Attached files
| file | filename |
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| EX-31.1 - Emmaus Life Sciences, Inc. | v179059_ex31-1.htm |
| EX-31.2 - Emmaus Life Sciences, Inc. | v179059_ex31-2.htm |
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K/A
(Amendment
No. 2)
(mark
one)
Annual
Report Pursuant To Section 13 or 15(d) of the Securities Exchange Act of
1934
For
the fiscal year ended September 30, 2009
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 000-26285
CNS
RESPONSE, INC.
(Exact
name of registrant as specified in its charter)
|
Delaware
|
87-0419387
|
|
(State
or other jurisdiction
|
(I.R.S.
Employer
|
|
of
incorporation or organization)
|
Identification
No.)
|
85
Enterprise, Suite 410
Aliso
Viejo, CA 92656
(Address
of Principal Executive Offices)(Zip Code)
(714)
545-3288
(Registrant’s
telephone number, including area code)
Securities
registered pursuant to Section 12(b) of the Act:
None
Securities
registered under Section 12(g) of the Exchange Act:
Common
Stock, $0.001 par value
(Title of
Class)
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.
Yes
¨
No x
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.
Yes
¨
No x
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
x
No ¨
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Website, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).
Yes
¨
No x
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (§229.405 of this chapter) is not contained herein, and will not
be contained, to the best of 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.¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of “large accelerated filer,”
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.
|
Large
accelerated filer ¨
|
Accelerated
filer ¨
|
|
Non-accelerated
filer ¨ (Do
not check if smaller reporting company)
|
Smaller
reporting company x
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act.)
Yes
¨
No x
The
aggregate market value of the registrant's common stock held by non-affiliates
of the registrant on March 31, 2009, the last business day of the registrant's
most recently completed second fiscal quarter was $13,555,818 (based on the
closing sales price of the registrant's common stock on that date).
At
December 28, 2009, the registrant had 51,747,729 shares of Common Stock, $0.001
par value, issued and outstanding.
DOCUMENTS
INCORPORATED BY REFERENCE
None.
2
STATEMENT
REGARDING AMENDMENT NO. 2
This
Amendment No. 2 on Form 10K/A (“Amendment No. 2”) amends our Annual Report on
Form 10-K (the “Original Filing”) for the fiscal year ended September 30, 2009,
as filed with the Securities and Exchange Commission on December 30, 2009, as
subsequently amended on January 25, 2010 by our Annual Report on Form 10-K/A
(“Amendment No. 1”). We are filing Amendment No. 2 in response to
comments received from the SEC to make the amendments described below to Item 1
of the Original Filing as amended by Amendment No. 1:
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|
·
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We
have deleted the findings of the Center for Health Economics, Epidemiology
and Science Policy of United Biosource, which relate to our rEEG product
which appeared on page 9 of the Original Filing, as amended by Amendment
No.1; and
|
|
|
·
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We
have deleted statements from Milliman Global relating to payer appeal
which appeared on page 10 of the Original Filing, as amended by Amendment
No. 1.
|
In
addition to the revisions referred to above, as required by Rule 12b-15
promulgated under the Securities and Exchange Act of 1934, our principal
executive officer and principal financial officer are providing new Rule
13a-14(a) certifications in connection with this Form 10-K/A. Because
no financial statements are contained within this Amendment No. 2, we are not
including certifications pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
The only
changes to the Original Filing, as amended by Amendment No. 1 being made by this
Amendment No. 2 are those described above. No attempt has been made in this
Amendment No. 2 to modify or update disclosures in the Original Filing, as
amended by Amendment No. 1 except as required to address the changes described
above. This Amendment No. 2 does not reflect events occurring after the filing
of the Original Filing or modify or update any related disclosures. Information
not affected by Amendment No. 2 is unchanged and reflects the disclosure made at
the time of the filing of the Original Filing, as amended by Amendment No.
1.
3
CNS
RESPONSE, INC.
2009
FORM 10-K/A ANNUAL REPORT
TABLE OF
CONTENTS
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PART
I
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ITEM
1.
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Business
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5
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PART
IV
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||
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ITEM
15.
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Exhibits,
Financial Statement Schedules
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18
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4
PART
I
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ITEM
1.
|
Business
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With
respect to this discussion, the terms “we” “us” “our” “CNS” and the “Company”
refer to CNS Response, Inc., a Delaware corporation and its wholly-owned
subsidiaries CNS Response, Inc., a California corporation (“CNS California”),
Colorado CNS Response, Inc., a Colorado corporation (“CNS Colorado”) and
Neuro-Therapy Clinic, Inc., a Colorado professional medical corporation and a
wholly-owned subsidiary of CNS Colorado (“NTC”).
Background
CNS
Response, Inc. was incorporated in Delaware on July 10, 1984, under the name
Mammon Oil & Gas, Inc. Prior to January 16, 2007, CNS Response,
Inc. (then called Strativation, Inc.) existed as a “shell company” with nominal
assets whose sole business was to identify, evaluate and investigate various
companies to acquire or with which to merge. On January 16, 2007, we
entered into an Agreement and Plan of Merger (the “Merger Agreement”) with CNS
Response, Inc., a California corporation formed on January 11, 2000 (“CNS
California”), and CNS Merger Corporation, a California corporation and our
wholly-owned subsidiary (“MergerCo”) pursuant to which we agreed to acquire CNS
California in a merger transaction wherein MergerCo would merge with and into
CNS California, with CNS California being the surviving corporation (the
“Merger”). On March 7, 2007, the Merger closed, CNS California became our
wholly-owned subsidiary, and on the same date we changed our corporate name from
Strativation, Inc. to CNS Response, Inc.
