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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, 1997
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 33-0476164
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification
No.)
2714 Loker Avenue West (Zip Code)
Carlsbad, California 92008
(Address of principal executive offices)
Registrant's telephone number, including area code:
(760) 929-9500
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, no par value
(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 or 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 23,1997, the Registrant had 14,521,121 shares of
Common Stock, no par value, outstanding, and the aggregate
market value of the shares held by non-affiliates on that date
was $69,709,182 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 1,626,937 shares of Common Stock held by directors,
executive officers and shareholders whose beneficial ownership
exceeds ten percent of the shares outstanding on October
23,1997. 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 1998 Annual
Meeting of Shareholders to be filed on or before November 28,
1997 are incorporated by reference into Part III.
PART I.
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. 333-25661 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. The Company's sales and marketing force is
currently marketing three products, Glofil and Inulin, two
injectable drugs that assess kidney function by the measurement
of glomerular filtration rate, and Ethamolin, an
injectable drug that treats bleeding esophageal varices. Within
its development programs, the Company is currently conducting
Phase II clinical trials on CPC-111 and Ceresine (formerly CPC
211), two drugs potentially indicated for a number of major
disorders caused by impaired blood flow, known as "ischemia, and
is also planning Phase III clinical trials of CPC-111 in
coronary artery bypass grafting surgery and Ceresine in closed
head injury.
The Company's Acquired Products. The Company has a nine-person
sales and marketing force directed at the acute care, hospital
market. In advance of the approval of CPC-111 and Ceresine by
the U.S. Food and Drug Administration ("FDA"), the Company
is acquiring FDA-cleared products; Glofil-125 and Inulin, which
it acquired in 1995 and Ethamolin, which it acquired in November
1996 from Schwarz Pharma. The Company will continue to build its
sales and marketing force as it completes additional
acquisitions. During the fiscal year ended July 31, 1997, the
net sales of the Company's three products reached $2,428,000, a
90% increase over the $1,275,000 recorded during the prior
fiscal year.
Ischemia-Induced Cell Damage; Phase II Clinical Data Leading to
Phase III Decisions. There are several million cases of ischemia
induced disorders annually in the United States, resulting in
several hundred thousand deaths and several billion dollars 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
Ceresine are designed to act during and after ischemia by
maintaining cellular ATP levels or accelerating their
restoration. CPC-111 (a natural substance) and Ceresine 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 Ceresine are small molecules, easily
deliverable and inexpensive to produce. 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 Ceresine
will greatly reduce their development risk and may permit their
broad, early use in acute care settings, such as emergency
rooms, where rapid access to treatment is of utmost importance.
During the fiscal year ended July 31, 1997, the Company's
multiple-indication Phase II clinical trials generated
substantial amounts of data. Building upon positive interim data
released in December 1995, the Company twice released data on
its CABG surgery trial of CPC-111, and after evaluating data
from its Phase II trials in angioplasty patients and in
congestive heart failure patients, has recently concluded that
it will pursue the development of CPC-111 in Phase III trials of
CABG patients. During the fiscal year, the Company also released
data from its Phase II trial of Ceresine in closed head injury
patients and recently concluded that it will pursue the
development of Ceresine in Phase III trials of these patients.
In October 1997, the Company released positive data in its Phase
II trial of CPC111 in sickle cell anemia crisis patients.
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; (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; and (iii) a novel series of
compounds which inhibit the release of EAA (especially
glutamate) from glial cells in the brain for which the Company
received a $100,000 Small Business Innovation Research Phase I
grant during the year. The Company is attempting to develop lead
compounds from all three of the above pre-clinical programs to
treat a variety of ischemic disorders of both the cardiovascular
and cerebrovascular systems.
The Company is also pursuing the development of CPC-111 prodrugs
with improved pharmacokinetic and pharmacodynamic properties
that will permit oral delivery of CPC-111 and also access to the
central nervous system. Funding for this program was provided by
a $100,000 Small Business Innovation Research Phase I grant
received during the previous year.
