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MYRX > SEC Filings for MYRX > Form 10-K on 17-Jul-2013All Recent SEC Filings

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Form 10-K for MYREXIS, INC.


17-Jul-2013

Annual Report


Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read together with "Selected Financial Data," and the financial statements and the related notes appearing elsewhere in this Form 10-K. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Information regarding these forward-looking statements can be found in the preface to Part I, Item 1 "Business" of this Form 10-K. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including, but not limited to, those set forth under "Risk Factors" and elsewhere in this Form 10-K.

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 June 30, 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 (the "Special Meeting").

On December 21, 2012, we announced that we entered into a settlement agreement (the "Settlement Agreement") that settled fully and finally a lawsuit (the "Litigation") brought by the Alzheimer's Institute of America, Inc. ("AIA") against Myriad Genetics, Inc. ("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"). Specifically, AIA 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". As previously disclosed, pursuant to our Separation and Distribution Agreement with 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. Accordingly, 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 of record at the close of business on February 4, 2013 in the amount of $2.86 per share. The cash distribution was paid on February 15, 2013, and the Company's common stock began trading ex-dividend on Tuesday, February 19, 2013.

On January 22, 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 of Directors.

On February 28, 2013, Andrea Kendell's employment as CFO terminated voluntarily and on March 1, 2013, Mr. Couchman was appointed CFO of Myrexis.

On April 26, 2013, the Company held its 2012 Annual Meeting of shareholders (the "2012 Annual Meeting"). 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 ("Disinterested Director") as a Class III director for a term ending at the 2015 annual meeting of stockholders.

After giving effect to the payment of the cash distribution on February 15, 2013, as of June 30, 2013, we had approximately $1.1 million in cash and cash equivalents. The Company is in the early stages of reviewing the scope of strategic alternatives that may be available for consideration. Due to limited cash resources available to the Company, the delisting by Nasdaq of the Company's shares and the potential impact on the Company's NOLs of any significant share issuance under Section 382 of the Internal Revenue Code, among other things, the Company may conclude to liquidate if available strategic alternatives cannot be identified in a reasonable period of time. To the extent any strategic alternatives or transactions are identified, it will most likely be necessary to raise additional funds to consummate any such alternative or transaction, although there is no assurance we will be able to do so. We do not know if we will be successful in pursuing any strategic alternative or that any transaction will occur; however, we are committed to pursuing a strategic direction that our Board of Directors believes is in the best interests of our shareholders. We currently do not have any drugs that are commercially available.

In light of the Company's limited activities at the present time, the Company has determined that it is advisable to terminate the registration of its common stock under the Securities Exchange Act of 1934, as amended. The Company anticipates filing a Form 15 with the Securities and Exchange Commission (the "SEC") to effect this deregistration in the near future. After careful consideration, the Board of Directors decided to deregister based on its belief that the savings the Company will achieve as a result of deregistration, particularly on costs related to the preparation and filing of SEC reports and compliance with Sarbanes-Oxley obligations, will benefit shareholders, and such benefits will outweigh any advantages of continuing as an SEC reporting company. The obligation of filing SEC reports and complying with Sarbanes-Oxley has become too burdensome and expensive for a company of Myrexis' size. Upon the filing of the Form 15, the Company's obligation to file periodic and current reports with the SEC, including Forms 10-K, 10-Q, and 8-K, will be suspended.

During the years ended June 30, 2013, 2012 and 2011, we reported $0, $0 and $185,000, respectively in revenues associated with research services related to short-term research agreements and a net loss of $11.6 million, $31.2 million and $38.7 million, respectively.

We expect to incur net losses for the foreseeable future and that such losses will fluctuate from quarter to quarter.

Our drug research and development expenses include costs incurred for our drug candidates. The only costs we track by each drug candidate are external costs such as services provided to us by clinical research organizations, manufacturing of drug supply, and other outsourced research. We do 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. We also incurred costs related to external research collaborations from our research services business. We track all underlying principal costs associated with our research collaborations. All development costs for our drug candidates and external research collaborations are expensed as incurred. Our research and development expense for Azixa (for which development was suspended in September 2011), our clinical-stage drug candidate, MPC-3100, our preclinical-stage drug candidates, MPC-9528, MPC-8640, IKKe and MPC-0767 (for which development was suspended in February 2012), and our discontinued drug candidate MPC-4326 during the fiscal years ended June 30, 2013, 2012 and 2011 are as follows:

                                        Years Ended June 30,
(In thousands)                     2013        2012         2011
External costs, drug candidates:
Azixa                              $  25     $  1,367     $  1,388
MPC-4326                               3           40         (144 )(1)
MPC-3100                              14          214        1,202
MPC-0767                               7          980          278
MPC-9528                               -            -          264
MPC-8640                             146        1,124          121
IKKe                                  68          269            -
Sub-total direct costs               263        3,994        3,109
Internal costs, drug candidates       65        4,645        5,318
Preclinical development costs        137        5,591       13,157
External research collaborations       -            -          712
Total research and development     $ 465     $ 14,230     $ 22,296

(1) Amount includes a $0.2 million credit recorded in fiscal 2011 resulting from a favorable change in estimate for outside clinical services which were later terminated due to the discontinuation of the program.

