Add
COR to Portfolio
Set Alert
Email to a
Friend
| |||
|
|
Quotes & Info
|
| COR > SEC Filings for COR > Form 10-Q on 14-Aug-2009 | All Recent SEC Filings |
14-Aug-2009
Quarterly Report
The following discussion and analysis should be read in conjunction with the Financial Statements and Notes relating thereto appearing elsewhere in this report and with "Management's Discussion and Analysis of Financial Condition and Results of Operations" presented in our Annual Report on Form 10-K for the fiscal year ended December 31, 2008.
Introductory Note
This Quarterly Report on Form 10-Q contains certain forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange
Act, and we intend that such forward looking statements be subject to the safe
harbors created thereby. These forward-looking statements, which may be
identified by words including "anticipates," "believes," "intends," "estimates,"
"expects," "plans," and similar expressions include, but are not limited to,
statements regarding (i) future research plans, expenditures and results,
(ii) potential collaborative arrangements, (iii) the potential utility of our
proposed products and (iv) the need for, and availability of, additional
financing.
The forward-looking statements included herein are based on current expectations, which involve a number of risks and uncertainties and assumptions regarding our business and technology. These assumptions involve judgments with respect to, among other things, future scientific, economic and competitive conditions, and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond our control. Although we believe that the assumptions underlying the forward-looking statements are reasonable, any of the assumptions could prove inaccurate and, therefore, there can be no assurance that the results contemplated in forward-looking statements will be realized and actual results may differ materially. In light of the significant uncertainties inherent in the forward-looking information included herein, the inclusion of such information should not be regarded as a representation by us or any other person that our objectives or plans will be achieved. We undertake no obligation to publicly release the result of any revisions to these forward-looking statements that may be made to reflect events or circumstances after the date hereof, or to reflect the occurrence of unanticipated events. Readers should carefully review the risk factors described in this and other documents that we file from time to time with the Securities and Exchange Commission, or the SEC, including, without limitation, Quarterly Reports on Form 10-Q, Annual Reports on Form 10-K and subsequent Current Reports on Form 8-K.
About Cortex Pharmaceuticals
We are engaged in the discovery and development of innovative pharmaceuticals for the treatment of psychiatric disorders, neurological diseases and brain-mediated breathing disorders. Our primary focus is to develop novel small molecules that positively modulate AMPA-type glutamate receptors, a complex of proteins involved in communication between nerve cells in the mammalian brain. We are developing a family of proprietary pharmaceuticals known as AMPAKINEŽ compounds, which enhance the activity of the AMPA receptor. We believe that AMPAKINE compounds hold promise for the treatment of neurological and psychiatric diseases and disorders that are known, or thought, to
involve depressed functioning of pathways in the brain that use glutamate as a neurotransmitter. Our most advanced clinical compounds are CX717 and CX1739, which currently are in Phase II clinical development.
We previously reported statistically and clinically positive results with CX717 in the treatment of adult patients with Attention Deficit Hyperactivity Disorder, or ADHD. The compound has been targeted for acute use as an intravenous agent in the treatment of drug-induced respiratory depression. During 2008, we announced results from two pilot studies completed with oral CX717, which demonstrated that the compound prevented the onset of opiate-induced respiratory depression in humans, while at the same time, maintaining the pain-relieving properties of the opiate. We have now completed the development of an intravenous. formulation of CX717 that has shown accelerated stability over a period of more than eight months. With this data, we plan to conduct pharmacokinetic and dose-ranging studies with the new formulation of intravenous CX717 prior to initiating Phase IIb efficacy trials.
Our AMPAKINE compound CX1739 is substantially more potent than CX717, has successfully completed human Phase I clinical trials and is currently in Phase II trials in the U.K. for the treatment of sleep apnea. We plan to begin Phase II trials with CX1739 for the treatment of adult ADHD at such time as we have sufficient financial resources.