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
CPC111 and Ceresine.
Glofil-125 and Inulin
Kidney disease afflicts more than 2 million persons in the
United States and is increasing primarily due to the growth in
diabetes and systemic lupus erythromatosis cases. Kidney disease
results in over $12 billion annually in healthcare costs in the
United States. The measurement of kidney function (glomerular
filtration rate or GFR) is critical to the understanding of the
disease state and its appropriate therapeutic intervention. GFR
has historically been estimated by the measurement of endogenous
serum creatinine and by 24-hour urinary creatinine clearance.
These diagnostic assays overestimate kidney function by as much
as 100 percent in patients. The Company believes that the
injection of a renal filtration marker, such as Inulin and
Glofil125, is the most accurate and direct means of determining
GFR.
Glofil-125 and Inulin are FDA-cleared products for the
measurement of GFR. Nephrologists and nuclear medicine
departments at major medical centers are the primary users of
these products. During the fiscal year ended July 31, 1997, the
Company recorded sales from these two products of $1,528,000, a
20% increase over the $1,275,000 recorded during the prior
fiscal year. Two customers using Glofil-125 for long-term
research studies accounted for 23% and 13%, respectively, of net
sales of these products during the most recent fiscal year.
Glofil-125 is an injectable radioactive diagnostic drug, which
provides rapid information on GFRs with great accuracy. It 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 of their low cost, however both methods significantly
overestimate kidney function in the estimated 500,000 patients
with severe renal disease. The use of Glofil-125 has been
established in published clinical studies as being a more
direct, true measure of kidney function yielding much more
accurate results than serum creatinines or creatinine
clearances. 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 termination of the
research studies being conducted by the Company's two largest
customers.
Inulin, which is sold by the Company, and 99mTc-DTPA (which is
not sold by the Company and must be prepared onsite by the end
user) 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.
Ethamolin
Approximately 75,000 people in the United States have or are
approaching end stage liver disease. Liver disease (hepatic
cirrhosis) results in approximately 25,000 deaths annually and
ranks ninth among the leading causes of death. Hepatic
cirrhosis promotes the formation of esophageal varices through
development of portal hypertension. When intravenous blood
pressure rises, these varicosities may cause a life threatening
form of upper gastrointestinal hemorrhage associated with a 35-
50% mortality rate. At least 50,000 patients in the United States
either have actively bleeding esophageal varices or are at imminent
risk of bleeding.
Early and effective treatment of esophageal varices to achieve
hemostasis is essential to the outcome of the bleeding patient.
The most common pharmaceutical treatment protocol involves the
injection of a sclerosing agent into the varix, achieving clot
formation and obliteration of the varix. This form of
hemostasis is called sclerotherapy and usually requires multiple
treatment sessions. Ethamolin is the only sclerotherapy agent
cleared by the FDA for the treatment of bleeding esophageal
varices and has recently become the market leader in this
therapeutic category. However, there is strong competition from
another drug, Sotradecol, which is being prescribed off-label,
and from band ligation, a form of surgery.
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 several million
cases annually in the United States. The Company believes that
its drugs, if approved, could substantially reduce not only the
large number of fatalities associated with ischemia-related
disorders but also reduce significantly the billions of dollars
spent annually in rehabilitation and ongoing care in the United
States of these victims.
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 in 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
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, which are performed to improve blood flow to the heart,
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, the Company expects 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 72,000
African-Americans suffer from the most severe form (homozygous)
of the disease, where the red blood cells form "sickle" shapes
that can clog up capillaries and result in severe and
disseminated ischemia (termed sickle cell "crisis"). Most sickle
cell patients undergo multiple crises each year. CPC-111 has
been shown pre-clinically to help reduce this "sickling" process
and the Company is evaluating it in a Phase II trial of sickle
cell anemia crisis patients. This disease qualifies as an orphan
indication and may qualify for expedited FDA review.
The Pathology of Ischemia
Metabolic Aspects (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
celldamaging 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 or the Krebs cycle,
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
Ceresine 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. Ceresine reduces ischemia induced lactic acid
accumulation by removing the cause of the metabolic block, 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. To date, the drugs in development
that act by this mechanism 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.
