UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, DC 20549
Form 10-K
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(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended
December 31,
2009
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OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to
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Commission file number
0-6533
ALSERES PHARMACEUTICALS,
INC.
(Exact Name of Registrant as
Specified in Its Charter)
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DELAWARE
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87-0277826
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(State or other jurisdiction
of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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239 SOUTH STREET
HOPKINTON, MASSACHUSETTS
(Address of principal
executive offices)
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01748
(Zip
Code)
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Registrants
telephone number, including area code
(508) 497-2360
Securities registered pursuant to Section 12(b) of the
Act:
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Title of Each Class
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Name of Each Exchange on Which Registered
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Common Stock, $.01 par value
(Excluding Rights to Purchase Preferred Stock)
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Securities registered pursuant
to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o No þ
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 o No þ
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 þ No o
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 o No o
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 registrants
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. o
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. (Check one):
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Large accelerated
filer o
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Accelerated
filer o
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Non-accelerated
filer o
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Smaller reporting
company þ
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(Do not check if a smaller reporting company)
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Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes o No þ
Based on the last sales price of the registrants Common
Stock as reported on the NASDAQ Capital Market on June 30,
2009 (the last business day of our most recently completed
second fiscal quarter), the aggregate market value of the shares
of voting stock held by non-affiliates of the registrant was
$4,587,530.
As of March 22, 2010, there were 25,555,645 shares of
the registrants Common Stock issued and outstanding.
DOCUMENTS
INCORPORATED BY REFERENCE:
Portions of the registrants definitive proxy statement to
be filed with the Securities and Exchange Commission relative to
the registrants 2010 Annual Meeting of Stockholders are
incorporated by reference into Items 10, 11, 12, 13 and 14
of Part III of this Annual Report on
Form 10-K.
PART I
Overview
We are a biotechnology company focused on the development of
therapeutic and diagnostic products primarily for disorders in
the central nervous system, or CNS. Our clinical and preclinical
product candidates are based on three proprietary technology
platforms:
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Molecular imaging program focused on the diagnosis of
i) Parkinsonian Syndromes, or PS, including
Parkinsons Disease, or PD, and ii) Dementia with Lewy
Bodies, or DLB;
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Regenerative therapeutics program, primarily focused on nerve
repair and restoring movement and sensory function in patients
who have had significant loss of CNS function resulting from
trauma such as spinal cord injury, or SCI, stroke, and optic
nerve damage utilizing technology referred to as axon
regeneration.
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As of December 31, 2009, we have experienced total net
losses since inception of approximately $203,969,000 ,
stockholders deficit of approximately $47,509,000 and a
net working capital deficit of approximately $4,536,000. The
cash and cash equivalents available at December 31, 2009
will not provide sufficient working capital to meet our
anticipated expenditures for the next twelve months. At
March 22, 2010, we had cash and cash equivalents of
approximately $130,000 which combined with our ability to
control administrative expenses will enable us to meet our
anticipated cash expenditures into April, 2010. We must
immediately raise additional funds in order to continue
operations and to fund the approximately $34 million of
investment required to complete the Altropane clinical
development program. This funding is not available at present
and there can be no assurance that such funds will be available
on acceptable terms if at all.
In order to continue as a going concern, we must immediately
raise funds through one or more of the following: a debt
financing, an equity offering, or a collaboration, merger,
acquisition or other transaction with one or more pharmaceutical
or biotechnology companies. We are currently engaged in
fundraising efforts. There can be no assurance that we will be
successful in our fundraising efforts or that additional funds
will be available on acceptable terms, if at all. We also cannot
be sure that we will be able to obtain additional credit from,
or effect additional sales of debt or equity securities to
certain of our existing investors described below in Liquidity
and Capital Resources. If we are unable to raise additional or
sufficient capital, we will need to cease operations or reduce,
cease or delay one or more of our research or development
programs, adjust our current business plan and may not be able
to continue as a going concern. If we violate a debt covenant or
default under the March 2008 Amended Purchase Agreement or the
June 2008 Purchase Agreement (described below in Liquidity and
Capital Resources) we may need to cease operations or reduce,
cease or delay one or more of our research or development
programs, adjust our current business plan and may not be able
to continue as a going concern. Additionally, our common stock
was delisted from trading on the NASDAQ Capital Market as a
result of our failure to meet continued listing requirements of
NASDAQ. On May 8, 2009 we began trading on the Pink Sheets
OTC Market. This delisting could have an adverse affect on our
ability to obtain future financing and could adversely impact
our stock price and the liquidity of our common stock. See the
risk factor entitled Our common stock has been delisted
from the NASDAQ Capital Market.
In connection with the common stock financing completed by us in
March 2005, or the March 2005 Financing, we agreed with the
purchasers in such financing, including Robert Gipson, Thomas
Gipson, and Arthur Koenig, or the March 2005 Investors, that,
subject to certain exceptions, we would not issue any shares of
our common stock at a per share price less than $2.50 without
the prior consent of the March 2005 Investors holding at least a
majority of the shares issued in the March 2005 Financing. On
March 22, 2010, the closing price of our common stock was
$.21. The failure to receive the requisite waiver or consent of
the
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March 2005 Investors could have the effect of delaying or
preventing the consummation of a financing by us should the
price per share in such financing be set at less than $2.50.
Our ability to advance our clinical programs, including the
development of Altropane, is affected by the availability of
financial resources. Financial considerations have caused us to
suspend planned development activities for our clinical and
preclinical programs until we are able to secure additional
working capital. If we are not able to raise additional capital,
we will not have sufficient funds to complete the clinical trial
programs for the Altropane molecular imaging agent.
In light of current conditions in the global financial markets
and our severe cash constraints we have taken steps to reduce
our on-going cash expenses. In January and September 2009, we
terminated a total of ten employees, reduced the salary of most
of the remaining employees and cut back certain employee
benefits. The costs related to these actions consist primarily
of one-time termination costs. The terminations and salary
reductions are expected to reduce compensation costs by
approximately $1,500,000 annually.
We were organized in 1992 and are incorporated in Delaware. Our
principal executive offices are located at 239 South Street,
Hopkinton, Massachusetts 01748, and our telephone number is
(508) 497-2360.
In this Annual Report on
Form 10-K,
the terms Alseres Pharmaceuticals, the
Company, we, us and
our include Alseres Pharmaceuticals, Inc. and its
subsidiaries. The following are trademarks of ours that are
mentioned in this Annual Report on
Form 10-K:
Alseres®,
Altropane®,
Cethrin®,
and
Fluoratectm.
Other trademarks used in this Annual Report on
Form 10-K
are the property of their respective owners.
Product
Development
Molecular
Imaging Program
Altropane
Molecular Imaging Agent
Background
The Altropane molecular imaging agent is being developed for the
differential diagnosis of PS, including PD, and non-PS in
patients with an upper extremity tremor. In July 2007, we
completed enrollment in a study that optimized Altropanes
image acquisition protocol which we believe will enhance
Altropanes commercial use. After a series of discussions
with the U.S. Food and Drug Administration, or FDA, and our
expert advisors, the POET-2 program was designed as a
two-part Phase III program using the optimized
Altropane image acquisition protocol. The first part of the
program enrolled 54 subjects in a multi-center clinical study to
acquire a set of Altropane images which will be used to train
the expert readers, as is the customary process for clinical
trials of molecular imaging agents. Enrollment in the first part
of POET-2 was completed in January 2009. In April, 2009 we
reached agreement with the FDA under the Special Protocol
Assessment, or SPA, process for the second part of the
Phase III clinical trial program of Altropane. A SPA is a
process by which sponsors and the FDA reach an agreement on the
size, design and analysis of clinical trials that will form the
primary basis of approval. The Phase III program is
designed to confirm the diagnostic utility of the agent in
anticipation of drug registration. The second portion of the
Phase III, POET-2 program consists of two clinical trials in up
to 480 subjects in total to be conducted in parallel at up to 40
medical facilities throughout the US. The subjects to be tested
will be
40-80 years
of age and have had a tremor in their hand(s) or arm(s) for less
than three years. Each subject will be assessed by a general
neurologist, an Altropane imaging procedure and a Movement
Disorder Specialist considered the gold standard.
The success of the trial will be determined by measuring the
diagnostic efficacy of the neurologist diagnosis compared with
the diagnosis determined by the Altropane scan versus the MDS
gold standard diagnosis. Based on the trial design and scope
covered by the Special Protocol Assessment Agreement for POET-2,
we estimate that the total costs to complete the POET-2 program
and prepare and submit an NDA for Altropane in the
U.S. will be approximately $34 million. This funding is not
available at present and there can be no assurance that such
funds will be available on acceptable terms if at all.
We believe in the current environment that, due to their
proximity to commercialization and return on investment, late
stage development programs may continue to be of significant
interest to potential partners and investors. To maximize the
value of our molecular imaging program, we are focusing on
obtaining the
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funding necessary to execute the Altropane Phase III
registration program. We are pursuing the capital necessary to
enable us to advance the Altropane program through our own
means. In parallel, we are seeking to partner our molecular
imaging program with a firm or firms with the resources
necessary for the completion of the Phase III clinical
program, for the manufacturing and supply of Altropane, and for
the launch and commercialization of Altropane. We can provide no
assurances that a partnership transaction will occur. We believe
that the expansion of the program into other indications such as
DLB and other countries including those in Europe could increase
the value of the program for the partner and us. All of these
activities require additional funding not presently available
and as such have been suspended. There can be no assurance that
the required funding to advance the Altropane program will be
available on acceptable terms if at all.
The Altropane molecular imaging agent is a radiolabeled imaging
agent that contains the radioactive element iodine isotope
123I and
binds with extremely high affinity and specificity to the
dopamine transporter, or DAT. The DAT is a protein that is on
the surface membrane of specialized neurons in the brain that
produce dopamine, a key neurotransmitter. We believe that the
amount of Altropane taken up by the brain is directly
proportional to the number of DATs that are present in any given
area of the brain. Since DATs are on the membrane of
dopamine-producing neurons, death of these neurons results in
decreased numbers of DATs. Therefore, PD, which is caused by a
decreased number of dopamine producing cells, is associated with
a marked decrease in the number of DATs. As a result, when
Altropane is administered to patients with PD, its binding is
substantially diminished as compared to patients without PD.
This decrease in Altropane binding in patients with PD is the
theoretical basis for using Altropane imaging as a diagnostic
test for PS, including PD.
Altropane is administered by intravenous injection. Since
Altropane contains radioactive
123I, it
can be used as a nuclear imaging agent that can be detected
using a specialized nuclear medicine instrument known as a
Single Photon Emission Computed Tomography, or SPECT, camera.
The strength of the SPECT signal generated by Altropane is
proportional to the number of DATs present and produces images
that distinguish PS and non-PS patients. SPECT cameras are
widely available in both community and academic medical centers.
The scanning procedure using Altropane takes less than one hour
to complete. Results of these tests are usually available the
same day as the scanning procedure.
We have licensed worldwide exclusive rights to develop Altropane
from Harvard University and its affiliated hospitals, which we
refer to as Harvard and its Affiliates, including the
Massachusetts General Hospital. The license agreement provides
for milestone payments and royalties based on product sales that
are consistent with industry averages for such products.
Altropane
Diagnostic for Parkinsonian Syndromes (PS)
Background
PS is characterized by loss of dopamine-producing neurons
resulting in a variety of movement disorders, especially tremors
and gait problems. The most prevalent form of PS is PD which is
a chronic, irreversible, neurodegenerative disease that
generally affects people over 50 years old. PD is caused by
a significant decrease in the number of dopamine producing
neurons in specific areas of the brain. Inadequate production of
dopamine causes, at least in part, the PD symptoms of tremor,
muscle retardation and rigidity. PD can be difficult to diagnose
using subjective analyses and can be confused with Essential
Tremor, or ET. ET manifests with clinical symptoms very similar
to those of PD. However, ET patients do not need the drugs
routinely prescribed to PD patients.
Need for
an Objective Diagnosis
To our knowledge, there is presently no approved objective test
commercially available in the United States to diagnose PS and
to differentiate it from other movement disorders. According to
published data, clinical criteria used to diagnose PS is prone
to high error rates, especially in early stages of PD. This
highlights the critical need for an effective diagnostic.
Presently, patients who have experienced tremors and other
evidence of a movement disorder may pursue diagnosis and
treatment with a number of medical professionals. These include
an internist or general practitioner, also known as a primary
care physician, or
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PCP, a neurologist, or a movement disorder specialist, or MDS,
whose practice is focused on movement disorders.
Patients can exhibit symptoms
and/or have
clinical histories that are inconclusive. A primary tool
utilized to diagnose PD or PS is a clinical history and a
physical exam. However, studies in the literature have reported
error rates in diagnosing PD or PS from a low of 10% for MDSs to
as high as 40 to 50% for PCPs.
This high error rate is driving the need for a diagnostic test
that provides physicians with additional clinical information to
help them make a definitive diagnosis when clinical symptoms and
the patients history are inconclusive. Further, while the
accuracy of MDSs is reported to be higher, the number of MDSs in
the United States is limited with current estimates between 300
and 500. The limited availability of MDSs underscores the
potential utility of a widely available diagnostic tool such as
Altropane.
There are a number of important and potentially harmful results
associated with misdiagnosis. These include:
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Patients who are improperly diagnosed as having PD but actually
do not (false positive) may be administered medications for PD.
These drugs can have damaging effects on individuals who do not
actually have PD.
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Patients who are improperly diagnosed as not having PD but
actually do (false negative), may not benefit from available
treatments, thereby suffering further worsening of symptoms and
progression of their disease.
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Phase I
and Phase II Trials
Our Phase I trials for Altropane enrolled 39 patients. Our
Phase II trial for Altropane enrolled 37 patients and
the results showed that patients with early or mild PD were
reliably differentiated from unaffected patients based on the
Altropane molecular imaging agent scan. There were no
Altropane-related serious adverse events reported in the studies.
Phase III
Trial Differentiate PS Movement Disorders from
Non-PS Movement Disorders
Our initial Phase III study was designed to confirm the
utility of imaging with Altropane to differentiate PS movement
disorders (including PD) from other non-PS movement disorders.
The study assessed SPECT scans using Altropane in a sample
population representative of those individuals that consult with
neurologists or internists for undiagnosed movement disorders.
The trials endpoints for sensitivity and specificity were
met on a statistically significant basis. The study enrolled 100
subjects having the clinical diagnosis of PS and
65 patients having non-PS movement disorders. The clinical
diagnosis of patients in the trial was made by MDSs. Altropane
SPECT scans were performed on each subject and reviewed by an
independent three-member panel of nuclear medicine physicians
specializing in neuroimaging who had no knowledge of the
clinical diagnosis. The Altropane scans were read and
categorized as being consistent with either PS or non-PS and
were then compared to the expert clinical diagnosis. There were
no Altropane-related serious adverse events reported in the
study. Following completion of our initial Phase III trial,
we had a series of meetings and discussions with the Food and
Drug Administration, or the FDA, regarding the clinical trial
data that we had accumulated to date. The purpose of these
communications and conferences was to determine what additional
clinical information would be required for a New Drug
Application, or NDA.
Phase III
Trial Parkinsons or Essential Tremor
(POET-1)
We initiated a Phase III program of Altropane designed to
distinguish PS from non-PS in patients with tremors. The
Phase III program specified two sequential clinical
protocols: 1) Parkinsons or Essential Tremor-1, or
POET-1, and 2) Parkinsons or Essential Tremor-2, or
POET-2. Under the SPA, interim analysis of the blinded data was
not permitted and monitoring of un-blinded data was allowed.
Publication of the detailed results of POET-1 prior to the
completion of POET-2 was also prohibited to avoid biasing
POET-2. A diagnosis of a MDS was utilized as the gold
standard. The primary endpoint for POET-1 was the
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confirmation that the diagnostic accuracy of the Altropane
molecular imaging agent is statistically superior to the
diagnostic accuracy of a PCP.
Based on certain statistical and modeling assumptions, we
initially estimated that POET-1 would require enrollment of
approximately 332 patients to meet the endpoints and be
statistically significant. These assumptions included published
reports in scientific journals that indicated a 20 to
30 percent misdiagnosis rate in the early stages of PD. Our
review of the un-blinded data from the initial patients enrolled
in POET-1 indicated that the error rate of PCPs who participated
in POET-1 was higher than anticipated. As such, statistical
modeling indicated that, provided the performance of Altropane
in POET-1 was consistent with its historical performance in
earlier trials, statistical significance could be achieved with
fewer patients than originally projected. After a series of
discussions with the FDA and our expert advisors, we notified
the FDA that we elected to terminate our SPA and end POET-1
enrollment so that we could analyze the complete set of clinical
data for efficacy. The results of the 206 patients in
POET-1 were statistically significant and with the exception of
one possibly-related urinary tract infection that
resolved after treatment, there were no drug-related serious
adverse events.