Overview
CNS
Response is a life sciences company with two distinct business segments. Our
Laboratory Information Services business operated by CNS California, which we
consider our primary business, is focused on the research, development, and
commercialization of a patented system that guides psychiatrists and other
physicians/prescribers to determine a proper treatment for patients with
behavioral (psychiatric and/or addictive) disorders. Our Clinical Services
business operated by NTC is a full service psychiatric clinic.
Laboratory
Information Services
Traditionally,
prescription of medication for the treatment of behavioral disorders (such as
depression, bipolar disorders, eating disorders, addiction, anxiety disorders,
ADHD and schizophrenia) has been primarily based on symptomatic factors, while
the underlying physiology and pathology of the disorder is rarely able to be
analyzed, often resulting in multiple ineffective, costly, and often lengthy,
courses of treatment before effective medications are
identified. Some patients never find effective
medications.
We
believe that our technology offers an improvement upon traditional methods for
determining a course of medication for patients suffering from nonpsychotic
behavioral disorders because our technology is designed to correlate the success
of courses of medication, with the neurophysiological characteristics of a
particular patient. Our technology provides medical professionals with
medication sensitivity data for a subject patient based upon the identification
and correlation of treatment outcome information from other patients with
similar neurophysiologic characteristics. This treatment
outcome information is contained in a proprietary outcomes database that
consists of over 17,000 medication trials for patients with psychiatric or
addictive problems (the “ CNS
Database ”). For each patient in the CNS Database, we have
compiled electroencephalographic (“ EEG ”) scans, symptoms and
outcomes often across multiple treatments from multiple psychiatrists and
physicians. This patented technology, called “Referenced-EEG®” or
“rEEG®” represents an innovative approach to identifying effective medications
for patients suffering from debilitating behavioral disorders.
5
With
rEEG®, physicians order a digital EEG for a patient, which is then evaluated
with reference to the CNS Database. By providing this reference
correlation, an attending physician can choose a treatment strategy with the
knowledge of how other patients having similar brain function have previously
responded to a myriad of treatment alternatives. Analysis of this
complete data set yielded a platform of 74 quantitative biomarkers that have
shown utility in characterizing patient response to diverse
medications. This platform then allows a new patient to be
characterized, based on these 74 biomarkers, and the database to be queried to
understand the statistical probability of how patients with similar brain
patterns have previously responded to the medications currently in the database.
This technology allows us to create and provide simple reports (“ rEEG Reports ”) to the
prescriber that summarizes historical treatment success of specific medications
for those patients with similar brain patterns. It provides
neither a diagnosis nor specific treatment, but like all lab results, objective,
evidenced-based information to help the prescriber in their
decision-making.
Our
Laboratory Information Services business is focused on increasing the demand for
our rEEG Reports. We believe the key factors that will drive broader adoption of
our rEEG Reports will be acceptance by healthcare providers and patients of
their benefit, demonstration of the cost-effectiveness of using our technology,
reimbursement by third-party payers, expansion of our sales force and increased
marketing efforts.
In
addition to its utility in providing psychiatrists and other
physicians/prescribers with medication sensitivity guidance, rEEG provides us
with significant opportunities in the area of pharmaceutical development.
rEEG, in combination with the information contained in the CNS Database, has the
potential to be able to identify novel uses for neuropsychiatric medications
currently on the market and in late stages of clinical development, as well as
aid in the identification of neurophysiologic characteristics of clinical
subjects that may be successfully treated with neuropsychiatric medications in
the clinical testing stage. We intend to enter into relationships with
established drug and biotechnology companies to further explore these
opportunities, although no relationships are currently
contemplated. The development of biomarkers as the new method for
identifying the correct patient population to research is being encouraged by
both The National Institute of Mental Health (NIMH) and The Food and Drug
Administration (FDA).
Clinical
Services
In
January 2008, we acquired our largest customer, NTC, located in Colorado. Upon
the completion of the transaction, NTC became our wholly-owned subsidiary. At
the time, NTC operated one of the largest psychiatric medication management
practices in the state of Colorado, under contracts with national health
plans. Daniel A. Hoffman, M.D. is the medical director at NTC, and,
after the acquisition, became our Chief Medical Officer and more recently, our
President.
NTC,
having performed a significant number of rEEG’s, serves as an important resource
in our product development, the expansion of our CNS Database, production system
development and implementation, along with the integration of our rEEG services
into a medical practice. Through NTC, we also expect to successfully
develop marketing and patient acquisition strategies for our Laboratory
Information Services business. Specifically, NTC is learning how to best
communicate the advantages of rEEG to patients and referring physicians in the
local market. We will share this knowledge and develop communication programs
which can be generalized to physicians using our services throughout the
country, which we believe will help drive market acceptance of our
services. In addition, we plan to use NTC to train practitioners
across the country in the uses of rEEG technology.
6
We view
our Clinical Services business as secondary to our Laboratory Information
Services business, and we have no current plans to significantly expand this
business.