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."
Additionally, the Company is developing a novel series of
compounds which inhibit the release of EAA (especially
glutamate) from glial cells in the brain for which the Company
received a $100,000 Small Business Innovation Research Phase I
grant during the year.
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 reestablished. 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 which break
down proteins and 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 Ceresine, address 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
preempt 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.
Cardiovascular and Cerebrovascular Ischemia Drugs
in Development -The Metabolism Program
The Company is conducting two Phase II clinical trials on CPC
111 and two Phase II trials on Ceresine. These drugs are
designed to minimize the tissue damage associated with
surgically-induced ischemia in the CABG setting, sickle cell
anemia crises, and stroke and traumatic head injury. The Company
has released substantial amounts of data from its CABG trial of
CPC-111 and its traumatic head injury trial of Ceresine and is
planning Phase III trials in both of these indications. The
Company is finishing a multi-dose cohort in each of these
indications before finalizing Phase III protocols.
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 drug also appears to inhibit
various aspects of immune system activation which underly
reperfusion injury. The Company has licensed four issued U.S.
patents which cover the use of CPC-111 in several acute
ischemic indications, was recently issued a notice of allowance
for a U.S. patent on a novel formulation of CPC-111, and has
several patents pending in the United States and Europe.
There are several published U.S. and foreign clinical studies
with CPC-111, where more than 500 patients were administered the
drug, indicating that it is well tolerated in humans with little
or no side effects. These studies indicate that the drug
improves heart function in various situations where the heart is
injured. In addition, more than 250 patients have participated
in the four Phase II trials of CPC-111 under the Company's IND
and the drug continues to be well tolerated.
More than 115 patients have participated in the double-blind,
placebo-controlled Phase II trial in CABG surgery patients, and
the interim data released in December 1995, August 1996 and June
1997 demonstrates that in patients receiving the active drug,
CPC111 (a) has a cardioprotective effect on heart muscle, (b)
improves key parameters of heart function, including cardiac
output, left ventricular stroke work index and cardiac index and
(c) reduces the need for inotope support post-operatively in the
intensive care unit (the "ICU") and results in shorter patient
stays in the ICU. The CABG data is superior to the data from the
Phase II trials of CPC-111 in angioplasty and congestive heart
failure patients and has led the Company to announce that it
will pursue the Phase III development of CPC-111 in the CABG
indication. The Company is currently finishing a multi-dose
cohort in this trial and will then finalize a Phase III
protocol.
In October 1997, the Company released positive data from a 47
patient double-blind, placebo-controlled, dose-ranging Phase II
clinical trial with CPC-111 in sickle cell anemia crisis
patients showing that the drug significantly reduced pain during
crisis using two different measures of pain, the visual analog
scale and the categorical assessment scale.
Ceresine. Ceresine 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 Ceresine in cerebral ischemia and, during the fiscal
year ended July 31, 1997 was issued a U.S. patent on a novel
dosing regimen of Ceresine. The Company believes that Ceresine
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 lactic acid in the
cell. 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 Ceresine reduces post-
ischemia lactic acid levels in humans subjected to various
traumatic events which would otherwise have resulted in
increased lactic acid (lactic acidosis).
Ceresine has been employed by clinical investigators in patients
on an experimental basis for the intravenous treatment of lactic
acidosis. Published clinical studies and the Company's own
Phase I data have established that Ceresine 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.
During the fiscal year ended July 31, 1997, the Company
completed a Phase II clinical trial on Ceresine in closed head
injury patients, which showed that the drug crosses the blood-
brain barrier at high levels and very quickly thereafter reduce
lactate levels substantially. This effect lasted for at least 12
hours. Serum lactate levels were also reduced substantially in the
drug treated group. Subsequently, the Company amended the
protocol for this trial to add multi-dose cohorts and is in the
process of finishing them. The strength of this data has led the
Company to announce that it will pursue the Phase III
development of Ceresine in this indication in 1998. In
addition, a Phase II clinical trial on Ceresine 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,
various calcium ion channels on neuronal cells and chloride
channels on glial 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 and 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.
