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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
________________________
(Mark One)
[X] Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Fiscal Year ended July 31, 1996
OR
[ ] Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the transition period from
_______ to _______
Commission file number 0-20772
CYPROS PHARMACEUTICAL CORPORATION
(Exact name of registrant as specified in its charter)
California
(State or otherjurisdiction of incorporation or organization)
2714 Loker Avenue West, Carlsbad, California 92008
(Address of principal executive offices)
33-0476164
(I.R.S. Employer Identification No.)
Registrant's telephone number, including area code:
619) 929-9500
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:Unit
(Title of class)Common Stock, no par value
(Title of class)
Redeemable Class "A" Warrant(Title of class)Redeemable Class "B"
Warrant
(Title of class)
Indicate by mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 of 15(d) of the Securities
Exchange Act 1934 during the preceding 12 months (or for such shorter
period that the Registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90
days.
[X] YES [ ] NO
As of October 21,1996, the Registrant had 11,613,748 shares of Common
Stock, no par value, outstanding, and the aggregate market value of
the shares held by non-affiliates on that date was $34,706,916 based
upon the last sales price of the Registrant's Common Stock reported
on the National Association of Securities Dealers, Inc. Automated
Quotation National Market System.*
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of the Registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K. [X]
_______________
* Excludes 2,937,019 shares of Common Stock held by directors,
executive officers and shareholders whose beneficial ownership
exceeds ten percent of the shares outstanding on October 21,1996.
Exclusion of shares held by any person should not be construed to
indicate that such person possesses the power, direct or indirect, to
direct or cause the direction of the management or policies of the
Registrant, or that such person is controlled by or under common
control with the Registrant.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement for the 1997 Annual
Meeting of Shareholders to be filed on or before November28 28, 1996
are incorporated by reference into Part III.
PART 1.
Item 1. Business.
Except for the historical information contained herein, the
following discussion contains forward-looking statements that involve
risks and uncertainties. The Company's actual results could differ
materially from those discussed here. Factors that could cause or
contribute to such differences include, but are not limited to, those
discussed in the description of the Company's business below and the
sections entitled "Licenses", "Manufacturing", "Sales and Marketing",
"Competition", "Government Regulation", "Patents and Proprietary
Rights" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations", those discussed in the S-3
Registration Statement File No. 333-3507 filed with U.S. Securities
and Exchange Commission, as well as those discussed in any documents
incorporated by reference herein or therein.
General
The Company is developing and marketing acute care drugs for the
hospital market. On August 9, 1995, it acquired its first marketable
products, Glofil and Inulin, two injectable drugs that assess kidney
function by the measurement of glomerular filtration rate ("GFR"). It
is also currently conducting six (6) Phase II clinical trials on CPC-
111 and CPC-211, two drugs potentially indicated foracute carementof
a number of major disorders caused by impaired blood flow, known as
"ischemia". These disorders include heart attack and ischemic heart
disease, surgically-induced ischemia, sickle cell anemia crises,
acute respiratory distress syndrome ("ARDstroke and closed head
injury and the drugs are covered by U.S. patents. During the year,
the Company made two interim releases of statistically significant
data from 55 patients in its Phase II clinical trial of CPC-111 in
coronary artery bypass grafting surgery patients which showed that
CPC-111 is acting as a cardioprotective drug. (See Clinical Programs
on page 8).
Kidney Disease and the Company's Acquired Products. Kidney disease
afflicts more than 2,000,000 Americans and results in over $12
billion annually in healthcare costs in the United States. The
Company believes that kidney disease can be reduced if identified at
an early stage by the monitoring of renal function. Glofil and
Inulin are products cleared by the U.S. Food and Drug Administration
("FDA") for monitoring renal function by determining GFR. Glofil is
more accurate than its principal competitor, creatinine clearance, in
the measurement of GFR for the estimated 500,000 patients with severe
kidney disease and the Company is targeting this segment of the
market. Nephrologists and nuclear medicine departments at major
medical centers are the primary end users of these products. During
the fiscal year ended July 31, 1996, the Company established a field
sales force and customer service function, obtained the appropriate
licenses for its own distribution facility in Carlsbad, California
and Glofil and Inulin reached sales of $1,275,000 after the Company
acquired them.
Ischemia-Induced Cell Damage and the Company's Phase II Clinical
Programs. Similarly, there are approximately 4,000,000 cases of
ischemia-induced disorders annually in the United States, resulting
in over 900,000 deaths and an estimated $200 billion in annual costs
for physical and mental rehabilitation and ongoing care, and yet
there are currently no FDA-approved drugs to avoid or reverse the
massive cell damage caused by ischemia (termed "cytoprotective
drugs"). Currently approved drugs for treating cardiovascular
ischemia, such as "clot busting" drugs, serve to re-establish blood
flow but do not have direct cytoprotective benefits. The Company
believes that the drugs it is developing, if cleared by the FDA and
successfully marketed, should reduce significantly the number of
fatalities and the rehabilitation and ongoing care costs associated
with ischemic disorders.
Impairment of blood flow reduces the supply of oxygen to body cells,
interrupting normal aerobic metabolism and causing depletion of
adenosine triphosphate ("ATP"), the cells' primary energy source.
Ischemia-induced depletion of ATP produces a myriad of increasingly
destructive cellular events known as the "toxic ischemic cascade".
The Company believes that all cytoprotective drugs under development
by others for treatment of ischemia are focused on treating specific
elements of the toxic ischemic cascade, leaving other elements free
to cause cell, tissue and organ damage.
The Company's approach, based on preventing or reversing the toxic
ischemic cascade, is comprehensive in nature and, the Company
believes, potentially more effective. CPC-111 and CPC-211 are
designed to act during and after ischemia by maintaining cellular ATP
levels or accelerating their restoration. CPC-111 (a natural
substance) and CPC-211 have very low orders of toxicity, making them
more amenable to being used early in the patient management process,
which is critical in acute care settings.
Further, CPC-111 and CPC-211 are small molecules, easily deliverable
and inexpensive to produce. Extensive pre-clinical data shows
desirable therapeutic effects in animal models of the targeted
diseases. Significant human data, available from the Company's own
studies and independent, physician-sponsored Investigational New Drug
applications ("INDs"), show that each of these drugs is well
tolerated when administered at clinically relevant doses to healthy
subjects. The minimal side effects associated with CPC-111 and CPC-
211 will greatly reduce their development risk and may permit their
broad, early use in acute care settings, such as ambulances and
emergency rooms, where rapid access to treatment is of utmost
importance.
During the fiscal year ended July 31, 19964, the Company filed INDs
with the FDA on CPC-111 to treat ischemic heart disease and on CPC-
211 to treat acute stroke and began funding a Phase II trial of CPC-
211 in closed head injury patients and continued a Phase II trial on
CPC-211 in stroke patients. I in ARDS patients under a physician-
sponsored IND. During the year, the Company also began single-center
Phase I clinical trial on CPC-211 in September 1994 and will begina
dose-ranging Phase II clinical trial on CPC-111 in sickle cell anemia
crises patients and one in angioplasty patients and continued Phase
II trials on CPC-111 in congestive heart failure patients and in
cardiac bypass grafting surgery patients. The Company is also
planning additional Phase II trials with CPC-111 in sickle cell
crisis patients and in heart surgery patients. The Company's strategy
is to reduce the risk associated with drug development by selecting
for large-scale pivotal trials the clinical indication(s) showing the
best Phase II results from the multiple small-scale Phase II trials
on CPC-111 and CPC-211 that the Company has underway. The Company
intends to begin Phase III trials of CPC-111 and CPC-211 during the
fiscal year ending July 31, 1997.
Pre-clinical Programs. Further implementing its overall strategy of
developing drugs that protect cells from ischemic damage, the Company
is conducting pre-clinical studies on a number of additional drugs
meant to reduce the neurodegeneration associated with stroke and
traumatic head injury. The Company believes that these drugs will
reduce "excitotoxicity", the excess release of excitatory amino acid
("EAA") neurotransmitters in the brain that stems from ischemically-
caused ATP depletion in certain brain cells. Drugs being developed
in these studies include: (i) a new class of neuronal calcium
channel blockers which block excessive EAA neurotransmitter release;
and (ii) a patented series of novel compounds which augment levels of
adenosine (a naturally occurring substance which inhibits EAA
release) in ischemic tissue by inhibiting its metabolism. During the
year, the Company also received a $100,000 Small Business Innovation
Research Phase I grant to develop a prodrug for CPC-111. This program
was recently initiated with the goal of producing CPC-111 prodrugs
with improved pharmacokinetic properties.
Acquired Products for the Hospital Market
The Company's strategy includes building near-term sustainability
with the cash flow from acquired acute care products for the hospital
market with the goal of reducing its overall cash consumption rate
and building its sales, marketing and distribution infrastructure in
advance of FDA clearance of CPC-111 and CPC-211.
Glofil and Inulin
Kidney disease afflicts more than 2,000,000 persons in the United
States and is increasing primarily due to the growth in diabetes and
lupus cases. Kidney disease results in over $12 billion annually in
healthcare costs in the United States. The Company believes that more
accurate diagnosis and monitoring of renal disease will aid in the
management of the primary causes of end stage renal disease.
Glofil-125 and Inulin, two injectable products acquired by the
Company on August 9, 1995, are FDA-cleared products for the
measurement of renal function. Nephrologists and nuclear medicine
departments at major medical centers are the primary users of these
products. During the fiscal year ended July 31, 1996, the Company
recorded sales of $1,275,000 from the sale of Glofil-125 and Inulin.
Two customers using Glofil-125 for long-term research studies
accounted for 39% and 15%, respectively, of net sales of these
products.