Phase III
Trial Parkinsons or Essential Tremor
(POET-2)
In July 2007, our collaborators completed enrollment in a study
that optimized Altropanes image acquisition protocol which
we believe will enhance Altropanes commercial use. After a
series of discussions with the FDA and our expert advisors, the
POET-2 program was designed as a two-part Phase III
program using the optimized Altropane image acquisition
protocol. The first part of the program enrolled 54 subjects in
a multi-center clinical study to acquire a set of Altropane
images which will be used to train the expert readers, as is the
customary process for clinical trials of molecular imaging
agents. Enrollment in the first part of POET-2 was completed in
January 2009. In April, 2009 we reached agreement with the FDA
under the Special Protocol Assessment, or SPA, process for the
second part of the Phase III clinical trial program of
Altropane. A SPA is a process by which sponsors and the FDA
reach an agreement on the size, design and analysis of clinical
trials that will form the primary basis of approval. The
Phase III program is designed to confirm the diagnostic
utility of the agent in anticipation of drug registration. The
second portion of the Phase III, POET-2 program consists of two
clinical trials in up to 480 subjects in total to be conducted
in parallel at up to 40 medical facilities throughout the US.
The second portion of the POET-2 program is expected to cost
$34 million and there can be no assurances that these funds
will be available to the Company.
Market
Opportunity
It has been estimated that approximately 180,000 individuals in
the United States per year present to their physician with new,
undiagnosed cases of PD and ET, and are therefore candidates for
a scan using the Altropane molecular imaging agent to diagnose
or rule out early PS. It has also been estimated by the National
Institute of Neurological Disorders and Stroke and the National
Parkinsons Foundation, that the number of people in the
United States with PD is between 500,000 and 1,500,000. It has
been estimated by the Tremor Action Network that there are
approximately 10,000,000 people in the United States with
ET. In addition, a study done by the World Health Organization
claims that approximately 2,000,000 individuals suffer from PD
in Europe. We expect the number of individuals affected by PD to
grow substantially as people continue to live longer and the
overall population ages.
Altropane
Diagnostic for Dementia with Lewy Bodies (DLB)
DLB is a progressive brain disease and the second most common
cause of neurodegenerative dementia. The symptoms of DLB are
caused by the
build-up of
Lewy bodies inside the section of the brain that controls
particular aspects of memory and motor control. The similarity
of symptoms between DLB and PD, and between DLB and
Alzheimers disease, can make it difficult to accurately
diagnose. As with PD, there is no objective diagnostic tool
available in the United States. We believe that the underlying
basis for DLB coupled with our existing preclinical and clinical
data supports the potential development of Altropane as a
diagnostic for DLB. We also believe the potential use of our
molecular imaging agents for the diagnosis of DLB could be
strategic in our partnering efforts for our molecular imaging
program.
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It has been estimated by the Alzheimers Association that
there are approximately 7,000,000 to 10,000,000 people in
the United States with dementia of which the journal Age and
Ageing estimates that up to approximately 3,000,000 people
have DLB. According to Alzheimer Europe, there were
approximately 1,800,000 people in Europe with DLB.
Technetium-Based
Molecular Imaging Agent
We have licensed the rights to develop and commercialize a
second generation compound that will selectively bind the same
DAT protein recognized by Altropane. The new compound will
incorporate the technetium-99m, or
99mTc,
radiolabel, which is routinely available from a
99mTc
generator in hospital radiopharmacies. The SPECT imaging agent
will be prepared on site by a nuclear medicine department using
our supplied kit rather than being centrally prepared and
distributed as Altropane is today. This new agent will be
designed to function in a SPECT scan in a very similar manner to
that of Altropane. The imaging agent developed will be
administered by intravenous injection and is expected to rapidly
and selectively bind the DAT protein in the brain (striatum
region) with high affinity. The unbound agent is intended to
clear the brain rapidly to allow high contrast SPECT scans on
the day of administration. Under the correct conditions, the
SPECT scan data reflect the number of DAT proteins. This may be
useful in the diagnoses and detection of diseases or conditions
that reduce or increase the number of dopamine neurons or the
concentration of DAT proteins on the neurons, such as in PD or
Attention Deficit Hyperactivity Disorder. We believe that the
ability to follow Altropane to market with a second-generation
technetium-based molecular imaging agent could give us a
long-term competitive advantage. The use of technetium could
offer
ease-of-use,
cost, manufacturing and distribution advantages.
We licensed from Harvard and its Affiliates worldwide exclusive
rights to develop
99mTc-based
molecular imaging agents similar to Altropane. The license
agreement provides for milestone payments and royalties based on
product sales that are consistent with industry averages for
such products.
Early primate studies using our two
99mTc-incorporated
compounds previously developed, Technepine and
Fluoratectm,
have demonstrated that they are taken up by the DAT proteins in
the normal brain in sufficient quantity to provide a readable
image. In addition, primates with experimentally-induced PD had
markedly decreased uptake of both imaging agents. In 2007, we
devised a new radiolabeling procedure as a prelude to obtaining
definitive images in non-human primates.
Resource constraints have forced us to cease all development
efforts related to the Technetium-based imaging agent and we can
provide no assurances when, if ever, development of these
products will resume.
Regenerative
Therapeutics Program Nerve Repair
Background
Injuries to the brain and spinal cord can result in severe
disability. In a limited way, backup or so-called accessory
nerve pathways can partially compensate for those that have been
destroyed, resulting in some recovery with rehabilitation. It
has been widely believed that human beings are not capable of
regenerating damaged or destroyed nerves in their CNS leading to
the conclusion that recovery of function in severely injured
patients is not possible or likely. Most research to date has
focused on preventing further damage to nerves as a result of a
stroke, spinal cord injury or traumatic brain injury; so-called
neuroprotection. However, ongoing research by our
scientific collaborators and others has indicated that axons,
the portion of nerves that permit connections and signaling
between nerve cells, can be induced to grow, potentially
enabling function controlled by damaged nerves to return.
Published studies have begun to describe and analyze biochemical
pathways inside and outside of nerve cells that facilitate nerve
repair, allowing molecular targets for product candidates to be
identified and evaluated. These studies have identified certain
factors that stimulate axon regeneration and others whose
presence inhibits axon regeneration. Importantly, these studies
have reduced the uncertainty around functional recovery based on
axon regeneration and clearly distinguished it from
neuroprotection. This research could potentially provide an
avenue by which drug intervention could be utilized to support
functional recovery in severe CNS injury.
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Our nerve repair program is focused on restoring movement and
sensory function in patients who have had significant loss of
CNS function resulting from traumas such as SCI, stroke,
traumatic brain injury, or TBI, and optic nerve damage. Our
efforts are aimed at the use of proprietary regenerative drugs
and/or
methods to induce nerve fibers to regenerate and form new
connections that restore compromised abilities. Licensing or
acquiring the rights to the technologies of complementary
approaches for nerve repair is part of our strategy of creating
competitive advantages by assembling a broad portfolio of
related technologies and intellectual property.
Our lead product candidate for nerve repair during early 2009
was Cethrin. Cethrin contains a proprietary protein which
studies indicate inactivates a key enzyme called Rho resulting
in the promotion of nerve repair. Cethrin was being investigated
to determine its effectiveness in facilitating the restoration
of movement and sensory function following a major injury to the
spinal cord.
In December 2006, we entered into a license agreement, or the
Cethrin License, with BioAxone Therapeutic Inc., a Canadian
corporation, or BioAxone, pursuant to which we were granted an
exclusive, worldwide license to develop and commercialize
specified compounds including, but not limited to, Cethrin, as
further defined in the Cethrin License. The Cethrin License
called for us to conduct development and commercialization
activities of Cethrin and to pay certain pre-commercialization
milestones and on-going royalties on sales of Cethrin when and
if approved for marketing. The Cethrin License provided for a
series of performance milestones any of which, if not achieved
by us in the timeframes agreed in the Cethrin License, could
form the basis of a claim for compensation to BioAxone and
possibly the termination of some or all of our rights under the
Cethrin License. The Cethrin License further provided us with
relief from our performance obligations in the event that such
performance is effectively rendered impossible due to safety or
efficacy issues with Cethrin during its development.
Additionally, the Cethrin License provided a warranty that all
of the clinical materials provided to us by BioAxone in
connection with the Cethrin License were manufactured in
accordance with current Good Manufacturing Practices, or cGMP.
Cethrin
License Dispute
In January 2009, the Company received notice from BioAxone
alleging that we had failed to meet one of the performance
milestones in the Cethrin License that was required to have been
met on or before January 1, 2009. This notice purported to
terminate the Cethrin License, sought payment of a $2,000,000
penalty from us to BioAxone for such purported failure and
requested that we transfer to BioAxone our rights to the Master
Cell Bank (as defined in the Cethrin License) and all licensed
intellectual property under the Cethrin License.
We believed that the purported termination was without effect.
Our performance obligations under the Cethrin License were
specifically excused in the event that a safety issue renders
such performance impossible. Our prior discovery that the Master
Cell Bank from which Cethrin is manufactured may contain an
unintended animal derived contaminant rendering it not in
compliance with the requirements of cGMP, represented such a
safety risk for Cethrin. We notified BioAxone of the
contamination issue and our position that the purported
termination and demand for payment is considered to be without
effect.
In April 2009 we announced that we entered into an Amendment
Agreement, or the Amendment, with BioAxone Therapeutic, Inc.,
pursuant to which the Cethrin License, was amended. The
Amendment replaces all of the pre-commercial financial and
performance-related milestones contained in the Cethrin License
with a formula-based approach to sharing of any and all income
under a
sub-license.
The Amendment establishes provisions under which we would use
reasonable commercial efforts to enter into a
Sub-license
Agreement for the technology covered by the Cethrin License. The
Amendment also provides for the mutual release of claims that
each party had previously alleged against the other under the
Cethrin License. During 2009 our efforts were focused on
identifying and negotiating with appropriate sublicensing
candidates. Under the terms of the Amendment Agreement, our
right to sublicense Cethrin has expired and all rights granted
to us in the Cethrin License have reverted to BioAxone. The
Amendment provides that, in the event BioAxone is able to
license or partner the Cethrin technology in the future, we are
entitle to receive a 30% share of any and all proceeds received
by BioAxone connected with such transaction. It is unclear if or
when BioAxone will license the Cethrin technology to a third
party, so we may not realize any revenue at all under the
Amendment.
9
Other
Regenerative Factors
We have rights to other technologies and factors that may be
involved in nerve repair and regenerative therapeutics,
including INOSINE and Oncomodulin, two proprietary regenerative
factors that promote axon outgrowth in CNS neurons. We entered
into two license agreements, or the CMCC Licenses, with
Childrens Medical Center Corporation (also known as
Childrens Hospital Boston), or CMCC, to acquire the
exclusive worldwide rights to new axon regeneration
technologies. The CMCC Licenses provide us exclusive rights to
develop INOSINE, Oncomodulin and other therapeutic approaches to
stimulate nerve repair. The CMCC Licenses calls for us to pay
milestone payments and royalties based on product sales that are
consistent with industry averages for such products.
Our development efforts with these candidate compounds has been
suspended due to resource constraints and it is unclear when, if
ever, they will resume. We are pursuing partnership transactions
for these assets but there can be no assurances that any such
transactions will occur.
Inosine is a purine nucleoside that is a naturally-occurring
compound. We refer to the manufactured drug product candidate
formulated for human administration as INOSINE to differentiate
it from the naturally-occurring compound which we refer to as
inosine. Oncomodulin is a naturally-occurring protein that is
reported by our scientific collaborators to enhance axon
regeneration in animal models. Using recombinant Oncomodulin,
our collaborating scientists have been able to stimulate
regeneration of the optic nerve to a degree greater than had
previously been documented in scientific literature and showed
that the regenerated fibers passed through an optic nerve crush
injury and extend for several millimeters along the degenerated
optic nerve tract towards the brain. Oncomodulin is being
evaluated as a therapeutic for potential ocular indications,
including re-growth of axons after optic nerve injury or damage
of retinal ganglion cells from intraocular pressure caused by
glaucoma.
In September 2003, we entered into an agreement with
Codman & Shurtleff, Inc., or Codman, a
Johnson & Johnson subsidiary whereby Codman provided
us with implantable pumps and intracerebroventricular catheters
for our preclinical studies of INOSINE. In exchange for their
support of our development program and regulatory submissions,
Codman received a right of first refusal to exclusively license
our intellectual property regarding INOSINE including, but not
limited to, a right to co-develop INOSINE with Codmans
medical devices in the event that we offer similar rights to
others. Codmans rights are subject to specified terms and
could extend from the date of certain completed pilot studies
through the completion of Phase II clinical testing of
INOSINE. However, we can provide no assurances that we will ever
offer such rights to another party or that Codman will exercise
its right of first refusal.
We believe that experiments and animal tests, including those
conducted by our collaborating scientists, Dr. Larry
Benowitz and Dr. Zhigang He and their colleagues at CMCC,
demonstrate significant progress in the search for potentially
important nerve repair agents for stroke and SCI. In published
work, Dr. Benowitz and his colleagues showed that INOSINE
stimulated axon growth in an animal model of SCI. Almost all of
the treated animals showed signs of extensive axon regeneration
from the uninjured to the injured side of the spinal cord,
specifically the corticospinal tract. In related published work,
INOSINE treatment was also shown to produce functional recovery
in an experimental rat model of stroke. The improvement in
forelimb and hindlimb function in the treated animals was
statistically significant over the control group rats. Work in
the laboratory of Dr. He has shown in vitro
that inhibitors of the epidermal growth factor receptor can
overcome the growth inhibition induced by myelin and stimulate
nerve outgrowth.
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Scientific
Collaborators
A summary of the key scientific, research and development
professionals with whom we worked in 2009, and a composite of
their professional backgrounds and affiliations is as follows:
Larry I. Benowitz, Ph.D., Director, Laboratories for
Neuroscience Research in Neurosurgery, Childrens Hospital,
Boston; Associate Professor of Neurosurgery, Harvard Medical
School;
Zhigang He, Ph.D., BM, Research Associate,
Department of Neurology, Childrens Hospital Boston;
Associate Professor of Neurology, Department of Neurology,
Harvard Medical School.
Robert S. Langer, Sc.D., Institute Professor of Chemical
and Biomedical Engineering, Massachusetts Institute of
Technology; and
Peter Meltzer, Ph.D., President, Organix, Inc.,
Woburn, MA.
Research
and Development
We rely on licensing from third parties as our source for new
technologies and product candidates, and we maintain only
limited internal research and development personnel. Research
and development expenses for the years ended December 31,
2009, 2008 and 2007 were approximately $3.7 million,
$10.9 million and $10.5 million, respectively.
Licensing
Agreements, Patents and Intellectual Property
We have obtained exclusive licenses to patent portfolios related
to our product candidates in development. However, as to one or
more of the patents and patent applications of the patent
portfolios, which we have licensed from a university or academic
institution, the United States government holds a nonexclusive,
royalty-free, license in exchange for providing research funding.
Our intellectual property strategy is to vigorously pursue
patent protection for our technologies in the United States and
major developed countries. As of December 31, 2009, we
owned or licensed 41 issued U.S. patents and 29 pending
U.S. patent applications. International patent applications
corresponding to certain of these U.S. patent applications
have also been filed. Generally, each license agreement is
effective until the last patent licensed relating to the
technology expires or a fixed and determined date.. The patents
for the Altropane molecular imaging agent expire beginning in
2013. The patents for the technetium-based molecular imaging
agents expire beginning in 2017. The patents for Inosine expire
in 2017.
The patent positions of pharmaceutical and biotechnology
companies, including ours, are uncertain and involve complex and
evolving legal and factual questions. We cannot guarantee that
any patents will issue from any pending or future patent
applications owned by, or licensed to us. Existing or future
patents may be challenged, infringed upon, invalidated, found to
be unenforceable or circumvented by others. We cannot guarantee
that any of our rights under any issued patents will provide
sufficient protection against competitive products or otherwise
cover commercially valuable products or processes. We may not
have identified all United States and foreign patents that pose
a risk of infringement. In addition, even if we secure patent
protection, our product candidates may still infringe on the
patents or rights of other parties, and these patent holders may
decide not to grant a license to us. We may be required to
change our product candidates or processes, engage in legal
challenges to the validity of third party patents that block our
ability to market a product, pay licensing fees, or cease
certain activities because of the patent rights of third
parties. Any of these events could cause additional unexpected
costs and delays.