Glial Chloride Channel Blockers. The Company has synthesized a
series of agents designated as the CPC-700 series. These agents
act to inhibit glial cell swelling in the brain which occurs
after injury in disorders such as stroke and head injury. These
agents inhibit the excess release of EAAs from glial cells and
have demonstrated neuroprotective properties. The Company is
currently filing patents on these compounds.
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 ischemic indications. As part of the license, the
Company is funding clinical development in Dr. Markov's
laboratories at the University of Mississippi Medical Center.
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
Ceresine. The Company has an exclusive license from the
University of Cincinnati ("UC") to a U.S. patent covering the
use of Ceresine 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 UC. To date, the Company has met all milestones.
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 manufacture any of its acquired
products or its products in development. Glofil is
manufactured for the Company by the former owner of the drug,
Inulin is manufactured for the Company by one of its existing
contract manufacturers, and Ethamolin is manufactured for the
Company by the company who manufactured it for Schwarz Pharma.
In the case of CPC-111 and Ceresine, 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 CPC111 and Ceresine 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, Ceresine
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 Company currently has a director of sales and marketing, a
customer service representative, a product manager and five
field sales representatives for Glofil, Inulin and Ethamolin
and is hiring additional sales representatives. The Company
believes that it will be able to serve the hospital market in
North America with a 50 to 70 person sales and marketing
staff. 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 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
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.
Also, the Prescription Drug Act of 1997 requires 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 Ceresine which
has an expiration date of 2003. During the fiscal year ended
July 31, 1997, the Company was issued a U.S. patent on a novel
dosing regimen for Ceresine and received a notice of allowance
on a U.S. patent for a novel formulation of CPC-111 (the
"Formulation Patent"). Corresponding applications to the
Formulation Patent have been filed in Europe, Japan and Canada.
In addition, during the fiscal year ended July 31, 1997, the
Company received a notice of allowance on a U.S. patent
covering the use of CPC-111 in the prevention of organ
transplant rejection and licensed additional U.S., Australian
and European patents from the Australian National University
covering the use of CPC-111 in this same area, as well as in
the area of inflammatory disorders of the immune system.
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 Animal models of
School of Medicine stroke/clinical trials
Ronald Hayes, Ph.D.
Professor of Neurosurgery, Animal models of
University of Texas, Houston 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, Excitotoxicity;
Washington University, St. Louis animal models of stroke
Edward J. Cragoe, Ph.D.
Former Senior Director of Medicinal
Chemistry, Merck Sharp & Dohme Medicinal chemistry/ion
Research Laboratories 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 Medicinal
University of Rhode Island 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 Ceresine. 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
Randall M. Chestnut, M.D.
Oregon Health Sciences Center
School of Medicine, Division of
Neurosurgery Portland, Oregon
Charles F. Contant, Jr., Ph.D.
Baylor College of Medicine
Department of Neurosurgery
Houston, Texas
Patrick M. Kochanek, M.D.
Safar Center for Resuscitation Research
University of Pittsburgh
Pittsburgh, Pennsylvania
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 October 24, 1997, the Company had 39 full-time employees,
seven of whom hold Ph.D. degrees, one of whom also holds an
M.D. degree and one of whom holds a J.D. degree. Eleven of the
full-time employees are employed in finance and general
administration, twelve in clinical and regulatory affairs and
quality assurance, seven in research and development, and nine
in sales and marketing, customer service and business
development. 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 October 24, 1997:
Name Age Position
Paul J. Marangos, 50 Chairman of the Board, President
Ph.D. and Chief Executive Officer
Stephen C. Eisold 51 Executive Vice President of
Commercial Development and Chief
Operating Officer
Zofia E. Dziewanowska, 57 Senior Vice President, Drug
Ph.D, M.D. Development and Regulatory Affairs
David W. Nassif, J.D. 43 Senior 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.