Glofil-125 is an injectable radioactive diagnostic drug, which
provides rapid information on GFRs with great accuracy. This is an
established product that is covered by an FDA-cleared New Drug
Application, and is currently sold by the Company in 4ml vials and in
prefilled syringes through the 117 nationwide radiopharmacies of
Syncor International pursuant to a distribution agreement entered
into with the Company in February 1996. Inulin is an injectable
diagnostic drug, which provides a measure of GFRs. Inulin is
currently sold in 50 ml ampules with actual patient dosing correlated
to patient weight.
The Company believes there is substantial opportunity for increased
utilization of Glofil-125. Present diagnostic procedures for
measuring kidney function include serum creatinine and creatinine
clearance tests. These two tests are the most commonly performed
methods of measuring kidney function because they are cheaper tests,
however both methods significantly overestimate kidney function in
the estimated 500,000 patients severe renal disease. The use of
Glofil-125 is a more direct, true measure of kidney function yielding
accurate results. This improved accuracy can be essential to
reliably monitoring disease progression and intervention, as well as
assessing the immediate state of renal impairment. The biggest
impediment to the continued growth in the sales of Glofil-125 would
be a change in the ability of the end users to obtain reimbursement
for the test or the unforeseen termination of the research studies
being conducted by the Company's two largest customers.
Inulin, which is sold by the Company, and 99m Tc-DTPA (which is not
sold by the Company) are alternative agents for GFR measurement,
however the preparation and use of these two drugs is difficult and
they do not provide the practical advantages of Glofil-125. There
are no new diagnostic drugs being introduced or in development that
the Company is aware of as a competitive threat to Glofil-125.
Cytoprotection Market Opportunities
Cytoprotective drugs for acute care settings that treat ischemic
injury are not currently available and the market opportunities for
the Company's drugs are large, totalling approximately 4,000,000
cases annually in the United States. The Company believes that its
drugs, if approved, could substantially reduce not only the 900,000
fatalities associated with ischemia-related disorders but also reduce
significantly the more than $200 billion annual cost of
rehabilitation and ongoing care in the United States.
The Company's drugs are designed to be administered intravenously in
order to speed their delivery to the ischemic tissue. In order to
ensure early interventions, they are intended to be standard
components of "crash boxes" in ambulances, hospital emergency rooms,
operating theater suites, endoscopy suites and radiology suites.
Their lack of substantial toxicity should suit them for this
purpose.
Circulatory System Ischemia
According to the American Heart Association and the National
Institutes of Health, heart attack and stroke represent the number
one (500,000 cases annually) and number three (150,000 cases
annually) leading causes of death in the United States, respectively.
Heart attack and stroke are the result of ischemia to the heart and
brain, respectively.
Cardiovascular ischemia can result in a spectrum of clinically
significant events ranging from angina (pain) to heart attack and
sudden death. In addition to the numerous trauma or disease related
causes of ischemia, there are a variety of voluntary surgical
procedures which result in ischemia to vital organ systems.
Procedures such as coronary artery bypass grafting surgery and
coronary angioplasty, both of which are performed to improve blood
flow to the heart, in themselves induce temporary ischemia which can
result in tissue damage. Thus, CPC-111, if approved, could also be a
part of the treatment regimen for these disorders. All of these
conditions or procedures represent potential opportunities for use of
the Company's drugs to reduce the tissue damage known to be
associated with them.
Cerebrovascular ischemia (stroke) can result in temporary loss of
consciousness, permanent behavioral and neurologic impairment, coma
and death. Traumatic injury to the head is caused by accidents, near
drownings and similar incidents. The resultant medical problems are,
in large part, caused by ischemia to the brain. The biochemical
processes associated with stroke and head trauma are thought to be
very similar; thus, drugs developed for one indication are expected
to be useful for the other.
Sickle Cell Anemia
Sickle cell anemia is an autosomal recessive genetic disease carried
by about 8% of African-Americans. Approximately 60,000 African-
Americans suffer from the most severe form (homozygous) of the
disease, termed sickle cell "crisis", where the red blood cells form
"sickle" shapes that can clog up capillaries and result in severe and
disseminated ischemia, and undergo multiple crises each year. CPC-111
has been shown pre-clinically to prevent this "sickling" process and
the Company is intends to evaluateing it in a Phase II trial of
sickle cell anemia crisis patients.
The Pathology of Ischemia
Metabolic Aspects (General, All Tissues)
All living animal cells require glucose and oxygen to survive, both
of which are supplied to tissues by the blood. Glucose is
transformed into carbon dioxide and water with the resultant
formation of ATP. ATP is the universal fuel which is required to
keep the cell alive. During and after ischemia, the decrease in
cellular ATP levels damages the cell and, the Company believes,
results in the toxic ischemic cascade, a myriad of cell-damaging
processes discussed below which cause further cell damage.
ATP generation occurs in two phases. The first phase, called
glycolysis or anaerobic metabolism does not require oxygen. The
second phase called aerobic metabolism requires oxygen and occurs in
mitochondria. Glycolysis is a means of producing cellular energy in
ischemic conditions, and therefore, represents the body's natural
defense against ischemic damage. For this reason, the facilitation of
glycolysis is of interest therapeutically in the prevention of
ischemic damage to tissues and organs. When pyruvic acid builds up
during ischemia due to the inability of aerobic metabolism to utilize
it, an enzyme converts it to lactic acid which blocks glycolysis. The
therapeutic principle underlying CPC-111 and CPC-211 is to facilitate
glycolysis during and after ischemia so the cell continues to produce
ATP and the toxic ischemic cascade is pre-empted or reversed.
Specifically, CPC-111 bypasses the lactic acid block and does not
need to be energized by ATP to be metabolized. CPC-211 reduces
ischemia induced lactic acid accumulation and therefore allows energy
metabolism to continue.
Excitotoxicity (Nerve Tissue)
The destructive impact of ATP depletion in nerve tissue is further
complicated by the over-production in nerve cells of various
excitatory amino acids, chemicals that transmit nerve impulses from
one nerve cell to another. The over-production and release of EAAs
(predominately glutamate and aspartate) by nerve cells exposed to
ischemia over-stimulates adjacent postsynaptic nerve cells, causing
them in time to succumb to metabolic exhaustion and cell death. This
ischemia-induced process, called delayed excitotoxicity, is
associated with a number of acute (stroke and traumatic head injury)
and chronic (Alzheimer's, Parkinson's Disease and Amyotrophic Lateral
Sclerosis) neurologic disorders. Controlling delayed excitotoxicity
by blocking the postsynaptic EAA receptors has recently attracted the
attention of both academic and pharmaceutical scientists. The drugs
in development that act by this mechansim to date have considerable
side effects and only block selected receptor subtypes, therefore,
only dealing with part of the problem since all receptor subtypes
appear to cause damage.
Recent evidence has shown that specific presynaptic channels,
neuronal calcium channels, regulate the release of neurotransmitters
in nerve cells. The Company has shown that compounds which block
excessive EAA neurotransmitter release from nerve cells greatly
reduce excitotoxicity and post-ischemic tissue damage in animal
models of stroke and head trauma. The Company is seeking to develop
drugs that specifically block neuronal calcium channels and
therefore, if successful, would block the excitotoxic process and
reduce the resultant cell damage. These drugs are expected to have a
more comprehensive effect on excitotoxicity than the specific
postsynaptic EAA receptor blockers, since they will reduce the
stimulation of all and not just some EAA receptors. See " Neuronal
Calcium Channel Blocker Program."
The Company has also shown that adenosine, a natural compound, has
cytoprotective properties. The Company is seeking to develop a series
of drugs, called adenosine metabolism inhibitors, which, if
successful, would augment adenosine levels in ischemic tissue and
have cytoprotective effects in both brain and heart tissue. See
"Adenosine Metabolism Inhibitor Program."
The Toxic Ischemic Cascade
Ischemia-induced cell damage triggers a number of processes which
cause further damage to each affected cell and its surrounding cells.
This myriad of destructive processes is facilitated by reperfusion
injury, which occurs after blood flow is re-established. The
traumatized, ATP-depleted cell enters into the toxic ischemic
cascade, resulting in the release of a host of toxic agents,
including damaging reactive chemicals called free radicals, as well
as other molecules that are products of cell membrane breakdown, all
of which damage cells. Excessive intracellular calcium buildup is
also an element of the toxic ischemic cascade and also triggers a
host of other damaging processes such as activation of proteolytic
enzymes (enzymes that break down proteins) which digest cells and
activation of protein kinases which regulate cell metabolism. The
traumatized cell also releases agents which stimulate the immune
system, activating various blood cells, such as neutrophils and
macrophages which actually eliminate the cell affected by ischemia.
Rather than target each of these myriad events, the Company's drugs,
CPC-111 and CPC-211, address the issue of ATP replenishment so that
the cell can correct the ischemic cascade naturally.
There are currently no known FDA-approved cytoprotective drugs. Those
under development are, to the Company's knowledge, primarily aimed at
specific elements of the toxic ischemic cascade. The Company
believes that its approach to cytoprotective drug development is
unique in that it seeks to pre-empt or reverse the entire cascade by
decreasing the initial metabolic trauma which triggers it (i.e., ATP
depletion). The Company believes that this approach is preferable to
treating specific elements of the cascade, since it more
comprehensively addresses the underlying pathology and should
therefore result in more efficacious therapy.
Ischemia Drugs in Development - The Metabolism Program
The Company is conducting four Phase II has commenced clinical trials
on CPC-111 and two Phase II trials on CPC-211. These drugs are
designed to minimize the tissue damage associated with cardiovascular
ischemia (e.g., congestive heart failure and angioplasty), surgically-
induced ischemia, sickle cell anemia crises, ARDS, sepsis and acute
cerebral ischemia (specifically, stroke and traumatic head injury).
The Company expects to finish these trials during the fiscal year
ending July 31, 1997 and also to begin Phase III trials with CPC-111
and CPC-211 in at least one indication each.