In the event that a third party has a patent or patent
application overlapping an invention claimed in one of our
patents or patent applications, we may be required to
participate in a patent interference proceeding declared by the
United States Patent and Trademark Office, or USPTO, to
determine priority of invention. A patent interference could
result in substantial uncertainties and cost for us, even if the
eventual outcome is favorable to us. We cannot provide assurance
that our patents and patent applications, if issued, would be
held valid by a court of competent jurisdiction.
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We also rely on trade secrets and proprietary know-how. We seek
to protect this information through confidentiality agreements
with our collaborators and consultants. There can be no
guarantee that these procedures and agreements will not be
breached or that we will have adequate remedies for such breach.
In addition, if consultants, scientific advisors, or other third
parties apply technological information which they have
developed separate from us to our technologies, there may be
disputes as to the ownership of such information which may not
be resolved in our favor.
Competition
The biotechnology and pharmaceutical industries are highly
competitive, rapidly changing and are dominated by larger, more
experienced and better-capitalized companies. Thus, we compete
with a number of pharmaceutical and biotechnology companies that
have financial, technical and marketing resources and experience
significantly greater than ours. Such greater experience and
financial strength may enable them to bring their products to
market sooner than us, thereby gaining a competitive advantage.
In addition, research related to the causes of, and possible
treatments for, diseases for which we are trying to develop
products are developing rapidly, and there is a potential for
extensive technological innovation in relatively short periods
of time. Given that many of our competitors have greater
financial resources, there can be no assurance that we will be
able to effectively compete with any new technological
developments. In addition, many of our competitors and potential
competitors have significantly greater experience than we do in
completing preclinical and clinical testing of new
pharmaceutical products and obtaining FDA and other regulatory
approvals of products. These advantages could enable them to
bring products to market faster than us.
We expect that our products will compete with a variety of
products currently offered and under development by a number of
pharmaceutical and biotechnology companies that have greater
financial and marketing resources than ours. We believe that our
product candidates, if successfully developed, will compete with
these products principally on the basis of improved and extended
efficacy and safety, and the overall economic benefit to the
health care system offered by such products. However, there can
be no assurance that our product candidates, if developed, will
achieve better efficacy and safety profiles than current drugs
now offered or products under development by our competitors.
Competition among pharmaceutical products approved for sale also
may be based on, among other things, patent position,
availability and price. In addition, we expect that our
competitors will have greater marketing resources and experience
than we do, which may enable them to market their products more
successfully than we market ours.
A significant amount of research and development in the
biotechnology industry is conducted by academic institutions,
governmental agencies and other public and private research
organizations. We rely on collaborations with these entities to
acquire new technologies and product candidates. These entities
often seek patent protection and enter into licensing
arrangements to collect royalties for use of technology or for
the sale of products they have discovered or developed. We face
competition in our licensing or acquisition activities from
pharmaceutical and biotechnology companies that also seek to
collaborate with or acquire technologies or product candidates
from these entities. Accordingly, we may have difficulty
licensing or acquiring technologies or product candidates on
acceptable terms.
To our knowledge, there is presently no approved diagnostic in
the United States for PD
and/or DLB.
To our knowledge, there is only one company, GE Healthcare
(formerly Nycomed/Amersham), that has marketed a diagnostic
imaging agent for PD and DLB,
DaTSCAN®.
To date, GE Healthcare has obtained marketing approval in
Europe. GE Healthcare has significantly greater infrastructure
and financial resources than us, and if they obtained marketing
approval in the United States they could significantly adversely
affect our competitive position. Their established market
presence, and greater financial strength in the European market
may make it difficult for us to successfully market Altropane in
Europe.
Regulatory
Considerations
Our technologies must undergo a rigorous regulatory approval
process, which includes extensive preclinical and clinical
testing, to demonstrate safety and efficacy before any resulting
product can be marketed. To date, neither the FDA nor any of its
international equivalents has approved any of our technologies
for
12
marketing. In the biotechnology industry, it has been estimated
that less than five percent of the technologies for which
clinical efforts are initiated ultimately result in an approved
product. The clinical trial and regulatory approval process can
require many years and substantial cost, and there can be no
guarantee that our efforts will result in an approved product.
Our activities are regulated by a number of government
authorities in the United States and other countries, including
the FDA pursuant to the Federal Food, Drug, and Cosmetic Act.
The FDA regulates drugs, including their research, development,
testing, manufacturing, labeling, packaging, storage,
advertising and promotion, and distribution. Data obtained from
testing is subject to varying interpretations which can delay,
limit or prevent FDA approval. In addition, changes in existing
regulatory requirements could prevent or affect the timing of
our ability to achieve regulatory compliance. Federal and state
laws, regulations and policies may be changed with possible
retroactive effect, and how these rules actually operate can
depend heavily on administrative policies and interpretations
over which we have no control.
Obtaining FDA approvals is time-consuming and expensive. The
steps required before any of our product candidates may be
marketed in the United States include:
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Development of suitable manufacturing processes for preclinical,
clinical and commercial drug supply;
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Preclinical laboratory tests, animal studies and formulation
studies according to good laboratory practice regulations;
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Submission to the FDA of an IND application, which must become
effective before United States human clinical trials may
commence;
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Adequate and well-controlled human clinical trials according to
good clinical practice regulations, or GCP, to establish the
safety and efficacy of the product for its intended use;
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Submission to the FDA of an NDA;
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Satisfactory completion of an FDA inspection of the
manufacturing facility or facilities at which the product is
produced to assess compliance with cGMP to assure that the
facilities, methods and controls are adequate to preserve the
drugs identity, strength, quality and purity; and
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FDA review and approval of the application(s) prior to any
commercial sale or shipment of the drug.
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Once a drug candidate is identified for development it enters
the preclinical testing stage. Preclinical tests include
laboratory evaluations of product chemistry, toxicity and
formulation, as well as animal studies. An IND sponsor must
submit the results of the preclinical tests, together with
manufacturing information and analytical data, to the FDA as
part of the IND. Some preclinical or non-clinical testing may
continue even after the IND is submitted. In addition to
including the results of the preclinical studies, the IND will
also include a protocol detailing, among other things, the
objectives of the first phase of the clinical trial, the
parameters to be used in monitoring safety, and the
effectiveness criteria to be evaluated if the first phase lends
itself to an efficacy determination. The IND automatically
becomes effective 30 days after receipt by the FDA, unless
the FDA places the clinical trial on clinical hold. In such a
case, the IND sponsor and the FDA must resolve any outstanding
concerns before the clinical trial can begin.
All clinical trials must be conducted under the supervision of
one or more qualified investigators in accordance with GCP.
These regulations include the requirement that all research
subjects provide informed consent. Further, an Institutional
Review Board, or IRB, at each institution participating in the
clinical trial must review and approve the protocol before a
clinical trial commences at that institution. Each new clinical
protocol must be submitted to the FDA as part of the IND.
Progress reports detailing the results of the clinical trials
must be submitted at least annually to the FDA and more
frequently if serious adverse events occur.
Human clinical trials are typically conducted in three
sequential phases that may overlap or be combined:
Phase I: The drug is initially introduced into
healthy human subjects or patients with the disease and tested
for safety, dosage tolerance, pharmacokinetics,
pharmacodynamics, absorption, metabolism, distribution and
excretion.
13
Phase II: Involves studies in a limited
patient population to identify possible adverse effects and
safety risks, to preliminarily evaluate the efficacy of the
product for specific targeted diseases and to determine dosage
tolerance and optimal dosage.
Phase III: Clinical trials are undertaken to
further evaluate dosage, clinical efficacy and safety in an
expanded patient population. These studies are intended to
establish the overall risk-benefit ratio of the product and
provide, if appropriate, an adequate basis for product labeling.
Phase I, Phase II, and Phase III testing may not be
completed successfully within any specified period, if at all.
The FDA or an IRB or the sponsor may suspend a clinical trial at
any time on various grounds, including a finding that the
research subjects or patients are being exposed to an
unacceptable health risk. Success in early stage clinical trials
does not assure success in later stage clinical trials.
Concurrent with clinical trials, companies usually complete
additional animal studies and also must develop additional
information about the chemistry and physical characteristics of
the drug and finalize a process for manufacturing the product in
accordance with cGMP requirements. The results of product
development, preclinical studies and clinical studies, along
with descriptions of the manufacturing process, analytical tests
conducted on the chemistry of the drug, and other relevant
information are submitted to the FDA as part of the NDA
requesting approval to market the product. The submission of an
NDA is subject to payment of user fees, but a waiver of such
fees may be obtained under specified circumstances. The FDA
reviews all NDAs submitted before it accepts them for filing. If
a submission is accepted for filing, the FDA begins an in-depth
review, including inspecting the manufacturing facilities. The
FDA may refuse to approve an NDA if the applicable regulatory
criteria are not satisfied or may require additional clinical or
other data. Even if such data are submitted, the FDA may
ultimately decide not to approve the NDA.
There is no guarantee that approvals will be granted for any of
our product candidates, or that the FDA review process will not
involve delays that significantly and negatively affect our
product candidates. We also may encounter similar delays in
foreign countries. In addition, even if we receive regulatory
approvals, they may have significant limitations on the uses for
which any approved products may be marketed. After approval,
some types of changes to the approved product are subject to
further FDA review and approval. Any marketed product and its
manufacturer are subject to periodic review, and any discovery
of previously unrecognized problems with a product or
manufacturer could result in suspension or limitation of
approvals. Failure to comply with the applicable FDA
requirements at any time during the product development process,
approval process, or after approval, may subject an applicant to
administrative or judicial sanctions, including the FDAs
refusal to approve pending applications, withdrawal of approval,
a clinical hold, warning letters, product recalls and seizures,
total or partial suspension of production or distribution, or
injunctions, fines, civil penalties or criminal prosecution.
Pharmaceutical
Pricing and Reimbursement
In both domestic and foreign markets, sales of any products for
which we receive regulatory approval for commercial sales will
depend in part on the availability of reimbursement for third
party payors. Third party payors include government health care
program administrative authorities, managed care providers,
private health insurers and other organizations. These third
party payors are increasingly challenging the price and
examining the cost-effectiveness of medical products and
services. In addition, significant uncertainty exists as to the
scope of coverage and payment amounts for newly approved heath
care products. We may need to conduct expensive pharmacoeconomic
studies in order to demonstrate the cost-effectiveness of our
products. Our products may not be considered medically necessary
or cost-effective. Adequate third party reimbursement may not be
available to enable us to maintain price levels sufficient to
realize an appropriate return on our investment in product
development.
Manufacturing
We currently outsource manufacturing for all of our product
candidates and expect to continue to outsource manufacturing in
the future. We believe our current suppliers of Altropane will
be able to manufacture our products efficiently in sufficient
quantities and on a timely basis, while maintaining product
14
quality. We seek to maintain quality control over manufacturing
through ongoing inspections, rigorous review, control over
documented operating procedures and thorough analytical testing
by outside laboratories. We believe that our current strategy of
primarily outsourcing manufacturing is cost-effective since we
avoid the high fixed costs of plant, equipment and large
manufacturing staffs. FDA regulations require that we establish
manufacturing sources for each of our product candidates under
the cGMP regulations established by the FDA.
MDS Nordion, Inc., or MDS Nordion, a Canadian corporation and
well-recognized manufacturer of
123I and
nuclear medicine labeled imaging agents, has supplied Altropane
to us since 2001. We are highly dependent upon MDS Nordion.
Under the terms of our agreement, which currently expires on
December 31, 2010, MDS Nordion manufactures the Altropane
molecular imaging agent for our clinical trials in exchange for
minimum monthly cash payments. We do not presently have
arrangements with any other suppliers in the event that MDS
Nordion is unable or unwilling to manufacture Altropane for us.
We could encounter a significant delay before another supplier
could manufacture Altropane for us due to the time required to
establish a cGMP manufacturing process for Altropane. We hope to
sign an extension with MDS Nordion before December 31, 2010
but there can be no assurance that we will be able to or that
the terms will be acceptable. We do not have a manufacturing
agreement relating to the commercial production of Altropane
with MDS Nordion or any other manufacturer. We can provide no
assurances that such an agreement will be executed on acceptable
terms or that if we are unable to satisfy our monthly minimum
payment obligations to MDS Nordion that our existing agreement
will remain in force.
Marketing
and Sales
Although we currently sell no products, our strategy is to
pursue partnering opportunities in order to accelerate and
maximize commercialization of our clinical product candidates
and strategic collaborations for development of our preclinical
product candidates. These collaborators may provide financial
and other resources, including capabilities in research,
development, manufacturing, marketing and sales. There can be no
assurances that we will be successful in our collaboration
efforts.
Employees
As of December 31, 2009, we employed 5 full-time
employees. None of our employees are covered by a collective
bargaining agreement.
Other
Information
We are subject to the informational requirements of the
Securities Exchange Act of 1934, as amended, or the Exchange
Act, and, accordingly, file reports, proxy statements and other
information with the Securities and Exchange Commission. Such
reports, proxy statements and other information can be read and
copied at the public reference facilities maintained by the
Securities and Exchange Commission at the Public Reference Room,
100 F Street, N.E., Room 1580, Washington, DC
20549. Information regarding the operation of the Public
Reference Room may be obtained by calling the Securities and
Exchange Commission at
1-800-SEC-0330.
The Securities and Exchange Commission maintains a web site
(http://www.sec.gov)
that contains material regarding issuers that file
electronically with the Securities and Exchange Commission.
Our Internet address is www.alseres.com. We are not including
the information contained on our web site as a part of, or
incorporating it by reference into, this Annual Report on
Form 10-K.
We make available free of charge on our website our Annual
Reports on
Form 10-K,
Quarterly Reports on
Form 10-Q,
Current Reports on
Form 8-K
and amendments to those reports filed or furnished pursuant to
Section 13(a) or 15(d) of the Exchange Act, as soon as
reasonably practicable after we electronically file such
material with, or furnish it to, the Securities and Exchange
Commission.
Additional financial information is contained in
Managements Discussion and Analysis of Financial Condition
and Results of Operations in Item 7 of Part II, and in
Item 8 of Part II of this Annual Report on
Form 10-K.
15
Statements contained or incorporated by reference in this Annual
Report on
Form 10-K
that are not based on historical fact are forward-looking
statements within the meaning of the Private Securities
Litigation Reform Act of 1995, Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the
Exchange Act. These forward-looking statements regarding future
events and our future results are based on current expectations,
estimates, forecasts, and projections, and the beliefs and
assumptions of our management including, without limitation, our
expectations regarding our product candidates, including the
success and timing of our preclinical, clinical and development
programs, the submission of regulatory filings and proposed
partnering arrangements, the outcome of any litigation,
collaboration, merger, acquisition and fund raising efforts,
results of operations, selling, general and administrative
expenses, research and development expenses and the sufficiency
of our cash for future operations. Forward-looking statements
may be identified by the use of forward-looking terminology such
as may, could, will,
expect, estimate,
anticipate, continue, or similar terms,
variations of such terms or the negative of those terms.
We cannot assure investors that our assumptions and expectations
will prove to have been correct. Important factors could cause
our actual results to differ materially from those indicated or
implied by forward-looking statements. Such factors that could
cause or contribute to such differences include those factors
discussed below. We undertake no intention or obligation to
update or revise any forward-looking statements, whether as a
result of new information, future events or otherwise. If any of
the following risks actually occur, our business, financial
condition or results of operations would likely suffer.
Risks
Related to our Financial Results and Need for Additional
Financing
WE ARE
A DEVELOPMENT STAGE COMPANY. WE HAVE INCURRED LOSSES FROM OUR
OPERATIONS SINCE INCEPTION AND ANTICIPATE LOSSES FOR THE
FORESEEABLE FUTURE. WE WILL NOT BE ABLE TO ACHIEVE PROFITABILITY
UNLESS WE OBTAIN REGULATORY APPROVAL AND MARKET ACCEPTANCE OF
OUR PRODUCT CANDIDATES. WE WILL NEED SUBSTANTIAL ADDITIONAL
FUNDING IN ORDER TO CONTINUE OUR BUSINESS AND OPERATIONS. IF WE
ARE UNABLE TO SECURE SUCH FUNDING ON ACCEPTABLE TERMS, WE WILL
NEED TO CEASE OPERATIONS, SIGNIFICANTLY REDUCE, DELAY OR CEASE
ONE OR MORE OF OUR RESEARCH OR DEVELOPMENT PROGRAMS, OR
SURRENDER RIGHTS TO SOME OR ALL OF OUR TECHNOLOGIES. IF WE
VIOLATE A DEBT COVENANT OR DEFAULT UNDER OUR DEBT AGREEMENTS, WE
MAY NEED TO CEASE OPERATIONS OR REDUCE, CEASE OR DELAY ONE OR
MORE OF OUR RESEARCH OR DEVELOPMENT PROGRAMS, ADJUST OUR CURRENT
BUSINESS PLAN AND MAY NOT BE ABLE TO CONTINUE AS A GOING
CONCERN.