Zofia E. Dziewanowska, Ph.D., M.D., joined the Company in
October 1997 as the Senior Vice President of Drug Development
and Regulatory Affairs. May 1994 to October 1997, she was the
Senior Vice President, Global Clinical Affairs, of Genta
Incorporated ("Genta"), a San Diego-based pharmaceutical
company principally engaged in using a proprietary drug
delivery technology to develop oral controlled-release
formulations for presently marketed drugs which have lost, or
will lose, patent protection and/or marketing exclusivity.
Prior to joining Genta, Dr. Dziewanowska spent 17 years at
Hoffman-La Roche in various research and development positions,
including Vice President and Director of International
Therapeutic Research and Medical Affairs Advisor. Dr.
Dziewanowska is currently holding a faculty appointment at the
Cornell University Medical School. She also has held various
positions in the Pharmaceutical Research and Manufacturers
Association of America, the most recent being a Vice-Chairman
of the Medical Section Steering Committee, American Association
of Pharmaceutical Physicians and the International Federation
of Pharmaceutical Medicine. She received an M.D. degree from
the University of Warsaw Medical School and a Ph. D. in
physiology from the Institute of Immunology and Experimental
Therapeutics, Polish Academy of Science.
David W. Nassif, J.D., joined the Company in August 1993 as
Vice President, Chief Financial Officer and Secretary, and was
promoted to Senior Vice President in September 1997. From
January 1993 to August 1993, he was a consultant to various
public and private companies in the areas of capital raising,
mergers and acquisitions, investor relations and securities law
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 two buildings in Carlsbad, California at a
total monthly rental of $36,000. All of the Company's
operations are located in 18,339 square feet of space located
at 2714 Loker Avenue West (the "2714 Space"). Until April 1997,
the Company's pre-clinical research group and laboratories were
located in 8,547 square feet at 2732 Loker Avenue West (the
"2732 Space"). During that month, these operations were moved
into the 2714 Space and the 2732 Space was subleased to another
pharmaceutical company (the "Subtenant").
The Company has leases on two floors in the 2714 Space, one of
which commenced April 1996 and has a term of 69 months and the
other of which commenced November 1996 and has a term of 61
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 terms
of the leases. The Subtenant's lease covers the remainder of
the Company's original lease term plus a 36-month option, and
the Subtenant's rental payments to the Company exceed the
Company's rental payments to the landlord. In addition, the
sublease provides for annual rent increases. Under the
sublease, the Company is required to spend up to $200,000 on
tenant improvements (the "Tenant Improvement Obligation") to
the 2732 Space, however, the net present value of the
Subtenant's rental
payments over the term of the sublease greatly exceeds the
Tenant Improvement Obligation.
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, 1997.
PART II.
Item 5. Market for Registrant's Common Equity and Related
Shareholder Matters.
The Common Stock of the Company is quoted on the Nasdaq
National Market System under the symbol "CYPR". The
Redeemable Class B Warrants of the Company, which expire on
November 3, 1997, are also quoted on the Nasdaq National Market
System under the symbol "CYPRZ". The following table sets forth
for the calendar quarters indicated, the high and low sales
prices of the Common Stock on the Nasdaq National Market
System, as reported in published financial sources.
Year ended July 31, 1997 High Low
First Quarter $5.75 $3.48
Second Quarter $5.75 $3.63
Third Quarter $5.88 $4.00
Fourth Quarter $5.81 $4.00
Year ended July 31, 1996 High Low
First Quarter $9.13 $3.00
Second Quarter $6.13 $3.13
Third Quarter $6.19 $4.56
Fourth Quarter $6.13 $3.63
The last sales price of the Common Stock on October 24, 1997
was $5.31.
According to a survey of non-objecting beneficial owners as of
October 3, 1997, there were 1,942 beneficial owners of the
Common Stock.
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.
During March 1997, the Company completed a private placement of
1,075,000 shares of Common Stock to the President and Fellows
of Harvard College and another institutional investor under SEC
Regulation D (the "Harvard Placement"), which raised gross
proceeds of $4,993,375 and netted $4,715,000 to the Company
after fees and expenses.
