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ALSE > SEC Filings for ALSE > Form 10-Q on 14-Nov-2012All Recent SEC Filings

Show all filings for ALSERES PHARMACEUTICALS INC /DE

Form 10-Q for ALSERES PHARMACEUTICALS INC /DE


14-Nov-2012

Quarterly Report


Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations

Our management's discussion and analysis of our financial condition and results of operations include the identification of certain trends and other statements that may predict or anticipate future business or financial results that are subject to important factors that could cause our actual results to differ materially from those indicated. See Item 1A, "Risk Factors" and also carefully review the risks outlined in other documents that we file from time to time with the SEC.

Overview

Description of Company

We are a biotechnology company focused on the development of diagnostic and therapeutic products primarily for disorders in the central nervous system, or CNS. Our clinical and preclinical product candidates are based on two proprietary technology platforms:

Molecular imaging program focused on the diagnosis of i) Parkinsonian Syndromes, or PS, including Parkinson's Disease, or PD, and ii) Dementia with Lewy Bodies, or DLB;

Regenerative therapeutics program primarily focused on nerve repair in patients who have had significant loss of CNS function resulting from CNS trauma.


Table of Contents

Product Development - Molecular Imaging Program

Altropane Molecular Imaging Agent

The Altropane molecular imaging agent is intended to be used for the differential diagnosis of PS, including PD, and non-PS in patients with an upper extremity tremor. The Altropane molecular imaging agent is a radio labeled imaging agent that contains the radioactive element iodine isotope 123 I and binds with extremely high affinity and specificity to the dopamine transporter, or DAT. The DAT is a protein that is on the surface membrane of specialized neurons in the brain that produce dopamine, a key neurotransmitter. We believe that the amount of Altropane taken up by the brain is directly proportional to the number of DATs that are present in any given area of the brain. Since DATs are on the membrane of dopamine-producing neurons, death of these neurons results in decreased numbers of DATs. Therefore, PD, which is caused by a decreased number of dopamine producing cells, is associated with a marked decrease in the number of DATs. As a result, when Altropane is administered to patients with PD, its binding is substantially diminished as compared to patients without PD. This decrease in Altropane binding in patients with PD is the theoretical basis for using Altropane imaging as a diagnostic test for PS, including PD.

Altropane is administered by intravenous injection. Since Altropane contains radioactive 123 I, it can be used as a nuclear imaging agent that can be detected using a specialized nuclear medicine instrument known as a Single Photon Emission Computed Tomography, or SPECT, camera. The strength of the SPECT signal generated by Altropane is proportional to the number of DATs present and produces images that distinguish PS and non-PS patients. SPECT cameras are widely available in both community and academic medical centers. The scanning procedure using Altropane takes less than one hour to complete. Results of these tests are usually available the same day as the scanning procedure.

After a series of discussions with the U.S. Food and Drug Administration, or FDA, and our expert advisors, the POET-2 program was designed as a two-part Phase III program pursuant to a Special Protocol Assessment or SPA Agreement we reached with the FDA in April 2009. The first part of the program enrolled 54 subjects in a multi-center clinical study to acquire a set of Altropane images which will be used to train the expert readers in the second part of the program, as is the customary process for clinical trials of molecular imaging agents. The second portion of the Phase III, POET-2 program covered by the SPA was intended to consist of two clinical trials in up to 480 subjects in total to be conducted in parallel at up to 40 medical facilities throughout the United States. The subjects to be tested are to be 40-80 years of age and have had a tremor in their hand(s) or arm(s) for less than three years. Each subject will be assessed by a general neurologist, an Altropane imaging procedure and a Movement Disorder Specialist considered the "gold standard". The success of the trial will be determined by measuring the diagnostic efficacy of the neurologist diagnosis compared with the diagnosis determined by the Altropane scan versus the MDS gold standard diagnosis.

On January 19, 2012 the Company entered into an Option Agreement with Navidea Biopharmaceuticals, Inc. (Amex NAVB), to license [123I]-E-IAFCT Injection (also referred to as Altropane). The option agreement provided Navidea with a 6 month period during which it had exclusive rights to license the asset and complete further diligence and the definitive license for [123I]-E-IACFT. Under the terms of the option agreement, Navidea paid Alseres an option fee of $500,000 upon signing the agreement.