Laboratory
Information Services
The
Challenge and the Opportunity
The
1990’s were known as “the Decade of the Brain,” a period in which basic
neuroscience yielded major advances in drug discovery and
neurotherapy. Several trends have emerged which may propel
significant adoption of these advances over the next decade:
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·
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Comparative
Effectiveness Research is incorporated into the Obama health plan. The
cost to treat Americans under care for depression and other mental
illnesses rose by nearly two-thirds from $35 billion to $58 billion in the
last 10 years, according to a recent report from the Agency for Healthcare
Research and Quality. Finding more cost-effective treatment
modalities in mental disorders will be critical to successful health care
reform;
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·
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Mental
Health Parity Act (Parity Act) requires payers, beginning in 2010, to pay
for behavioral medications and treatments using the same standards for
evidence and coverage as they currently use for medical/surgical
treatments;
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·
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According
to a recent RAND report, 275,000 returning military personnel from the
Iraq and Afghanistan theatres suffer from Major Depression, Post Traumatic
Stress Disorder (PTSD), traumatic brain injury;
and
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·
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Consumers
have emerged as active decision makers in behavioral treatment, driven by
over $4.8 billion in annual Pharma direct-to-consumer advertising and the
internet. At the same time, media costs for reaching those
consumers are at historic lows.
|
Today,
there are over 100 prescription drugs available to patients suffering from a
behavioral disorder, representing one of the largest and fastest-growing drug
classes. Unfortunately, psychotropic drugs often do not work, or lose
their effect over time, and over 17 million Americans who have failed two or
more medication treatments are now considered “treatment
resistant”. For these patients, the conventional “trial and error”
method of prescribing psychotropic drugs has resulted in low efficacy, high
relapse and treatment discontinuation rates, significant patient suffering and
billions in additional cost to payers.
We
believe we are the first company to create a biomarker database that correlates a
patient’s response to major drug classes and specific medications with their
individual brain physiology. We developed this tool to improve
pharmacotherapy outcomes, particularly in treatment resistant patients, a
particularly expensive patient population with profound unmet clinical
needs. Our rEEG technology has been used by physicians to guide
prescribing in behavioral disorders such as depression, anxiety, anorexia, OCD,
bipolar, ADHD, addiction and others.
rEEG® was
developed by a pathologist/psychiatrist who recognized that correlation of a
patient’s unique brain patterns to known long-term medication outcomes in
similar patients might significantly improve therapeutic
performance. This approach — commonly referred to as Personalized
Medicine, and exemplified by biomarker companies such as Genomic Health (GHDX) —
is in the process of transforming both clinical practice and the pharmaceutical
industry. CNS Response brings this science to behavioral medicine,
where the unmet clinical need is well-documented, expensive, and
growing.
7
The
rEEG® Method
rEEG®
reports are offered as a service, much like a reference lab, in which standard
electroencephalogram (EEG) readings are referenced to a biomarker database to
suggest patient-specific probabilities of response to different
medications. EEG recording devices are widely available, inexpensive
to lease, and are available in most cities by independent mobile EEG
providers.
The
service works as follows:
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·
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Patients
are directed to a national rEEG® provider, who performs a standard digital
EEG.
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EEG
data is uploaded over the web to our central analytical
laboratory.
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We
analyze the data against the CNS Database for patients with similar brain
patterns.
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We
provide a report describing the probability of patient success with
different medication options (much like an antibiotic sensitivity report
commonly used in medicine).
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The
rEEG® report is sent back to the doctor, typically the next
day.
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Treatment
Decisions Made by Licensed Professionals
With the
exception of our subsidiary, the Neuro-Therapy Clinic based in Denver, CO, we do
not currently operate our own healthcare facilities, employ our own treating
physicians or provide medical advice or treatment to
patients. Physicians who contract for our rEEG Reports own their own
facilities or professional licenses, and control and are responsible for the
clinical activities provided on their premises. Patients receive
medical care in accordance with orders from their attending physicians or
providers. Physicians who contract for rEEG Reports are responsible
for exercising their independent medical judgment in determining the specific
application of the information contained in the rEEG Reports, and the
appropriate course of care for each patient. Following the
prescription of any medication, Physicians are presumed to administer and
provide continuing care treatment.
Estimated
Market for rEEG Reports
Currently,
the wholesale (direct to physician) price for standard rEEG testing is $400 per
test, and the retail (payer and consumer) price is approximately
$800. Thus far, payments have typically been from psychiatrists whose
patients pay privately for the rEEG® report. The National Institute
of Mental Health (NIMH) estimates that only 12.7% of patients get minimally
effective treatment, with over 17 million Americans now classified as “treatment
resistant”, meaning they’ve failed to find relief after trying two or more
medications.
We
therefore estimate the potential market for our rEEG reports at $1.7 billion
annually, based on an addressable market of 17 million Treatment Resistant
patients, with only 12.5% of patients seeking care and complying with
treatment. Now that we have completed our clinical trial (please see
page 11 Laboratory Services Accomplishments for further information on our
clinical trial), we intend to place greater emphasis on the marketing of our
rEEG technology to physicians, consumers and payers.
8
Path
to Adoption
Several
biomarker firms have successfully commercialized products that predict
medication response, including Genomic Health’s OncotypeDx which predicts
response to chemotherapy, and Roche/Affymetrix Cytochrome P450 test which shows
how each patient is likely to metabolize a given antidepressant. We
are following the paths to adoption used by these successful biomarker firms by
focusing on growth in three stages:
(1) Private
pay market.