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,
1993 1994 1995 1996 1997
(in thousands, except per share data)
Statement of
Operations Data:
Net sales $ - $ - $ - $ 1,275 $ 2,428
Gross Profit - - - 870 1,890
Total operating
expenses 1,715 2,565 3,910 4,988 7,466
Loss from operations (1,715) (2,565) (3,910) (4,118) (5,576)
Other income, net 121 190 797 1,028 (1,099)
Net loss (1,594) (2,375) (3,113) (3,090) (6,675)
Net loss per share (0.28) (0.32) (0.32) (0.27) (0.54)
Shares used in
computing net loss
per share 5,637 7,358 9,860 11,518 12,303
At July 31,
Balance Sheet Data: 1993 1994 1995 1996 1997
Cash, cash
equivalents and
short-term
investments $ 4,444 $ 5,666 $ 13,442 $ 15,997 $ 14,567
Working capital 4,311 5,284 12,934 15,384 13,053
Total assets 4,900 6,206 14,175 20,266 21,345
Long-term debt 160 240 195 6,624 4,176
Common stock 6,748 9,927 20,945 23,421 32,345
Accumulated deficit (1,904) (4,279) (7,392) (10,482) (17,157)
Total shareholders'
equity 4,578 5,476 13,366 12,635 15,026
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. 333-25661 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, acquired two FDA-cleared products,
Glofil and Inulin, (the "Acquisitions") in August 1995, and
acquired a third FDA-cleared product, Ethamolin, in November
1996. The Company has sustained an accumulated deficit of
$17,157,000 from inception through July 31, 1997.
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.
Results of Operations
Year ended July 31, 1997 compared to year ended July 31, 1996
During the fiscal year ended July 31, 1997, the Company
sustained a loss of $6,675,000 (or $.54 per share) compared to
a loss of $3,090,000 (or $.27 per share) for the prior fiscal
year. The gross profit of $1,890,000 on sales of Glofil, Inulin
and Ethamolin and other income of $761,000 (principally
interest income) during the current fiscal year were offset by
$7,465,000 in expenses in the sales and marketing, general and
administrative, clinical testing and regulatory and research
and development areas and $1,860,000 in amortization of
discount and costs on its mandatorily convertible notes (the
"Notes"). During 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) 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 and depreciation and amortization
expenses.
Sales and marketing expense increased by 189% to $994,000 from
$343,000 in the prior year, principally as a result of
increased payroll expense from the hiring of additional field
sales representatives, a product manager and an administrative
assistant, and related travel, hotel and meal costs.
General and administrative expense increased by 46% to
$2,396,000 from $1,642,000 in the prior year. 38% of the
increase was due to the commencement of a comprehensive
investor relations program and the remainder reflected the
impact of the expansion of the Company's activities on
personnel, consulting, business development, investment
banking, rent, travel and meals, legal and accounting fees and
insurance.
Clinical testing and regulatory expense increased 41.7% to
$1,967,000 from $1,389,000 in the prior year, principally as
the result of increased site costs and use of data input and
management, statistical and other consultants to accelerate,
finish and report on the Company's various clinical trials.
Depreciation and amortization expense increased 75.6% to
$1,075,000 from $612,000 in the prior year, principally as a
result of the acquisition of Ethamolin during the current year
and the related amortization of that purchased technology.
During the current year, the Company recognized $1,860,000 of
expense related to the amortization of (i) the discount on the
Notes and (ii) the deferred financing costs related to the
private placements of the Notes. This resulted from the re-
classification of the Notes from equity to debt resulting from
a review of the Company's various filings under the Securities
Exchange Act of 1934 by the Securities and Exchange Commission
triggered by the filing of a registration statement during the
year pertaining to the resale of the Common Stock underlying
some of the Notes.
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.
Clinical testing and regulatory expense decreased 8.5% to
$1,389,000 from $1,517,000 in the prior 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 Ceresine as
a milestone payment for the completion of a Phase I trial.