On July 31, 2012 we signed an agreement with Navidea Biopharmaceuticals, Inc. to sublicense [ 123 I]-E-IACFT Injection (CFT), also called Altropane .The terms of the Navidea license agreement call for Navidea to assume full responsibility for the development and commercialization of Altropane on a worldwide basis. We have licensed worldwide exclusive rights to develop Altropane from Harvard University and its affiliated hospitals, which we refer to as Harvard and its Affiliates, including the Massachusetts General Hospital. The license agreement provides for milestone payments and royalties based on product sales that are consistent with industry averages for such products. The Company's deliverables under the Sublicense Agreement with Navidea include granting a license of rights and transferring technology ("know-how") related to Altropane and an affirmative obligation to ensure that the Harvard agreement remains in full force and effect. Under the terms of the Amended and Restated License Agreement with Harvard, the Company's deliverables included (i) the use of reasonable efforts to effect introduction of the licensed products into the commercial market as soon as practicable, consistent with sound and reasonable business practices and judgment and (ii) until expiration of the agreement, the Company shall endeavor to keep Altropane reasonably available to the public.

Regenerative Therapeutics Program - Nerve Repair

Resource constraints have severely restricted our ability to progress our regenerative therapeutics program. On May 11, 2010, the Company was notified by Children's Medical Center Corporation ("CMCC") of the termination of its license agreements with the Company as a result of the Company's lack of resources and resulting inability to comply with the performance conditions of the licenses. As of September 30, 2012 CMCC was owed approximately $77,000 in license fees and legal costs associated with the licenses and approximately $530,000 related to sponsored research contracts. Since we were unable to pay the overdue amounts within the cure periods specified in the CMCC licenses, we no longer have the rights to further develop and/or partner the axon regeneration technologies licensed from CMCC.


Table of Contents

Neurodiagnostics Opportunity

In light of the recent closing of the Navidea license, we have begun preliminary planning for the redirection of the Company.

We are presently conducting a preliminary feasibility assessment for a new business focused on organizing and operating a U.S. network of outpatient clinics focused on screening, diagnosis and monitoring of brain conditions, both neurodegenerative and trauma induced. The centers will provide screening, diagnosis and on-going monitoring of both pre-symptomatic and symptomatic patients affected by these disorders. The centers will take advantage of currently available screening tools, in-vitro diagnostics and imaging diagnostics to identify patients who are "at risk" of developing a wide array of brain disorders. We are working, on a confidential basis, with industry participants to assess possible support for the development of the potential new business including capital and human resources.

The number of Americans living with neurodegenerative movement disorders such as Parkinson's disease (PD), and dementias like Alzheimer's (AD) and Dementia with Lewy Bodies (DLB), is expected to grow from 20 million in 2010 to 30 million by 2030. By 2050, that number is expected to grow to 40 million. Unchecked and without accounting for loss of productivity, the annual cost of care for patients with these diseases will grow from $200 billion today to $500 billion by 2030.

Today, PD, AD and DLB are diagnosed post-symptomatically. By the time diagnosable clinical symptoms appear, the disease is in an advanced stage. The disease has already progressed well beyond the point that current therapies have been shown to have disease modifying effects. Drugs in development are routinely tested in patients with advanced stage disease, where the drugs are least likely to have the disease modifying or arresting affect desired. What is needed are:

Early detection, definitive diagnostics and therapeutic drug monitoring tools; and

Comprehensive, longitudinal data to enable disease modifying treatments for early stage degenerative brain diseases

At present our work on this opportunity is extremely preliminary and is focused on identifying an initial location for a pilot site intended to demonstrate the proof of concept for the centers and accessing potential sources of capital. We can provide no assurance that this business will ever be launched or that the capital and human resources necessary to launch and grow the new business will be available on acceptable terms if at all.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements which have been prepared by us in accordance with accounting principles generally accepted in the United States of America. 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 disclosure of contingent assets and liabilities. Our estimates include those related to marketable securities, research contracts and the fair value and classification of financial instruments. We base our estimates on historical experience and on various other assumptions that we believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.

Results of Operations for the Three Months Ended September 30, 2012 and 2011

For the three months ended September 30, 2012, the Company recognized revenue of $12,288. This revenue reflects the current period ratable recognition of the $1,321,000 upfront sublicense fee received from Navidea Biopharmaceuticals effective July 31, 2012. Revenue will be recognized ratably from the date the sublicense agreement became effective (July 31, 2012) through the expected life of the last to expire issued and sublicensed U.S. patent for Altropane (June 2030).