Consumers
and private-pay psychiatrists drive over 33% of the market for psychiatric
visits, and a significant proportion of all licensed psychiatrists now describe
themselves as private pay only. We believe consumers who have
experienced treatment failure will seek out our network of physicians once they
become aware of the successful outcomes demonstrated in our clinical
trial.
During
2008, the recruiting for our Depression Efficacy Trial (the Depression Efficacy
Trial is further described under the heading Laboratory Services Accomplishments
on page 11) generated many important lessons about integrated marketing for our
rEEG® service. By using a media mix of web, radio and TV, interested
patients were delivered into the trial at an average cost of $40-$68 per
contact. We will continue to pursue integrated consumer marketing as
a means to introduce interested patients to our rEEG® provider
network.
To drive
growth in private pay, consumer-driven rEEG testing, we plan to do the
following:
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Grow
our focused physician network: We currently have 51 active
practicing physicians utilizing rEEG in their practices, defined as having
paid for testing within the last 12 months. An additional
52 physicians are currently involved in training or clinical trials
utilizing rEEG. Physicians who become “power users” (which we
define as physicians who conduct several tests per month) report
significantly better results than casual users of rEEG technology, and
have certain economies of scale in using the test in their
practices. Similar to the adoption of LASIK technology in
consumer-driven opthalmology, successful practices using rEEG have
reported that as their word-of-mouth referrals increase, their procedure
billings increase, and their average patient visits decrease (as patients
improve). Accordingly, their patient turnover may increase over
time, requiring additional marketing efforts to grow their practice
volume.
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We
plan to focus on supporting these power users through direct marketing,
clinical practice support (patient intake, scheduling, washout support and
reporting), and technical support. This focused network
approach has been successful in other specialties (for example, in organ
transplant networks and in disease management) because it is easier to
sell to payers, facilitates data collection, and is more cost-effective in
delivering care even at higher provider
margins.
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·
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Increase
unit pricing: Currently, the wholesale (direct-to-physician)
price for standard rEEG testing is $400 per test, and the retail (payer
and consumer) is approximately $800. We anticipate that
our pricing will be increased over time with greater acceptance of the
test as a standard of care, rewarding power users for committed volume and
affording improvement in test margins
overall.
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9
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·
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Utilize
our product laboratory: In 2008, we purchased the psychiatric
clinic in Denver, CO founded by our Chief Medical Officer, Daniel Hoffman,
MD. The clinic currently serves as a platform for perfecting
rEEG workflow, information systems, product development and
research. We also test local marketing strategies in Denver
which can then be generalized to other rEEG® network
clinics. The Denver clinic may ultimately become a national
Center of Excellence for neuropsychiatry, where insurers may direct
certain treatment-resistant
patients.
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·
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Scalable
platform for delivery: During 2008, significant development
effort was focused on production systems and lab infrastructure to
accommodate potential growth in the production volume of our rEEG
Reports. Our current production application is able to
accommodate up to 100 tests per day without additional
manpower. In addition to providing scalable capacity, the
production system provides for online delivery of tests and delivery of
test data to physicians’ desktops. Currently, we are investing
in projects to reduce or eliminate the remaining manual processes in test
production: “artifacting” of EEG data and Neurologist review of
each case. It is estimated that these processes will, over
time, be replaced with validated algorithms and/or post-facto sampling for
quality assurance.
|
(2) Payer
economic trials.
Health
plans currently spend over $30 billion on psychotropic medications each year
according to the Substance Abuse and Mental Health Services Administration
(SAMHSA), and most are aware that these agents only work on about 30% of
patients who take them. The lack of medication adherence and poor
treatment outcomes in behavioral health have been longstanding issues for
payers, but they’ve lacked a targeted, cost-efficient approach to solve the
problem.
Presently,
rEEG is not a reimbursable procedure for most health care
payers. Initially, payer response to most new technologies
is a reflexive denial of coverage, regardless of the superiority of evidence or
economics. Over time, however, certain payers may adopt technologies
which confer a clear marketing or underwriting advantage, or which protect them
from legal claims for reimbursement under new legislation (e.g.
Parity). Because of this, it is possible that with sufficient
marketing efforts, we may shift payer “fear of adoption” to “fear of not
adopting” and increase the number of payers that approve our rEEG Reports as a
reimbursable expense.
We intend
to prove that our rEEG reports are a compelling value for payers through
independent research, budget impact models, and payer pilots (economic
trials):
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Evidence for payers:
We will share well-designed research on rEEG® efficacy,
showing the weight of superior evidence in controlled and real-world
clinical trials and case series.
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10
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Parity: In 2010, Mental
Health Parity Act (Parity Act) will change all payers’ coverage criteria,
requiring equal coverage for behavioral and medical therapies, using the
same coverage criteria and evidence. Milliman Global Actuarial
Services estimates a 1-3% increase in overall health costs resulting from
a significant increase in behavioral health expenditures driven by the
Parity Act. Of particular interest to us, however, is the
specific language in the Parity Act which requires that coverage of a
scope-of-service for one type of diagnosis (for example: a Neurologist
performing a diagnostic EEG for Epilepsy) be applied equally as the use of
an EEG by a Psychiatrist for medication
management.
