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MYRX > SEC Filings for MYRX > Form 10-Q on 10-May-2013All Recent SEC Filings

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Form 10-Q for MYREXIS, INC.


10-May-2013

Quarterly Report


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

You should read this discussion together with the financial statements, related notes and other financial information included elsewhere in this Quarterly Report on Form 10-Q. The following discussion may contain predictions, estimates and other forward-looking statements that involve a number of risks and uncertainties, including those discussed under "Risk Factors" in our Annual Report on Form 10-K for the year ended June 30, 2012 filed with the Securities and Exchange Commission, as supplemented under the heading "Risk Factors" in Part II, Item 1A of this Quarterly Report on Form 10-Q. These risks could cause our actual results to differ materially from any future performance suggested below.

Overview

Prior to February 2012, Myrexis was a biopharmaceutical company that generated a pipeline of differentiated drug candidates in oncology and autoimmune diseases. In February 2012, we announced that we had suspended development activity on all of our preclinical and clinical programs and retained Stifel Nicolaus Weisel, an investment banking firm, to assist in reviewing and evaluating a full range of strategic alternatives to enhance shareholder value. Thereafter, in March 2012, we initiated an alignment of our resources involving a phased reduction in our workforce from approximately 59 employees to 1 current employee as of March 31, 2013.

Based on an evaluation of strategic alternatives, we determined to pursue the acquisition of one or more commercial-stage biopharmaceutical assets, with the goal of building a commercial-stage biopharmaceutical company by optimizing their performance and profitability. Integral to these efforts, on May 11, 2012, we announced a change in management, including the appointment of Richard B. Brewer as President and Chief Executive Officer and David W. Gryska as Chief Operating Officer. In addition, both Mr. Brewer and Mr. Gryska were appointed as members of the Board of Directors.

On August 15, 2012, we announced the death of Richard B. Brewer, the Company's President and Chief Executive Officer. The Board of Directors appointed David W. Gryska as the Acting President and Chief Executive Officer while considering succession plans and proceeded to further evaluate the Company's strategic direction in light of this development and our progress to date in identifying attractive biopharmaceutical assets.

On November 9, 2012, the Board of Directors concluded that it appeared unlikely that a strategic transaction at a valuation materially in excess of our estimated liquidation value would be achieved in the near term. Based on these and other factors, the Board of Directors concluded that a statutory dissolution and liquidation was in the best interests of the Company and its stockholders and therefore unanimously adopted a Plan of Complete Liquidation and Dissolution (the "Plan of Dissolution"), subject to stockholder approval.

On December 14, 2012, we filed proxy materials with the Securities and Exchange Commission for a Special Meeting of stockholders on January 23, 2013, to consider and vote on the Plan of Dissolution.

As previously disclosed, pursuant to our Separation and Distribution Agreement with Myriad Genetics, Inc. ("Myriad Genetics"), dated June 30, 2009, at the time of Myrexis' separation from Myriad Genetics, Myrexis assumed liability for certain pending or threatened legal matters related to its business, and is obligated to indemnify Myriad Genetics for any liability arising out of such matters, including any costs and expenses of litigating such matters, including payment of attorneys' fees incurred to defend against claims. One such matter, a lawsuit brought by the Alzheimer's Institute of America, Inc. ("AIA") against Myriad Genetics and its wholly owned subsidiary, Myriad Therapeutics, Inc. (formerly known as Myriad Pharmaceuticals, Inc.) (referred to hereinafter together with Myriad Genetics as "Myriad"), and the Mayo Clinic Jacksonville and Mayo Foundation for Medical Education and Research (referred to hereinafter together as "Mayo"), asserted that Myriad and Mayo infringed certain patents allegedly owned by AIA in connection with Myriad's research and development of its failed Alzheimer's drug candidate Flurizan (hereinafter referred to as the "Litigation"). Myrexis, Myriad, Mayo and AIA are hereinafter referred to collectively as the "Parties".

