FORM 10-Q

(Mark One)

 

ý                                  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2002

 

OR

 

o                                  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 000-25571

AXONYX INC.

(Exact name of registrant as specified in its charter)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 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.  Yes   ý   No   o

APPLICABLE ONLY TO CORPORATE ISSUERS:

 

 

AXONYX INC.

INDEX

 

 

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AXONYX INC.

 

Condensed Consolidated Balance Sheets

 

		June 30,			December 31,
		2002			2001
ASSETS		(unaudited)
Current Assets:
Cash and cash equivalents		$	5,442,000		$	9,115,000
Other		130,000			—
Total current assets		5,572,000			9,115,000
Equipment, net		45,000			52,000
Other assets:
Security deposit		43,000			44,000
		43,000			44,000
		$	5,660,000		$	9,211,000
LIABILITIES
Current liabilities:
Accounts payable and accrued expenses		$	800,000		$	1,020,000
Total liabilities		800,000			1,020,000
STOCKHOLDERS’ EQUITY
Preferred stock - $.001 par value, 15,000,000 shares authorized; none issued
Common Stock - $.001 par value, 75,000,000 shares authorized; 17,247,371 shares issued and outstanding.		17,000			17,000
Additional paid-in capital		27,747,000			27,570,000
Unearned compensation - stock/options		(19,000		)	(30,000		)
Accumulated deficit		(22,885,000		)	(19,366,000		)
Total stockholders’ equity		4,860,000			8,191,000
Total liabilities and stockholders’ equity		$	5,660,000		$	9,211,000

 

See notes to condensed consolidated financial statements.

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AXONYX INC.

Condensed Consolidated Statements of Operations

(unaudited)

 

See notes to condensed consolidated financial statements.

4

AXONYX INC.

Condensed Consolidated Statements of Changes in Stockholders’ Equity

(unaudited)

 

See notes to condensed consolidated financial statements.

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AXONYX INC.

Condensed Consolidated Statements of Cash Flows

(unaudited)

 

See notes to condensed consolidated financial statements.

 

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AXONYX INC.

 

Notes to Condensed Consolidated Financial Statements

June 30, 2002

(1) Financial Statement Presentation

The unaudited condensed consolidated financial statements of Axonyx Inc. herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and, in the opinion of management, reflect all adjustments (consisting only of normal recurring accruals) necessary to present fairly the financial position at June 30, 2002 and the results of operations for the interim periods presented.  Certain information and footnote disclosure normally included in the financial statements, prepared in accordance with accounting principles generally accepted in the United States of America, have been condensed or omitted pursuant to such rules and regulations.  However, management believes that the disclosures are adequate to make the information presented not misleading.  These financial statements and notes thereto should be read in conjunction with the financial statements and the notes thereto for the year ended December 31, 2001 included in the our Form 10-K filing.  The results for the interim periods are not necessarily indicative of the results for the full fiscal year.

 

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

 

THIS QUARTERLY REPORT ON FORM 10-Q CONTAINS “FORWARD-LOOKING STATEMENTS” WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.  ALL STATEMENTS, OTHER THAN STATEMENTS OF HISTORICAL FACTS, INCLUDED IN OR INCORPORATED BY REFERENCE INTO THIS FORM 10-Q ARE FORWARD-LOOKING STATEMENTS.  IN ADDITION, WHEN USED IN THIS DOCUMENT, THE WORDS “ANTICIPATE,” “ESTIMATE,” “PROJECT,” AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS.  THESE FORWARD-LOOKING STATEMENTS ARE SUBJECT TO CERTAIN RISKS, UNCERTAINTIES AND ASSUMPTIONS INCLUDING THOSE RISKS DESCRIBED IN AXONYX’S REPORT ON THIS FORM 10-Q AND IN OTHER PUBLIC FILINGS, INCLUDING AXONYX’S FORM 10-K.  SHOULD ONE OR MORE OF THESE RISKS OR UNCERTAINTIES MATERIALIZE, OR SHOULD UNDERLYING ASSUMPTIONS PROVE INCORRECT, ACTUAL RESULTS MAY VARY MATERIALLY FROM THOSE ANTICIPATED, ESTIMATED OR PROJECTED.  ALTHOUGH WE BELIEVE THAT THE EXPECTATIONS INCLUDED IN SUCH FORWARD-LOOKING STATEMENTS ARE REASONABLE, WE CANNOT GIVE ANY ASSURANCES THAT THESE EXPECTATIONS WILL PROVE TO BE CORRECT.  AXONYX UNDERTAKES NO OBLIGATION TO PUBLICLY RELEASE THE RESULT OF ANY REVISIONS TO SUCH FORWARD-LOOKING STATEMENTS THAT MAY BE MADE TO REFLECT EVENTS OR CIRCUMSTANCES AFTER THE DATE HEREOF OR TO REFLECT THE OCCURRENCE OF UNANTICIPATED EVENTS.