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.

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:

• income taxes;

• clinical trial expenses;

• share-based payment expense; and

• impairment of long-lived assets.

Income Taxes

Our income tax provision is based on income before taxes and is computed using the liability method in accordance with Accounting Standards Codification, or ASC, 740-Income Taxes. Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax basis of assets and liabilities using tax rates projected to be in effect for the year in which the differences are expected to reverse. Significant estimates are required in determining our provision for income taxes. Some of these estimates are based on interpretations of existing tax laws or regulations, or the expected results from any future tax examinations. Various internal and external factors may have favorable or unfavorable effects on our future provision for income taxes. Those factors include, but are not limited to, changes in tax laws, regulations and/or rates, the results of any future tax examinations, changing interpretations of existing tax laws or regulations, changes in estimates of prior years' items, past levels of R&D spending, acquisitions, changes in our corporate structure, and changes in overall levels of income before taxes all of which may result in periodic revisions to our provision for income taxes.

Developing our provision for income taxes, including our effective tax rate and analysis of potential uncertain tax positions, if any, requires significant judgment and expertise in federal and state income tax laws, regulations and strategies, including the determination of deferred tax assets and liabilities and any estimated valuation allowance we deem necessary to offset deferred tax assets. We have established a valuation allowance to fully offset our deferred tax assets. We have also established a liability for unrecognized tax benefits from uncertain tax positions. Due to the fact that we currently have net operating loss and research credit carryforwards, the liability for unrecognized tax benefits is presented as a reduction of the deferred tax asset (prior to any consideration of the need for a valuation allowance) which has been established for the net operating loss and research credit carryforwards. Our judgment and tax strategies are subject to audit by various taxing authorities. While we believe we have provided adequately for our uncertain income tax positions in our consolidated financial statements, an adverse determination by these taxing authorities could have a material adverse effect on our consolidated financial condition, results of operations or cash flows. Interest and penalties on income tax items are included as a component of overall income tax expense.

Clinical Trial Expenses

Prior to our suspension of drug development activities, the cost of our clinical trials was based, in part, on estimates of the services received and efforts expended pursuant to contracts with numerous clinical trial centers and clinical research organizations, or the CROs. We contracted with third parties to perform various clinical trial activities in the development of our drug candidates. The financial terms of the agreements varied from contract to contract, were subject to negotiation and resulted in uneven payment flows. Payments under the contracts depended on factors such as the achievement of certain events, the successful enrollment of patients or the completion of portions of the clinical trial or similar conditions. The objective of our accrual policy was to match the recording of expenses in our financial statements to the actual services received and efforts expended. As such, we recognized direct expenses related to each patient enrolled in a clinical trial on an estimated cost-per-patient basis as services were performed. In addition, we considered information from our clinical operations group regarding the status of our clinical trials, we relied on information from CROs, such as estimated costs per patient, to calculate our accrual for direct clinical expenses at the end of each reporting period. For indirect expenses, which related to site and other administrative costs to manage our clinical trials, we relied on information provided by the CRO, including costs incurred by the CRO as of a particular reporting date, to calculate our indirect clinical expenses. In connection with the early termination of a clinical trial, we recognized expenses in an amount based on our estimate of the remaining non-cancelable obligations associated with the winding down of the clinical trial, which we confirmed directly with the CRO.

If our CROs were to have either under or over reported the costs that they had incurred or if there was a change in the estimated per patient costs, it could have had an impact on our clinical trial expenses during the period in which they reported a change in estimated costs to us. Adjustments to our clinical trial accruals primarily relate to indirect costs, for which we placed significant reliance on our CROs for accurate information at the end of each reporting period.

Share-Based Payment Expense

Share-based compensation expense standards set accounting requirements for "share-based" compensation to employees, including employee stock purchase plans, and require us to recognize, as expense, in our statements of operations, the grant date fair value of our stock options and other equity-based compensation. The determination of grant date fair value is estimated using an option-pricing model, which includes variables such as the terms of each grant, the expected volatility of our share price, the exercise behavior of our employees, interest rates, and dividend yields. These variables are projected based on our historical data, experience, and other factors. Changes in any of these variables could result in material adjustments to the expense recognized for share-based payments.

In connection with the separation and spin-off from Myriad Genetics and related transactions, each outstanding Myriad Genetics stock option was converted into an adjusted Myriad Genetics common stock option, exercisable for the same number of shares of common stock as the original Myriad Genetics option, and a new Myrexis common stock option, exercisable for one-fourth of the number of shares of common stock as the original Myriad Genetics option. An adjusted exercise price of each converted option was determined in accordance with Section 409A and Section 422 of the Internal Revenue Code of 1986, as amended. All other terms of the converted options remain the same however; the vesting and expiration of the converted options will be based on the optionholder's continuing employment with Myriad Genetics or Myrexis, as applicable, following the separation.