Research and development expense increased 34.4% to $1,002,000
from $745,000 in the prior 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).
Depreciation and amortization expense increased 442% to
$612,000 from $113,000 in the prior year, principally as a
result of the acquisition of Glofil and Inulin during the
current year and the related amortization of that purchased
technology.
In addition, net interest and other income for the current year
increased 38.5% to $758,000 from $547,000 in the prior year
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.
Liquidity and Capital Resources
The Company has principally funded its activities to date
through its initial public offering ("IPO") in November 1992,
which raised $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, three private
placements of mandatorily convertible notes during July 1996,
which raised net proceeds of $7,464,000 (the "Notes") and the
Harvard Placement.
During the year, $3,973,000 in principal amount of the Notes
was converted into 954,000 shares of Common Stock, no par
value, of the Company.
At July 31, 1997, the Company had cash, cash equivalents and
short-term investments of $14,567,000, compared to $15,997,000
at July 31, 1996. Also, the Company's working capital at July
31, 1997 declined to $13,053,000 from $15,384,000 at July 31,
1996, principally as a result of the issuance of the $1,200,000
promissory note to Schwarz Pharma as partial consideration for
the acquisition of Ethamolin, which is due and payable in
November 1997.
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. Management
believes that the Company's working capital will be sufficient
to fund the operations of the Company for approximately 24
months dependent, in part, on the timing of the commencement of
each phase of the clinical trials on CPC-111 and Ceresine 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.
The Company expects to seek additional funds through exercises
of its currently outstanding options and warrants, public or
private equity financings, collaborations or from other
sources. 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 Ernst &
Young LLP, 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 1998 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 30.
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
10.1 Forms of Incentive Stock Option and Nonstatutory Stock
Option.*
10.2 Amended 1992 Stock Option Plan.**
10.3 Employment Agreement, dated July 10, 1991 as amended
and restated September 1, 1992, between the Registrant and Paul J.
Marangos, Ph.D. *
10.4 Amendment No. 1 to Employment Agreement, dated May 9,
1994, between the Registrant and Paul J. Marangos, Ph.D.***
10.5 Amendment No. 2 to Employment Agreement, dated March 9, 1995,
between the Registrant and Paul J. Marangos, Ph.D.****
10.6 Amendment No. 3 to Employment Agreement, dated October 1,
1996, between the Registrant and Paul J. Marangos, Ph.D.*****
10.7 1993 Non-Employee Directors Stock Option Plan and related
form of Nonstatutory Stock Option. ******
____________
* 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.
**** Filed as an exhibit to the Registrant's Form 10-K for the
fiscal year ended July 31, 1995.
***** Filed as an exhibit to the Registrant's Form 10-K for the
fiscal year ended July 31, 1996.
******Filed as an exhibit to the Registrant's Form 10-K for the
fiscal year ended July 31, 1993.
(b) Reports on Form 8-K.
There were no reports on Form 8-K filed during the fourth quarter
of 1997.
(c) Exhibits.
The exhibits required by this Item are listed under Item 14 (a)
(3).
(d) Financial Statement Schedules.
There are no financial statement schedules to the Financial
Statements.
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, 1997.
CYPROS PHARMACEUTICAL CORPORATION
By /s/ Paul J. Marangos
- -----------------------
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
/s/ Paul J. Marangos Chairman of the Board, President October 24,1997
- ------------------- and Chief Executive Officer and Director
Paul J. Marangos (Principal Executive Officer)
/s/ David W. Nassif Senior Vice President, Chief October 24,1997
- ------------------- Financial Officer and Secretary
David W. Nassif (Principal Financial and Accounting Officer)
/s/ Robert F. Allnutt Director October 24,1997
- ---------------------
Robert F. Allnutt
/s/ Digby W. Barrios Director October 24,1997
- --------------------
Digby W. Barrios
/s/ Virgil Thompson Director October 24,1997
- -------------------
Virgil Thompson
/s/ Robert A. Vukovich Director October 24,1997
----------------------
Robert A. Vukovich
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)
2.4 (3) Asset Purchase Agreement by and among Cypros
Pharmaceutical Corporation and Schwarz Pharma, Inc. dated
as of October 31, 1996.