CPC-111. CPC-111 is a small non-peptide molecule that the Company
believes (based on extensive pre-clinical and mechanistic data)
stimulates and maintains glycolysis in cells undergoing ischemia by
circumventing the ischemia-induced blockage of this process. The
Company has licensed four issued U.S. patents which cover the use of
CPC-111 for acute ischemic heart disease (such as acute myocardial
infarction ("AMI"), congestive heart failure and unstable angina),
surgically-induced ischemia (e.g., CABG surgery), ARDS, sepsisand
other ischemic disorders and has several patents pending in the
United States and Europe. Pre-clinical studies conducted by various
investigators involving this compound in cardiovascular ischemia
(including myocardial infarction), sickle cell anemia, septic and
hemorrhagic shock and generalized trauma have shown therapeutic
benefits as indicated by significant tissue preservation, improved
organ function and survival in animal models.
There are published U.S. and foreign clinical studies with CPC-111
indicating that is is well tolerated in humans with little or no side
effects. More than 500 patients have been tested with the drug
worldwide. These studies indicate that the drug improves heart
function in congestive heart failure patients as well as in other
situations where the heart is injured.
In December 1995 and in August 1996, the Company released data from
its Phase II trial with CPC-111 in coronary artery bypass grafting
surgery patients. Stage 1 data comprised 10 active- and 10 placebo-
treated patients with the former receiving 250 mg/kg of CPC-111 prior
to the surgery. Stage 3 data comprised 15 active- and 15 placebo-
treated patients with the former receiving 250 mg/kg of CPC-111 prior
to surgery and the cardioplegia solution was supplemented with 2.5 mM
of the drug.
The Company monitored the patients at multiple time points during and
after surgery to evaluate various hemodynamic and blood chemistry
measures and post-operative inotropic and vasodilator therapy.
Concerning the hemodynamic measures, the active-treated group in both
stages showed higher cardiac output and cardiac index scores which
were statistically significant at 12 hours and at the 0-12 hour area
under the curve. Concerning the blood chemistry measure, creatinine
kinase MB ("CKMB") isoenzyme tended to be lower in the treated group
and reached statistical significance at 2-6 hours. CKMB is an
isoenzyme that is released through the cell wall into the blood
stream with the breakdown of the cellular wall by ischemia. Also, the
active treated group required approximately 50% less inotrope support
on the intensive care unit ("ICU") post-operatively and required less
vasodilator therapy allowing for earlier patient discharges from the
ICU.
The Company is continuing this study, comprising another 10 active-
and 10 placebo-treated patients with the former receiving 125 mg/kg
of CPC-111 pre-bypass, which is necessary to determine the dose-
response curve. Also, the Company will determine whether response is
improved by adding two post-bypass doses to the pre-bypass dose of
the drug in an additional 15 active- and 15 placebo-treated patients.
filed anin NoConsistent with the Company's strategy to diversify
drug development risk, and plans to conduct its own clinical trials
of CPC-111 as a cytoprotective drug for the treatment of some or all
of the ischemic disorders which have been covered by the "use"
patents that have been licensed to the Company. In November 1994,
during the fiscal year ended July 31, 1996, the Company will begian a
dose-ranging Phase II clinical trial with CPC-111 in sickle cell
anemia crises patients and in angioplasty patients and continued
Phase II trials in ischemic congestive heart failure patients and and
is currently planning coronary artery bypass graftingsickle cell
crisis pat surgery patients.
CPC-211. CPC-211 is also a small non-peptide molecule which acts on
glycolysis at a different site from CPC-111. The Company has
exclusive rights to an issued U.S. patent covering the use of CPC-211
in cerebral ischemia and in 1996 was issued a Notice of Allowance on
a novel dosing regimen of CPC-211 based on data from the Company's
Phase I trial. The Company believes that CPC-211 stimulates a
specific enzyme which is present in the membrane of mitochondria that
removes a precursor of lactic acid (pyruvic acid) from the cytoplasm
of the cell by transporting it into the mitochondria, resulting in a
reduction of cell acidity. Increased post-ischemia accumulation of
lactic acid is a major causal factor in the cessation of glycolysis,
the resultant decrease in cellular ATP levels and eventual cell
death. Numerous studies have shown that CPC-211 reduces
post-ischemia lactic acid levels in animal models, as well as in
humans, subjected to various traumatic events which would otherwise
have resulted in increased lactic acid (lactic acidosis).
Pre-clinical animal studies involving central nervous system trauma
(ischemia to both the brain and spinal cord) have documented the
effectiveness of CPC-211 in normalizing cell function and preventing
or reducing tissue damage.
CPC-211 has been employed by clinical investigators in patients on an
experimental basis for the intravenous treatment of lactic acidosis.
Published clinical studies have established that CPC-211 reduces
serum lactic acid and exhibits no serious side effects. It has also
been shown in human studies to permeate the blood-brain barrier and
to reduce brain lactic acid levels in congenital lactic acidosis
patients. The Company believes that the availability of human data on
CPC-211 should facilitate and reduce the risk associated with its
clinical development.
Further,filed an the Company's Phase I study in CPC-211 demonstrated
that the drug promptly lowers serum lactate, and that this effec
lsted for several hours. Using these data, thisin January 1to treat
stroke year the Company began a Phase II clinical trial on CPC-211 in
closed head injury patients exploring similar properties of the drug
in the human brain. In addition, a Phase II clinical trial on CPC-211
in stroke patients is continuing.
Ischemia Drugs in Pre-clinical Research-The Metabolism and
Excitotoxicity Programs
The Company is also seeking to develop new drugs for the treatment of
ischemia-related disorders involving neurological damage, such as
stroke, traumatic head injury, epilepsy and chronic
neurodegenerative disorders such as Alzheimer's and Parkinson's
disease. These pre-clinical research programs are focused on either
the metabolic or the excitotoxicity aspects of ischemia therapeutics,
and involve the chemical modification of identified lead molecules
that regulate adenosine metabolism and various calcium ion channels
on neuronal cells.
Adenosine Metabolism Inhibitor Program. The Company is seeking to
develop CPC-405 and certain of its derivatives, which are novel small
molecules with demonstrated potency as inhibitors of adenosine
metabolism. Adenosine is a natural cytoprotective agent which is
generated in ischemic tissue and serves to protect cells from a
variety of traumatic situations. Naturally generated adenosine is
rapidly degraded by enzymes. The Company expects that CPC-405 will
increase the level of adenosine in tissue traumatized by ischemia and
thereby increase its cytoprotective effect. A U.S. patent has been
issued on the composition of the CPC-400 series of drugs. The Company
will seek to identify other lead compounds to take forward into
clinical development.
Neuronal Calcium Channel Blocker Program. The Company believes that
the therapeutic approach to excitotoxicity currently attracting the
most commercial attention involves the development of specific EAA
receptor blockers which inhibit the excessive postsynaptic EAA action
that is triggered by ischemia. Although these EAA receptor blockers
have neuroprotective properties in cell culture and animal models of
ischemia, their usefulness is hampered by toxic side effects
associated with the blockage of EAA receptors and by the fact that
there are multiple EAA receptor subtypes, all of which appear to
cause post-ischemic damage when they are excessively stimulated.
The Company is seeking to develop new classes of drugs that are
designed to remedy excitotoxicity in a potentially more complete and
effective manner by reducing EAA release from nerve cells, thereby
reducing the over-stimulation of all EAA receptor subtypes. This pre-
synaptic approach to neuroprotection is viewed by the Company as
potentially more effective than blocking receptors post-synaptically.
Specifically, the Company is seeking to develop separate classes of
small-molecule drugs that act as neuronal calcium channel blockers
("NCCB"), which it has labelled as the CPC-300, CPC-800 and CPC-8000
series; the Company has synthesized over 100 compounds in this
series. If successful, these drugs would have the ability to
normalize or decrease EAA release and thereby comprehensively reduce
the over-stimulation of EAA receptors. Prototype agents such as CPC-
8027 have shown the desired effect of acting at the neuronal calcium
channels, which controls EAA release. The Company has demonstrated
neuroprotection in several pre-clinical models with CPC-304, CPC-317,
CPC-877 and CPC-8027 and intends to further modify them structurally
with the goal of improved drug delivery to the central nervous
system. These modifications will require additional pre-clinical
testing.
The Company has devised a novel human cell assay which enables it to
determine whether various NCCBs have the desired functional
attributes. The assay involves using human cells which have the
functional neuronal-type calcium channel within their membrane.
Studies conducted by the Company indicate that the neuronal-type
calcium channel on these cells is pharmacologically similar to that
present on nerve cells, and the Company believes that possession of
this assay technology confers a competitive advantage in the
development of neuronal calcium antagonists. The channel is also
coupled to a function that can be measured using conventional
laboratory techniques. The Company has filed two U.S. patent
applications covering certain compounds with activity at the neuronal
calcium channel as well as the functional neuronal-type calcium
channel assay in human cells.
In July 1994, t
Licenses
The Company believes its strategic objectives can best be met by
combining its in-house research and development efforts with licenses
and research collaborations with scientists at outside academic and
clinical research centers.
The principal sources of the Company's existing licenses are:
Angel K. Markov, M.D.
CPC-111. The Company has obtained an exclusive license from Dr.
Markov to four U.S. patents covering the use of CPC-111 in a number
of indications including acute ischemic heart disease (such as AMI,
congestive heart failure and unstable angina), surgically-induced
ischemia, sickle cell anemia, ARDS, sepsis and other ischemic
disorders. The Company is funding clinical development in Dr.
Markov's laboratories at the University of Mississippi Medical Center
(and is currently funding a Phase II clinical trial there in ARDS
patients under his IND). In this regard, the Company has undertaken
certain development obligations which must be met in order to
maintain this license in force. In the event the Company breaches
the license agreement, such as by not meeting certain milestones
within the specified time periods or by failing to expend certain
amounts in connection with clinical trials within specified time
periods, the license will automatically terminate and all rights
under the license and information acquired by the Company concerning
any products based on the licensed technology will revert to Dr.