Biotechnology companies that have no approved products or other
sources of revenue are generally referred to as development
stage companies. We have never generated revenues from product
sales and we do not currently expect to generate revenues from
product sales for at least the next three years. If we do
generate revenues and operating profits in the future, our
ability to continue to do so in the long term could be affected
by the introduction of competitors products and other
market factors. We expect to incur significant operating losses
for at least the next three years. The level of our operating
losses may increase in the future if more of our product
candidates begin human clinical trials. We will never generate
revenues or achieve profitability unless we obtain regulatory
approval and market acceptance of our product candidates. This
will require us to be successful in a range of challenging
activities, including clinical trial stages of development,
obtaining regulatory approval for our product candidates, and
manufacturing, marketing and selling them. We may never succeed
in these activities, and may never generate revenues that are
significant enough to achieve profitability. Even if we do
achieve profitability, we may not be able to sustain or increase
profitability on a quarterly or annual basis.
We require significant funds to conduct research and development
activities, including preclinical studies and clinical trials of
our technologies, and to commercialize our product candidates.
Because the successful
16
development of our product candidates is uncertain, we are
unable to estimate the actual funds we will require to develop
and commercialize them. Our funding requirements depend on many
factors, including:
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The scope, rate of progress and cost of our clinical trials and
other research and development activities;
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Future clinical trial results;
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The terms and timing of any collaborative, licensing and other
arrangements that we may establish;
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The cost and timing of regulatory approvals and of establishing
sales, marketing and distribution capabilities;
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The cost of establishing clinical and commercial supplies of our
product candidates and any products that we may develop;
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The cost of obtaining and maintaining licenses to use patented
technologies;
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The effect of competing technological and market
developments; and
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The cost of filing, prosecuting, defending and enforcing any
patent claims and other intellectual property rights and other
patent-related costs, including litigation costs and the results
of such litigation.
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Until such time, if ever, as we can generate substantial revenue
from product sales or through collaborative arrangements with
third parties, we will need to raise additional capital. To
date, we have experienced negative cash flows from operations
and have funded our operations primarily from equity and debt
financings.
As of December 31, 2009, we have experienced total net
losses since inception of approximately $203,969,000 ,
stockholders deficit of approximately $47,509,000 and a
net working capital deficit of approximately $4,536,000. The
cash and cash equivalents available at December 31, 2009
will not provide sufficient working capital to meet our
anticipated expenditures for the next twelve months. At
March 22, 2010, we had cash and cash equivalents of
approximately $130,000 which combined with our ability to
control administrative expenses will enable us to meet our
anticipated cash expenditures into April, 2010. We must
immediately raise additional funds in order to continue
operations.
In order to continue as a going concern, we must immediately
raise additional funds through one or more of the following: a
debt financing, an equity offering, or a collaboration, merger,
acquisition or other transaction with one or more pharmaceutical
or biotechnology companies. We are currently engaged in
fundraising efforts. There can be no assurance that we will be
successful in our fundraising efforts or that additional funds
will be available on acceptable terms, if at all. We also cannot
be sure that we will be able to obtain additional credit from,
or effect additional sales of debt or equity securities to
certain of our existing investors described below in Liquidity
and Capital Resources. If we are unable to raise additional or
sufficient capital, we will need to cease operations or reduce,
cease or delay one or more of our research or development
programs, adjust our current business plan and may not be able
to continue as a going concern. If we violate a debt covenant or
default under the March 2008 Amended Purchase Agreement or the
June 2008 Purchase Agreement (described below in Liquidity and
Capital Resources) we may need to cease operations or reduce,
cease or delay one or more of our research or development
programs, adjust our current business plan and may not be able
to continue as a going concern. Additionally, our common stock
was delisted from trading on the NASDAQ Capital Market as a
result of our failure to meet continued listing requirements of
NASDAQ. On May 8, 2009 we began trading on the Pink Sheets
OTC Market. This delisting has had an adverse affect on our
ability to obtain future financing and could continue to
adversely impact our stock price and the liquidity of our common
stock. See the risk factor entitled Our common stock has
been delisted from the NASDAQ Capital Market.
In connection with the March 2005 Financing, we agreed with the
March 2005 Investors, that, subject to certain exceptions, we
would not issue any shares of our common stock at a per share
price less than $2.50 without the prior consent of the March
2005 Investors holding at least a majority of the shares issued
in the March 2005 Financing. On March 22, 2010, the closing
price of our common stock was $.21. The failure to receive the
requisite waiver or consent of the March 2005 Investors could
have the effect of delaying or
17
preventing the consummation of a financing by us should the
price per share in such financing be set at less than $2.50.
Alternatively, to secure funds, we may be required to enter
financing arrangements with others that may require us to
surrender rights to some or all of our technologies or grant
licenses on terms that are not favorable to us. If the results
of our current or future clinical trials are not favorable, it
may negatively affect our ability to raise additional funds. If
we are successful in obtaining additional equity
and/or debt
financing, the terms of such financing will have the effect of
diluting the holdings and the rights of our stockholders.
Estimates about how much funding will be required are based on a
number of assumptions, all of which are subject to change based
on the results and progress of our research and development
activities. If we are unable to raise additional capital we will
need to reduce, cease or delay one or more of our research or
development programs and adjust our current business plan.
Our ability to advance our clinical programs, including the
development of Altropane, is affected by the availability of
financial resources. Financial considerations have caused us to
suspend planned development activities for our clinical and
preclinical programs until we are able to secure additional
working capital. If we are not able to raise additional capital,
we will not have sufficient funds to complete the clinical trial
programs for the Altropane molecular imaging agent.
In light of current conditions in the global financial markets
and our severe cash constraints we have taken steps to reduce
our on-going cash expenses. In January and September 2009, we
terminated a total of ten employees, reduced the salary of most
of the remaining employees and cut back certain employee
benefits. The costs related to these actions consist primarily
of one-time termination costs. The terminations and salary
reductions are expected to reduce compensation costs by
approximately $1,500,000 annually.
OUR
ESTIMATES OF OUR LIABILITY UNDER OUR BOSTON, MASSACHUSETTS LEASE
MAY CHANGE.
Our lease in Boston, Massachusetts expires in 2012. We have
entered into two sublease agreements covering all
6,600 square feet under this lease through the date of
expiration. In determining our obligations under the lease that
we do not expect to occupy, we have made certain assumptions for
the discounted estimated cash flows related to the rental
payments that our subtenants have agreed to pay. We may be
required to change our estimates in the future as a result of,
among other things, the default of one or both of our subtenants
with respect to their payment obligations. Any such adjustments
to the estimate of liability could be material.
Risks
Related to Commercialization
OUR
SUCCESS DEPENDS ON OUR ABILITY TO SUCCESSFULLY DEVELOP OUR
PRODUCT CANDIDATES INTO COMMERCIAL PRODUCTS.
To date, we have not marketed, distributed or sold any products
and, with the exception of Altropane, all of our technologies
and early-stage product candidates are in preclinical
development. The success of our business depends primarily upon
our ability to successfully develop and commercialize our
product candidates. Successful research and product development
in the biotechnology industry is highly uncertain, and very few
research and development projects produce a commercial product.
In the biotechnology industry, it has been estimated that less
than five percent of the technologies for which research and
development efforts are initiated ultimately result in an
approved product. If we are unable to successfully commercialize
Altropane or any of our other product candidates, our business
would be materially harmed.
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EVEN
IF WE RECEIVE APPROVAL TO MARKET OUR PRODUCT CANDIDATES, THE
MARKET MAY NOT BE RECEPTIVE TO OUR PRODUCT CANDIDATES UPON THEIR
COMMERCIAL INTRODUCTION, WHICH COULD PREVENT US FROM
SUCCESSFULLY COMMERCIALIZING OUR PRODUCTS AND FROM BEING
PROFITABLE.
Even if our drug candidates are successfully developed, our
success and growth will also depend upon the acceptance of these
product candidates by physicians and third-party payors.
Acceptance of our product development candidates will be a
function of our products being clinically useful, being cost
effective and demonstrating superior diagnostic or therapeutic
effect with an acceptable side effect profile as compared to
existing or future treatments. In addition, even if our products
achieve market acceptance, we may not be able to maintain that
market acceptance over time. Factors that we believe will
materially affect market acceptance of our product candidates
under development include:
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The timing of our receipt of any marketing approvals, the terms
of any approval and the countries in which approvals are
obtained;
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The safety, efficacy and ease of administration of our products;
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The competitive pricing of our products;
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The success of our education and marketing programs;
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The sales and marketing efforts of competitors; and
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The availability and amount of government and third-party payor
reimbursement.
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If our products do not achieve market acceptance, we will not be
able to generate sufficient revenues from product sales to
maintain or grow our business.
BUSINESS
COMBINATIONS, INCLUDING MERGERS, JOINT VENTURES AND
ACQUISITIONS, PRESENT MANY RISKS, AND WE MAY NOT REALIZE THE
ANTICIPATED FINANCIAL AND STRATEGIC GOALS FOR ANY SUCH
TRANSACTIONS.
We may in the future engage in business combinations to gain
access to complementary companies, products and technologies.
Such transactions involve a number of risks, including:
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We may find that the target company or assets do not further our
business strategy, or that we overpaid for the company or
assets, or that economic conditions change, all of which may
generate a future impairment charge;
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We may have difficulty integrating the operations and personnel
of an acquired business, and may have difficulty retaining the
key personnel of an acquired business;
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We may have difficulty incorporating acquired technologies;
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We may encounter technical difficulties or failures with the
performance of any acquired technologies or drug products or may
experience unfavorable results in the clinical studies related
to such technologies or products;
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We or our business partner(s) may face product liability risks
associated with the sale of the combined companys products;
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Our ongoing business and managements attention may be
disrupted or diverted by transition or integration issues and
the complexity of managing diverse locations;
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We may have difficulty maintaining uniform standards, internal
controls, procedures and policies across locations;
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The transaction may result in litigation from terminated
employees or third-parties; and
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We may experience significant problems or liabilities associated
with product quality, technology and legal contingencies.
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19
These factors could have a material adverse effect on our
business, results of operations and financial condition or cash
flows, particularly in the case of a larger acquisition or
multiple acquisitions in a short period of time. From time to
time, we may enter into negotiations for acquisitions that are
not ultimately consummated. Such negotiations could result in
significant diversion of management time, as well as
out-of-pocket
costs.
The consideration paid in connection with an acquisition also
affects our financial results. If we were to proceed with one or
more significant acquisitions in which the consideration
included cash, we could be required to use a substantial portion
of our available cash to consummate any acquisition. To the
extent we issue shares of stock or other rights to purchase
stock, including options or other rights, existing stockholders
may be diluted and earnings per share may decrease. In addition,
acquisitions may result in the incurrence of debt, large
one-time write-offs (such as acquired in-process research and
development costs) and restructuring charges. They may also
result in goodwill and other intangible assets that are subject
to impairment tests, which could result in future impairment
charges.
Risks
Related to Regulation
IF OUR
PRECLINICAL TESTING AND CLINICAL TRIALS ARE NOT SUCCESSFUL, WE
WILL NOT OBTAIN REGULATORY APPROVAL FOR COMMERCIAL SALE OF OUR
PRODUCT CANDIDATES.
We will be required to demonstrate, through preclinical testing
and clinical trials, that our product candidates are safe and
effective before we can obtain regulatory approval for the
commercial sale of our product candidates. Preclinical testing
and clinical trials are lengthy and expensive and the historical
rate of failure for product candidates is high. Product
candidates that appear promising in the early phases of
development, such as in preclinical study or in early human
clinical trials, may fail to demonstrate safety and efficacy in
clinical trials.
Except for Altropane, we have not yet received IND authorization
from the FDA for our other product candidates which will be
required before we can begin clinical trials in the United
States. We may not submit INDs for our product candidates if we
are unable to accumulate the necessary preclinical data for the
filing of an IND. The FDA may request additional preclinical
data before allowing us to commence clinical trials. The FDA or
other applicable regulatory authorities may suspend clinical
trials of a drug candidate at any time if we or they believe the
subjects or patients participating in such trials are being
exposed to unacceptable health risks or for other reasons.
Adverse side effects of a drug candidate on subjects or patients
in a clinical trial could result in the FDA or foreign
regulatory authorities refusing to approve a particular drug
candidate for any or all indications of use.
There is no assurance that the results obtained to date
and/or any
further work completed in the future will be sufficient to
achieve the approvability of Altropane.
Clinical trials require sufficient patient enrollment which is a
function of many factors, including the size of the potential
patient population, the nature of the protocol, the availability
of existing treatments for the indicated disease and the
eligibility criteria for enrolling in the clinical trial. Delays
or difficulties in completing patient enrollment can result in
increased costs and longer development times.
We cannot predict whether we will encounter problems with any of
our completed, ongoing or planned clinical trials that will
cause us or regulatory authorities to delay or suspend those
trials, or delay the analysis of data from our completed or
ongoing clinical trials. We have however encountered problems
with the Cethrin License. See the risk factor entitled We
in-license a significant portion of our intellectual property
and if we fail to comply with our obligations under any of the
related agreements, we could lose license rights that are
necessary to develop our product candidates. Any of
the following could delay the initiation or the completion of
our ongoing and planned clinical trials:
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Ongoing discussions with the FDA or comparable foreign
authorities regarding the scope or design of our clinical trials;
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Delays in enrolling patients and volunteers into clinical trials;
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Lower than anticipated retention rate of patients and volunteers
in clinical trials;
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Negative or inconclusive results of clinical trials or adverse
medical events during a clinical trial could cause a clinical
trial to be repeated or a program to be terminated, even if
other studies or trials related to the program are successful;
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Insufficient supply or deficient quality of drug candidate
materials or other materials necessary for the conduct of our
clinical trials;
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Serious and unexpected drug-related side-effects experienced by
participants in our clinical trials; or
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The placement of a clinical trial on hold.
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OUR
PRODUCT CANDIDATES ARE SUBJECT TO RIGOROUS REGULATORY REVIEW
AND, EVEN IF APPROVED, REMAIN SUBJECT TO EXTENSIVE
REGULATION.
Our technologies and product candidates must undergo a rigorous
regulatory approval process which includes extensive preclinical
and clinical testing to demonstrate safety and efficacy before
any resulting product can be marketed. Our research and
development activities are regulated by a number of government
authorities in the United States and other countries, including
the FDA pursuant to the Federal Food, Drug, and Cosmetic Act.
The clinical trial and regulatory approval process usually
requires many years and substantial cost. To date, neither the
FDA nor any of its international equivalents has approved any of
our product candidates for marketing.
The FDA regulates drugs in the United States, including their
testing, manufacturing and marketing. Data obtained from testing
is subject to varying interpretations which can delay, limit or
prevent FDA approval. The FDA has stringent laboratory and
manufacturing standards which must be complied with before we
can test our product candidates in people or make them
commercially available. Examples of these standards include Good
Laboratory Practices and current Good Manufacturing Practices,
or cGMP. Our compliance with these standards is subject to
initial certification by independent inspectors and continuing
audits thereafter. In addition, manufacturers of our product
candidates are subject to the FDAs cGMP regulations and
similar foreign standards and we do not have control over
compliance with these regulations by our manufacturers. If any
third-party manufacturer fails to perform as required, this
could impair our ability to deliver our products on a timely
basis or cause delays in our clinical trials and applications
for regulatory approval.
Obtaining FDA approval to sell our product candidates is
time-consuming and expensive. The FDA usually takes at least 12
to 18 months to review an NDA which must be submitted
before the FDA will consider granting approval to sell a
product. If the FDA requests additional information, it may take
even longer for the FDA to make a decision especially if the
additional information that they request requires us to complete
additional studies. We may encounter similar delays in foreign
countries. After reviewing any NDA we submit, the FDA or its
foreign equivalents may decide not to approve our products.
Failure to obtain regulatory approval for a product candidate
will prevent us from commercializing our product candidates.