Effective July 31, 2012, the Company entered into an exclusive, worldwide sublicense agreement with Navidea Biopharmaceuticals, Inc., ("Navidea") for the research, development and commercialization of [123 I]-E-IACFT Injection (CFT), also called Altropane . CFT is an Iodine-123 radiolabeled imaging agent which is being developed as an aid in the diagnosis of Parkinson's disease and movement disorders.

Under the terms of the sublicense agreement, Navidea has agreed to use its best commercial efforts to develop and launch Altropane in accordance with an agreed to development plan for the product. Navidea will be responsible for conducting and funding all future development, regulatory filings, manufacturing and global commercialization of Altropane. The Company will have no further cost obligations related to Altropane. In connection with the execution of the agreement Navidea made a one-time sublicense execution payment to the Company of $175,000. In addition, the Company was issued 300,000 shares of Navidea common stock ("NAVB") which had a market value of $1,146,000 based on the NYSE closing price of $3.82 per share on July 31, 2012.

Our net loss was $572,161 for the three months ended September 30, 2012 compared to a net loss of $476,706 for the three months ended September 30, 2011. The net loss for the three months ended September 30, 2012 resulted from operating expenses of approximately $473,000 and interest expense of approximately $112,000 partially offset by the recognition of the current period revenue of $12,288 related to the sublicense agreement with Navidea. The net loss of $476,706 for the three months ended September 30, 2011 was attributable to operating expenses of approximately $537,000 and interest expense of approximately $476,000 partially offset by the forgiveness of debt of $476,837 and the gain of $58,814 which resulted from a change in accounting for the value of our FluoroPharma Medical shares.


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Research and development expenses were $9,466 during the three months ended September 30, 2012 compared to $24,426 during the three months ended September 30, 2011. For the remainder of 2012, we will incur minimal expenses related to pre-existing commitments. Under the terms of the sublicense agreement with Navidea, the Company will no longer have any further cost obligations related to Altropane. Navidea will use its best commercial efforts to develop and launch Altropane in accordance with an agreed to development plan for the product. Navidea will be responsible for conducting and funding all future development, regulatory filings, manufacturing and global commercialization of Altropane.

Sublicense and option fees were $25,614 during the three months ended September 30, 2012. This expense reflects the $25,000 option fee due to Harvard under the terms of the Amended and Restated License Agreement. The remaining expense reflects the amortization of fees due to Harvard related to the cash and stock consideration received from the sublicense agreement with Navidea. Total cash payments of $33,750 are due to Harvard related to these transactions. The Company is amortizing total license fees of $66,050 on a straight-line basis over the estimated performance period which is the effective date of the agreements on July 31, 2012 through the patent expiration date in June 2030.

General and administrative expenses were $437,513 during the three months ended September 30, 2012 compared to $512,453 during the three months ended September 30, 2011. The decrease of $74,940 or 15% for the three months ended September 30, 2012 was attributable to (i) a reduction in patent expense of approximately $22,000 resulting from the sublicense agreement which transferred all future responsibility for such expense to Navidea; and (ii) a reduction in overhead costs of approximately $72,000 related to the expiration of our office lease in September 2011. The overhead reductions are attributable to lower rent expense and common area maintenance charges of approximately $53,000, the elimination of approximately $11,000 in non-cash charges for the amortization of leasehold improvements and the reduction of approximately $8,200 in utility expenses. In addition, office expenses attributable to equipment rental and supplies decreased by approximately $9,000. The savings realized from these reductions were partially offset by an increase of approximately $33,000 attributable to complying with additional regulatory reporting requirements and investor relations expense.

Interest expense of $111,916 was incurred during the three months ended September 30, 2012 compared to $475,607 during the three months ended September 30, 2011. The decrease of $363,691, or 77% for the three months ended September 30, 2012 was attributable to the debt reduction agreements signed in the fourth quarter of 2011. In December 2011, Robert Gipson and Thomas Gipson converted $7,172,412 of their convertible notes payable into common stock of the Company. The debt reduction agreement provided that all future interest related to these promissory notes would be waived. In November 2011, the Company further reduced its debt obligations by purchasing from Robert Gipson (the "Holder") an unsecured promissory note, pursuant to which the Company's wholly owned subsidiary, Neurobiologics Inc., had borrowed an aggregate principal amount of $1,000,000 ("the Note") dated February 11, 2009. The savings associated with the debt reduction agreements were partially offset by $2,240,000 of new debt obligations entered into with Robert Gipson during 2011 and an additional $510,000 of new debt obligations entered into during 2012.