Additional drug candidates are being readied for further development, including CX1942, CX2007 and CX2076. CX1942 has enhanced water solubility that may facilitate its formulation as an intravenous agent for a hospital product for the treatment of respiratory depression. It may also be developed as a fixed-dose combination product with a generic opioid as a safer oral analgesic. CX2007 and CX2076 exhibit a significantly increased metabolic half-life in animals, which may ultimately result in a once a day treatment potential in humans. This further development will be dependent upon obtaining additional financial resources to conduct such studies.
Over the past three years, we have filed several new patents for our AMPAKINE compounds that, if granted, will provide patent protection for our new compounds up to 2029. Additionally, the method of use patent that we licensed from the University of Alberta may provide patent coverage through 2027 for the use of AMPAKINE compounds in the treatment of respiratory depression.
The AMPAKINE platform addresses large potential markets. Our business plan involves partnering with larger pharmaceutical companies for research, development, clinical testing, manufacturing and global marketing of AMPAKINE compounds for those indications that require sizable, expensive Phase III clinical trials and very large sales forces to achieve significant market penetration.
At the same time, subject to availability of sufficient financial resources, we plan to develop compounds internally for a selected set of indications, many of which will allow us to apply for orphan drug status. Such designation by the Food and Drug Administration, or the FDA, is usually applied to products where the number of patients in the United States in the given disease category is typically less than 200,000. These orphan drug indications typically require more modest investment in the development stages, follow a quicker regulatory path to approval, and involve a more concentrated and smaller sales force targeted at selected medical centers and a limited number of medical specialists in the United States and Europe.
In our licensing discussions, we seek to reserve rights that may be viewed as a natural expansion beyond some of the orphan drug uses to selected larger areas of therapy to thereby allow us to potentially further develop our compounds for such larger non-orphan drug indications. If we are successful in the pursuit of this operating strategy, we may be in a position to contain our costs over the next few years, to maintain our focus on the research and early development of novel pharmaceuticals (where we believe that we have the ability to compete) and eventually to participate more fully in the commercial development of AMPAKINE products in the United States.
Critical Accounting Policies and Management Estimates
The SEC defines critical accounting policies as those that are, in management's view, most important to the portrayal of our financial condition and results of operations and most demanding of our judgment. Our discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosures of contingent assets and liabilities.
We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. This process forms the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
Revenue Recognition
Our revenue recognition policies are in accordance with the SEC's Staff Accounting Bulletin No. 104, "Revenue Recognition", or SAB 104. SAB 104 provides guidance in applying accounting principles generally accepted in the United States to revenue recognition issues, and specifically addresses revenue recognition for up-front, nonrefundable fees received in connection with research collaboration arrangements.
In accordance with SAB 104, revenues from up-front fees from our collaborators are deferred and recorded over the term that we provide ongoing services. Similarly, research support payments are recorded as revenue as we perform the research under the related agreements. We record grant revenues as we incur expenses related to the grant projects. All amounts received under collaborative
research agreements or research grants are nonrefundable, regardless of the success of the underlying research.
Revenues from milestone payments are recognized when earned, as evidenced by written acknowledgment from our collaborator, provided that (i) the milestone event is substantive and its achievement was not reasonably assured at the inception of the agreement, and (ii) our performance obligations after the milestone achievement will continue to be funded by its collaborator at a comparable level to that before the milestone achievement. If both of these criteria are not met, the milestone payment is recognized over the remaining minimum period of our performance obligations under the agreement.
In November 2002, the Emerging Issues Task Force, or EITF, of the Financial Accounting Standards Board reached consensus on Issue 00-21. EITF Issue 00-21 addresses the accounting for arrangements that may involve the delivery or performance of multiple products, services and/or rights to use assets. As required, we apply the principles of EITF Issue 00-21 to multiple element agreements that we enter into after July 1, 2003.
Employee Stock Options and Stock-Based Compensation
Under the fair value recognition provisions of Statement of Financial Accounting Standards No. 123(R), "Share Based Payment", or SFAS 123(R), we measure our share-based compensation cost at the grant date based on the estimated value of the award and recognize it as expense over the vesting period. Determining the fair value of share-based awards at the grant date requires judgment in estimating the amount of share-based awards that are expected to be forfeited. If actual results differ significantly from these estimates, stock-based compensation expense and our results of operations could be materially impacted.