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·
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Budget Impact Model:
A Budget Impact Model for rEEG® has been developed by
Analysis Group Economics based on the published research of Kessler,
Russell, and others covering the cost of treatment failure in mental
disorders. Modeling the economic impact of rEEG® in a health
plan with five million members, we estimate that full utilization of rEEG®
in treatment-resistant depression, anxiety, bipolar and ADHD could save
$8,500 per treatment resistant member for a savings of $45 million per
year.
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·
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Economic Trials:
Economic Trials are intended to demonstrate the comparative effectiveness
of rEEG versus prevailing Trial & Error medication management through
pilot programs within a payer’s own population. Although no
payer is currently reimbursing physicians for the use of rEEG technology,
we are currently negotiating pilot programs for reimbursement coverage
with several of the nation’s largest payers, representing over 80 million
covered lives.
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(3)
Full payer coverage.
Full
reimbursement of referenced-EEG is likely to follow successful
direct-to-consumer adoption of the rEEG test, along with continued release of
confirmatory rEEG research in peer-reviewed publications. Following
the example of the biomarker firms discussed above, it appears possible to
accelerate the effect of these initiatives in the following ways:
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·
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Patient Advocacy:
we believe that some components of the rEEG test may be
billable to payers under Mental Health Parity
Act. Historically, patients of our physician network providers,
and those in our own clinic in Colorado, have paid out of pocket for rEEG
testing and then sought reimbursement from their insurance
carrier. Although these providers frequently furnish
information to support these claims, the success of their prosecution by
patients is unclear.
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Accordingly,
we intend to follow the example of biomarker firms such as Genomic Health,
which developed Patient Advocacy services where patient claims were
documented and tracked, and the company helped organize the advocacy of
each claim with third party payers. Using this approach,
Genomic Health was able to win a retrospective reversal of claim denials
for its test from Medicare (the Centers for Medicare and Medicaid
Services) in 2006.
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Guideline development :
we intend to continue internal and externally-sponsored
clinical research to prove the efficacy of our technology to professional
associations, such as the American Psychiatric Association. We
believe that with strong clinical results, professional associations may
endorse rEEG in their treatment guidelines, which may drive full payer
coverage.
|
We also
believe that the inclusion of historical and new rEEG research in Comparative
Effectiveness studies conducted under the Agency for Healthcare Research and
Quality (AHRQ) would be a significant milestone. As a consequence of
this recent focus on cost-effective treatment, an unprecedented level of funding
has been made available under the Economic Recovery Act, the budgets for NIH and
AHRQ, and earmarked budgets for Defense and the Veterans Association
(VA). We intend to pursue research opportunities with several
external sponsors of research, including:
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the
National Institutes of
Mental Health , focusing on the cost-effectiveness of rEEG as a
more deployable version of brain imaging to guide
prescribing;
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the
Department of Defense and
the Veterans Administration , to address the potential for rEEG in
treating returning soldiers with PTSD and Major Depression;
and
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the
Centers for Medicare and
Medicaid Services (CMS) , as a mechanism for improving quality and
cost performance in programs that spend billions on psychotropic
medications.
|
Laboratory
Services Accomplishments
Over the
last few years, we have been primarily focused on proving the efficacy of
rEEG-guided treatments through multiple clinical trials. The largest
of these — the Depression Efficacy Trial — was a multi-center, randomized,
parallel controlled trial completed this year at 12 medical centers,
including Harvard, Stanford, Cornell, UCI and Rush. The study began
in late 2007 and was completed in September of this year, screening 465
potential subjects with Treatment Resistant Depression and ultimately
randomizing 114 participants to a 12-week course of treatment utilizing rEEG in
the experimental group, and a modified STAR*D algorithm in the control group
(STAR*D, or Sequenced Alternatives to Relieve Depression, was a large,
seven-year study sponsored by the National Institute of Mental Health and
completed in 2006). Top-line results were consistent with
previous clinical trials of rEEG:
11
·
The study
found that rEEG significantly outperformed the modified STAR*D treatment
algorithm from the beginning. The difference, or separation, between
rEEG and the STAR*D control group was 50 and 100 percent for the study’s
two primary endpoints. By contrast, separation between a new
treatment and a control group often averages less than 10 percent in
antidepressant studies. Interestingly, separation was achieved early
(week 2) and durable, continuing to grow through week 12.
·
The control
group in this case, STAR*D, was a particularly tough comparator, representing a
level of evidence-based depression care that is available to only 10% of the US
population, according to one of the study’s authors.
·
Statistical
significance (p < .05) was achieved on all primary and most secondary
endpoints.
In
the course of undertaking the study, we also gained insights into marketing of
the rEEG technology, highlighting aspects of marketing which proved to be more
successful than others. Furthermore, we also developed a foundation
for commercialization of the rEEG technology with insurance companies, and
signing a payer group, Cal Optima (a Southern California health plan for
Medicare/Medicaid enrollees), to run a pilot study with us. A second
large insurer is in the process of negotiating a pilot
study. Additionally, over the course of the last few years, much time
has been spent securing sufficient financing to continue our operations and
ensure that the clinical trial was completed.
Going
forward, we plan to continue expanding the CNS Database with the addition of
more pharmaceuticals and their respective outcomes. Additionally, we
plan on improving the functionality and clinical utility of our rEEG reports, in
order to improve adoption and compress the training period necessary for
physicians to become proficient with the report. Finally, we plan to
increase and refine our marketing efforts to consumers and psychiatrists, and
expand our effort to obtain regular insurance reimbursement for rEEG-guided
therapies.