Other risks associated with the regulatory approval process
include:
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Regulatory approvals may impose significant limitations on the
uses for which any approved products may be marketed;
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Any marketed product and its manufacturer are subject to
periodic reviews and audits, and any discovery of previously
unrecognized problems with a product or manufacturer could
result in suspension or limitation of approvals;
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Changes in existing regulatory requirements, or the enactment of
additional regulations or statutes, could prevent or affect the
timing of our ability to achieve regulatory compliance. Federal
and state laws, regulations and policies may be changed with
possible retroactive effect, and how these rules actually
operate can depend heavily on administrative policies and
interpretation over which we have no control, and we may possess
inadequate experience to assess their full impact upon our
business; and
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The approval may impose significant restrictions on the
indicated uses, conditions for use, labeling, advertising,
promotion, marketing
and/or
production of such product, and may impose ongoing requirements
for post-approval studies, including additional research and
development and clinical trials.
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OUR
PRODUCTS COULD BE SUBJECT TO RESTRICTIONS OR WITHDRAWAL FROM THE
MARKET AND WE MAY BE SUBJECT TO PENALTIES IF WE FAIL TO COMPLY
WITH REGULATORY REQUIREMENTS, OR IF WE EXPERIENCE UNANTICIPATED
PROBLEMS WITH OUR PRODUCTS, WHEN AND IF ANY OF THEM ARE
APPROVED.
Any product for which we obtain marketing approval, along with
the manufacturing processes, post-approval clinical data,
labeling, advertising and promotional activities for such
product, will be subject to continual requirements of and review
by the FDA and other regulatory bodies. These requirements
include submissions of safety and other post-marketing
information and reports, registration requirements, quality
assurance and corresponding maintenance of records and
documents, requirements regarding the distribution of samples to
physicians and recordkeeping. The manufacturer and the
manufacturing facilities we use to make any of our product
candidates will also be subject to periodic review and
inspection by the FDA. The subsequent discovery of previously
unknown problems with a product, manufacturer or facility may
result in restrictions on the product or manufacturer or
facility, including withdrawal of the product from the market.
Even if regulatory approval of a product is granted, the
approval may be subject to limitations on the indicated uses for
which the product may be marketed or to the conditions of
approval, or contain requirements for costly post-marketing
testing and surveillance to monitor the safety or efficacy of
the product. Later discovery of previously unknown problems with
our products, manufacturers or manufacturing processes, or
failure to comply with regulatory requirements, may result in:
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Restrictions on such products, manufacturers or manufacturing
processes;
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Warning letters;
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Withdrawal of the products from the market;
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Refusal to approve pending applications or supplements to
approved applications that we submit;
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Recall;
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Fines;
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Suspension or withdrawal of regulatory approvals;
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Refusal to permit the import or export of our products;
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Product seizure; and
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Injunctions or the imposition of civil or criminal penalties.
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FAILURE
TO OBTAIN REGULATORY APPROVAL IN FOREIGN JURISDICTIONS WOULD
PREVENT US FROM MARKETING OUR PRODUCTS ABROAD.
Although we have not initiated any marketing efforts in foreign
jurisdictions, we intend in the future to market our products
outside the United States. In order to market our products in
the European Union and many other foreign jurisdictions, we must
obtain separate regulatory approvals and comply with numerous
and varying regulatory requirements. The approval procedure
varies among countries and can involve additional testing. The
time required to obtain approval abroad may differ from that
required to obtain FDA approval. The foreign regulatory approval
process may include all of the risks associated with obtaining
FDA approval and we may not obtain foreign regulatory approvals
on a timely basis, if at all. Approval by the FDA does not
ensure approval by regulatory authorities in other countries,
and approval by one foreign regulatory authority does not ensure
approval by regulatory authorities in other foreign countries or
approval by the FDA. We may not be able to file for regulatory
approvals and may not receive necessary approvals to
commercialize our
22
products in any market outside the United States. The failure to
obtain these approvals could materially adversely affect our
business, financial condition and results of operations.
FOREIGN
GOVERNMENTS TEND TO IMPOSE STRICT PRICE CONTROLS WHICH MAY
ADVERSELY AFFECT OUR REVENUES, IF ANY.
The pricing of prescription pharmaceuticals is subject to
governmental control in some foreign countries. In these
countries, pricing negotiations with governmental authorities
can take considerable time after the receipt of marketing
approval for a product. To obtain reimbursement or pricing
approval in some countries, we may be required to conduct a
clinical trial that compares the cost-effectiveness of our
product candidate to other available therapies. If reimbursement
of our products is unavailable or limited in scope or amount, or
if pricing is set at unsatisfactory levels, our business could
be adversely affected.
Risks
Related to our Intellectual Property
IF WE
ARE UNABLE TO SECURE ADEQUATE PATENT PROTECTION FOR OUR
TECHNOLOGIES, THEN WE MAY NOT BE ABLE TO COMPETE EFFECTIVELY AS
A BIOTECHNOLOGY COMPANY.
At the present time, we do not have patent protection for all
uses of our technologies. There is significant competition in
the field of CNS diseases, our primary scientific area of
research and development. Our competitors may seek patent
protection for their technologies, and such patent applications
or rights might conflict with the patent protection that we are
seeking for our technologies. If we do not obtain patent
protection for our technologies, or if others obtain patent
rights that block our ability to develop and market our
technologies, our business prospects may be significantly and
negatively affected. Further, even if patents can be obtained,
these patents may not provide us with any competitive advantage
if our competitors have stronger patent positions or if their
product candidates work better in clinical trials than our
product candidates. Our patents may also be challenged,
narrowed, invalidated or circumvented, which could limit our
ability to stop competitors from marketing similar products or
limit the length of term of patent protection we may have for
our products.
Our patent strategy is to obtain broad patent protection, in the
United States and in major developed countries, for our
technologies and their related medical indications. Risks
associated with protecting our patent and proprietary rights
include the following:
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Our ability to protect our technologies could be delayed or
negatively affected if the United States Patent and Trademark
Office, or USPTO, requires additional experimental evidence that
our technologies work;
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Our competitors may develop similar technologies or products, or
duplicate any technology developed by us;
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Our competitors may develop products which are similar to ours
but which do not infringe our patents or products;
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Our competitors may successfully challenge one or more of our
patents in an interference or litigation proceeding;
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Our technologies may infringe the patents or rights of other
parties who may decide not to grant a license to us. We may have
to change our products or processes, pay licensing fees or stop
certain activities because of the patent rights of third parties
which could cause additional unexpected costs and delays;
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Patent law in the fields of healthcare and biotechnology is
still evolving and future changes in such laws might conflict
with our existing and future patent rights, or the rights of
others;
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Our collaborators, employees and consultants may breach the
confidentiality agreements that we enter into to protect our
trade secrets and proprietary know-how. We may not have adequate
remedies for such breach; and
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There may be disputes as to the ownership of technological
information developed by consultants, scientific advisors or
other third parties which may not be resolved in our favor.
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WE
IN-LICENSE A SIGNIFICANT PORTION OF OUR INTELLECTUAL PROPERTY
AND IF WE FAIL TO COMPLY WITH OUR OBLIGATIONS UNDER ANY OF THE
RELATED AGREEMENTS, WE COULD LOSE LICENSE RIGHTS THAT ARE
NECESSARY TO DEVELOP OUR PRODUCT CANDIDATES.
We have entered into license agreements with Harvard University
and its affiliated hospitals, or Harvard and its Affiliates, and
Childrens Medical Center Corporation, or CMCC, that give
us rights to intellectual property that is necessary for our
business. These license arrangements impose various development,
royalty and other obligations on us. If we breach these
obligations and fail to cure such breach in a timely manner,
these exclusive licenses could be converted to non-exclusive
licenses or the agreements could be terminated, which would
result in our being unable to develop, manufacture and sell
products that are covered by the licensed technology.
In order to continue to expand our business we may need to
acquire additional product candidates including those in
clinical development through in-licensing that we believe will
be a strategic fit with us. We may not be able to in-license
suitable product candidates at an acceptable price or at all.
Engaging in any in-license will incur a variety of costs, and we
may never realize the anticipated benefits of any such
in-license.
IF WE
BECOME INVOLVED IN PATENT LITIGATION OR OTHER PROCEEDINGS
RELATED TO A DETERMINATION OF RIGHTS, WE COULD INCUR SUBSTANTIAL
COSTS AND EXPENSES, SUBSTANTIAL LIABILITY FOR DAMAGES OR BE
REQUIRED TO STOP OUR PRODUCT DEVELOPMENT AND COMMERCIALIZATION
EFFORTS.
A third party may sue us for infringing its patent rights.
Likewise, we may need to resort to litigation to enforce a
patent issued or licensed to us or to determine the scope and
validity of third-party proprietary rights. In addition, a third
party may claim that we have improperly obtained or used its
confidential or proprietary information. There has been
substantial litigation and other proceedings regarding patent
and other intellectual property rights in the pharmaceutical and
biotechnology industries. In addition to infringement claims
against us, we may become a party to other patent litigation and
other proceedings, including interference proceedings declared
against us by the USPTO, regarding intellectual property rights
with respect to our products and technology. The cost to us of
any litigation or other proceeding relating to intellectual
property rights, even if resolved in our favor, could be
substantial, and the litigation would divert our
managements efforts. Some of our competitors may be able
to sustain the costs of complex patent litigation more
effectively than we can because they have substantially greater
resources. Uncertainties resulting from the initiation and
continuation of any litigation could limit our ability to
continue our operations.
If any parties successfully claim that our creation or use of
proprietary technologies infringes upon their intellectual
property rights, we might be forced to pay damages, potentially
including treble damages, if we are found to have willfully
infringed on such parties patent rights. In addition to
any damages we might have to pay, a court could require us to
stop the infringing activity or obtain a license. Any license
required under any patent may not be made available on
commercially acceptable terms, if at all. In addition, such
licenses are likely to be non-exclusive and, therefore, our
competitors may have access to the same technology licensed to
us. If we fail to obtain a required license and are unable to
design around a patent, we may be unable to effectively market
some of our technology and products, which could limit our
ability to generate revenues or achieve profitability and
possibly prevent us from generating revenue sufficient to
sustain our operations. We might be required to redesign the
formulation of a product candidate so that it does not infringe,
which may not be possible or could require substantial funds and
time. Ultimately, we could be prevented from commercializing a
product or be forced to cease some aspect of our business
operations if we are unable to enter into license agreements
that are acceptable to us.
Moreover, we expect that a number of our collaborations will
provide that royalties payable to us for licenses to our
intellectual property may be offset by amounts paid by our
collaborators to third parties who
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have competing or superior intellectual property positions in
the relevant fields, which could result in significant
reductions in our revenues from products developed through
collaborations.
CONFIDENTIALITY
AGREEMENTS WITH EMPLOYEES AND OTHERS MAY NOT ADEQUATELY PREVENT
DISCLOSURE OF TRADE SECRETS AND OTHER PROPRIETARY
INFORMATION.
In order to protect our proprietary technology and processes, we
rely in part on confidentiality agreements with our
collaborators, employees, consultants, outside scientific
collaborators and sponsored researchers, and other advisors.
These agreements may be breached, may not effectively prevent
disclosure of confidential information and may not provide an
adequate remedy in the event of unauthorized disclosure of
confidential information. In addition, others may independently
discover trade secrets and proprietary information, and in such
cases we could not assert any trade secret rights against such
party. Costly and time-consuming litigation could be necessary
to enforce and determine the scope of our proprietary rights,
and failure to obtain or maintain trade secret protection could
adversely affect our competitive business position.
Risks
Related to our Dependence on Third Parties
IF ANY
COLLABORATOR TERMINATES OR FAILS TO PERFORM ITS OR THEIR
OBLIGATIONS UNDER AGREEMENTS WITH US, THE DEVELOPMENT AND
COMMERCIALIZATION OF OUR PRODUCT CANDIDATES COULD BE DELAYED OR
TERMINATED.
We are dependent on expert advisors and our collaborations with
research and development service providers. Our business could
be adversely affected if any collaborator terminates its
collaboration agreement with us or fails to perform its
obligations under that agreement. Most biotechnology and
pharmaceutical companies have established internal research and
development programs, including their own facilities and
employees which are under their direct control. By contrast, we
have limited internal research capability and have elected to
outsource substantially all of our research and development,
preclinical and clinical activities. As a result, we are
dependent upon our network of expert advisors and our
collaborations with other research and development service
providers for the development of our technologies and product
candidates. These expert advisors are not our employees but
provide us with important information and knowledge that may
enhance our product development strategies and plans. Our
collaborations with research and development service providers
are important for the testing and evaluation of our
technologies, in both the preclinical and clinical stages.
Many of our expert advisors are employed by, or have their own
collaborative relationship with Harvard and its Affiliates or
CMCC. A summary of the key scientific, research and development
professionals with whom we work, and a composite of their
professional background and affiliations is as follows:
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Larry I. Benowitz, Ph.D., Director, Laboratories for
Neuroscience Research in Neurosurgery, Childrens Hospital,
Boston; Associate Professor of Neurosurgery, Harvard Medical
School.
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Zhigang He, Ph.D., BM, Research Associate, Department of
Neurology, Childrens Hospital Boston; Associate Professor
of Neurology, Department of Neurology, Harvard Medical School.
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Robert S. Langer, Jr., Sc.D., Institute Professor of
Chemical and Biomedical Engineering, Massachusetts Institute of
Technology.
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Peter Meltzer, Ph.D., President, Organix, Inc., Woburn, MA.
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Dr. Benowitz, Dr. Bianchine, Dr. He, and
Dr. Langer provided scientific consultative services
resulting in total obligations of approximately $100,000 for
2009. Dr. Benowitz and Dr. He provided scientific
consultative services primarily related to our nerve repair
program. Dr. Langer provided consultative services
primarily related to scientific and business services. Resource
constraints forced us to terminate these relationships in 2009
and there can be no assurances that, should the services of
these collaborators be required in the future, they will be
available to us.
At December 31, 2009 and March 31, 2010 Drs. Benowitz,
He and Langer were owed a total of $116,000 by the company for
past services.
25
We do not have a consulting agreement with Dr. Meltzer but
do enter into research and development contracts from time to
time with Organix, Inc., of which Dr. Meltzer is president.
Our significant collaborations include:
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Childrens Hospital in Boston, Massachusetts where certain
of our collaborating scientists perform their research efforts.
We terminated our research agreement with Childrens
Hospital in March 2009;
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Harvard Medical School in Boston, Massachusetts where certain of
our collaborating scientists perform their research efforts;
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MDS Nordion in Vancouver, British Colombia which manufactures
the Altropane molecular imaging agent; and
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Organix, Inc. in Woburn, Massachusetts which provides
non-radioactive Altropane for FDA mandated studies and
synthesizes our compounds for the treatment of PD and for axon
regeneration.
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We generally have a number of collaborations with research and
development service providers ongoing at any point in time.
These agreements generally cover a specific project or study,
are usually for a duration between one month to one year, and
expire upon completion of the project. Under these agreements,
we are sometimes required to make an initial payment upon
execution of the agreement with the remaining payments based
upon the completion of certain specified milestones such as
completion of a study or delivery of a report.
We cannot control the amount and timing of resources our
advisors and collaborators devote to our programs or
technologies. Our advisors and collaborators may have employment
commitments to, or consulting or advisory contracts with, other
entities that may limit their availability to us. If any of our
advisors or collaborators were to breach or terminate their
agreement with us or otherwise fail to conduct their activities
successfully and in a timely manner, the preclinical or clinical
development or commercialization of our technologies and product
candidates or our research programs could be delayed or
terminated. Any such delay or termination could have a material
adverse effect on our business, financial condition or results
of operations.
Disputes may arise in the future with respect to the ownership
of rights to any technology developed with our advisors or
collaborators. These and other possible disagreements could lead
to delays in the collaborative research, development or
commercialization of our technologies, or could require or
result in litigation to resolve. Any such event could have a
material adverse effect on our business, financial condition or
results of operations.
Our advisors and collaborators sign agreements that provide for
confidentiality of our proprietary information. Nonetheless,
they may not maintain the confidentiality of our technology and
other confidential information in connection with every advisory
or collaboration arrangement, and any unauthorized dissemination
of our confidential information could have a material adverse
effect on our business, financial condition or results of
operations.
MDS Nordion, Inc., or MDS Nordion, a Canadian corporation and
well-recognized manufacturer of
123I and
nuclear medicine labeled imaging agents, has supplied Altropane
to us since 2001. We are highly dependent upon MDS Nordion.