As of June 30, 2009, there was approximately $423,000 of total unrecognized compensation cost related to non-vested share-based compensation arrangements. These non-cash costs are expected to be recognized over a weighted-average period of one year.
In accordance with EITF Issue 96-18, "Accounting for Equity Instruments that are Issued to Other than Employees for Acquiring, or in Conjunction with Selling Goods and Services," stock options and warrants issued to our consultants and other non-employees as compensation for services to be provided to us are accounted for based upon the fair value of the services provided or the estimated fair market value of the option or warrant, whichever can be more clearly determined. We recognize this expense over the period the services are provided.
The above listing is not intended to be a comprehensive list of all of our accounting policies. In many cases, the accounting treatment of a particular transaction is specifically dictated by accounting principles generally accepted in the United States, with no need for our judgment in their application. There are also areas in which our judgment in selecting any available alternative would not produce a materially different result.
Going Concern
Our independent registered public accounting firm has expressed substantial doubt as to our ability to continue as a going concern, in its report for the fiscal year ended December 31, 2008, based on significant operating losses that we incurred and the fact that we do not have adequate working capital to finance our day-to-day operations. Our continued existence depends upon the success of our efforts to raise additional capital necessary to meet our obligations as they become due and to obtain sufficient capital to execute our business plan. We intend to obtain capital primarily through issuances of debt or equity or entering into collaborative arrangements with corporate partners. There can be no assurance that we will be successful in completing additional financing or collaboration transactions. If we cannot obtain adequate funding, we may be required to significantly curtail or even shut down our operations.
Results of Operations
General
In January 1999, we entered into a research collaboration and exclusive worldwide license agreement with NV Organon, or Organon. In November 2007, Organon was acquired by Schering-Plough Corporation. Subsequently, in March 2009, Merck & Co. Inc. entered into a definitive merger agreement with Schering-Plough Corporation. Our agreement with Organon will allow them to develop and commercialize our proprietary AMPAKINE technology for the treatment of schizophrenia and depression. In connection with the agreement, we received $2,000,000 up-front and research support payments of approximately $3,000,000 per year for two years. The agreement with Organon also includes milestone payments based upon clinical development, plus royalty payments on worldwide sales. To date, we have received milestone payments from Organon totaling $6,000,000. For each milestone payment, we recorded the related revenue upon achievement of the milestone.
In October 2000, we entered into a research collaboration agreement and a
license agreement with Les Laboratoires Servier, or Servier. The agreements will
allow Servier to develop and commercialize select AMPAKINE compounds in defined
territories of Europe, Asia the Middle East and certain South American countries
as a treatment for (i) declines in cognitive performance associated with aging,
(ii) neurodegenerative diseases and (iii) anxiety disorders. The indications
covered include, but are not limited to, Alzheimer's disease, mild cognitive
impairment, sexual dysfunction and the dementia associated with multiple
sclerosis and Amyotrophic Lateral Sclerosis. The research collaboration
agreement, as amended, included an up-front payment by Servier of $5,000,000 and
research support payments of approximately $2,025,000 per year through early
December 2006 (subject to us providing agreed-upon levels of research
personnel). In early December 2006, we terminated the research collaboration
with Servier and as a result the worldwide rights for the AMPAKINE technology
for the treatment of neurodegenerative diseases have been returned to us, other
than three compounds selected by Servier for commercialization in its territory.
Should any of these compounds be successfully commercialized by Servier, we
would receive payments based upon key clinical development milestones and
royalty payments on sales in licensed territories.