As a result of the option modifications that occurred in connection with the separation from Myriad Genetics, Myriad Genetics measured the potential accounting impact of these option modifications. Based upon the analysis, which included a comparison of the fair value of the modified options granted to our employees and directors immediately after the modification with the fair value of the original option immediately prior to the modification, it was determined that there was no incremental compensation expense. All unrecognized compensation expense at June 30, 2009 that is related to Myriad Genetics options and Myrexis options that are held by current Myrexis employees and directors was recognized by us over the remaining vesting term of the option. All such expense relating to Myrexis options held by current and former Myriad Genetics employees, directors or consultants will not be recognized by us.

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 years ended June 30, 2013, 2012 and 2011 of $20,000, $0.3 million and $1.1 million, respectively. These charges are reflected in the statement of operations and comprehensive loss in general and administrative expenses.

We evaluated our equipment as of June 30, 2012 and management had 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 $1.0 million. 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 June 30, 2013.

Results of Operations

Years ended June 30, 2013 and 2012

Research and development expenses are comprised primarily of salaries and related personnel costs, laboratory supplies, equipment costs, and costs associated with our clinical trials. Research and development expenses for the fiscal year ended June 30, 2013 were $0.5 million compared to $14.2 million in 2012. This 97% decrease was primarily due to:

• decreased internal preclinical developments costs of approximately $5.5 million resulting from a reduction in headcount and the decision to suspend all further activities for all preclinical and clinical activities; and

• decreased external and internal drug candidate costs of $8.3 million as a result of the decision to suspend all further activities for all preclinical and clinical activities,

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 expenses consist primarily of salaries and related personnel costs for business development, executive, legal, finance and accounting, information technology, human resources, and allocated facilities expenses. General and administrative expenses for the fiscal year ended June 30, 2013 were $11.5 million, compared to $17.6 million in 2012. The decrease in general and administrative expenses of 35% was due primarily to a decrease in the lease expense, share-based compensation, depreciation expense and reduced severance costs during the year ended June 30, 2013 in comparison for the year ended June 30, 2012. We recognized $2.2 million in lease expense for the year ended June 30, 2013. We recognized $3.8 million in lease expense for the year ended June 30, 2012. We expect to see reduced general and administrative expenses in future years 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 (expense) for the fiscal year ended June 30, 2013 was $0.4 million compared to $0.6 million for the fiscal year ended June 30, 2012. Other income for the year ended June 30, 2013, reflects interest income and gains on sale of assets of $0.3 million. Other income for the year ended June 30, 2012, reflects interest income and realized gains on our marketable securities and a gain on sale of assets of $0.3 million.

Years ended June 30, 2012 and 2011

Research revenue is comprised of research services related to short-term research agreements. Research revenue for the fiscal year ended June 30, 2012 was $0 compared to $185,000 in the prior year. The decrease in research revenue was primarily attributable to stopping all contract research services activity in March 2011 as a result of a corporate reorganization.

Research and development expenses are comprised primarily of salaries and related personnel costs, laboratory supplies, equipment costs, and costs associated with our clinical trials. Research and development expenses for the fiscal year ended June 30, 2012 were $14.2 million compared to $22.3 million in 2011. This 36% decrease was primarily due to:

• decreased internal preclinical developments costs of approximately $7.6 million resulting from a reduction in headcount;

• increased external drug candidate costs associated with our Nampt and Hsp90 drug candidates of $1.9 million, partially offset by decreased costs of $1.1 million associated with the development of other drug candidates and the timing of the trial initiations and completions; and

• decreased external research collaboration costs of $0.7 million associated with a reduction in headcount.

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 allocated facilities expenses. General and administrative expenses for the fiscal year ended June 30, 2012 were $17.6 million, compared to $18.3 million in 2011. The decrease in general and administrative expenses of 4% was due primarily to a decrease in the loss on impairment of assets from $1.1 million to $0.3 million, share-based compensation and depreciation expense, partially offset by increased severance and professional fees during the year ended June 30, 2012. We recognized $2.5 million in severance expenses recorded in general and administrative for the year ended June 30, 2012 in connection with executive management changes, the November 2011 corporate reorganization and the March 2012 resource alignment. We recognized $0.5 million in severance expenses recorded in general and administrative for the year ended June 30, 2011.

Other income (expense) for the fiscal year ended June 30, 2012 was $0.6 million compared to $1.7 million for the fiscal year ended June 30, 2011. Other income for the year ended June 30, 2012, reflects interest income and realized gains on our marketable securities and a gain on sale of assets of $0.3 million. Other income for the year ended June 30, 2011 reflects interest income and realized gains on our marketable securities. Other income for the year ended June 30, 2011, includes a $1.2 million one-time grant received in November 2010 as a part of the qualifying therapeutic discovery project under section 48D of the Internal Revenue Code.

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