Under the terms of our agreement, which currently expires on
December 31, 2010, MDS Nordion manufactures the Altropane
molecular imaging agent for our clinical trials in exchange for
minimum monthly cash payments. We do not presently have
arrangements with any other suppliers in the event that MDS
Nordion is unable or unwilling to manufacture Altropane for us.
We could encounter a significant delay before another supplier
could manufacture Altropane for us due to the time required to
establish a cGMP manufacturing process for Altropane. We hope to
sign an extension with MDS Nordion before December 31, 2010
but there can be no assurance that we will be able to or that
the terms will be acceptable. We do not have a manufacturing
agreement relating to the commercial production of Altropane
with MDS Nordion or any other manufacturer. We can provide no
assurances that such an agreement will be executed on acceptable
terms or that if we are unable to satisfy our monthly minimum
payment obligations to MDS Nordion that our existing agreement
will remain in force.
26
IF WE
ARE UNABLE TO MAINTAIN OUR KEY WORKING RELATIONSHIPS WITH OUR
LICENSORS, INCLUDING HARVARD AND ITS AFFILIATES AND CMCC, WE MAY
NOT BE SUCCESSFUL SINCE SUBSTANTIALLY ALL OF OUR CURRENT
TECHNOLOGIES WERE LICENSED FROM SUCH LICENSORS.
We maintain relationships with our licensors, Harvard and its
Affiliates, and CMCC. Substantially all of our technologies are
licensed from these licensors. Under the terms of our license
agreements with Harvard and its Affiliates and CMCC, we acquired
the exclusive, worldwide license to make, use, and sell the
technology covered by each respective agreement. Among other
things, the technologies licensed under these agreements include:
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Altropane molecular imaging agent compositions and methods of
use;
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Technetium-based molecular imaging agent compositions and
methods of use;
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Inosine methods of use; and
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DAT blocker compositions and methods of use.
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Generally, each of these license agreements is effective until
the last patent licensed relating to the technology expires or a
fixed and determined date. The patents on the Altropane
molecular imaging agent expire beginning in 2013. The patents on
the technetium-based molecular imaging agents expire beginning
in 2017. The patents for Inosine expire beginning in 2017. The
patents for our DAT blockers expire beginning in 2012.
We are required to make certain payments under our license
agreements with our licensors which generally include:
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An initial licensing fee payment upon the execution of the
agreement and annual license maintenance fee;
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Reimbursement payments for all patent related costs incurred by
the licensor, including fees associated with the filing of
continuation-in-part
patent applications;
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Milestone payments as licensed technology progresses through
each stage of development (filing of IND, completion of one or
more clinical stages and submission and approval of an
NDA); and
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Royalty payments on the sales of any products based on the
licensed technology.
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We have entered into license agreements, or the CMCC Licenses,
with CMCC to acquire the exclusive worldwide rights to certain
axon regeneration technologies. The CMCC Licenses provide for
future milestone payments of up to an aggregate of approximately
$425,000 for each product candidate upon achievement of certain
regulatory milestones.
We have entered into license agreements, or the Harvard License
Agreements, with Harvard and its Affiliates to acquire the
exclusive worldwide rights to certain technologies within our
molecular imaging and neurodegenerative disease programs. The
Harvard License Agreements obligate us to pay up to an aggregate
of approximately $2,520,000 in milestone payments in the future.
The future milestone payments are generally payable only upon
achievement of certain regulatory milestones.
Our license agreements with Harvard and its Affiliates and CMCC
generally provide for royalty payments equal to specified
percentages of product sales, annual license maintenance fees
and continuing patent prosecution costs.
Universities and other
not-for-profit
research institutions are becoming increasingly aware of the
commercial value of their findings and are becoming more active
in seeking patent protection and licensing arrangements to
collect royalties for the use of technology that they have
developed. The loss of our relationship with one or more of our
key licensors could adversely affect our ongoing development
programs and could make it more costly and difficult for us to
obtain the licensing rights to new scientific discoveries.
27
IF WE
ARE UNABLE TO ESTABLISH, MAINTAIN AND RELY ON NEW COLLABORATIVE
RELATIONSHIPS, THEN WE MAY NOT BE ABLE TO SUCCESSFULLY DEVELOP
AND COMMERCIALIZE OUR TECHNOLOGIES.
To date, our operations have primarily focused on the
preclinical development of most of our technologies, as well as
conducting clinical trials for certain of our technologies. We
currently expect that the continued development of our
technologies will result in the initiation of additional
clinical trials. We expect that these developments will require
us to establish, maintain and rely on new collaborative
relationships in order to successfully develop and commercialize
our technologies. We face significant competition in seeking
appropriate collaborators. Collaboration arrangements are
complex to negotiate and time consuming to document. We may not
be successful in our efforts to establish additional
collaborations or other alternative arrangements, and the terms
of any such collaboration or alternative arrangement may not be
favorable to us. There is no certainty that:
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We will be able to enter into such collaborations on
economically feasible and otherwise acceptable terms and
conditions;
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Such collaborations will not require us to undertake substantial
additional obligations or require us to devote additional
resources beyond those we have identified at present;
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Any of our collaborators will not breach or terminate their
agreements with us or otherwise fail to conduct their activities
on time, thereby delaying the development or commercialization
of the technology for which the parties are
collaborating; and
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The parties will not dispute the ownership rights to any
technologies developed under such collaborations.
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IF ONE
OF OUR COLLABORATORS WERE TO CHANGE ITS STRATEGY OR THE FOCUS OF
ITS DEVELOPMENT AND COMMERCIALIZATION EFFORTS WITH RESPECT TO
OUR RELATIONSHIP, THE SUCCESS OF OUR PRODUCT CANDIDATES AND OUR
OPERATIONS COULD BE ADVERSELY AFFECTED.
There are a number of factors external to us that may change our
collaborators strategy or focus with respect to our
relationship with them, including:
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The amount and timing of resources that our collaborators may
devote to the product candidates;
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Our collaborators may experience financial difficulties;
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We may be required to relinquish important rights such as
marketing and distribution rights;
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Should a collaborator fail to develop or commercialize one of
our product candidates, we may not receive any future milestone
payments and will not receive any royalties for the product
candidate;
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Business combinations or significant changes in a
collaborators business strategy may also adversely affect
a collaborators willingness or ability to complete its
obligations under any arrangement;
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A collaborator may not devote sufficient time and resources to
any collaboration with us, which could prevent us from realizing
the potential commercial benefits of that collaboration;
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A collaborator may terminate their collaborations with us, which
could make it difficult for us to attract new collaborators or
adversely affect how we are perceived in the business and
financial communities; and
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A collaborator could move forward with a competing product
candidate developed either independently or in collaboration
with others, including our competitors.
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If any of these occur, the development and commercialization of
one or more drug candidates could be delayed, curtailed or
terminated because we may not have sufficient financial
resources or capabilities to continue such development and
commercialization on our own.
28
Risks
Related to Competition
WE ARE
ENGAGED IN HIGHLY COMPETITIVE INDUSTRIES DOMINATED BY LARGER,
MORE EXPERIENCED AND BETTER CAPITALIZED COMPANIES.
The biotechnology and pharmaceutical industries are highly
competitive, rapidly changing, and are dominated by larger, more
experienced and better capitalized companies. Such greater
experience and financial strength may enable them to bring their
products to market sooner than us, thereby gaining the
competitive advantage of being the first to market. Research on
the causes of, and possible treatments for, diseases for which
we are trying to develop therapeutic or diagnostic products are
developing rapidly and there is a potential for extensive
technological innovation in relatively short periods of time.
Factors affecting our ability to successfully manage the
technological changes occurring in the biotechnology and
pharmaceutical industries, as well as our ability to
successfully compete, include:
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Many of our potential competitors in the field of CNS research
have significantly greater experience than we do in completing
preclinical and clinical testing of new pharmaceutical products,
the manufacturing and commercialization process, and obtaining
FDA and other regulatory approvals of products;
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Many of our potential competitors have products that have been
approved or are in late stages of development;
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Many of our potential competitors may develop products or other
novel technologies that are more effective, safer or less costly
than any that we are developing;
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Many of our potential competitors have collaborative
arrangements in our target markets with leading companies and
research institutions;
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The timing and scope of regulatory approvals for these products;
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The availability and amount of third-party reimbursement;
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The strength of our patent position;
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Many of our potential competitors are in a stronger financial
position than us, and are thus better able to finance the
significant cost of developing, manufacturing and selling new
products; and
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Companies with established positions and prior experience in the
pharmaceutical industry may be better able to develop and market
products for the treatment of those diseases for which we are
trying to develop products.
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To our knowledge, there is presently no approved diagnostic in
the United States for PD
and/or DLB.
To our knowledge, there is only one company, GE Healthcare
(formerly Nycomed/Amersham), that has marketed a diagnostic
imaging agent for PD and DLB,
DaTSCAN®.
To date, GE Healthcare has obtained marketing approval in
Europe. GE Healthcare has significantly greater infrastructure
and financial resources than us, and if they obtained marketing
approval in the United States they could significantly adversely
affect our competitive position. Their established market
presence, and greater financial strength in the European market
may make it difficult for us to successfully market Altropane in
Europe.
To our knowledge, there is presently no approved therapeutic
focused on the nerve repair of CNS disorders resulting from
traumas, such as SCI. We are aware of other companies who are
developing therapeutics to treat the CNS disorders resulting
from SCI. These companies have significantly greater
infrastructure and financial resources than us and if they were
to able to obtain marketing approval for their products it could
significantly adversely affect our competitive position. Given
the challenges of achieving functional recovery in severe CNS
disorders, we believe some of these competitors are developing
devices or drugs that could potentially be used in conjunction
with the therapeutics we are developing.
29
IF WE
ARE UNABLE TO COMPETE EFFECTIVELY, OUR PRODUCT CANDIDATES MAY BE
RENDERED NONCOMPETITIVE OR OBSOLETE.
Our competitors may develop or commercialize more effective,
safer or more affordable products, or obtain more effective
patent protection, than we are able to. Accordingly, our
competitors may commercialize products more rapidly or
effectively than we are able to, which would adversely affect
our competitive position, the likelihood that our product
candidates will achieve initial market acceptance, and our
ability to generate meaningful revenues from our product
candidates. Even if our product candidates achieve initial
market acceptance, competitive products may render our products
obsolete, noncompetitive or uneconomical. If our product
candidates are rendered obsolete, we may not be able to recover
the expenses of developing and commercializing those product
candidates.
IF
THIRD-PARTY PAYORS DO NOT ADEQUATELY REIMBURSE OUR CUSTOMERS FOR
ANY OF OUR PRODUCTS THAT ARE APPROVED FOR MARKETING, THEY MIGHT
NOT BE ACCEPTED BY PHYSICIANS AND PATIENTS OR PURCHASED OR USED,
AND OUR REVENUES AND PROFITS WILL NOT DEVELOP OR
INCREASE.
Substantially all biotechnology products are distributed to
patients by physicians and hospitals, and in most cases, such
patients rely on insurance coverage and reimbursement to pay for
some or all of the cost of the product. In recent years, the
continuing efforts of government and third party payors to
contain or reduce health care costs have limited, and in certain
cases prevented, physicians and patients from receiving
insurance coverage and reimbursement for medical products,
especially newer technologies. We believe that the efforts of
governments and third-party payors to contain or reduce the cost
of healthcare will continue to affect the business and financial
condition of pharmaceutical and biopharmaceutical companies.
Obtaining reimbursement approval for a product from each
governmental or other third-party payor is a time-consuming and
costly process that could require us to provide to each
prospective payor scientific, clinical and cost-effectiveness
data for the use of our products. If we succeed in bringing any
of our product candidates to market and third-party payors
determine that the product is eligible for coverage; the
third-party payors may nonetheless establish and maintain price
levels insufficient for us to realize a sufficient return on our
investment in product development. Moreover, eligibility for
coverage does not imply that any product will be reimbursed in
all cases.
Our ability to generate adequate revenues and operating profits
could be adversely affected if such limitations or restrictions
are placed on the sale of our products. Specific risks
associated with medical insurance coverage and reimbursement
include:
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Significant uncertainty exists as to the reimbursement status of
newly approved health care products;
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Third-party payors are increasingly challenging the prices
charged for medical products and services;
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Adequate insurance coverage and reimbursement may not be
available to allow us to charge prices for products which are
adequate for us to realize an appropriate return on our
development costs. If adequate coverage and reimbursement are
not provided for use of our products, the market acceptance of
these products will be negatively affected;
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Health maintenance organizations and other managed care
companies may seek to negotiate substantial volume discounts for
the sale of our products to their members thereby reducing our
profit margins; and
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In recent years, bills proposing comprehensive health care
reform have been introduced in Congress that would potentially
limit pharmaceutical prices and establish mandatory or voluntary
refunds. It is uncertain if any legislative proposals will be
adopted and how federal, state or private payors for health care
goods and services will respond to any health care reforms.
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U.S. drug prices may be further constrained by possible
Congressional action regarding drug reimportation into the
United States. Some proposed legislation would allow the
reimportation of approved drugs originally manufactured in the
United States back into the United States from other countries
where the drugs are sold at a lower price. Some governmental
authorities in the U.S. are pursuing lawsuits to obtain
expanded
30
reimportation authority. Such legislation, regulations, or
judicial decisions could reduce the prices we receive for any
products that we may develop, negatively affecting our revenues
and prospects for profitability. Even without legislation
authorizing reimportation, increasing numbers of patients have
been purchasing prescription drugs from Canadian and other
non-United
States sources, which has reduced the price received by
pharmaceutical companies for their products.
The Centers for Medicare and Medicaid Services, or CMS, the
agency within the Department of Health and Human Services that
administers Medicare and that is responsible for setting
Medicare reimbursement payment rates and coverage policies for
any product candidates that we commercialize, has authority to
decline to cover particular drugs if it determines that they are
not reasonable and necessary for Medicare
beneficiaries or to cover them at lower rates to reflect
budgetary constraints or to match previously approved
reimbursement rates for products that CMS considers to be
therapeutically comparable. Third-party payors often follow
Medicare coverage policy and payment limitations in setting
their own reimbursement rates, and both Medicare and other
third-party payors may have sufficient market power to demand
significant price reductions.
Moreover, marketing and promotion arrangements in the
pharmaceutical industry are heavily regulated by CMS, and many
marketing and promotional practices that are common in other
industries are prohibited or restricted. These restrictions are
often ambiguous and subject to conflicting interpretations, but
carry severe administrative, civil, and criminal penalties for
noncompliance. It may be costly for us to implement internal
controls to facilitate compliance by our sales and marketing
personnel.
As a result of the trend towards managed healthcare in the
United States, as well as legislative proposals to constrain the
growth of federal healthcare program expenditures, third-party
payors are increasingly attempting to contain healthcare costs
by demanding price discounts or rebates and limiting both
coverage and the level of reimbursement of new drug products.
Consequently, significant uncertainty exists as to the
reimbursement status of newly approved healthcare products.
MEDICARE
PRESCRIPTION DRUG COVERAGE LEGISLATION AND FUTURE LEGISLATIVE OR
REGULATORY REFORM OF THE HEALTH CARE SYSTEM MAY AFFECT OUR
ABILITY TO SELL OUR PRODUCT CANDIDATES PROFITABLY.
A number of legislative and regulatory proposals to change the
healthcare system in the United States and other major
healthcare markets have been proposed in recent years. In
addition, ongoing initiatives in the United States have exerted
and will continue to exert pressure on drug pricing. In some
foreign countries, particularly countries of the European Union,
the pricing of prescription pharmaceuticals is subject to
governmental control. Significant changes in the healthcare
system in the United States or elsewhere, including changes
resulting from the implementation of the Medicare prescription
drug coverage legislation and adverse trends in third-party
reimbursement programs, could limit our ability to raise capital
and successfully commercialize our product candidates.
In particular, the Medicare Prescription Drug Improvement and
Modernization Act of 2003 established a new Medicare
prescription drug benefit. The prescription drug program and
future amendments or regulatory interpretations of the
legislation could affect the prices we are able to charge for
any products we develop and sell for use by Medicare
beneficiaries and could also cause third-party payors other than
the federal government, including the states under the Medicaid
program, to discontinue coverage for any products we develop or
to lower reimbursement amounts that they pay. The legislation
changed the methodology used to calculate reimbursement for
drugs that are administered in physicians offices in a
manner intended to reduce the amount that is subject to
reimbursement. In addition, the Medicare prescription drug
benefit program that took effect in January 2006 directed the
Secretary of Health and Human Services to contract with
procurement organizations to purchase physician- administered
drugs from manufacturers and provided physicians with the option
to obtain drugs through these organizations as an alternative to
purchasing from manufacturers, which some physicians may find
advantageous. Because we have not received marketing approval or
established a price for any product, it is difficult to predict
how this new legislation will affect us, but the legislation
generally is expected to constrain or reduce reimbursement for
certain types of drugs.