From inception (February 10, 1987) through June 30, 2009, we have sustained losses aggregating approximately $112,438,000. Continuing losses are anticipated over the next several years. During that time, our ongoing operating expenses will only be offset, if at all, by proceeds from Small Business Innovative Research grants and by possible milestone payments from Organon and Servier. Ongoing operating expenses may also be funded by payments under planned strategic alliances that we are seeking with other pharmaceutical companies for the clinical development, manufacturing and marketing of our products. The nature and timing of payments to us under the Organon and Servier agreements or other planned strategic alliances, if and when entered into, are likely to significantly affect our operations and financing activities and to produce substantial period-to-period fluctuations in reported financial results. Over the longer term, we will be dependent upon the successful introduction of a new product into the North American market from our internal development, as well as the successful commercial development of our products by Organon, Servier or our other prospective partners to attain profitable operations from royalties or other product-based revenues.
Comparison of the Three Months and Six Months ended June 30, 2009 and 2008
For the three months ended June 30, 2009, our net loss applicable to common stock of approximately $2,778,000 compares with a net loss applicable to common stock of approximately $3,947,000 for the corresponding prior year period, a decrease of 30%. Our net loss applicable to common stock of approximately $5,946,000 for the six months ended June 30, 2009 compares with a net loss applicable to common stock of approximately $8,318,000 for the corresponding prior year period, a decrease of 29%.
The net losses applicable to common stock for the 2009 periods include charges of approximately $832,000 related to the beneficial conversion feature of our 0% Series E Convertible Preferred Stock that we issued in April 2009. These non-cash charges relate to the accounting requirements for the difference between the fair value of our common stock and the conversion price of the preferred stock on the date of issuance of the preferred stock. Excluding these non-cash charges, the decreases in net losses applicable to common stock reflect decreased research and development expenses, as explained more fully below.
Our research and development expenses for the three-month period ended June 30, 2009 decreased from approximately $3,133,000 to approximately $1,049,000, or by 67%, from the corresponding prior year period. For the six-month period ended June 30, 2009, our research and development expenses decreased from approximately $6,554,000 to approximately $3,163,000, or by 52%, primarily as a result of preclinical development expenses during the prior year periods for our AMPAKINE CX1739, which is now in human clinical testing.
Salary and related expenses for our research and development personnel decreased relative to the corresponding prior year period due to expenses for our President and Chief Executive Officer, Dr. Mark Varney. Before his appointment to President and Chief Executive Officer in August 2008, Dr. Varney served as our Chief Scientific Officer and Chief Operating Officer and his salary-related expenses were included in research and development. After his appointment, including the three-month and six-month periods ended June 30, 2009, Dr. Varney's salary related expenses have been recorded in general and administrative expenses. Salary and related expenses for our research and
development personnel also decreased as a result of our reduction in force that we implemented in mid-March 2009.
Our non-cash stock compensation charges related to research and development for the three months ended June 30, 2009 decreased from approximately $213,000 to approximately $54,000, or by 75%, relative to the corresponding prior year period. For the six months ended June 30, 2009, the non-cash stock compensation charges for research and development decreased from approximately $484,000 to approximately $138,000, or by 71%, compared with the corresponding prior year period, reflecting fluctuations in our stock price and the vesting schedules of granted stock options.
Our general and administrative expenses for the three-month period ended June 30, 2009 decreased from approximately $944,000 to approximately $900,000, or by 5%, compared to the corresponding prior year period. For the six months ended June 30, 2009, our general and administrative expenses decreased from approximately $2,082,000 to approximately $1,969,000, or by 5%, compared to the corresponding prior year period. Most of these decreases resulted from decreased non-cash stock compensation charges allocated to general and administrative expenses described below.
For the three months ended June 30, 2009, our non-cash stock compensation charges within general and administrative expenses decreased from approximately $125,000 to approximately $49,000, or by 61%, relative to the corresponding prior year period. For the six months ended June 30, 2009, these charges decreased from approximately $262,000 to approximately $118,000, or by 55%, relative to the corresponding prior year period, primarily due to fluctuations in our stock price.
For the six months ended June 30, 2009, decreased general and administrative expenses also reflect prior year consulting fees for market research in the field of respiratory depression, an indication we are pursuing with our AMPAKINE CX717. Increased personnel expenses partially offset the decreased consulting fees, and represented expenses for our President and Chief Executive Officer, Dr. Mark Varney. As explained more fully above, Dr. Varney served as our Chief Scientific Officer and Chief Operating Officer during the corresponding prior year period, when his salary and related costs were recorded with research and development expenses.