Use
of rEEG Technology in Pharmaceutical Development
In
addition to its utility in providing psychiatrists and other physicians with
medication sensitivity guidance, rEEG provides us with significant opportunities
in the area of pharmaceutical development. In the future, we aim to
use our propriety data and processes to advance central nervous system (CNS)
pharmaceutical development and economics, in one or more of the following
ways:
|
·
|
Enrichment :
selecting patients for clinical trial who not only have the symptoms
of interest, but are shown by rEEG® screening to likely respond to the
developer’s drug. An oft-cited example is the antidepressant
Prozac, which failed several clinical trials before it achieved success in
two separate trials. The ability to design trials in which
exclusion criteria identify and exclude patients who are clearly
resistant, as determined by rEEG, has the potential to sharpen patient
focus and productivity in clinical trials of psychotropic
medications.
|
12
|
·
|
Repositioning : rEEG®
may suggest new applications/indications of existing
medications. For example, Selective Serotonin Reuptake
Inhibitors Antidepressants (SSRI’s) are now commonly given by primary care
physicians for depression and other complaints, but often produce unwanted
side effects or inadequate results. The ability to biomarker
patients who respond better to tricyclics (TCA’s), or combinations of
TCA’s and stimulants, offers the potential for new indications for
existing compounds.
|
|
·
|
Salvage :
resuscitation of medications that failed phase II or III
studies. One example of this opportunity is
Sanofi-Aventis’ unsuccessful PMA filing for Rimonabant, a
promising anti-obesity/cardiometabolic compound which was
denied approval in the U.S. due to CNS side-effects in their clinical
trial populations. Being able to screen out trial participants
with resistance to a certain medication is an application for rEEG, and
could create “theranostic” products (where an indication for use is
combined with rEEG) for compounds which have failed to receive
broader approval.
|
|
·
|
New Combinations :
unwanted adverse effects occur with medications in fields from
cancer to hepatitis. The ability to improve these medications, in
combination with psychotropics, may improve safety, compliance, and,
sometimes, patient outcomes.
|
|
·
|
Decision Support :
improved understanding supports improved decision making at
all levels of pharmaceutical
development.
|
Competition
Comparable
Biomarker Companies
Although
there are no companies offering a service directly comparable to rEEG, the
following companies might be noted as pursuing similar strategies:
|
·
|
GENOMIC
HEALTH (Nasdaq: GHDX) Genomic Health, Inc. is a life science
company focused on the development and commercialization of genomic-based
clinical laboratory services for cancer that allow physicians and patients
to make individualized treatment decisions. The company was founded in
2000 and is based in Redwood City, California. In 2004, the
company launched the Oncotype DX breast cancer test, which has been shown
to predict the likelihood of chemotherapy benefit, as well as recurrence
in early-stage breast cancer. By the end of 2008, the company
reported that over 90% of health plans were reimbursing use of this
test. In addition to its adopted Oncotype DX breast cancer
test, Genomic Health is preparing to launch its Oncotype DX colon cancer
test in early 2010.
|
|
·
|
ASPECT
MEDICAL SYSTEMS, INC. (Nasdaq: ASPM), an EEG anesthesia monitoring
company, is developing a specific EEG measurement system that indicates a
patient's likely response to some antidepressant medications. Its
biomarker, based on research from the UCLA Neuropsychiatric Institute, is
called Cordance.
|
| A 375-subject multi-site clinical trial on the efficacy of this biomarker in guiding treatment of treatment resistant depression — the BRITE trial — demonstrated positive predictive outcomes for a single antidepressant, escitalopram (Lexapro). Patients in the trial were measured prior to and after taking medication. Publicly available data suggests that the technology may validate a patient's treatment but does not guide specific treatment. Initial trials have shown efficacy in correlating a patient's ultimate response to antidepressants. The revenue model may involve sale of equipment and a per-patient charge, but the company does not currently appear to be close to a commercial release of its product. The company is now conducting trials. |
13
|
·
|
BRAIN
RESOURCE COMPANY (Aust: BRRZF) (www.brainresource.com), is an Australian
Clinical Research Organization (CRO) and biomarker company focused on
personalized medicine solutions for patients, clinicians, pharmaceutical
trials and discovery research. As a CRO, its main focus has
been iSPOT, an $18 million international biomarker study with a private
biotechnology company. Their revenue model includes physician
services and sale of systems and services to pharmaceutical development
companies in the CNS discovery field. As a biomarker provider,
it signed a $6 million agreement last year with Optum (United Healthcare)
to provide screening for plan
members.
|
We
believe that we have a competitive advantage with respect to the behavioral
biomarker firms such as Aspect Medical or Brain Resource Company as we offer
more comprehensive testing (e.g. to cover the full range of CNS medications, not
just certain antidepressants in the case of Aspect Medical) and have conducted
studies to validate the efficacy of our service. We also believe that
we offer greater clinical utility (ease of use, rapid results) in day-to-day
clinical practice than our competitors.
Emerging
Medical Device Technologies .
The
field of neuropsychiatry is undergoing dramatic change as a result of the
introduction of new technologies. Many of these technologies are focused on the
same treatment-resistant patient populations which are the focus of rEEG, and
are priced from $10,000 to over $50,000 for a full course of treatment. Two of
the three examples presented here are invasive, implantable
devices.
|
·
|
CYBERONICS, INC.