 

The following discussion and analysis should be read in conjunction with the financial statements of Axonyx and the notes thereto appearing in Part I, Item 1.

Axonyx Inc., a biopharmaceutical company, is engaged in the business of acquiring and developing central nervous system (CNS) drug candidates, primarily in the areas of memory and cognition.  Axonyx acquires patent rights to CNS pharmaceutical compounds it believes may have significant potential market impact and works to advance the compounds through preclinical and clinical development towards regulatory approval.  Axonyx has acquired worldwide exclusive patent rights to three main classes of therapeutic compounds designed for the treatment of Alzheimer’s Disease (AD), Mild Cognitive Impairment, and related diseases.  Axonyx has also acquired patent rights to a fourth class of potential therapeutic compounds designed for the treatment of prion related diseases.  Axonyx licensed these patent rights from New York University (NYU) and, via a sublicense, from the National Institutes of Health\National Institute on Aging (NIA).

Axonyx out-sources much of its preclinical research and development, utilizing contracting research organizations.  In addition Axonyx is funding a researcher at the NIA’s laboratories.  Axonyx has entered into a License Agreement with Applied Research Systems ARS Holding N.V. (ARS), a wholly owned subsidiary of Serono International, S.A. (Serono), a

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Swiss biopharmaceutical company, under which ARS is undertaking research on certain of Axonyx’s licensed technologies.  In addition, Axonyx is sponsoring the development of a diagnostic test for AD at the University of Melbourne (Australia) and is sponsoring research at Thomas Jefferson University on a potential pharmaceutical compound named Gilatide and related analog compounds that are designed to enhance memory and cognition.  Axonyx intends to develop other corporate partnerships with established and well capitalized pharmaceutical companies for the clinical development of its compounds and for their potential production, commercialization, and marketing.  However, we cannot assure you that we will be successful in establishing these relationships.  Axonyx itself does not currently maintain any laboratory or research premises.

Axonyx’s current business strategy is to pursue (1) the development of three different types of pharmaceutical products for the treatment of AD, (2) Gilatide, a potential pharmaceutical compound designed to enhance memory and cognition with potential applications to the treatment of AD, (3) a diagnostic test for AD, and (4) a pharmaceutical compound for prion-related diseases.

The AD targeted approaches include:

(1)           Phenserine, an inhibitor of acetylcholinesterase;

(2)                                  a butyrylcholinesterase inhibitor which will be chosen from a series of selectively acting compounds;

(3)                                  through its sublicense with ARS, a subsidiary of Serono, which is described in greater detail below, compounds called Amyloid Inhibitory Peptides (AIPs) which may prevent and reverse the formation of amyloid plaques in AD.

Axonyx is sponsoring the development of a diagnostic test for AD at the University of Melbourne (Australia).  Through the sublicense with ARS, Serono is conducting research on compounds called Prion Inhibitory Peptides (PIPs) designed for the diagnosis and treatment of prion diseases such as Bovine Spongiform Encephalopathy (also known as Mad Cow Disease) and the human form of the disease, Creutzfeldt Jakob Disease, new variant.