Net interest income for the three months ended June 30, 2009 decreased from approximately $129,000 to approximately $2,000, or by 98% compared to the corresponding prior year period. For the six months ended June 30, 2009, our net interest income decreased from approximately $317,000 to approximately $17,000, or by 95% compared to the corresponding prior year period, with decreases for both periods resulting from a decrease in cash available for investing.
Liquidity and Capital Resources
Sources and Uses of Cash
From inception (February 10, 1987) through June 30, 2009, we have funded our organizational and research and development activities primarily through the issuance of equity securities, funding related to collaborative agreements, various research grants and net interest income.
Under the agreements signed with Servier in October 2000, as amended to date, Servier has selected three AMPAKINE compounds that it may develop for potential commercialization. We remain eligible to receive payments based upon defined clinical development milestones of the licensed compounds and royalties on sales in licensed territories. Under the terms of the agreement with Organon, we may receive additional milestone payments based on clinical development of Org24448 and Org26576, and ultimately, royalties on worldwide sales.
In December 2004, we completed a private placement of an aggregate of 4,233,333 shares of our common stock at $2.66 per share and five-year warrants to purchase up to an additional aggregate of 2,116,666 shares at an exercise price of $3.00 per share. We received approximately $10,400,000 in net proceeds from the private placement. In connection with the December 2004 private placement, we also issued three-year warrants to purchase 164,289 shares of our common stock at an exercise price of $3.43 per share to the placement agent for the transaction. The warrants issued to the placement agent expired unexercised. All of the warrants issued in the December 2004 transaction provide a call right in our favor to the extent that the closing price of our common stock exceeds $7.50 per share for 13 consecutive trading days, subject to certain circumstances. As of June 30, 2009, warrants issued to the investors to purchase up to 1,775,689 shares remained outstanding. If the remaining warrants are fully exercised, of which there can be no assurance, these warrants would provide us approximately $5,327,000 of additional capital.
In January 2007, we completed a registered direct offering with several institutional investors for 5,021,427 shares of our common stock and warrants to purchase 3,263,927 shares of our common stock for an aggregate purchase price of approximately $5,624,000. Net proceeds from the offering were approximately $5,100,000. The warrants have an exercise price of $1.66 per share and, subject to the terms therein, are exercisable at any time on or before January 21, 2012. The warrants are subject to a call right in our favor to the extent that the closing price of our common stock exceeds $3.35 per share for any 13 consecutive trading days. As of June 30, 2009, warrants to purchase up to 2,996,927 shares remained outstanding. If the remaining warrants are fully exercised, of which there can be no assurance, these warrants would provide us approximately $4,975,000 of additional capital.
In August 2007, we completed a registered direct offering with several institutional investors for 7,075,000 shares of our common stock and warrants to purchase 2,830,000 shares of our common stock for an aggregate purchase price of $14,150,000. Net proceeds from the offering were approximately $13,135,000. The investors' warrants have an exercise price of $2.64 per share and, subject to the terms therein, are exercisable on or before August 28, 2012. In addition, we issued warrants to purchase up to an aggregate of 176,875 shares of our common stock to the placement agents in the offering. The placement agents' warrants have an exercise price of $3.96 per share and, subject to the terms therein, are exercisable on or before August 28, 2012. As of June 30, 2009, warrants to purchase 3,006,875 shares remained outstanding. If the related warrants are fully exercised, of which there can be no assurance, these warrants would provide us approximately $8,172,000 of additional capital.
In April 2009, we completed a registered direct offering with a single institutional investor for 1,475 shares of our newly designated 0% Series E Convertible Preferred Stock and warrants to purchase 6,941,176 shares of our common stock for an aggregate purchase price of $1,475,000. Net proceeds from the offering were approximately $1,250,000. The investor's warrants have an exercise price of $0.3401 per share and, subject to the terms therein, are . . .
|
|