Markov. In the event of such termination, the Company will retain
the rights to market products for which sales occurred within the
calendar year prior to the termination, and all other products and
information related thereto based on the licensed technology will
revert to Dr. Markov. To date, the Company has met all milestones.
University of Cincinnati
CPC-211. The Company has an exclusive license from University of
Cincinnati ("UC") to a U.S. patent covering the use of CPC-211 in
cerebral ischemia. The Company has undertaken certain development
obligations which must be met in order to maintain its rights in
force. If certain milestones are not met by the Company within
specified time periods, UC may, in its sole discretion, elect to
continue the agreement, negotiate in good faith with the Company to
modify the agreement or terminate the agreement upon 30 days' written
notice in which event all rights under the license would revert to
UEM. To date, the Company has met all milestones.
John W. Olney, M.D.
EAA Adjuvant. The Company has obtained a license to a
U.S. patent held by Dr. Olney concerning a drug which the Company
believes can be employed as an adjuvant to diminish the side effects
of and enable broader use of neurologic drugs being developed by a
variety of other companies. Composition of matter claims were
recently allowed on a patent application also licensed to the Company
by Dr. Olney.Elie Abushanab, Ph. D.
Adenosine Metabolism Inhibitor. The Company obtained a license to
certain adenosine metabolism inhibiting compounds developed by Dr.
Elie Abushanab, which the Company believes will enhance the levels of
adenosine in cardiovascular ischemia situations. Composition of
matter claims on a patent application covering certain of these
compounds have been recently allowed. Under the license, the Company
must pay Dr. Abushanab certain milestone payments relating to the
development of any drug covered by the license. To date, the Company
has met all milestones.
Manufacturing
The Company does not currently intend to undertake the manufacture of
any drugs which may derive from its technologies. Glofil is
manufactured for the Company by the former owner of the drug and
Inulin is manufactured for the Company by one of its existing
contract manufacturers. In the case of CPC-111 and CPC-211, there are
alternative sources of supply for the bulk drug in existence, and the
Company has entered into arrangements with third parties to
manufacture and formulate CPC-111 and CPC-211 for clinical trials.
There can be no assurance that any of the Company's contract
manufacturers will continue to meet the Company's requirements for
quality, quantity and timeliness or the FDA's current Good
Manufacturing Practice ("cGMP") requirements or that the Company
would be able to find a substitute manufacturer for Glofil, Inulin,
CPC-111, CPC-211 or any other of its drugs which would meet these
requirements or that lots will not have to be recalled with the
attendant financial consequences to the Company. The Company's
dependence upon others for the manufacture of its drugs may adversely
affect the future profit margin, if any, on the sale of those drugs
and the Company's ability to develop and deliver products on a timely
and competitive basis. In the event the Company is unable to obtain
or retain contract manufacturers or to obtain manufacturing on
commercially acceptable terms, it may not be able to commercialize
its drugs as planned.
Sales and Marketing
The commercialization of drug products is an expensive and time-
consuming enterprise. The Company currently has a customer service
representative and three field has no experience in sales, marketing
or distributionsales representatives for Glofil and Inulin and is
hiring additional sales representatives. To market any of its drugs
directly, the Company expects to develop a marketing and sales force
with technical expertise and supporting distribution capability. The
Company believes that it will be able to serve the hospital market in
North America do so with a 50 to 70 person sales and marketing staff.
since its drugs will be sold primarily to and administered in acute
care facilities rather than sold directly to physicians' offices or
retail drug stores. There can be no assurance that the Company will
be able to establish sales and distribution capabilities or be
successful in gaining market acceptance for its drugs.
Competition
The pharmaceutical industry in general is highly competitive.
Competition in the areas of the Company's activities is substantial
and expected to increase. The Company faces competition from
specialized biotechnology companies, large pharmaceutical companies,
academic institutions, government agencies and public and private
research organizations, many of which have extensive resources and
experience in research and development, clinical testing,
manufacturing, regulatory affairs, distribution and marketing. Some
of these entities have significant research activities in areas upon
which the Company's programs focus. Many of the Company's
competitors possess substantially greater research and development,
financial, technical, marketing and human resources than the Company
and may be in a better position to develop, manufacture and market
drugs. These entities may discover and develop drugs competitive
with or superior to those developed by the Company.
Government Regulation
The manufacture and sale of drugs are subject to extensive and
arduous regulation by United States and foreign governmental
authorities prior to commercialization. In particular, drugs are
subject to rigorous preclinical and clinical testing and other
approval requirements by the FDA and comparable foreign regulatory
authorities. The process for obtaining the required regulatory
approvals from the FDA and other regulatory authorities takes many
years and is very expensive. There can be no assurance that any drug
developed by the Company will prove to meet all of the applicable
standards to receive marketing approval in the United States or
abroad. There can be no assurance that any such approvals will be
granted on a timely basis, if at all. Delays and costs in obtaining
these approvals and the subsequent compliance with applicable federal
and state statutes and regulations could materially adversely affect
the Company's ability to commercialize its drugs and its ability to
receive sales revenues.
The research activities required by the FDA before a drug can be
approved for marketing begin with extensive preclinical animal and
laboratory testing. The tests include laboratory evaluation of
product chemistry and animal studies for the safety and efficacy of
the drug. The results of these studies are submitted to the FDA as
part of an IND which is reviewed by the FDA prior to beginning
clinical trials, first in normal volunteers and then in patients with
the disease.
Clinical trials involve the administration of the investigational new
drug to healthy volunteers or to patients, under the supervision of a
qualified physician-principal investigator. Clinical trials are
conducted in accordance with government-established statutes,
regulations and guidelines and under protocols that detail the
objectives of the study, the parameters to be used to monitor safety
and the efficacy criteria to be evaluated. Each protocol must be
submitted to the FDA as part of the IND. Further, each clinical
study must be evaluated by an independent Institutional Review Board
("IRB") at the institution at which the study will be conducted. The
IRB considers, among other things, ethical factors, the safety of
human subjects and the possible liability of the institution, and
approves the informed consent to be obtained from all subjects and
patients in the clinical trials. The Company will have to monitor
the conduct of clinical investigators in performing clinical trials
and their compliance with FDA requirements.
Clinical trials are typically conducted in three sequential phases
(Phase I, Phase II and Phase III), but the phases may overlap. There
can be no assurance that Phase I, Phase II or Phase III testing will
be completed successfully within any specified time period, if at
all, with respect to any of the Company's drugs. Furthermore, the
Company or the FDA may suspend clinical trials at any time if it is
felt that the subjects or patients are being exposed to an
unacceptable health risk or that the investigational product lacks
any demonstrable efficacy.
The results of the pharmaceutical development, preclinical studies
and clinical studies are submitted to the FDA in the form of a New
Drug Application ("NDA") for approval of the marketing and commercial
shipment of the drug. The testing and approval process is likely to
require substantial time (frequently five to eight years or more) and
expense and there can be no assurance that any approval will be
granted on a timely basis, if at all. The FDA may deny an NDA if
applicable regulatory criteria are not satisfied, require additional
testing or information, or require post-marketing testing and
surveillance to monitor the safety of the Company's drugs.
Notwithstanding the submission of the NDA and any additional testing
data or information, the FDA may ultimately decide that the
application does not satisfy its regulatory criteria for approval.
Finally, drug approvals may be withdrawn if compliance with labeling
and cGMP regulatory standards is not maintained or if unexpected
safety problems occur following initial marketing.
Among the conditions for clinical studies and NDA approval is the
requirement that the prospective manufacturer's quality control and
manufacturing procedures conform to CGMP, which must be followed at
all times. In complying with standards set forth in these
regulations, manufacturers must continue to expend time, monies and
effort in the area of production and quality control to ensure full
technical compliance.
The U.S. Congress has recently enacted the Prescription Drug Act of
1992 requiring companies engaged in pharmaceutical development, such
as the Company, to pay user fees in the amount of at least $100,000
upon submission of an NDA. In addition to regulations enforced by the
FDA, the Company also is subject to regulation under the Occupational
Safety and Health Act, the Environmental Protection Act, the Toxic
Substances Control Act, the Resource Conservation and Recovery Act
and other present and potential future federal, state or local
regulations. For marketing outside the United States, the Company is
subject to foreign regulatory requirements governing human clinical
trials and marketing approval for drugs. The requirements governing
the conduct of clinical trials, product licensing, pricing and
reimbursement vary widely from country to country.
Patents and Proprietary Rights
The Company's success may depend in large measure upon its ability to
obtain patent protection for its drugs, maintain confidentiality and
operate without infringing upon the proprietary rights of third
parties. The Company has obtained patent coverage, either directly
or through licenses from third parties, for certain of its drugs. It
has licensed (i) four U.S. patents on CPC-111 which have expiration
dates ranging from 2002 to 2008 and (ii) one U.S. patent on CPC-211
which has an expiration date of 2003. During the fiscal year ended
July 31, 1996, the Company also received a notice of allowance on a
U.S. patent on a novel dosing regimen for CPC-211.
The Company has filed patent applications with respect to other
programs and expects to file additional applications in the future.
There can be no assurance that any of these patent applications will
be approved, except where claims have already been examined and
allowed, or that the Company will develop additional proprietary
products that are patentable. Nor can there be any assurance that
any patents issued to the Company or its licensors will provide the
Company with any competitive advantages or will not be challenged by
third parties or that patents issued to others will not have an
adverse effect on the ability of the Company to conduct its business.
Furthermore, because patent applications in the United States are
maintained in secrecy until issue, and because publication of
discoveries in the scientific and patent literature often lag behind
actual discoveries, the Company cannot be certain that it was the
first chronologically to make the inventions covered by each of its
pending U.S. patent applications, or that it was the first to file
patent applications for such inventions. In the event that a third
party has also filed a U.S. patent application for any of its
inventions, the Company may have to participate in interference
proceedings declared by the United States Patent and Trademark Office
to determine priority of the invention, which could result in
substantial cost to the Company, even if the eventual outcome is
favorable to the Company. In addition, there can be no assurance
that the Company's U.S. patents, including those of its licensors,
would be held valid by a court of law of competent jurisdiction. If
patents are issued to other companies that contain competitive or
conflicting claims which ultimately may be determined to be valid,
there can be no assurance that the Company would be able to obtain a
license to any of these patents.