On December 21, 2012, we announced that we entered into a settlement agreement that settled fully and finally the Litigation. Pursuant to the terms of the Settlement Agreement, in consideration of AIA's release of claims against and covenant not to sue the other Parties for matters related to the Litigation, Myrexis agreed to (1) pay AIA approximately $1,525,000, and (2) transfer to AIA all program rights and assets associated with Myrexis' Hsp90 inhibitor program, cancer metabolism inhibitor program, and small molecule anti-interferon (IKK€/TBK1) inhibitor program (the "Program Assets Transfer"). AIA assumed Myrexis' liabilities under the program contracts being transferred to AIA and all liabilities for the further conduct of the programs, subject, in each case, to certain exclusions, including liabilities accruing or arising from events occurring prior to the Program Assets Transfer. The Settlement Agreement also includes a release of claims against AIA by each of Myrexis, Myriad and Mayo. Simultaneously with the delivery of the settlement payment to AIA by Myrexis on December 21, 2012, the Parties filed a stipulation of dismissal of the Litigation.

On December 21, 2012, David W. Gryska informed Myrexis of his resignation as Acting President and Chief Executive Officer, Chief Operating Officer and member of the Board of Directors, effective December 24, 2012.

On January 22, 2013, the Board unanimously determined to cancel the Special Meeting. The Board of Directors decided, after extensive and careful consideration of strategic alternatives, to abandon the proposed Plan of Dissolution and instead, the Board of Directors declared a special cash distribution to shareholders in the amount of $2.86 per share. The special cash distribution was paid to shareholders of record at the close of business on February 4, 2013. The dividend was paid on February 15, 2013, and the Company's Common Stock began trading ex-dividend on Tuesday, February 19, 2013. The Board of Directors also appointed Jonathan M. Couchman as a Class II director of the Company and as its President and Chief Executive Officer. Subsequent to Mr. Couchman's appointment to the Board of Directors, the remaining members of the Board of Directors, Gerald P. Belle, Jason M. Aryeh, Robert Forrester, Timothy R. Franson, M.D., John T. Henderson, M.D., and Dennis H. Langer, M.D., J.D., resigned. On February 13, 2013, Steven Scheiwe and Michael Pearce were appointed to the Board. On February 28, 2013, Andrea Kendall's employment as CFO terminated voluntarily and on March 1, 2013, Mr. Couchman was appointed CFO of Myrexis. Myrexis, under the leadership of Mr. Couchman, will continue its evaluation of strategic alternatives.

At the 2012 Annual Meeting, stockholders of the Company elected Steven D. Scheiwe as a Class I director for a term ending at the 2013 annual meeting of stockholders, Jonathan M. Couchman as a Class II director for a term ending at the 2014 annual meeting of stockholders and Michael C. Pearce as a Class III director for a term ending at the 2015 annual meeting of stockholders.

Critical Accounting Policies and Use of Estimates

Critical accounting policies are those policies which are both important to the portrayal of a company's financial condition and results and require management's most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Our critical accounting policies are as follows:

• impairment of long-lived assets.

Impairment of Long-Lived Assets

We assess the impairment of long-lived assets when events or changes in circumstances indicate that the carrying value of the assets or the asset grouping may not be recoverable. Factors that we consider in deciding when to perform an impairment review include significant negative industry or economic trends, and significant changes or planned changes in our use of the assets. We measure the recoverability of assets that will continue to be used in our operations by comparing the carrying value of the asset grouping to our estimate of the related total future undiscounted net cash flows. If an asset grouping's carrying value is not recoverable through the related undiscounted cash flows, the asset grouping is considered to be impaired. The impairment is measured by comparing the difference between the asset grouping's carrying value and its fair value. Fair value is the price that would be received from selling an asset in an orderly transaction between market participants at the measurement date. Long-lived assets such as intangible assets and property, plant and equipment are considered non-financial assets, and are recorded at fair value only when an impairment charge is recognized. We recorded impairment charges for the three and nine months ended March 31, 2013 of $0 and $20,000, and $282,000 in the same periods for 2012, respectively. These charges are reflected in the statement of operations and comprehensive loss in general and administrative expenses.

We have evaluated our equipment and management has committed to a plan to sell our laboratory equipment. Equipment categorized as equipment held for sale on the balance sheet at June 30, 2012 totaled $974,000. Equipment held for sale is no longer subject to depreciation, and is recorded at the lower of depreciated carrying value or fair market value less costs to sell. All such equipment had been sold as of March 31, 2013.

Results of Operations for the Three and Nine Months Ended March 31, 2013 and 2012

We operate in one reportable operating segment, drug development.