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Further federal, state and foreign healthcare proposals and
reforms are likely. While we cannot predict the legislative or
regulatory proposals that will be adopted or what effect those
proposals may have on our business, including the future
reimbursement status of any of our product candidates, the
announcement or adoption of such proposals could have an adverse
effect on potential revenues from product candidates that we may
successfully develop.
WE
HAVE NO MANUFACTURING CAPACITY AND LIMITED MARKETING
INFRASTRUCTURE AND EXPECT TO BE HEAVILY DEPENDENT UPON THIRD
PARTIES TO MANUFACTURE AND MARKET APPROVED
PRODUCTS.
We currently have no manufacturing facilities for either
clinical trial or commercial quantities of any of our product
candidates and currently have no plans to obtain additional
facilities. To date, we have obtained the limited quantities of
drug product required for preclinical and clinical trials from
contract manufacturing companies. We intend to continue using
contract manufacturing arrangements with experienced firms for
the supply of material for both clinical trials and any eventual
commercial sale.
We will depend upon third parties to produce and deliver
products in accordance with all FDA and other governmental
regulations. We may not be able to contract with manufacturers
who can fulfill our requirements for quality, quantity and
timeliness, or be able to find substitute manufacturers, if
necessary. The failure by any third party to perform their
obligations in a timely fashion and in accordance with the
applicable regulations may delay clinical trials, the
commercialization of products, and the ability to supply product
for sale. In addition, any change in manufacturers could be
costly because the commercial terms of any new arrangement could
be less favorable and because the expenses relating to the
transfer of necessary technology and processes could be
significant.
MDS Nordion has supplied Altropane to us since 2001. We are
highly dependent upon MDS Nordion. Under the terms of our
agreement, which currently expires on December 31, 2009,
MDS Nordion manufactures the Altropane molecular imaging agent
for our clinical trials. We do not presently have arrangements
with any other suppliers in the event that MDS Nordion is unable
or unwilling to manufacture Altropane for us. We could encounter
a significant delay before another supplier could manufacture
Altropane for us due to the time required to establish a cGMP
manufacturing process for Altropane. We hope to sign an
extension with MDS Nordion before December 31, 2009 but
there can be no assurance that we will be able to or that the
terms will be acceptable. We do not have a manufacturing
agreement relating to the commercial production of Altropane
with MDS Nordion or any other manufacturer. We can provide no
assurances that such an agreement will be executed on acceptable
terms.
We currently have a limited marketing infrastructure. In order
to earn a profit on any future product, we will be required to
invest in the necessary sales and marketing infrastructure or
enter into collaborations with third parties with respect to
executing sales and marketing activities. We may encounter
difficulty in negotiating sales and marketing collaborations
with third parties on favorable terms for us. Most of the
companies who can provide such services are financially stronger
and more experienced in selling pharmaceutical products than we
are. As a result, they may be in a position to negotiate an
arrangement that is more favorable to them. We could experience
significant delays in marketing any of our products if we are
required to internally develop a sales and marketing
organization or establish collaborations with a partner. There
are risks involved with establishing our own sales and marketing
capabilities. We have no experience in performing such
activities and could incur significant costs in developing such
a capability.
USE OF
THIRD PARTY MANUFACTURERS MAY INCREASE THE RISK THAT WE WILL NOT
HAVE ADEQUATE SUPPLIES OF OUR PRODUCT CANDIDATES.
Reliance on third party manufacturers entails risks to which we
would not be subject if we manufactured product candidates or
products ourselves, including:
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Reliance on the third party for regulatory compliance and
quality assurance;
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The possible breach of the manufacturing agreement by the third
party; and
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The possible termination or nonrenewal of the agreement by the
third party, based on its own business priorities, at a time
that is costly or inconvenient for us.
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If we are not able to obtain adequate supplies of our product
candidates and any approved products, it will be more difficult
for us to develop our product candidates and compete
effectively. Our product candidates and any products that we
successfully develop may compete with product candidates and
products of third parties for access to manufacturing
facilities. Our contract manufacturers are subject to ongoing,
periodic, unannounced inspection by the FDA and corresponding
state and foreign agencies or their designees to ensure strict
compliance with cGMP regulations and other governmental
regulations and corresponding foreign standards. We cannot be
certain that our present or future manufacturers will be able to
comply with cGMP regulations and other FDA regulatory
requirements or similar regulatory requirements outside the
United States. We do not control compliance by our contract
manufacturers with these regulations and standards. Failure of
our third party manufacturers or us to comply with applicable
regulations could result in sanctions being imposed on us,
including fines, injunctions, civil penalties, failure of
regulatory authorities to grant marketing approval of our
product candidates, delays, suspension or withdrawal of
approvals, license revocation, seizures or recalls of product
candidates or products, operating restrictions and criminal
prosecutions, any of which could significantly and adversely
affect supplies of our product candidates and products.
Risks
Related to Employees and Growth
IF WE
ARE UNABLE TO RETAIN OUR KEY PERSONNEL AND/OR RECRUIT ADDITIONAL
KEY PERSONNEL IN THE FUTURE, THEN WE MAY NOT BE ABLE TO OPERATE
EFFECTIVELY.
Our success depends significantly upon our ability to attract,
retain and motivate highly qualified scientific and management
personnel who are able to formulate, implement and maintain the
operations of a biotechnology company such as ours. We consider
retaining Peter Savas, our Chairman and Chief Executive Officer
and Kenneth L. Rice, Jr., our Executive Vice President
Finance and Administration and Chief Financial Officer to be key
to our efforts to develop and commercialize our product
candidates. The loss of the service of these key executives may
significantly delay or prevent the achievement of product
development and other business objectives. We do not presently
carry key person life insurance on any of our scientific or
management personnel.
We currently outsource most of our research and development,
preclinical and clinical activities. If we decide to increase
our internal research and development capabilities for any of
our technologies, we may need to hire additional key management
and scientific personnel to assist the limited number of
employees that we currently employ. There is significant
competition for such personnel from other companies, research
and academic institutions, government entities and other
organizations. If we fail to attract such personnel, it could
have a significant negative effect on our ability to develop our
technologies.
Risks
Related to our Stock
OUR
STOCK PRICE MAY CONTINUE TO BE VOLATILE AND CAN BE AFFECTED BY
FACTORS UNRELATED TO OUR BUSINESS AND OPERATING
PERFORMANCE.
The market price of our common stock has in the past, and may
continue to fluctuate significantly in response to factors that
are beyond our control. The stock market in general periodically
experiences significant price and volume fluctuations. The
market prices of securities of pharmaceutical and biotechnology
companies have been volatile, and have experienced fluctuations
that often have been unrelated or disproportionate to the
operating performance of these companies. These broad market
fluctuations could result in significant fluctuations in the
price of our common stock, which could cause a decline in the
value of your investment. The market price of our common stock
may be influenced by many factors, including:
|
|
|
|
|
Announcements of technological innovations or new commercial
products by our competitors or us;
|
|
|
|
Announcements in the scientific and research community;
|
|
|
|
Developments concerning proprietary rights, including patents;
|
33
|
|
|
|
|
Delay or failure in initiating, conducting, completing or
analyzing clinical trials or problems relating to the design,
conduct or results of these trials;
|
|
|
|
Announcement of FDA approval or non-approval of our product
candidates or delays in the FDA review process;
|
|
|
|
Developments concerning our collaborations;
|
|
|
|
Publicity regarding actual or potential medical results relating
to products under development by our competitors or us;
|
|
|
|
Failure of any of our product candidates to achieve commercial
success;
|
|
|
|
Our ability to manufacture products to commercial standards;
|
|
|
|
Conditions and publicity regarding the life sciences industry
generally;
|
|
|
|
Regulatory developments in the United States and foreign
countries;
|
|
|
|
Changes in the structure of health care payment systems;
|
|
|
|
Period-to-period
fluctuations in our financial results or those of companies that
are perceived to be similar to us;
|
|
|
|
Departure of our key personnel;
|
|
|
|
Future sales of our common stock;
|
|
|
|
Investors perceptions of us, our products, the economy and
general market conditions;
|
|
|
|
Differences in actual financial results versus financial
estimates by securities analysts and changes in those
estimates; and
|
|
|
|
Litigation.
|
|
|
ITEM 1B.
|
Unresolved
Staff Comments.
|
Not applicable.
Our corporate office is located in Hopkinton, Massachusetts. We
lease approximately 16,000 square feet of office space
which expires in 2011.
We also lease office space in Boston, Massachusetts pursuant to
a lease that expires in 2012. We do not occupy this space. We
have entered into two sublease agreements covering all
6,600 square feet under our lease through the expiration of
such lease.
We believe that our existing facilities are adequate for their
present and anticipated purposes, except that additional
facilities will be needed if we elect to expand our space to
include laboratory
and/or
manufacturing activities.
|
|
ITEM 3.
|
Legal
Proceedings.
|
We are subject to legal proceedings in the normal course of
business. We are not currently a party to any material legal
proceedings.
|
|
ITEM 4.
|
Submission
of Matters to a Vote of Security Holders.
|
Not Used.
34
PART II
|
|
Item 5.
|
Market
for Registrants Common Equity, Related Stockholder
Matters, and Issuer Purchases of Equity
Securities.
|
Market
Information
Our common stock trades on the Pink Sheets OTC Market under the
symbol ALSE.PK. Prior to May 8, 2009, our common stock was
traded on the NASDAQ Capital Market under the symbol ALSE. Prior
to June 7, 2007, our common stock was traded on the NASDAQ
Capital Market under the symbol BLSI.
The following table sets forth the high and low per share sales
prices for our common stock for each of the quarters in the
period beginning January 1, 2008 through December 31,
2009 as reported on the NASDAQ Capital Market
and/or the
Pink Sheets OTC Market.
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
High
|
|
|
Low
|
|
|
March 31, 2008
|
|
$
|
3.09
|
|
|
$
|
2.15
|
|
June 30, 2008
|
|
$
|
2.94
|
|
|
$
|
1.95
|
|
September 30, 2008
|
|
$
|
3.00
|
|
|
$
|
2.05
|
|
December 31, 2008
|
|
$
|
2.50
|
|
|
$
|
0.92
|
|
March 31, 2009
|
|
$
|
1.88
|
|
|
$
|
0.49
|
|
June 30, 2009
|
|
$
|
1.18
|
|
|
$
|
0.55
|
|
September 30, 2009
|
|
$
|
1.01
|
|
|
$
|
0.51
|
|
December 31, 2009
|
|
$
|
0.75
|
|
|
$
|
0.19
|
|
Holders
As of March 22, 2010, there were approximately 2,800
holders of record of our common stock. As of March 22,
2010, there were approximately 8,100 beneficial holders of our
common stock.
Dividends
We have not paid or declared any cash dividends on our common
stock and do not expect to pay cash dividends on our common
stock in the foreseeable future.
35
|
|
Item 6.
|
Selected
Consolidated Financial Data.
|
The selected consolidated financial data set forth below with
respect to our consolidated statement of operations for each of
the years in the three-year period ended December 31, 2009
and our consolidated balance sheets as of December 31, 2009
and 2008 are derived from and qualified by reference to our
audited consolidated financial statements and the related notes
thereto found at Item 8. Financial Statements and
Supplementary Data herein. The consolidated statement of
operations data for each of the years ended December 31,
2006 and 2005 and the consolidated balance sheet data as of
December 31, 2007, 2006 and 2005 are derived from our
audited consolidated financial statements not included in this
Annual Report on
Form 10-K.
The selected consolidated financial data set forth below should
be read in conjunction with and is qualified in its entirety by
our audited consolidated financial statements and related notes
thereto found at Item 8. Financial Statements and
Supplementary Data and Item 7.
Managements Discussion and Analysis of Financial Condition
and Results of Operations which are included elsewhere in
this Annual Report on
Form 10-K.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Statement of Operations Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Operating expenses
|
|
|
8,325,982
|
|
|
|
18,710,812
|
|
|
|
18,881,125
|
|
|
|
26,434,736
|
|
|
|
11,647,984
|
|
Net loss
|
|
|
(10,776,937
|
)
|
|
|
(20,847,459
|
)
|
|
|
(19,548,348
|
)
|
|
|
(26,355,243
|
)
|
|
|
(11,501,442
|
)
|
Accrual of preferred stock dividends and modification of
warrants held by preferred stock stockholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(715,515
|
)
|
Net loss attributable to common stockholders
|
|
|
(10,776,937
|
)
|
|
|
(20,847,459
|
)
|
|
|
(19,548,348
|
)
|
|
|
(26,355,243
|
)
|
|
|
(12,216,957
|
)
|
Basic and diluted net loss per share attributable to common
stockholders
|
|
$
|
(0.46
|
)
|
|
$
|
(1.00
|
)
|
|
$
|
(1.04
|
)
|
|
$
|
(1.59
|
)
|
|
$
|
(1.03
|
)
|
Weighted average number of common shares outstanding
|
|
|
23,361,458
|
|
|
|
20,883,066
|
|
|
|
18,874,070
|
|
|
|
16,525,154
|
|
|
|
11,806,153
|
|
Balance Sheet Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
314,964
|
|
|
$
|
73,974
|
|
|
$
|
2,933,292
|
|
|
$
|
1,508,665
|
|
|
$
|
578,505
|
|
Marketable securities
|
|
|
|
|
|
|
|
|
|
|
1,240,543
|
|
|
|
|
|
|
|
8,750,832
|
|
Total assets
|
|
|
790,815
|
|
|
|
845,250
|
|
|
|
5,623,677
|
|
|
|
2,368,887
|
|
|
|
10,515,488
|
|
Working capital (deficit) (excludes restricted cash and
restricted marketable securities)
|
|
|
(4,535,951
|
)
|
|
|
(4,623,816
|
)
|
|
|
1,421,887
|
|
|
|
(16,853,334
|
)
|
|
|
7,466,080
|
|
Long-term debt and accrued interest payable
|
|
|
38,212,718
|
|
|
|
35,769,464
|
|
|
|
24,075,527
|
|
|
|
|
|
|
|
|
|
Stockholders(deficit) equity
|
|
$
|
(47,509,322
|
)
|
|
$
|
(40,013,361
|
)
|
|
$
|
(22,414,471
|
)
|
|
$
|
(16,571,907
|
)
|
|
$
|
7,891,306
|
|
36
|
|
Item 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations.
|
Our managements discussion and analysis of our financial
condition and results of operations include the identification
of certain trends and other statements that may predict or
anticipate future business or financial results that are subject
to important factors that could cause our actual results to
differ materially from those indicated. See Item 1A,
Risk Factors.
Overview
Description
of Company
We are a biotechnology company focused on the development of
therapeutic and diagnostic products primarily for disorders in
the central nervous system, or CNS. Our clinical and preclinical
product candidates are based on three proprietary technology
platforms:
|
|
|
|
|
Molecular imaging program focused on the diagnosis of
i) Parkinsonian Syndromes, or PS, including
Parkinsons Disease, or PD, and ii) Dementia with Lewy
Bodies, or DLB;
|
|
|
|
Regenerative therapeutics program, primarily focused on nerve
repair and restoring movement and sensory function in patients
who have had significant loss of CNS function resulting from
trauma such as spinal cord injury, or SCI, stroke, and optic
nerve damage utilizing technology referred to as axon
regeneration.
|
At December 31, 2009, we were considered a
development stage enterprise as defined in ASC 915,
Development Stage Entities (ASC 915)
(formerly SFAS No. 7, Accounting and Reporting by Development
Stage Enterprises), and will continue to be so until we
commence commercial operations. The development stage is from
October 16, 1992 (inception) through December 31, 2009.
As of December 31, 2009, we have experienced total net
losses since inception of approximately $203,969,000,
stockholders deficit of approximately $47,509,000 and a
net working capital deficit of approximately $4,536,000. The
cash and cash equivalents available at December 31, 2009
will not provide sufficient working capital to meet our
anticipated expenditures for the next twelve months. At
March 22, 2010, we had cash and cash equivalents of
approximately $130,000 which combined with our ability to
control certain costs, including those related to clinical trial
programs, preclinical activities, and certain general and
administrative expenses will enable us to meet our anticipated
cash expenditures into April, 2010. We must immediately raise
additional funds in order to continue operations and to fund the
estimated $34 million of development costs related to the
Altropane POET-2 program. This funding is not available at
present and there can be no assurance that such funds will be
available on acceptable terms if at all.