(Nasdaq: CYBX) is a neuromodulation company, engages in the design,
development, manufacture, and marketing of implantable medical devices
that provide vagus nerve stimulation (VNS) therapy for the treatment of
epilepsy and treatment-resistant depression. The VNS therapy system
consists of an implantable generator that delivers an electrical signal to
an implantable lead attached to the left vagus nerve, as well as a bipolar
lead, a programming wand and software, and a tunneling tool.
Cyberonics has developed an implantable Vagus
Nerve Stimulation device approved for treatment-resistant
depression. This device has received pre-market approval from
the Food and Drug Agency for patients and is believed to be
under reimbursement review by insurance
payers.
|
|
·
|
MEDTRONIC,
INC. (NYSE: MDT). Medtronic has an implantable deep brain stimulation
device (DBS) in development which is similar to their device approved for
Parkinson's treatment. Deep brain stimulation uses an implanted electrode
– essentially a pacemaker for the brain — to deliver electrical
stimulation to specific structures within the brain. The Food and Drug
Administration (FDA) approved DBS as a treatment for essential tremor in
1997, for Parkinson's disease in 2002, and dystonia in 2003. DBS is also
routinely used to treat chronic pain and has been used to treat various
affective disorders, including major depression. While DBS has proven
helpful for some patients, there is potential for serious complications
and side effects.
|
|
·
|
NEURONETICS
(Privately held) (www.neuronetics.com). Neuronetics has
pioneered and refined the NeuroStar TMS Therapy system for non-invasive,
non-systemic treatment for depression using a focused, pulsed magnetic
field to stimulate function in targeted brain
regions. NeuroStar TMS Therapy stimulates nerve cells in an
area of the brain that is linked to depression by delivering highly
focused MRI-strength magnetic field
pulses.
|
14
TMS is
performed in a physician's office with each treatment lasting about 40 minutes
daily for four to six weeks. In an open-label clinical trial, which
is most like real world clinical practice, approximately one in two patients
experienced significant improvement in symptoms, and one in three experienced
complete symptom resolution. NeuroStar TMS Therapy was cleared by the FDA in
October 2008 for patients who have not adequately benefited from prior
antidepressant medication. TMS Therapy is currently available at over 25
treatment locations in 15 states.
From
a competitive standpoint, we view these emerging treatment options as expensive
augmentations to existing therapies for treatment-resistant patients, and as
competitive therapeutic options to medications. To the best of our knowledge,
rEEG-guided therapy provides a higher probability of treatment success at a
significantly lower cost than device-based solutions, which gives us a
competitive advantage in the marketplace.
Intellectual
Property
rEEG
Patents
We have
three issued U.S. Patents which we believe provide us with the right to exclude
others from using our rEEG technology. In addition, we believe these
patents cover the analytical methodology we use with any form of neurophysiology
measurement including SPECT (Single Photon Emission Computed Tomography), fMRI
(Functional Magnetic Resonance Imaging), PET (Positron Emission Tomography), CAT
(Computerized Axial Tomography), and MEG
(Magnetoencephalography)). We do not currently have data on the
utility of such alternate measurements, but we believe they may, in the future,
prove to be useful to guide therapy in a manner similar to rEEG. We
have also filed patent applications for our technology in various foreign
jurisdictions, and have issued patents in Australia and Israel.
rEEG
Trademarks
“Referenced-EEG”
and “rEEG” are registered trademarks of CNS California in the United
States. We will continue to expand our brand names and our
proprietary trademarks worldwide as our operations expand.
CNS
Database
The CNS
Database consists of over 17,000 medication trials across over 2,000 patients
who had psychiatric or addictive problems. The CNS Database is maintained in two
parts:
1. The
QEEG Database
The QEEG
Database includes EEG recordings and neurometric data derived from analysis of
these recordings. This data is collectively known as the QEEG Data.
QEEG or “Quantitative EEG” is a standard measure that adds modern computer and
statistical analyses to traditional EEG studies. The Company utilizes
two separate, FDA-approved external QEEG databases which provide statistical and
normative information in the rEEG process.
2. The
Clinical Outcomes Database
The
Clinical Outcomes Database consists of physician provided assessments of the
clinical long-term outcomes (average of 405 days) of patients and their
associated medications. The clinical outcomes of patients are recorded using an
industry-standard outcome rating scale, the Clinical Global Impression Global
Improvement scale (“CGI-I”). The CGI-I requires a clinician to rate
how much the patient's illness has improved or worsened relative to a baseline
state. A patient's illness is compared to change over time and rated as: very
much improved, much improved, minimally improved, no change, minimally worse,
much worse, or very much worse.
15
The
format of the data is standardized and that standard is enforced at the time of
capture by a software application. Outcome data is input into the
database by the treating physician or in some cases, their office
staff. Each Physician has access to his/her own patient data through
the software tool that captures clinical outcome data.
We
consider the information contained in the CNS Database to be a valuable trade
secret and are diligent about protecting such information. The CNS
Database is stored on a secure server and only a limited number of employees
have access to it.
Research
and Development
In 2010,
we plan to continue to enhance, refine and improve the accuracy of our CNS
Database and rEEG through expansion of the number of medications covered by our
rEEG Reports, expansion of our biomarkers, refinement of our biomarker system,
and by reducing the time to turnaround a report to the physician.