On October 1, 1999, Axonyx Inc. signed a Sponsored Research Agreement with the University of Melbourne (Australia).  Under the agreement, Axonyx committed to fund a research project at the University of Melbourne to develop a diagnostic test for Alzheimer’s Disease.  Axonyx is funding this research for a three-year period ending October 1, 2002 for approximately $60,000 per year.  Each party will equally own any new resulting intellectual property as tenants in common.  Axonyx is also paying the expenses and fees associated with the filing and prosecution of any patent applications covering the intellectual property resulting from the research project.  In addition, the University of Melbourne granted Axonyx an option to acquire an exclusive worldwide license to the intellectual property or patent resulting from the research project, and to an existing patent application covering an Alzheimer’s Disease diagnostic test, in each case, on licensing terms outlined in the Sponsored Research Agreement.

 

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Effective September 15, 2000, ARS, a subsidiary of Serono, entered into a License Agreement with Axonyx, exercising its right to license certain of Axonyx’s patent rights under a Development Agreement and Right to License signed with Axonyx in May of 1999.  Under the Development Agreement, ARS had paid Axonyx a $250,000 non-refundable fee for the right to license.  Pursuant to the License Agreement, ARS acquired exclusive worldwide patent rights to Axonyx’s AIP and PIP technologies.  Furthermore, ARS has continued the research and development of the AIP and PIP technologies initiated during the term of the Development Agreement and Right to License.  We cannot assure you that additional revenues from patent licensing or that revenue from research and development contracts will be generated in fiscal year 2002.

Upon the execution of the License Agreement with ARS on September 15, 2000, Axonyx generated $1.5 million of revenue in the form of an up-front license fee.  Axonyx may generate additional revenues from ARS if certain development milestones are reached concerning the licensed compounds or other products and related intellectual property, although such milestone payments may not occur in fiscal year 2002 or at all.  We cannot assure you that licensed compounds or products will reach any particular stage of development requiring a milestone payment, that licensed compounds or products will ever reach the market giving rise to royalty payments, or that additional revenues from patent licensing will be generated.

On April 1, 2001, Axonyx entered into a Research Agreement with Thomas Jefferson University under which Axonyx agreed to fund a Gilatide Research Program for two years at a cost of $125,000 per year.  The research program concerns a potential pharmaceutical compound named Gilatide and related analog compounds that are designed to enhance memory and cognition.  In addition, Thomas Jefferson University granted Axonyx an option to acquire from the University a worldwide exclusive license to a patent application pertaining to the Gilatide technology and to any invention arising out of the research program.

Under the terms of a Research Agreement with Indiana University signed in August 2001, Axonyx is funding studies concerning the effects of Phenserine, Tolserine and certain butyrylcholineserase inhibitor compounds on the beta-APP processing of beta-amyloid using in vitro studies and in vivo studies with transgenic mice.  Axonyx has agreed to fund this research project for a one year period at a cost of $125,000.  Indiana University has granted Axonyx an option to acquire the worldwide exclusive rights to the intellectual property arising out of the research project.

On April 30, 2002, the research project funded by Axonyx pursuant to the Sponsored Research Agreement and Option between Axonyx, the Mayo Clinic Jacksonville (“Mayo”) and Mayo Foundation for Medical Education and Research (“MFMER”) terminated.  Studies undertaken during the research project helped to confirm the effects of Phenserine and other Axonyx compounds on the metabolism of beta-APP.  Axonyx did not receive notification from Mayo or MFMER that intellectual property arose out of the research project that could have been acquired under the exclusive option granted to Axonyx pursuant to the agreement.

On May 27, 2002, CURE LLC and Axonyx signed an amendment letter that amends the License Agreement between Axonyx and CURE LLC dated February 27, 1997.  The amendment

 

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modifies the reversionary rights provision of the License Agreement regarding deadlines by which Axonyx is to achieve certain development milestones, including commencing clinical trials, for Phenserine.  Theamendment extends the dates by which reversionary rights arise if Axonyx fails to meet certain development and commercialization benchmarks, including the commencement of Phase III clinical trials for Phenserine.  On July 11, 2002, the Public Health Service, the parent agency of the NIA, signed an amendment to the Patent License Agreement — Exclusive between the Public Health Service and CURE LLC dated January 31, 1997, which, among other things, extends the dates by which CURE or its sublicensee Axonyx is required to commence clinical trials for Phenserine and file a New Drug Application for Phenserine.