Under Title 35 of the United States Code, as amended by the General
Agreement on Tariffs and Trade implementing the Uruguay Round
Agreement Act of 1994 ("GATT"), patents that issue from patent
applications filed prior to June 8, 1995, will enjoy a 17-year period
of enforceability as measured from the date of patent issue while
those that issue from applications filed on or after June 8, 1995
will enjoy a 20-year period of enforceability as measured from the
date the patent application was filed or the first claimed priority
date, whichever is earlier. Patents that issue from applications
filed on or after June 8, 1995, may be extended under the term
extension provisions of GATT for a period up to five years to
compensate for any period of enforceability lost due to interference
proceedings, government secrecy orders or appeals to the Board of
Patent Appeals or the Federal Circuit.
Under the Drug Price Competition and Patent Term Restoration Act of
1984, including amendments implemented under GATT (the "Patent Term
Restoration Act"), the period of enforceability of a first or basic
product patent or use patent covering a drug may be extended for up
to five years to compensate the patent holder for the time required
for FDA regulatory review of the product. This law also establishes a
period of time following FDA approval of certain drug applications
during which the FDA may not accept or approve applications for
similar or identical drugs from other sponsors. Any extension under
the Patent Term Restoration Act and any extension under GATT are
cumulative. There can be no assurance that the Company will be able
to take advantage of such patent term extensions or marketing
exclusivity provisions of these laws. While the Company cannot
predict the effect that such changes will have on its business, the
adoption of such changes could have a material adverse effect on the
Company's ability to protect its proprietary information and sustain
the commercial viability of its products. Furthermore, the
possibility of shorter terms of patent protection, combined with the
lengthy FDA review process and possibility of extensive delays in
such process, could effectively further reduce the term during which
a marketed product could be protected by patents.
The Company also relies on trade secrets and proprietary
know-how. The Company has been and will continue to be required to
disclose its trade secrets and proprietary know-how to employees and
consultants, potential corporate partners, collaborators and contract
manufacturers. Although the Company seeks to protect its trade
secrets and proprietary know-how, in part by entering into
confidentiality agreements with such persons, there can be no
assurance that these agreements will not be breached, that the
Company would have adequate remedies for any breach or that the
Company's trade secrets will not otherwise become known or be
independently discovered by competitors.
Scientific Advisory and Clinical Trials Advisory Boards
Scientific Advisory Board
The Company currently has a Scientific Advisory Board ("SAB") whose
members periodically advise the Company with respect to the Company's
scientific research and development programs. The SAB does not meet
as a group; rather individual member(s) are contacted for advice on
an as-needed basis. The members are compensated through the grant of
stock options and, if meetings are held, will receive fees for
attending meetings as well as reimbursement for expenses. The Company
has hired certain SAB members to perform services for the Company
such as assay development and compound preparation.
The members of the Company's SAB are:
Name and Affiliation / Area of Expertise
Chung Hsu, M.D., Ph.D.
Director of Stroke Clinical Trials,
Washington University, St. Louis
School of Medicine
Animal models of stroke/clinical trials
Ronald Hayes, Ph.D.
Professor of Neurosurgery,
University of Texas, Houston
Animal models of head trauma
Bruce P. Bean, Ph.D.
Professor of Neurobiology,
Harvard University
Neuronal ion channels
Robert Parks, M.D., Ph.D.
Professor of Pharmacology,
Brown University
Biochemical pharmacology
John Olney, M.D.
Professor of Psychiatry and Neuropathology,
Washington University, St. Louis
Excitotoxicity; animal models of stroke
Edward J. Cragoe, Ph.D.
Former Senior Director of Medicinal Chemistry,
Merck Sharp & Dohme Research Laboratories
Medicinal chemistry/ion channels
K.C. Nicolaou, Ph.D.
Head of Chemistry,
The Scripps Research Institute
Professor of Chemistry,
University of California, San Diego
Medicinal chemistry
Harold Kimelberg, Ph.D.
Professor, Division of Neurology,
Albany Medical College
Glial cell release of glutamate
Elie Abushanab, Ph.D.
Professor of Medicinal Chemistry
and Chemistry
College of Pharmacy
University of Rhode Island
Medicinal chemistry/adenosine
Thomas J. Maloney
President
The Iso-Tex Companies
Friendswood, Texas
Radioisotopes/Nuclear Medicine
Claude Wasterlain, M..D.
Chief of Neurology Services
Sepulveda VA Medical Center/
Professor of Neurology
University of California Los Angeles
Stroke and epilepsy
Clinical Trials Advisory Boards
The Company has assembled two Clinical Trials Advisory Boards
("CTABs"), composed of physician "thought leaders" in the cardiology
and neurology area, to assist in the planning, design and execution
of the Company's clinical trials involving CPC-111 and CPC-211. The
individuals who constitute each of the CTABs are paid consultants to
the Company and are listed below:
Cardiovascular Clinical Trials Advisory Board
Eric J. Topol, M.D. (Chair)
Chairman, Department of Cardiology,
Director, Center for Thrombosis and Vascular Biology,
Cleveland Clinic and Foundation
Robert M. Califf, M.D.
Associate Professor of Medicine,
Duke University Medical Center
David R. Holmes, Jr., M.D.
Associate Professor of Medicine,
Mayo Clinic Medical School
Cerebrovascular Clinical Trials Advisory Board
William G. Barsan, M.D. (Chair)
Director of Emergency Medicine,
University of Michigan Medical School
Charles G. Brown, M.D.
Associate Professor & Research Director,
Department of Emergency Medicine
Ohio State University
Randall M. Chestnut, M.D.
Oregon Health Sciences Center
School of Medicine, Division of Neurosurgery
Portland, Oregon
Patrick D. Lyden, M.D.
Chief, Stroke Clinic
University of California, San Diego
Anthony Marmarou, Ph.D.
Medical College of Virginia
Division of Neurosurgery
Richmond, Virginia
The members of the SAB and the CTABs may be employed by or have
consulting agreements with entities other than the Company, some of
which may compete with the Company. These other obligations may limit
the availability of the members to the Company. Most are not
expected to participate actively in the Company's development.
Certain of the institutions with which the members are affiliated may
have regulations or policies which are unclear with respect to the
ability of such persons to act as part-time consultants or in other
capacities for a commercial enterprise. Regulations or policies now
in effect or adopted in the future may limit the ability of the
members to consult with the Company. The loss of the services of
certain of the members could adversely affect the Company.
Furthermore, inventions or processes discovered by the SAB and CTAB
members will not, unless otherwise agreed, become the property of the
Company but will remain the property of such persons or of their
full-time employers. In addition, the institutions with which the
members are primarily affiliated may make available the research
services of their scientific and other skilled personnel, including
the members, to entities other than the Company. In rendering such
services, such institutions may be obligated to assign or license to
a competitor of the Company patents and other proprietary information
which may result from such services, including research performed by
a member for a competitor of the Company.
Scientific and Other Personnel
As of September 30, 19946, the Company had 3121 full-time employees,
fiveseven of whom hold Ph.D. degrees, one of whom also holds an M.D.
degree and one of whom holds a J.D. degree. TwelveFour of the full-
time employees are employed in finance and general administration,
seven in clinical and regulatory affairs and quality assurance, seven
in research and development, and five in sales and marketing,
customer service and business development. and the remainder of the
employees are engaged in research, development and clinical
activities. The Company believes that it maintains good relations
with its employees.
Executive Officers of Registrant
Set forth below is certain information with respect to the executive
officers of the Company at September 30, 19946:
Name Age Position
Paul J. Marangos, Ph.D. 49 Chairman of the Board,
President and Chief Executive
Officer
Stephen C. Eisold 50 Executive Vice President of
Commercial Development and
Chief Operating Officer
Anthony W. Fox, M.D., Ph.D. 40 Vice President, Drug
Development
David W. Nassif, J.D. 402 Vice President, Chief Financial
Officer and Secretary
Paul J. Marangos, Ph.D., has been President and Chairman of the Board
since he founded the Company in November 1990. In February 1993, he
became Chief Executive Officer. From April 1988 to November 1990, he
was Senior Director of Research at Gensia Pharmaceuticals, Inc., a
biotechnology company. From 1980 to 1988, he was Chief of
Neurochemistry in the Biological Psychiatry Branch, National
Institute of Mental Health. Dr. Marangos obtained his doctorate in
biochemistry from the University of Rhode Island and did his
post-doctoral work at the Roche Institute of Molecular Biology. He
has published 250 research papers and four books in the field of
biochemistry and pharmacology. Dr. Marangos' most recent book,
published in July 1992, is entitled Emerging Strategies in
Neuroprotection. He is a member of the Society for Neuroscience and
the American Academy for the Advancement of Science. Dr. Marangos
is the founding editor of the Journal of Molecular Neuroscience
published by Humana Press.
Stephen C. Eisold joined the Company in May 1996 as the Executive
Vice President of Commercial Development and Chief Operating Officer.
From February 1990 to May 1996, he held various executive positions
at Gensia Inc., most recently as Vice President and General Manager
of the North American Pharmaceuticals Division. Prior thereto, Mr.
Eisold held various sales, marketing and commercial development
positions in the pharmaceutical industry since 1973. He received his
bachelor of science from Springfield College and his masters in
business administration from Rockhurst College.