Our drug research and development expenses included costs incurred for our drug candidates. The only costs we tracked for each drug candidate were external costs such as services provided to us by clinical research organizations, manufacturing of drug supply, and other outsourced research. We did not assign or allocate internal costs such as salaries and benefits, facilities costs, lab supplies and the costs of preclinical research and studies to individual development programs. All development costs for our drug candidates were expensed as incurred. Our research and development expenses recorded for the three and nine months ended March 31, 2013, were expenses associated with research and development activities completed that were initiated prior to the announcement of the suspension of all our preclinical and clinical development activities in March 2012.

Research and Development

Research and development expenses are comprised primarily of salaries and related personnel costs, laboratory supplies, equipments costs, facilities expense, and costs associated with our clinical trials. Research and development expenses for the three and nine months ended March 31, 2013 were $61,000 and $0.5 million compared to $5.6 million and $13.7 million in the same periods last year. This 99% and 97%, respectively, decrease was primarily due to:

• decreased internal costs of approximately $1.7 million and $4.5 million, respectively, resulting from reductions in headcount;

• decreased preclinical development costs of $2.6 million and $5.0 million, respectively, resulting from our decision to suspend development activity on all clinical and preclinical programs; and

• decreased external drug candidate costs of approximately $1.2 million and $3.6 million, respectively, resulting from our decision to suspend development activity on all clinical and preclinical programs.

Research and development costs for the three and nine months ended March 31, 2013 and 2012 were as follows:

                                              Three Months Ended March 31,               Nine Months Ended March 31,
(In thousands)                               2013                   2012                2013                   2012
External costs, drug candidates:
Azixa                                    $          2         $             (31 )   $         25         $           1,397
MPC-4326                                            -                        14                3                        38
MPC-3100                                            -                        33               14                       208
MPC-0767                                            -                       404                7                       950
MPC-8640                                            -                       518              146                     1,003
MPI-0485520                                         -                       222               68                       237
Sub-total direct costs                              2                     1,160              263                     3,833
Internal costs, drug candidates                     5                     1,741               69                     4,482
Preclinical development costs                      54                     2,702              137                     5,357
Total research and development           $         61         $           5,603     $        469         $          13,672

We do not expect any future research and development costs as a result of the decision to suspend further development activities for all preclinical and clinical programs and as a result of the transfer of all preclinical and clinical programs to third parties.

General and Administrative

General and administrative expenses consist primarily of salaries and related personnel costs for business development, executive, legal, finance and accounting, information technology, human resources, and facilities expenses. General and administrative expenses for the three and nine months ended March 31, 2013 were $3.2 million and $11.4 million compared to $5.2 million and $13.4 million for the same period in 2012. This 40% and 15%, respectively, decrease in general and administrative expenses during the three and nine months ended March 31, 2013, was due primarily to a reduction in headcount as a result of our decision to suspend development activities for all clinical and preclinical programs and a reduction in facility costs partially offset by the $1.5 million settlement associated with the settlement agreement entered into on December 21, 2012 with AIA and one-time severance costs of $763,000 during the three and nine months ended March 31, 2013. We expect to see reduced general and administrative expenses as a result of the decision to suspend further development activities for all preclinical and clinical programs and other related wind down activities.

Other Income (Loss)

Other income reflected a loss of ($28,000) and income of $368,000 for the three and nine months ended March 31, 2013, compared to $127,000 and $325,000 for the same period in 2012, respectively, reflects interest income earned on our marketable investment securities of $4,000 and $71,000 for the three and nine months ended March 31, 2013, and $73,000 and $238,000 for the same periods in 2012, respectively. The decrease in interest income of 93% and 70%, respectively, is a result of the reduction in our invested balance in marketable securities for the three and nine months ended March 31, 2013, as compared to 2012. In addition, other income includes a net loss on the sale of assets of ($34,000) for the three months ended March 31, 2013, and a net gain of $292,000 for the nine months ended March 31, 2013, and $3,000 and $34,000 for the same periods in 2012. The increase in gain on disposal of assets is a result of our decision to sell our laboratory equipment after our decision to suspend development activity on all our clinical and preclinical activities. The majority of the gain recorded results from the sale of assets that were fully depreciated or written off as a result of previous reorganizations in the Company.

