses and complications frequently encountered by
development stage companies; the progress of the Company's preclinical and
clinical activities; the costs associated with any future collaborative
research, manufacturing, marketing or other funding arrangements; the Company's
ability to obtain regulatory approvals; the success of the Company's potential
future sales and marketing programs; the cost of filing, prosecuting and
defending and enforcing any patent claims and other intellectual property
rights; changes in economic, regulatory or competitive conditions of the
Company's planned business; and additional costs associated with being a
publicly-traded company. Estimates about the adequacy of funding for the
Company's activities are based on certain assumptions, including the assumption
that the development and regulatory approval of the Company's products can be
completed at projected costs and that product approvals and introductions will
be timely and successful. There can be no assurance that changes in the
Company's research and development plans, acquisitions or other events will not
result in accelerated or unexpected expenditures. To satisfy its capital
requirements, the Company may seek to raise additional funds in the public or
private capital markets. The Company may seek additional funding through
corporate collaborations and other financing vehicles. There can be no assurance
that any such funding will be available to the Company on favorable terms or at
all. If the Company is successful in obtaining additional financing, the terms
of such financing may have the effect of diluting or adversely affecting the
holdings or the rights of the holders of the Company's common stock.