Anthony W. Fox, M.D., Ph.D., joined the Company in April 1994 as the
Vice President of Drug Development. From March 1990 to April 1994,
he was employed by Glaxo, Inc., a pharmaceutical company, the last
three years as Director, Cardiovascular and Anesthesiology Clinical
Research. Dr. Fox was Group Leader, Division of Clinical Affairs,
Norwich Division, of Procter & Gamble, a consumer products company,
from May 1987 to March 1990. He received his bachelor of science in
pharmacology with honors, his bachelor of medicine, bachelor of
surgery and doctor of medicine degrees from the University of London,
is a member of the Royal Colleges of Physicians and is a fully
registered medical practioner in the United Kingdom.
David W. Nassif, J.D., joined the Company in August 1993 as Vice
President, Chief Financial Officer and Secretary. From January 1993
to August 1993, he was a consultant to various public and private
companies in the areas of capital raising, investor relations and
securities compliance. From July 1992 to January 1993, he was the
Vice President, Chief Financial Officer and Assistant Secretary of
999, Inc., a diversified manufacturing and environmental services
company. From December 1987 to July 1992, he was the Vice President
and Assistant Secretary of Showscan Corporation, a technology
company. Mr. Nassif holds honors finance, management information
systems and law degrees from the University of Virginia.
Item 2. Properties.
The Company leases and occupies two buildings in Carlsbad,
California at a total monthly rental of $30,000. The Company's
executive offices and distribution facility are located in
14,595 square feet of space located at 2714 Loker Avenue West
(the "2714 Space") and the Company's pre-clinical research
group and laboratories are located in 8,547 square feet at
2732 Loker Avenue West (the "2732 Space"). The lease on the
2714 Space commenced April 1996 and has a term of 69 months.
The lease on the 2732 Space commenced in December 1993 and has
a term of 81 months. Both leases have clauses providing for
rent increases at various points in time during the term of the
leases.
Item 3. Legal Proceedings.
The Company is not a party to any legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of the Company's security holders
during the fourth quarter of the fiscal year ended July 31, 19964.
PART II.
Item 5. Market for Registrant's Common Equity and Related Shareholder
Matters.
The Common Stock of the Company was quoted on the Nasdaq SmallCap
Market under the symbol "CYPR" sincefrom November 3, 1992, the date
of the Company's initial public offering, on November 3, 1992 until
April 11, 1995 when it commenced trading on the Nasdaq National
Market System under the same trading symbol. Prior to that date,
there was no public market for the Common Stock. The Redeemable
Class A and Class B Warrants are also quoted on the Nasdaq SmallCap
MarketNational Market System under the symbol s "CYPRW" and "CYPRZ",
respectively. The following table sets forth for the calendar
quarters indicated, the high and low sales prices of the Common Stock
on the Nasdaq SmallCap Market or the Nasdaq National Market System,
as the case may be, as reported in published financial sources. On
May 8, 1995, the Company split its stock on a 2.5:1 basis. All of the
prices shown in the table have been adjusted for the split.
Year ended July 31, 1996 High Low
First Quarter $7.759.13 $35.00.00
Second Quarter $12.506.13 $3.13
Third Quarter $12.006.19 $10.3754.56
Fourth Quarter $6.13 $11.3753.63
Year ended July 31, 1995 High Low
First Quarter $5.50 $5.00
Second Quarter $5.90 $4.60
Third Quarter $6.70 $3.20
Fourth Quarter $9.50 $6.88
3
Second Quarter (from November 3, 1992) $11.25
$ 7.25
Third Quarter $10.75 $
9.25
Fourth Quarter $ 9.75 $ 1.50
Year ended July 31, 1994
The last sales price of the Common Stock on October 2121, 19964 was
$4.0013.50.
According to a survey as of September 23, 1996, there were 1,562
beneficial owners of the Common Stock. 3
The Company has not paid any dividends since its inception and does
not intend to pay any dividends on its Common Stock in the
foreseeable future.
Item 6. Selected Financial Data.
The following table sets forth certain financial data with
respect to the Company. The selected financial data should be read
in conjunction with the Company's Financial Statements (including the
Notes thereto) and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" appearing elsewhere in this
Report.
Years
ended
July
31,
1992 1993 1994 1995 1996
<
C
Statement of
Operations Data:
Net sales $ $ - $ - $ - $ 1,275
-
Gross Profit - - - - 870
Total operating 359 1,715 2,565 3,910 4,988
expenses
Loss from operations (359) (1,715) (2,565) (3,910) (4,118)
Other income, net 51 121 190 797 1,028
Net loss (308) (1,594) (2,375) (3,113) (3,090)
Net loss per share (0.07) (0.28) (0.32) (0.32) (0.27)
Shares used in
computing
net loss per 4,350 5,637 7,357 9,860 11,518
share
July
31,
Balance Sheet Data: 1992 1993 1994 1995 1996
Cash, cash
equivalents and
short-term $ $ $ $ $
investments 220 4,444 5,666 13,442 15,997
Working capital
27 4,311 5,284 12,934 15,384
Total assets
303 4,900 6,206 14,175 19,747
Long-term debt
- 160 240 195 228
Common stock
257 6,748 9,927 20,945 21,838
Accumulated deficit
(310) (1,904) (4,279) (7,392) (10,482
)
Total shareholders'
equity 110 4,578 5,476 13,366 18,510
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Except for the historical information contained herein, the following
discussion contains forward-looking statements that involve risks and
uncertainties, including statements regarding the period of time
during which the Company's existing capital resources and income from
various sources will be adequate to satisfy its capital requirements.
The Company's actual results could differ materially from those
discussed herein. Factors that could cause or contribute to such
differences include but are not limited to, those discussed in this
section, as well as in the sections entitled "Business", "Licenses",
"Manufacturing", "Sales and Marketing", "Competition", "Government
Regulation", "Patents and Proprietary Rights", those discussed in the
S-3 Registration Statement File No. 333-3507 filed with U.S.
Securities and Exchange Commission, as well as those discussed in any
documents incorporated by reference herein or therein..
The Company was founded in 1990, commenced its research and
development activities in 1991, completed an initial public offering
(the "IPO") in November 1992, commenced clinical trials in December
1994 and acquired two FDA-cleared products, Glofil and Inulin, (the
"Acquisitions") in August 1995. The Company has sustained an
accumulated deficit of $10,480,000 from inception through July 31,
1996. As the Company will not have significant positive net operating
cash flow for the next few years and the Company's research and
development, clinical testing and regulatory, sales and marketing and
general and administrative expenses during these years will be
substantial and increasing, the Company expects to incur increasing
losses for the foreseeable future.
will continue to be in the development stage for the next few years
and its
Results of Operations
Year ended July 31, 1996 compared to year ended July 31, 1995
During the fiscal year ended July 31, 1996, the Company sustained a
loss of $3,090,000 (or $.27 per share) compared to a loss of
$3,113,000 (or $.32 per share) for the prior fiscal year. The gross
profit of $870,000 on sales of Glofil and Inulin and other income of
$1,028,000 (principally interest income) during the current fiscal
year was offset by $4,988,000 in expenses in the sales and marketing,
general and administrative, clinical testing and regulatory and
research and development areas. During the prior fiscal year, there
were no product sales and other income of $797,000 (principally
interest income) was offset by $3,910,000 in expenses in the above
areas.
During the current year, the Company spent $343,000 on sales and
marketing, principally in the hiring of a field sales force and a
customer service function and in various marketing and promotional
programs. No such expense was recorded in the prior fiscal year as
the Company was still in the development stage and had not yet
acquired Glofil and Inulin.
General and administrative expense increased $671,000 during the
current year, principally due to $438,000 in amortization expense of
the purchased technology related to the acquisition of Glofil and
Inulin. The Company also recorded a $196,000 increase in the
amortization of deferred compensation related to the issuance of
stock, stock options and warrants at prices below market value and a
$178,000 increase in salary expense due to increased hiring of staff.
Clinical testing and regulatory expense decreased by $149,000 during
the current year, principally due to a decrease of $209,000 in
contract research organization costs because of a lower accrual for
the Company's Phase II congestive heart failure trial on CPC-111 and
a decrease of $177,000 in licensing milestone expenses, offsetting
increases in other areas, including a $180,000 increase in salary
expense due to additional hiring. During the prior year, the Company
recorded a one-time milestone expense from the issuance of a non-
qualified stock option grant to the licensor of CPC-211 as a
milestone payment for the completion of that drug's Phase I trial.
Research and development increased by $214,000 during the current
year due to increases in salary expense, the use of outside
collaborators and expense related to the Phase II Small Business
Innovation Research Grant for the neuronal calcium channel blocker
program (which grant was completed during the year) and the six-month
Phase I Small Business Innovation Research Grant for the CPC-111 pro-
drug program (which was awarded to the Company during the current
year).
In addition, net interest and other income for the current year
increased by $231,000 principally due to (i) the interest income from
a larger investment portfolio as a result of the various private
placements during the year (described below in Liquidity and Capital
Resources) and the Class A Warrant Program (also described below in
Liquidity and Capital Resources), which was not available for all of
the prior-year period because the program began in November 1994 and
was completed in February 1995 and (ii) fees and interest earned on a
loan that the Company made during the current year to a financial
advisor.
Year ended July 31, 1995 compared to year ended July 31, 1994
During the fiscal year ended July 31, 1995 (the "1995 Year"), the
Company sustained a loss of $3,113,000 (or $.32 per share) compared
to a loss of $2,375,000 (or $.32 per share) for the prior fiscal
year. Increased payroll caused increases in research and development,
clinical testing and regulatory and general and administrative
expenses. Clinical testing and regulatory expenses during the 1995
Year also reflected the commencement and completion of the Phase I
trial on CPC-211 (and the expense related to a milestone payment to
the licensor of CPC-211 to the Company in the form of a common stock
purchase warrant), the commencement of the Phase II trial on CPC-111
in congestive heart failure patients and the commencement of the
Phase II trial on CPC-111 in cardiac surgery patients. Financial
advisory and investor relations costs accounted for significant
increases in general and administrative expenses during the 1995
Year, including $315,000 of expense recognized in connection with the
issuance (and subsequent repricing) of a warrant as compensation for
services performed through July 31, 1995.