RESULTS OF OPERATIONS

For the three months and six months ended June 30, 2002, as for the three months and six months ended June 30, 2001, Axonyx realized no revenue.

For the three months ended June 30, 2002, Axonyx incurred a net loss of $1,879,000 compared to a net loss of $2,314,000 for the three months ended June 30, 2001.  Axonyx incurred a net loss of $3,519,000 for the six months ended June 30, 2002 as compared to a net loss of $4,380,000 for the six months ended June 30, 2001.  The decreased losses were due primarily to higher costs in 2001 related to research and development costs associated with the Phase II clinical trials for Phenserine.  We expect to incur additional losses for the foreseeable future.

For the three months ended June 30, 2002, Axonyx incurred research and development costs of $1,163,000 as compared to $1,620,000 for the three months ended June 30, 2001.  Axonyx incurred research and development costs of $2,124,000 for the six months ended June 30, 2002 as compared to $2,849,000 for the six months ended June 30, 2001.  The decrease was due primarily to costs incurred in 2001 associated with the advancement of the development program of Phenserine, which was in a Phase II clinical trial in 2001.

 

For the three months ended June 30, 2002, Axonyx incurred general and administrative costs of $749,000 as compared to $777,000 for the three months ended June 30, 2001.  General and administrative costs were $1,463,000 for the six months ended June 30, 2002 as compared to $1,712,000 for the six months ended June 30, 2001.  The decrease for the quarter is due, in part, to lower charges related to options granted to consultants, lower salary costs, and overall operating expenses offset, in part, by higher professional fees.

Interest income for the three months and six months ended June 30, 2002 was $31,000 and $67,000, respectively, compared to interest income for the three months and six months ended June 30, 2001 in the amounts of $89,000 and $216,000, respectively.  The decreases for 2002 reflect the general decline in short term interest rates over previous year levels and lower average cash balances than the prior year.

LIQUIDITY AND CAPITAL RESOURCES

As of June 30, 2002, Axonyx had $5,442,000 in cash and cash equivalents and working

 

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capital of $4,772,000 as compared to $9,115,000 in cash and cash equivalents and $8,095,000 in working capital at December 31, 2001.  Axonyx does not have any available lines of credit.  Since inception, Axonyx has financed its operations through private placements of equity securities, the exercise of common stock purchase warrants, interest income, licensing revenues, and from loans from a stockholder.

We estimate that we currently have sufficient capital resources to meet our budgetary needs through December 2002.  Axonyx is pursuing potential equity financing, sublicensing and other collaborative arrangements that may generate additional capital for Axonyx.  However, there can be no assurance that Axonyx will generate sufficient revenues, if any, to fund its operations beyond December 31, 2002, or that any potential financings through bank borrowings, debt or equity offerings, or otherwise, will be available on acceptable terms or at all.

We expect to incur substantial operating losses for at least the next several years.  We currently have limited sources of revenue other than interest income, and we cannot assure you that we will be able to develop other revenue sources or that our operations will become profitable, even if we are able to commercialize any products.  Other than interest income, the only revenue that Axonyx has realized to date has been fees totaling $1.75 million paid by ARS, as described above.  We cannot assure you that we will receive any additional revenues in fiscal year 2002, or at all.  If we do not generate significant increases in revenue, at some point in the future we may not be in a position to continue operations and investors could lose their entire investment.

Our drug development programs and the potential commercialization of our drug candidates require substantial working capital, including expenses for preclinical testing, chemical synthetic scale-up, manufacture of drug substance for clinical trials, toxicology studies, clinical trials of drug candidates, payments to our licensors and potential commercial launch of our drug candidates.  Our future working capital needs will depend on many factors, including:

•                  the progress and magnitude of our drug development programs;

•                  the scope and results of preclinical testing and clinical trials;

•                  the cost, timing and outcome of regulatory reviews;

•                  the costs under current and future license and option agreements for our drug candidates, including the costs of obtaining and maintaining patent protection for our drug candidates;

•                  the costs of acquiring any additional drug candidates;

•                  the rate of technological advances;

•                  the commercial potential of our drug candidates;

•                  the magnitude of our administrative and legal expenses including office rent; and

•                  the costs of establishing third party arrangements for manufacturing.