Government
Regulation
We do not
believe that sales of our Laboratory Information Services, including our rEEG
Reports, are subject to regulatory pre-market approval. However, on April 10,
2008 we received a “warning letter” from the FDA in which the FDA indicated it
believed, based in part on the combination of certain marketing statements it
read on our website, together with the delivery of our rEEG Reports, that we
were selling a software product to aid in diagnosis, which constituted a
“medical device” requiring pre-market approval or clearance by the FDA pursuant
to the Federal Food, Drug and Cosmetic Act (the "Act"). We responded to the FDA
on April 24, 2008 indicating that we believed it had incorrectly understood our
product offering, and clarified that the Laboratory Information Services
were not diagnostic and thus did not constitute a medical device. On
December 14, 2008, the FDA again contacted us and indicated that, based upon its
review of our description of our intended use of the rEEG Reports on our
website, it continued to maintain that the rEEG Reports met its definition of
medical devices. In response to of the FDA communications, we made a number of
changes to our website and other marketing documents to reflect that rEEG is a
service to aid in medication selection and is not a
diagnosis aid. On September 4, 2009, through our
regulatory counsel, we responded to the December 14, 2008 FDA letter explaining
our position in more detail.
On
December 28, 2009, the Company and Regulatory counsel received a response from
the FDA indicating that it still believes referenced-EEG constitutes a “medical
device” under the Act. In response to the most recent letter, we will
request a meeting with FDA to discuss the scope of and requirements
for 510(k) clearance, that they might require, if any. In any
event, we will continue our ongoing dialogue with the FDA regarding our
Laboratory Information Services, and we will take all action necessary and
appropriate to support our position.
We cannot
provide any assurance that additional FDA regulation, including PMA, will not be
required in the future for referenced-EEG. It is also possible that
legislation will be enacted into law and may result in increased regulatory
burdens for us to continue to offer referenced-EEG testing.
If
pre-market review is required, our business could be negatively impacted until
such review is completed and clearance to market or approval is obtained, and
FDA could require that we stop selling our test pending pre-market clearance or
approval. If our test is allowed to remain on the market but there is
uncertainty about our test, if it is labeled investigational by FDA, or if
labeling claims FDA allows us to make are very limited, orders may decline. The
regulatory approval process may involve, among other things, successfully
completing additional clinical trials and submitting a pre-market clearance
notice or filing a PMA application with the FDA. If pre-market review
is required by FDA, there can be no assurance that our test will be cleared
or approved on a timely basis, if at all. Ongoing compliance
with FDA regulations would increase the cost of conducting our business, and
subject us to inspection by FDA and to the requirements of FDA and penalties for
failure to comply with these requirements.
16
Even if
the sale of our Laboratory Information Services are not subject to regulatory
approval, federal and state laws and regulations relating to the sale of our
Laboratory Information Services are subject to future changes, as are
administrative interpretations of regulatory agencies. In the event that we do
not resolve the status of our Laboratory Information Services with the FDA, or
in the event that federal and state laws and regulations change, we may need to
incur additional costs to seek government approvals for the sale of our
Laboratory Information Services.
In the
future, we intend to seek approval for medications or combinations of
medications for new indications, either with corporate partners, or potentially,
on our own. The development and commercialization of medications for new
indications is subject to extensive regulation by the U.S. Federal government,
principally through the FDA and other federal, state and governmental
authorities elsewhere. Prior to marketing any central nervous system medication,
and in many cases prior to being able to successfully partner a central nervous
system medication, we will have to conduct extensive clinical trials at our own
expense to determine safety and efficacy of the indication that we are
pursuing.
17
|
ITEM
15.
|
Exhibits,
Financial Statement Schedules
|
(a) 3.
The following exhibits are included herein:
|
Exhibit
Number
|
Exhibit
Title
|
|
|
31.1
|
Certification
by Principal Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a)
under the Securities Exchange Act of 1934, as amended.
|
|
|
31.2
|
Certification
by Principal Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a)
under the Securities Exchange Act of 1934, as
amended.
|
18
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.
|
CNS
RESPONSE, INC.
|
||
|
By:
|
/s/
George Carpenter
|
|
|
George
Carpenter
Chief
Executive Officer
|
||
|
Date:
March 29, 2010
|
||
In
accordance with the Exchange Act, 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/
George Carpenter
|
Chief
Executive Officer, Director
|
March
29, 2010
|
||
|
George
Carpenter
|
(Principal
Executive Officer)
|
|||
|
/s/ Paul Buck
|
Chief
Financial Officer
|
March
29, 2010
|
||
|
Paul
Buck
|
(Principal
Financial and Accounting Officer)
|
|||
|
*
|
Director
|
March
29, 2010
|
||
|
David
B. Jones
|
||||
|
*
|
Director
|
March
29, 2010
|
||
|
Jerome
Vaccaro, M.D.
|
||||
|
*
|
Director
|
March
29, 2010
|
||
|
Henry
T. Harbin, M. D.
|
||||
|
*
|
Director
|
March
29, 2010
|
||
|
John
Pappajohn
|
||||
|
*
By: /s/ George
Carpenter
|
||||
|
George Carpenter
|
||||
|
As
Attorney-In-Fact
|
INDEX TO
EXHIBITS
|
Exhibit
Number
|
Exhibit
Title
|
|
|
31.1
|
Certification
by Principal Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a)
under the Securities Exchange Act of 1934, as amended.
|
|
|
31.2
|
Certification
by Principal Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a)
under the Securities Exchange Act of 1934, as
amended.
|