During the 1995 Year, the Company received $250,000 of income from
the Phase II Small Business Innovation Research Grant awarded to the
Company by the National Institutes of Health in July 1994 (the
"Grant"). Research and development expense for the quarter includes
expenses incurred in connection with the Grant.
In addition, net interest and other income for the 1995 Year
increased 269% to $590,000 due principally to the interest income
from a larger investment portfolio and the investment of the proceeds
of the Special Class A Warrant Program at higher rates than the
Company's then-existing investment portfolio for similar securities
and maturities.
Year ended July 31, 1993 compared to year ended July 31, 1992
During the fiscal year ended July 31, 1993, the Company
sustained a loss of $1,593,602 compared to a loss of $308,440 for the
prior fiscal year. Following the IPO, the Company for the first time
had sufficient capital to expand its research and development
activities, begin preparation of the INDs and conduct related
clinical activities. In addition, the Company incurred substantial
costs associated with being a public company. Accordingly, research
and development, clinical and regulatory and general and
administrative costs increased substantially over the prior fiscal
yeaLiquidity and Capital Resources
The Company has principally funded its activities to date through
its initial public offering ("IPO") in November 1992, in which it
raised net proceeds of $5,951,000, subsequent exercises of its
Redeemable Class A Warrants in 1994 and early 1995, which raised
$10,497,000, exercises by the underwriter of the IPO of its unit
purchase options (and the Redeemable Class A Warrants within such
options), which raised $1,681,000, that it had received as part of
its compensation for the IPO and a private placement of mandatorily
convertible notes during July 1996, which raised $7,000,000. through
the issuance of 1,150,000 units, each comprising a share of Common
Stock, a Redeemable Class A Warrant ("Class A Warrant") and a
Redeemable Class B Warrant ("Class B Warrant"). In October 1993, the
Company received proceeds of $725,625 from the exercise of "bridge"
warrants for 537,500 shares of Common Stock (the "Bridge Warrant
Exercise") which had been issued in connection with a bridge loan to
the Company prior to the IPO.
From December 1993 to March 1994, the Company conducted a
special program designed to encourage holders of Class A Warrants to
exercise their warrants immediately (the "Class A Warrant Program")
in order to provide the Company with additional working capital prior
to commencing clinical testing. The holders of the Class A Warrants
were offered one-half of a Class B Warrant and 1.175 shares of
Common Stock upon exercise of each Class A Warrant at an adjusted
price of $9.253 (equal to 117.5% of the original exercise price of
$7.875). This program resulted in the Company's receipt of net
proceeds of $2,355,123 from the exercise of 258,831 Class A Warrants
and the Company's issuance of 304,123 shares of Common Stock and
129,414 Class B Warrants.
At July 31, 19964, the Company had cash, cash equivalents and
short-term investments of $13,442,000, compared to $13,442,000,
compared to $4,444,259 at July 31, 19935. The period-to-period
increase was principally due to the private placement of convertible
notesBridge Warrant Exercise and the. This factor also contributed to
the increase in working capital at July 31, 19946 to $15,384,000,
compared to $12,934,000, compared to $4,311,350 at July 31, 19953.
The Company expects that its cash needs will increase significantly
in future periods due to expansion of its research and development
programs, increased clinical testing activity, growth of
administrative, clinical and laboratory staff and their related
equipment and space needs. The CompanyManagement believes that the
Company's working capital will be sufficient to fund the operations
of the Company for approximately 36 months dependent, in part, on the
timing of the commencement of each phase of the clinical trials on
CPC-111 and CPC-211 and the funding priorities that it gives its
various research programs, the results of clinical tests and research
programs; competing technological and market developments; the time
and costs involved in obtaining regulatory approvals and in
obtaining, maintaining and enforcing patents; the cost of product
acquisitions and their resulting cash flows and other factors.
estimates that its existing cash, cash equivalents and short-term
investments and the income from the Phase II SBIR Grant will be
sufficient to meet the Company's cash needs for at least the next 12
months. Accordingly, the Company will need to raise substantial
additional funds to continue development and commercialization of its
products. The Company's future cash requirements will be affected by
results of research and development programs and clinical testing;
competing technological and market developments; the time and costs
involved in obtaining regulatory approvals and in obtaining,
maintaining and enforcing patents; success in obtaining additional
grants and other factors.
The Company expects to seek additional funds through exercises of its
currently outstanding options and warrants, public or private equity
financings, and collaborations or from other sourceswith corporate
partners. There can be no assurance that funds can be obtained on
desirable terms or at all. The Company may seek to raise additional
capital whenever conditions in the financial markets are favorable,
even if the Company does not have an immediate need for additional
cash at that time.
Item 8. Financial Statements and Supplementary Data.
The Financial Statements of the Company and Report of
Independent Auditors are filed as exhibits hereto, listed under Item
14 of this Report and incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.
None.
PART III.
Item 10. Directors and Executive Officers of the Registrant.
The information regarding directors is hereby incorporated by
reference to the section entitled "Election of Directors" in the
Company's definitive Proxy Statement to be filed with the Securities
and Exchange Commission in connection with the Company's 19975 Annual
Meeting of Shareholders (the "Proxy Statement").
The information regarding executive officers appears under the
section entitled "Executive Officers of Registrant" appearing in Item
1 of Part I of this Report.
Item 11. Executive Compensation.
The information required by this item is hereby incorporated by
reference to the section entitled "Executive Compensation" in the
Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and
Management.
The information required by this item is hereby incorporated by
reference to the section entitled "Security Ownership of Certain
Beneficial Owners and Management" in the Proxy Statement.
Item 13. Certain Relationships and Related Transactions.
The information required by this item is hereby incorporated by
reference to the section entitled "Transactions with Related Parties"
in the Proxy Statement.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) (1)(2) Financial Statements and Schedules.
The financial statements are incorporated herein by reference from
Exhibit 99.1, which begins with the Table of Contents on Page F- 1.
(a) (3) Exhibits.
See Exhibit Index on page 29.The following exhibits are referenced or included
in this report.
The following management compensation plans and arrangements are
required to be filed as exhibits pursuant to Item 14(c) of this
report.
Exhibit
Number Description
3.1* Restated Articles of Incorporation of the Registrant, as
amended.
3.2* Bylaws, as amended.
4.1* Specimen stock certificate.
4.2* Specimen Redeemable Class A Warrant.
4.3* Specimen Redeemable Class B Warrant.
4.4* Unit Purchase Option.
4.5* Form of Warrant Agreement.
4.6 Reference is made to Exhibits 3.1 and 3.2.
10.1* 1992 Stock Option Plan10.1 and related fForms of
Incentive Stock Option and Nonstatutory Stock
Option. ****
10.2 Amended 1992 Stock Option Plan.**
10.33* Form of Stock Purchase and Right of First
Refusal Agreement, with related schedule.*
10.4* Employment Agreement, dated July 10, 1991 as amended
and restated September, 1992, between the Registrant
and Paul J. Marangos, Ph.D. ***
10.55 Amendment No. 1 to Employment Agreement, dated May 9,
1994, between the Registrant and Paul J. Marangos,
Ph.D.*****
10.6 Amendment No. 2 to Employment Agreement, dated March 9, 1995,
between the Registrant and Paul J. Marangos, Ph.D.***
10.7 Amendment No. 3 to Employment Agreement, dated
October 1, 1996, between the Registrant and Paul J. Marangos,
Ph.D.
10.8 1993 Non-Employee Directors Stock Option Plan and
related form of Nonstatutory Stock Option. ****
____________
Lenders' Warrants, dated July 31, 1992, among the Registrant and J. Morton
Davis, Rosalind Davidowitz and Bernard B. Levine.
10.9* License Agreement, dated as of August 20, 1992, between the
Registrant and Angel K. Markov, M.D. (with certain confidential
infomation in brackets deleted). **
10. 10* License Agreement, dated as of August 27, 1992, between the
Registrant and University E.M., Inc. (with certain confidential
information in brackets deleted). **
10. 11 * License Agreement, dated September 3, 1992, between the Registrant
and John Olney, M. D. (with certain confidential information in
brackets deleted). **
10.14 License and Support Agreement, dated as of February 18, 1993,
between the Registrant and Elie Abushanab, Ph.D. (with certain
confidential information in brackets deleted).****
10.15 1993 Non-Employee Directors Stock Option Plan and related form
of Nonstatutory Stock Option. ***
23.1 Consent of Ernst & Young LLP, Independent Auditors.
24.1 Power of Attorney. Reference is made to page 26.
99.1 Financial Statements and Schedule* Filed as an exhibit to
the Registrant's Registration Statement on Form S-1, Registration No.
33-51682, and incorporated herein by reference.
** Filed as an exhibit to the Registrant's Form 10-Q for the period
ended January 31, 1995, and incorporated herein by reference.
*** Filed as an exhibit to the Registrant's Form 10-K for the fiscal year
ended July 31, 1994.
** Certain confidential portions deleted pursuant to Order Granting
Application Under the Securities Act of 1933 and Rule 406 Thereunder
Respecting Confidential Treatment, dated November 3, 1992.*** This
exhibit is a management contract or compensatory plan or arrangement
required to be filed pursuant to Item 14(c) of this re**** Filed as
an exhibit to the Registrant's Form 10-K for the fiscal year ended July
31, 1993.
Certain confidential portions deleted pursuant to Order Granting
Application Pursuant to Rule 24B-2 Under the Securities Exchange Act
of 1934 Respecting Confidential Treatment, dated December 20,
1993.(b) Reports on Form 8-K.
There were no reports on Form 8-K filed during the fourth quarter
of 19964.
(c) Exhibits.
The exhibits required by this Item are listed under Item 14 (a)
(3).
(d) Financial Statement Schedules.
The financial statement schedule required by this Item is
incorporated herein by reference from Exhibit 99.1, which begins
with the Table of Contents to the Financial Statements on Page F-1.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be
signed on its behalf by the undersigned, thereunto duly authorized, in the
City and County of San Diego, State of California, on the 24th day of
October, 19946.