Results of Operations for the Nine Months Ended September 30, 2012 and 2011

For the nine months ended September 30, 2012, the Company recognized revenue of $512,288. This revenue represents the non-refundable option fee of $500,000 the Company received from Navidea Biopharmaceuticals on January 19, 2012 upon entering into an exclusive right to negotiate a definitive license agreement. The remaining $12,288 in revenue reflects the current period ratable recognition of the $1,321,000 upfront sublicense fee received from Navidea Biopharmaceuticals effective July 31, 2012. Revenue will be recognized ratably from the date the sublicense agreement became effective (July 31, 2012) through the expected life of the last to expire issued and sublicensed U.S. patent for Altropane (June 2030).

Effective July 31, 2012, the Company entered into an exclusive, worldwide sublicense agreement with Navidea Biopharmaceuticals, Inc., ("Navidea") for the research, development and commercialization of [123 I]-E-IACFT Injection (CFT), also called Altropane . CFT is an Iodine-123 radiolabeled imaging agent which is being developed as an aid in the diagnosis of Parkinson's disease and movement disorders.

Under the terms of the license agreement, Navidea will use its best commercial efforts to develop and launch Altropane in accordance with an agreed to development plan for the product. Navidea will be responsible for conducting and funding all future development, regulatory filings, manufacturing and global commercialization of Altropane. The Company will have no further cost obligations related to Altropane. In connection with the execution of the agreement Navidea made a one-time sublicense execution payment to the Company of $175,000. In addition, the Company was issued 300,000 shares of Navidea common stock ("NAVB") which had a market value of $1,146,000 based on the NYSE closing price of $3.82 per share on July 31, 2012.

Our net loss was $1,186,370 for the nine months ended September 30, 2012 compared to a net loss of $2,086,853 for the nine months ended September 30, 2011. The net loss for the nine months ended September 30, 2012 resulted from operating expenses of approximately $1,379,000 and interest expense of approximately $321,000 partially offset by the recognition of $512,288 in revenue. The net loss of $2,086,853 for the nine months ended September 30, 2011 was attributable to adjusted operating expenses of approximately $1,229,000 and interest expense of approximately $1,395,000 partially offset by the forgiveness of debt of $476,837 and the gain of $58,814 which resulted from a change in accounting for the value of our FluoroPharma Medical shares.


Table of Contents

Research and development expenses were $50,705 during the nine months ended September 30, 2012 compared to $108,380 during the nine months ended September 30, 2011. For the remainder of 2012, we should incur only minimal expenses related to pre-existing commitments. Under the terms of the sublicense agreement with Navidea, the Company will no longer have any further cost obligations related to Altropane. Navidea will use its best commercial efforts to develop and launch Altropane in accordance with an agreed to development plan for the product. Navidea will be responsible for conducting and funding all future development, regulatory filings, manufacturing and global commercialization of Altropane.

Sublicense and option fees were $25,614 during the nine months ended September 30, 2012. This expense reflects the $25,000 option fee due to Harvard under the terms of the Amended and Restated License Agreement. The remaining expense reflects the amortization of fees due to Harvard related to the cash and stock consideration received from the sublicense agreement with Navidea. Total cash payments of $33,750 are due to Harvard related to these transactions. The Company is amortizing total license fees of $66,050 on a straight-line basis over the estimated performance period which is the effective date of the agreements on July 31, 2012 through the patent expiration date in June 2030.

General and administrative expenses were $1,302,552 during the nine months ended September 30, 2012 compared to $1,681,332 during the nine months ended September 30, 2011. The decrease of $378,780 or 23% for the nine months ended September 30, 2012 was attributable to (i) a reduction in employee payroll and related tax and benefit costs of approximately $109,000 resulting from reduced headcount; (ii) a reduction in consulting fees of approximately $29,000; (iii) a reduction in patent expense of approximately $18,000 resulting from the sublicense agreement which transferred all future responsibility for such expense to Navidea; and iv) a reduction in overhead costs of approximately $241,000 related to the expiration of our office lease in September 2011. The overhead reductions are attributable to lower rent expense and common area maintenance charges of approximately $175,000, the elimination of approximately $32,000 in non-cash charges for the amortization of leasehold improvements, a reduction in non-cash depreciation expense of approximately $10,000 and the reduction of approximately $22,000 in utility expenses. In addition, office expenses attributable to equipment rental and supplies decreased by approximately $11,000. The savings realized from these reductions were partially offset by an increase of approximately $39,000 attributable to complying with additional regulatory reporting requirements and investor relations expense.