2.5 (3) Note and Security Agreement by and among Cypros
Pharmaceutical Corporation and Schwarz Pharma, Inc. dated
November 4, 1996.
2.6 (3) Assumption Agreement by and among Schwarz Pharma,Inc.
and Cypros Pharmaceutical Corporation dated November 4, 1996.
2.7 (3) Trademark Assignment by and among Schwarz Pharma, Inc.
and Cypros Pharmaceutical Corporation dated November 4, 1996.
2.8 (3) Trademark Agreement by and among Schwarz Pharma, Inc.
and Cypros Pharmaceutical Corporation dated November 4, 1996.
3.1 (4) Restated Articles of Incorporation of the Registrant.
3.2 (5) Amendment to Restated Articles of Incorporation.
3.3 (4) Bylaws, as amended.
4.1 (4) Specimen stock certificate.
4.3 (4) Specimen Redeemable Class B Warrant.
4.5 (4) Form of Warrant Agreement.
4.6 Reference is made to Exhibits 3.1 and 3.2.
10.1 (4) Forms of Incentive Stock Option and Nonstatutory Stock
Option.
10.2 (5) Amended 1992 Stock Option Plan.
10.3 (4) Employment Agreement, dated July 10, 1991 as
amended and restated September 1, 1992, between the Registrant
and Paul J. Marangos, Ph.D.
10.4 (6) Amendment No. 1 to Employment Agreement, dated
May 9, 1994, between the Registrant and Paul J. Marangos, Ph.D.
10.5 (7) Amendment No. 2 to Employment Agreement, dated
March 9, 1995, between the Registrant and Paul J. Marangos,Ph.D.
10.6 (8) Amendment No. 3 to Employment Agreement, dated
October 1, 1996, between 31 the Registrant and Paul J.
Marangos, Ph.D.
10.7 (9) 1993 Non-Employee Directors Stock Option Plan
and related form of Nonstatutory Stock Option.
10.8 (4) License Agreement, dated as of August 20, 1992,
between the Registrant and Angel K. Markov, M.D. (with certain
confidential infomation in brackets deleted). (8)
10.9 (4) License Agreement, dated as of August 27, 1992,
between the Registrant and University E..M., Inc. (with certain
confidential information in brackets deleted). (9)
10.10 (5) Assignment of and Amendment to License Agreement
by and between University E.M., Inc., University of Cincinnati
and the Registrant.
10.11 (7) 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)
10.12 (11) Note Purchase Agreement dated July 11, 1996 by
and among Cypros Pharmaceutical Corporation and Paresco, Inc.
10.13 (11) Note Purchase Agreement dated July 31, 1996 by
and among Cypros Pharmaceutical Corporation and Cameron Capital
Ltd.
Exhibit
Number Description Page
No.
23.1 Consent of Ernst & Young LLP, Independent Auditors. 33
24.1 Power of Attorney. Reference is made to page 29.
99.1 Financial Statements. 35
__________
(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 Form 8-K dated
November 4, 1996 and incoroporated herein by reference.
(4) Filed as an exhibit to the Registrant's Registration
Statement on Form S-1, Registration No. 33-51682, and
incorporated herein by reference.
(5) Filed as an exhibit to the Registrant's Form 10-Q for
the period ended January 31, 1995, and incorporated herein by
reference.
(6) Filed as an exhibit to the Registrant's Form 10-K for
the fiscal year ended July 31, 1994.
(7) Filed as an exhibit to the Registrant's Form 10-K for
the fiscal year ended July 31, 1993.
(8) Filed as an exhibit to the Registrant's Form 10-K for
fiscal year ended July 31, 1996.
(9) 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.
(10) 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.
(11) Filed as an exhibit to the Registrant's Form 8-K
dated September 20, 1996 and incorporated herein by reference.