Liquidity and Capital Resources

Net cash used in operating activities was $12.7 million during the nine months ended March 31, 2013, compared to $20.6 million used in operating activities for the same nine months in 2012. The change in cash flow from operating activity can be attributed primarily to the timing and payment of liabilities which were offset, in part, by a lower net loss in 2013.

Our investing activities provided $71.4 million in cash during the nine months ended March 31, 2013 compared to $13.4 million used for the same nine months in 2012. The change is primarily due to a reduction in our overall cash position as a result of the Company preparing to effect payment of the special cash distribution paid February 15, 2013.

Approximately $76.9 million in cash was used in financing activities during the nine months ended March 31, 2013, as a result the payment of the special cash distribution made February 15, 2013, partially offset by proceeds from stock options exercised and proceeds from the issuance of Common Stock during the period, compared to $1.0 million for the same nine months in 2012.

As of March 31, 2013, we had $1.4 million in cash and cash equivalents. As discussed above, on January 22, 2013, our Board of Directors unanimously determined to cancel the special meeting of our shareholders scheduled for January 23, 2013, and instead, the Board of Directors declared a special cash distribution to shareholders in the amount of $2.86 per share to shareholders of record at the close of business on Monday, February 4, 2013. The $1.4 million remaining cash in the Company, subsequent to March 31, 2013, is anticipated to be sufficient to fund ongoing public company and other related operational costs for at least 12 months. Our future capital requirements, cash flows, and results of operations will be affected by and depend on many factors that are currently unknown to us, including:

• the outcome of our new management's further review and evaluation of strategic alternatives;

• changes in our business strategy;

• regulatory developments or enforcement in the United States and foreign countries;

• the ability to partner, sell or out-license rights to our remaining intellectual property assets on favorable terms;

• failure to secure adequate capital to fund our operations if and when needed;

• litigation;

• future sales of our Common Stock;

• general market conditions;

• economic and other external factors or other disasters or crises;

• period-to-period fluctuations in our financial results; and

• overall fluctuations in U.S. equity markets.

To the extent our capital resources are insufficient to meet our future capital requirements, we will need to finance our future cash needs through public or private equity offerings, collaboration agreements, debt financings or licensing arrangements. Additional funding may not be available to us on acceptable terms or at all. In addition, the terms of any financing may adversely affect the holdings or the rights of our stockholders. For example, if we raise additional funds by issuing equity securities or by selling convertible debt securities, further dilution to our existing stockholders may result. If we raise funds through licensing arrangements, we may be required to relinquish rights to our technologies, or grant licenses on terms that are not favorable to us.

We may elect to raise additional funds even before we need them if the conditions for raising capital are favorable. We currently have an effective universal shelf registration statement pursuant to which we have $80 million in securities available for sale. However, due to our recent delisting from NASDAQ and after giving effect to our anticipated public float following the special cash distribution, we may not be eligible to use this registration statement to offer and sell securities if we determine to raise additional capital.

Certain Factors That May Affect Future Results of Operations

The Securities and Exchange Commission, or SEC, encourages companies to disclose forward-looking information so that investors can better understand a company's future prospects and make informed investment decisions. This Quarterly Report on Form 10-Q contains such "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995.

Words such as "may," "anticipate," "estimate," "expects," "projects," "intends," "plans," "believes" and words and terms of similar substance used in connection with any discussion of future operating or financial performance, identify forward-looking statements. All forward-looking statements are management's present expectations of future events and are subject to a number of risks and uncertainties that could cause actual results to differ materially and adversely from those described in the forward-looking statements. These risks include, but are not limited to those set forth under the heading "Risk Factors" contained in Item 1A of our Annual Report on Form 10-K for the year ended June 30, 2012, as they relate to our ongoing operations, as supplemented under the heading "Risk Factors" in Part II, Item 1A of this Quarterly Report on Form 10-Q.

In light of these assumptions, risks and uncertainties, the results and events discussed in the forward-looking statements contained in this Quarterly Report on Form 10-Q might not occur. Stockholders are cautioned not to place undue reliance on the forward-looking statements, which speak only as of the date of this Quarterly Report on Form 10-Q. We are not under any obligation, and we expressly disclaim any obligation, to update or alter any forward-looking statements, whether as a result of new information, future events or otherwise. All subsequent forward-looking statements attributable to Myrexis, Inc. or to any person acting on its behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section.

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