Interest expense of $321,029 was incurred during the nine months ended September 30, 2012 compared to $1,394,616 during the nine months ended September 30, 2011. The decrease of $1,073,587 or 77% for the nine months ended September 30, 2012 was attributable to the debt reduction agreements signed in the fourth quarter of 2011. In December 2011, Robert Gipson and Thomas Gipson converted $7,172,412 of their convertible notes payable into common stock of the Company. The debt reduction agreement provided that all future interest related to these promissory notes would be waived. In November 2011, the Company further reduced its debt obligations by purchasing from Robert Gipson (the "Holder") an unsecured promissory note, pursuant to which the Company's wholly owned subsidiary, Neurobiologics Inc., had borrowed an aggregate principal amount of $1,000,000 ("the Note") dated February 11, 2009. The savings associated with the debt reduction agreements were partially offset by $2,240,000 of new debt obligations entered into with Robert Gipson during 2011 and an additional $510,000 in new debt obligations entered into during 2012.

Liquidity and Capital Resources

As of September 30, 2012, we had experienced total net losses since inception of approximately $207,525,000, stockholders' deficit of approximately $32,098,000 and a net working capital deficit of approximately $14,531,000. The cash and cash equivalents available at September 30, 2012 will not provide sufficient working capital to meet our anticipated expenditures for the next twelve months. We believe that the minimal cash and cash equivalents available as of November 1, 2012, our ability to liquidate our short-term investments and our ability to control certain general and administrative expenses will enable us to meet our anticipated cash expenditures through November 2012.

For the nine months ended September 30, 2012, the Company generated $675,000 in cash. The Company received of a non-refundable option fee of $500,000 in January 2012 from Navidea Biopharmaceuticals, Inc. upon signing an exclusive right to negotiate a definitive license agreement. On July 31, 2012 the Company signed an agreement with Navidea Biopharmaceuticals, Inc. to license [ 123 I]-E-IACFT Injection (CFT), also called Altropane , an Iodine-123 radiolabeled imaging agent, being developed as an aid in the diagnosis of Parkinson's disease and movement disorders. In connection with the execution of this agreement, Navidea made a one-time sublicense execution payment of $175,000 to the Company.

In addition the Company was issued 300,000 shares of NAVB common stock which are currently subject to Rule 144 restrictions. On September 28, 2012, Navidea filed a Registration Statement on Form S-3 with the Securities and Exchange Commission ("SEC") that will remove the restriction and permit the Company to sell the shares. The Company plans to fund future working capital requirements through the orderly sale of its shares in Navidea common stock and from potential future consideration due to the Company pursuant to the sublicense agreement.

Operating Activities

Net cash used for operating activities was $621,062 for the nine months ended September 30, 2012 compared to $2,067,243 for the nine months ended September 30, 2011. Net cash used for operating activities for the nine months ended September 30, 2012 reflects our curtailment of operations pending additional funding, the reduction in accrued interest expense associated with the debt reduction agreements signed in the fourth quarter of 2011 and the receipt of $675,000 from Navidea Biopharmaceuticals related to our Altropane product.


Table of Contents

Investing Activities

No cash was provided by investing activities for the nine months ended September 30, 2012. Cash provided by investing activities was $114,858 for the nine months ended September 30, 2011.

Financing Activities

Financing activities provided cash of $510,000 for the nine months ended September 30, 2012 compared to $1,940,000 for the nine months ended September 30, 2011. Cash provided by financing activities for the nine months ended September 30, 2012 and 2011 reflects the proceeds from the issuance of demand notes payable issued to Robert Gipson. All notes bear interest at the rate of 7% per annum.

During the nine months ended September 30, 2012, we used the $500,000 received from the option agreement with Navidea and the $175,000 received from the sublicense agreement with Navidea to cover a portion of our operating expenses. This allowed us to reduce our borrowing from our lead investor. In the past we had obtained all of our funding from Robert Gipson. In the event that Mr. Gipson cannot provide future funding or we cannot obtain any additional funding from other sources, we may need to cease operations or reduce, cease or delay research and development programs and/or adjust our current business plan and in any such event we may not be able to continue as a going concern.

To date, we have dedicated most of our financial resources to the research and development of our product candidates, general and administrative expenses (including costs related to obtaining and protecting patents). Since inception, we have primarily satisfied our working capital requirements from the sale of our securities through private placements. These private placements have . . .

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