 

We have incurred negative cash flow from operations since we incorporated and do not expect to generate positive cash flow from our operations for at least the next several years.  Therefore, we expect that we will need additional future financings to fund our operations.  We anticipate that we will need to raise additional funds prior to initiating any new clinical trials.  We may not be able to obtain adequate financing to fund our operations, including any new

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clinical trials, and any additional financing we obtain may be on terms that are not favorable to us.  In addition, any future financings could substantially dilute our stockholders.  If adequate funds are not available, we will be required to delay, reduce or eliminate one or more of our drug development programs, or to enter into new collaborative arrangements on terms that are not favorable to us.  These collaborative arrangements could result in the transfer to third parties of rights that we consider valuable.  In addition, we often consider the acquisition of technologies and drug candidates that would increase our working capital requirements.

Item 3.                                                           Quantitative and Qualitative Disclosures About Market Risks.

Axonyx has foreign currency accounts that are exposed to currency exchange risk.  These foreign currency accounts have been utilized to fund the operations of Axonyx’s wholly owned subsidiary, Axonyx Europe, based in the Netherlands.  Axonyx had foreign exchange gains for the three months and the six months ended June 30, 2002 in the amount of $2,000 and $1,000, respectively.  Axonyx has limited its exposure to foreign currency risk by reducing the balances of its foreign currency accounts.  However, as long as Axonyx continues to fund its foreign operations, it will be exposed to some currency exchange risks.

Axonyx considers its investments in money market accounts, short term commercial paper and time deposits as cash and cash equivalents.  The carrying values of these investments approximate fair value because of the short maturities (three months or less) of these instruments and accounts.  Therefore, changes in the market’s interest rates do not affect the value of the investments as recorded by us.

Axonyx does not enter into or trade derivatives or other financial instruments or conduct any other hedging activities.

PART II — OTHER INFORMATION

Item 4.                                                           Submission of Matters to a Vote of Security Holders

Axonyx held its 2002 Annual Meeting of Stockholders on June 11, 2002.  At the meeting, each of the six incumbent directors of Axonyx was re-elected.  Albert D. Angel received 13,494,055 votes for, 4,006 votes against, and 80,755 abstentions.  Gosse B. Bruinsma, M.D. received 13,490,561 votes for, 7,500 votes against, and 80,755 abstentions.  Abraham E. Cohen received 13,492,861 votes for, 5,200 votes against, and 80,755 abstentions.  Michael R. Espey received 13,492,561 votes for, 5,500 votes against, and 80,755 abstentions.  Marvin S. Hausman, M.D. received 13,445,124 votes for, 52,937 votes against, and 80,755 abstentions.  Christopher Wetherhill received 13,492,555 votes for, 5,506 votes against, and 80,755 abstentions.  The amendment of the Axonyx 2000 Stock Option Plan was ratified with 9,305,731 votes for, 269,924 votes against, and 13,278 abstentions.  The appointment of Eisner LLP, independent certified accountants, as the Axonyx’s auditors was ratified.  The ratification of the auditors was approved by a vote of 13,555,826 votes for, 19,412 votes against, and 7,578 abstentions.

 

 

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Item 6.                                                           Exhibits and Reports on Form 8-K

(a)                                  The following exhibits are filed as part of this report:

10.1                           Letter Amendment of License Agreement between Axonyx Inc. and CURE LLC dated May 27, 2002

99.1         Certification of Chief Executive Officer

99.2         Certification of Principal Financial Officer

(b)                                 Axonyx did not file any reports on Form 8-K during the quarter ended June 30, 2002.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, Axonyx has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Dated August 14, 2002.

AXONYX INC.

 

By:	/s/ Marvin S. Hausman, M.D.
	Marvin S. Hausman, M.D.
	President and Chief Executive Officer
By:	/s/ Gosse B. Bruinsma, M.D.
	Gosse B. Bruinsma
	Treasurer (Principal Financial and Accounting Officer)

 

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