CYPROS PHARMACEUTICAL CORPORATION
(Signature)
Paul J. Marangos
Chairman of the Board, President and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Paul J. Marangos, and David W. Nassif, and
each of them, his attorney-in-fact, each with the power of substitution,
for him in any and all capacities, to sign any amendments to this report,
and to file the same, with exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming all that each of said attorneys-in-fact, or his
substitute or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
Paul J. Marangos Chairman of the Board October 24,1996
(Signature) President and Chief Executive
Officer and Director4
(Principal Executive Officer) October 24, 1996
David W. Nassif Vice President, Chief
(Signature) Financial Officer
and Secretary
(Principal Financial and Accounting Officer)
Digby W. Barrios Director October 24, 19946
(Signature)
Bernard B. Levine Director October 24, 19946
Virgil Thompson Director October 24, 19946
(Signature)
Robert A. Vukovich Director October 24, 19946
(Signature)
Exhibit Index
Exhibit
Number Description Page No.
2.1 (1) Pharmaceutical Products Purchase and Distribution
Support Agreement as of August 9, 1995 by and among Iso-Tex
Diagnostics, Inc., Cypros Pharmaceutical Corporation and Thomas J.
Maloney. (2)
2.2 (1) Glofil Contract Manufacturing and Royalty
Agreement as of August 9, 1995 by and among Iso-Tex Diagnostics,
Inc., Cypros Pharmaceutical Corporation and Thomas J. Maloney. 2)
2.3 (1) Merger Agreement as of August 9, 1995 among Cypros
Pharmaceutical Corporation, Iso-Tex Diagnostics "B", Inc. and Jean
and Thomas Maloney. (2)
3.1 (3) Restated Articles of Incorporation of the Registrant.
3.2 (4) Amendment to Restated Articles of Incorporation.
3.3 (3) Bylaws, as amended.
4.1 (3) Specimen stock certificate.
4.3 (3) Specimen Redeemable Class B Warrant.
4.5 (3) Form of Warrant Agreement.
4.6 Reference is made to Exhibits 3.1 and 3.2.
10.1 (3) Forms of Incentive Stock Option and Nonstatutory Stock Option.
10.2 (4) Amended 1992 Stock Option Plan.
10.3 (3) Form of Restricted Stock Purchase Agreement, with related schedule.
10.4 (3) Employment Agreement, dated July 10, 1991 as amended and
restated September 1, 1992, between the Registrant and Paul J.
Marangos, Ph.D
.
10.5 (5) Amendment No. 1 to Employment Agreement, dated May 9, 1994,
between the Registrant and Paul J. Marangos, Ph.D.
10.6 (6) Amendment No. 2 to Employment Agreement, dated March 9,
1995, between the Registrant and Paul J. Marangos, Ph.D.
10.7 (7) 1993 Non-Employee Directors Stock Option Plan and related
form of Nonstatutory Stock Option.
10.8 Amendment No. 3 to Employment Agreement, dated
October 1, 1996, between the Registrant and Paul J. Marangos, Ph.D. 30
10.9 (3) License Agreement, dated as of August 20, 1992, between the
Registrant and Angel K. Markov, M.D. (with certain confidential
infomation in brackets deleted). (7)
10.11 (3) License Agreement, dated as of August 27, 1992, between the
Registrant and University E..M., Inc. (with certain confidential
information in brackets deleted). (7)
10.12 (4) Assignment of and Amendment to License Agreement by and
between University E.M., Inc., University of Cincinnati and the
Registrant.
10.13 (6) License and Support Agreement, dated as of February 18,
1993, between the Registrant and Elie Abushanab, Ph.D. (with certain
confidential information in brackets deleted). (8)
10.14 (9) Note Purchase Agreement dated July 11, 1996 by and among
Cypros Pharmaceutical Corporation and Paresco, Inc.
10.15 (9) Note Purchase Agreement dated July 31, 1996 by and among
Cypros Pharmaceutical Corporation and Cameron Capital Ltd.
23.1 Consent of Ernst & Young LLP, Independent Auditors. 31
24.1 Power of Attorney. Reference is made to page 27.
27. Financial Data Schedule - as filed electronically by
Registrant (for SEC use only)
99.1 Financial Statements. 32
______________
(1) Filed as an exhibit to the Registrant's Form 8-K dated
August 10, 1995 and incorporated herein by reference.
(2) Certain confidential portions deleted pursuant to an
application for Order Granting Confidential Treatment Under the
Securities Exchange Act of 1934 and Rule 24b-2 Thereunder filed
concurrently with the Form 8-K.
(3) Filed as an exhibit to the Registrant's Registration
Statement on Form S-1, Registration No. 33-51682, and incorporated
herein by reference.
(4) Filed as an exhibit to the Registrant's Form 10-Q for the
period ended January 31, 1995, and incorporated herein by reference.
(5) Filed as an exhibit to the Registrant's Form 10-K for the
fiscal year ended July 31, 1994.
(6) Filed as an exhibit to the Registrant's Form 10-K for the
fiscal year ended July 31, 1993.
(7) Certain confidential portions deleted pursuant to Order
Granting Application Under the Securities Act of 1933 and Rule 406
Thereunder Respecting Confidential Treatment, dated November 3, 1992.
(8) Certain confidential portions deleted pursuant to Order
Granting Application Pursuant to Rule 24B-2 Under the Securities
Exchange Act of 1934 Respecting Confidential Treatment, dated
December 20, 1993.
(9) Filed as an exhibit to the Registrant's Form 8-K dated
September 20, 1996 and incorporated herein by reference.
Form 10-K Items 14(a) (1) and (2)
Cypros Pharmaceutical Corporation
Years ended July 31, 1996, 1995 and 1994
wi33th Report of Independent Auditors
Cypros Pharmaceutical Corporation
Form 10-K Items 14(a) (1) and (2)
Contents
Report of Ernst & Young LLP, Independent Auditors F-2
Financial Statements (Item 14(a) (1)):
Balance Sheets F-3
Statements of Operations F-4
Statements of ShareholdersO Equity F-5
Statements of Cash Flows F-6
Notes to Financial Statements F-7
Financial Statement Schedules (Item 14(a) (2)):
All financial statement schedules are omitted because the information
described therein is not applicable, not required or is furnished in
the financial statements or notes thereto.
Report of Independent Auditors
The Board of Directors and Shareholders
Cypros Pharmaceutical Corporation
We have audited the accompanying balance sheets of Cypros
Pharmaceutical Corporation as of July 31, 1996 and 1995, and the
related statements of operations, shareholders' equity, and cash
flows for each of the three years in the period ended July 31, 1996.
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Cypros
Pharmaceutical Corporation at July 31, 1996 and 1995, and the results
of its operations and its cash flows for each of the three years in
the period ended July 31, 1996 in conformity with generally accepted
accounting principles.
ERNST & YOUNG
(Signature)
August 26, 1996
Cypros Pharmaceutical Corporation
Balance Sheets
July 31,
1996 1995
Assets
Current assets:
Cash and cash equivalents $8,306,752 $5,026,745
Short-term investments, held
to maturity (Notes 1 and 2) 7,690,297 8,415,250
Accounts receivable 149,626 -
Inventory 63,386 -
Prepaid expenses and other
current assets 61,409 25,910
Total current assets 16,271,470 13,467,905
Property, equipment and leasehold
improvements, net (Note 2) 608,206 411,651
Purchased technology, net of
accumulated amortization of
$438,238 at July 31, 1996
(Note 1) 2,629,427
Licenses and patents, net of
accumulated amortization of
$87,277 and $61,418 at
July 31, 1996 and 1995,
repectively (Note 4) 111,231 99,591
Deposits and other assets 126,180 195,692
Total assets
$ 19,746,514 $ 14,174,839
Liabilities and shareholders' equity
Current liabilities:
Accounts payable $ $ 138,537
119,092
Accrued compensation 155,748 83,594
Other accrued liabilities 231,864 189,713
Purchased asset obligation
(Note 1) 200,000 -
Current portion of long-term
debt (Note 3) 99,282 99,282
Current portion of capital
lease obligation (Note 4) 81,035 22,517
Total current liabilities 887,021 533,643
Long-term debt (Note 3) 41,367 140,650
Capital lease obligations
(Note 4) 187,265 54,149
Deferred rent (Note 4) 120,411 80,519
Commitments (Note 4)
Shareholders' equity: (Note 5)
Common stock, 30,000,000 shares
authorized, 11,613,748
and 11,352,017 shares issued
and outstandingas of July 31,
1996and 1995, respectively 21,838,493 20,944,995
Mandatorily convertible notes -
7,458,498
Deferred compensation (186,993)
(304,309)
Accumulated deficit
(10,482,232) (7,392,124)
Total shareholders' equity
18,510,450 13,365,878
Total liabilities and
shareholder's equity
$ 19,746,514 $ 14,174,839
See accompanying notes.
Cypros Pharmaceutical
Corporation
Statements of Operations
Years
ended July
31,
1996 1995 1994
Net sales $ 1,275,240 - -
Cost of sales 405,142 - -
Gross profit 870,098 - -
Operating expenses:
Sales and marketing 343,054 -
-
General and
administrative 2,254,000 1,583,420 1,015,666
Clinical testing and
regulatory 1,389,128 1,537,964 1,022,134
Research and development 1,002,226 788,424 526,835
Total operating expenses 4,988,408 3,909,808 2,564,635
Loss from operations (4,118,310) (3,909,808) (2,564,635)
Research grant income 270,510 250,000 -
Interest income, net (Note
3) 757,692 547,107 189,372
Net loss $ (3,090,108) $(3,112,701) $ (2,375,263)
Net loss per share $ (0.27) $ (0.32) $ (0.32)
Shares used in computing net
loss per share 11,518,169 9,859,857 7,357,960
See accompanying notes.