In order to continue as a going concern, we must immediately
raise additional funds through one or more of the following: a
debt financing, an equity offering or a collaboration, merger,
acquisition or other transaction with one or more pharmaceutical
or biotechnology companies. We are currently engaged in
fundraising efforts. There can be no assurance that we will be
successful in our fundraising efforts or that additional funds
will be available on acceptable terms, if at all. We also cannot
be sure that we will be able to obtain additional credit from,
or effect additional sales of debt or equity securities to the
Purchasers as described in Note 4 to our consolidated financial
statements. If we are unable to raise additional or sufficient
capital, or if we violate a debt covenant or default under the
March 2008 Amended Purchase Agreement of convertible promissory
notes, or the June 2008 Purchase Agreement as described in Note
4 to our consolidated financial statements we will need to cease
operations or reduce, cease or delay one or more of our research
or development programs
and/or
adjust its current business plan and in any such event may not
be able to continue as a going concern. Additionally, our common
stock was delisted from trading on the NASDAQ Capital Market as
a result of our failure to meet continued listing requirements
of NASDAQ. On May 8, 2009 we began trading on the Pink
Sheets OTC Market. This delisting has had an adverse affect on
our ability to
37
obtain future financing and could continue to adversely impact
our stock price and the liquidity of our common stock.
In connection with the common stock financing completed by us in
March 2005, or the March 2005 Financing, we agreed with the
purchasers in such financing, including Robert Gipson, Thomas
Gipson, and Arthur Koenig, or the March 2005 Investors, that,
subject to certain exceptions, we would not issue any shares of
our common stock at a per share price less than $2.50 without
the prior consent of the March 2005 Investors holding at least a
majority of the shares issued in the March 2005 Financing. On
March 22, 2010, the closing price of our common stock was
$.21. The failure to receive the requisite waiver or consent of
the March 2005 Investors could have the effect of delaying or
preventing the consummation of a financing by us should the
price per share in such financing be set at less than $2.50.
Our ability to continue to advance our clinical programs,
including the development of Altropane and Cethrin, is affected
by the availability of financial resources to fund each program.
Financial considerations have caused us to modify planned
development activities for our clinical programs and we have
decided to suspend development of our preclinical programs until
we are able to secure additional working capital. If we are not
able to raise additional capital, we will not have sufficient
funds to complete the clinical trial programs for the Altropane
molecular imaging agent or Cethrin.
In order to effect an acquisition, we may need additional
financing. We cannot be certain that any such financing will be
available on terms favorable or acceptable to us, or at all. If
we raise additional funds through the issuance of equity,
equity-related or debt securities, these securities may have
rights, preferences or privileges senior to those of the rights
of our common stockholders, who would then experience dilution.
There can be no assurance that we will be able to identify or
successfully complete any acquisitions.
Product
Development
Molecular
Imaging Program
The Altropane molecular imaging agent is being developed for the
differential diagnosis of PS, including PD, and non-PS in
patients with an upper extremity tremor. In July 2007, we
completed enrollment in a study that optimized Altropanes
image acquisition protocol which we believe will enhance
Altropanes commercial use. After a series of discussions
with the U.S. Food and Drug Administration, or FDA, and our
expert advisors, the POET-2 program was designed as a
two-part Phase III program using the optimized
Altropane image acquisition protocol. The first part of the
program enrolled 54 subjects in a multi-center clinical study to
acquire a set of Altropane images which will be used to train
the expert readers, as is the customary process for clinical
trials of molecular imaging agents. Enrollment in the first part
of POET-2 was completed in January 2009. In April, 2009 we
reached agreement with the FDA under the Special Protocol
Assessment, or SPA, process for the second part of the
Phase III clinical trial program of Altropane. A SPA is a
process by which sponsors and the FDA reach an agreement on the
size, design and analysis of clinical trials that will form the
primary basis of approval. The Phase III program is
designed to confirm the diagnostic utility of the agent in
anticipation of drug registration. The second portion of the
Phase III, POET-2 program consists of two clinical trials in up
to 480 subjects in total to be conducted in parallel at up to 40
medical facilities throughout the US. The subjects to be tested
will be
40-80 years
of age and have had a tremor in their hand(s) or arm(s) for less
than three years. Each subject will be assessed by a general
neurologist, an Altropane imaging procedure and a Movement
Disorder Specialist, or MDS considered the gold
standard. The success of the trial will be determined by
measuring the diagnostic efficacy of the neurologist diagnosis
compared with the diagnosis determined by the Altropane scan
versus the MDS gold standard diagnosis. Based on the trial
design and scope covered by the Special Protocol Assessment
Agreement for POET-2, we estimate that the total costs to
complete the POET-2 program and prepare and submit a New Drug
Application, or NDA for Altropane in the U.S. will be
approximately $34 million. This funding is not available at
present and there can be no assurance that such funds will be
available on acceptable terms if at all.
We believe in the current environment that, due to their
proximity to commercialization and return on investment, late
stage development programs may continue to be of significant
interest to potential partners and investors. To maximize the
value of our molecular imaging program, we are focusing on
obtaining the
38
funding necessary to execute the Altropane Phase III
registration program. We are pursuing the capital necessary to
enable us to advance the Altropane program through our own
means. In parallel, we are seeking to partner our molecular
imaging program with a firm or firms with the resources
necessary for the completion of the Phase III clinical
program, for the manufacturing and supply of Altropane, and for
the launch and commercialization of Altropane. We can provide no
assurances that a partnership transaction will occur. We believe
that the expansion of the program into other indications such as
DLB and other countries including those in Europe could increase
the value of the program for the partner and us. All of these
activities require additional funding and as such are
proceeding, if at all, only as available resources permit. There
can be no assurance that the required funding to advance the
Altropane program will be available on acceptable terms if at
all.
Regenerative
Therapeutics Program Nerve Repair
Our nerve repair program is focused on restoring movement and
sensory function in patients who have had significant loss of
CNS function resulting from traumas such as SCI, stroke,
traumatic brain injury, or TBI, and optic nerve damage. Our
efforts are aimed at the use of proprietary regenerative drugs
and/or
methods to induce nerve fibers to regenerate and form new
connections that restore compromised abilities. Licensing or
acquiring the rights to the technologies of complementary
approaches for nerve repair is part of our strategy of creating
competitive advantages by assembling a broad portfolio of
related technologies and intellectual property.
Our lead product candidate for nerve repair during early 2009
was Cethrin. Cethrin contains a proprietary protein which
studies indicate inactivates a key enzyme called Rho resulting
in the promotion of nerve repair. Cethrin was being investigated
to determine its effectiveness in facilitating the restoration
of movement and sensory function following a major injury to the
spinal cord. After an SCI, approximately two-thirds of patients
undergo decompression/stabilization surgery. During surgery,
Cethrin is delivered in a single application to the injured
region of the spinal cord using a fibrin sealant as a carrier.
In December 2006, we entered into a license agreement, or the
Cethrin License, with BioAxone Therapeutic Inc., a Canadian
corporation, or BioAxone, pursuant to which we were granted an
exclusive, worldwide license to develop and commercialize
specified compounds including, but not limited to, Cethrin, as
further defined in the Cethrin License. The Cethrin License
called for us to conduct development and commercialization
activities of Cethrin and to pay certain pre-commercialization
milestones and on-going royalties on sales of Cethrin when and
if approved for marketing. The Cethrin License provided for a
series of performance milestones any of which, if not achieved
by us in the timeframes agreed in the Cethrin License, could
form the basis of a claim for compensation to BioAxone and
possibly the termination of some or all of our rights under the
Cethrin License. The Cethrin License further provided us with
relief from our performance obligations in the event that such
performance is effectively rendered impossible due to safety or
efficacy issues with Cethrin during its development.
Additionally, the Cethrin License provided a warranty that all
of the clinical materials provided to us by BioAxone in
connection with the Cethrin License were manufactured in
accordance with current Good Manufacturing Practices, or cGMP.
Cethrin
License Dispute
In January 2009, the Company received notice from BioAxone
alleging that we had failed to meet one of the performance
milestones in the Cethrin License that was required to have been
met on or before January 1, 2009. This notice purported to
terminate the Cethrin License, sought payment of a $2,000,000
penalty from us to BioAxone for such purported failure and
requested that we transfer to BioAxone our rights to the Master
Cell Bank (as defined in the Cethrin License) and all licensed
intellectual property under the Cethrin License.
We believed that the purported termination was without effect.
Our performance obligations under the Cethrin License were
specifically excused in the event that a safety issue renders
such performance impossible. Our prior discovery that the Master
Cell Bank from which Cethrin is manufactured may contain an
unintended animal derived contaminant rendering it not in
compliance with the requirements of cGMP, represented such a
39
safety risk for Cethrin. We notified BioAxone of the
contamination issue and our position that the purported
termination and demand for payment is considered to be without
effect.
In April 2009 we announced that we entered into an Amendment
Agreement, or the Amendment, with BioAxone Therapeutic, Inc.,
pursuant to which the Cethrin License, was amended. The
Amendment replaces all of the pre-commercial financial and
performance-related milestones contained in the Cethrin License
with a formula-based approach to sharing of any and all income
under a
sub-license.
The Amendment establishes provisions under which we would use
reasonable commercial efforts to enter into a
Sub-license
Agreement for the technology covered by the Cethrin License. The
Amendment also provides for the mutual release of claims that
each party had previously alleged against the other under the
Cethrin License. During 2009 our efforts were focused on
identifying and negotiating with appropriate sublicensing
candidates. Under the terms of the Amendment Agreement, our
right to sublicense Cethrin has expired and all rights granted
to us in the License Agreement have reverted to BioAxone. The
Amendment Agreement provides that, in the event BioAxone is able
to license or partner the Cethrin technology in the future, we
are entitle to receive a 30% share of any and all proceeds
received by BioAxone connected with such transaction. It is
unclear if or when BioAxone will license the Cethrin technology
to a third party, so we may not realize any revenue at all under
the Amendment Agreement.
Sales
and Marketing and Government Regulation
To date, we have not marketed, distributed or sold any products
and, with the exception of Altropane and Cethrin, all of our
other product candidates are in preclinical development. Our
product candidates must undergo a rigorous regulatory approval
process which includes extensive preclinical and clinical
testing to demonstrate safety and efficacy before any resulting
product can be marketed. The FDA has stringent standards with
which we must comply before we can test our product candidates
in humans or make them commercially available. Preclinical
testing and clinical trials are lengthy and expensive and the
historical rate of failure for product candidates is high.
Clinical trials require sufficient patient enrollment which is a
function of many factors. Delays and difficulties in completing
patient enrollment can result in increased costs and longer
development times. The foregoing uncertainties and risks limit
our ability to estimate the timing and amount of future costs
that will be required to complete the clinical development of
each program. In addition, we are unable to estimate when
material net cash inflows are expected to commence as a result
of the successful completion of one or more of our programs.
Research
and Development
Following is information on the direct research and development
costs incurred on our principal scientific technology programs
currently under development. These amounts do not include
research and development employee and related overhead costs
which total approximately $30,549,000 on a cumulative basis.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three
|
|
|
For the Year
|
|
|
From Inception
|
|
|
|
Months Ended
|
|
|
Ended
|
|
|
(October 16, 1992) to
|
|
Program
|
|
December 31, 2009
|
|
|
December 31, 2009
|
|
|
December 31, 2009
|
|
|
Molecular imaging
|
|
$
|
(147,000
|
)
|
|
$
|
480,000
|
|
|
$
|
27,131,000
|
|
Regenerative therapeutics
|
|
$
|
28,000
|
|
|
$
|
334,000
|
|
|
$
|
28,920,000
|
|
Neurodegenerative disease
|
|
$
|
|
|
|
$
|
20,000
|
|
|
$
|
1,131,000
|
|
Estimating costs and time to complete development of a specific
program or technology is difficult due to the uncertainties of
the development process and the requirements of the FDA which
could require additional clinical trials or other development
and testing. Results of any testing could lead to a decision to
change or terminate development of a technology, in which case
estimated future costs could change substantially. In the event
we were to enter into a licensing or other collaborative
agreement with a corporate partner involving sharing or funding
by such corporate partner of development costs, the estimated
development costs incurred by us could be substantially less
than estimated. Additionally, research and development costs are
extremely difficult to estimate for early-stage technologies due
to the fact that there are generally less comprehensive data
available for such technologies to determine the development
activities that would be required prior to the filing of a New
Drug Application, or NDA. As a result, we cannot reasonably
estimate the cost and the date of
40
completion for any technology that is not at least in
Phase III clinical development due to the uncertainty
regarding the number of required trials, the size of such trials
and the duration of development. Even in Phase III clinical
development, estimating the cost and the filing date for an NDA
can be challenging due to the uncertainty regarding the number
and size of the required Phase III trials. Based on the
trial design and scope covered by the Special Protocol
Assessment Agreement for POET-2, we estimate that the total
costs to complete the POET-2 program and prepare and submit an
NDA for Altropane in the U.S. will be approximately
$34 million.
Critical
Accounting Policies and Estimates
Our discussion and analysis of our financial condition and
results of operations are based upon our consolidated financial
statements which have been prepared by us in accordance with
accounting principles generally accepted in the United States of
America. The preparation of these financial statements requires
us to make estimates and judgments that affect the reported
amounts of assets, liabilities, revenues and expenses, and
related disclosure of contingent assets and liabilities. Our
estimates include those related to marketable securities,
research contracts, the fair value and classification of
financial instruments, our lease accrual and stock-based
compensation. We base our estimates on historical experience and
on various other assumptions that we believed to be reasonable
under the circumstances. Actual results may differ from these
estimates under different assumptions or conditions.
Going
Concern Basis of Accounting
The consolidated financial statements have been prepared on the
basis that we will continue as a going concern. We have incurred
significant operating losses and negative cash flows from
operating activities since our inception. As of
December 31, 2009, these conditions raised substantial
doubt as to our ability to continue as a going concern. There
can be no assurance that we will be successful in our efforts to
raise additional capital or that we will be able to continue as
a going concern. The consolidated financial statements do not
include any adjustments relating to the recoverability of the
carrying amount of the recorded assets or the amount of
liabilities that might result from the outcome of this
uncertainty. In the event that we concluded that we would not be
able to continue as a going concern, we would potentially
present our financial statements on a liquidation basis of
accounting.
Research
Contracts
We regularly enter into contracts with third parties to perform
research and development activities on our behalf in connection
with our scientific technologies. Costs incurred under these
contracts are recognized ratably over the term of the contract
or based on actual enrollment levels which we believe
corresponds to the manner in which the work is performed.
Clinical trial, contract services and other outside costs
require that we make estimates of the costs incurred in a given
accounting period and record accruals at period end as the third
party service periods and billing terms do not always coincide
with our period end. We base our estimates on our knowledge of
the research and development programs, services performed for
the period, past history for related activities and the expected
duration of the third party service contract, where applicable.
Fair
Value and Classification of Financial Instruments
Historically, we have issued warrants to purchase shares of our
common stock in connection with our debt and equity financings.
We record each of the securities issued on a relative fair value
basis up to the amount of the proceeds received. We estimate the
fair value of the warrants using the Black-Scholes valuation
model. The Black-Scholes valuation model is dependent on a
number of variables and estimates including interest rates,
dividend yield, volatility and the expected term of the
warrants. Our estimates are based on market interest rates at
the date of issuance, our past history for declaring dividends,
our estimated stock price volatility and the contractual term of
the warrants. The value ascribed to the warrants in connection
with debt offerings is considered a cost of capital and
amortized to interest expense over the term of the debt.
41
We have, at certain times, issued preferred stock and notes,
which were convertible into common stock at a discount from the
common stock market price at the date of issuance. The amount of
the discount associated with such conversion rights represents
an incremental yield, or beneficial conversion
feature that is recorded when the consideration allocated
to the convertible security, divided by the number of common
shares into which the security converts, is below the fair value
of the common stock at the date of issuance of the convertible
instrument.
A beneficial conversion feature associated with the preferred
stock is recognized as a return to the preferred stockholders
and represents a non-cash charge in the determination of net
loss attributable to common stockholders. The beneficial
conversion feature is recognized in full immediately if there is
no redemption date for the preferred stock, or over the period
of issuance through the redemption date, if applicable. A
beneficial conversion feature associated with debentures, notes
or other debt instruments is recognized as a discount to the
debt and is amortized as additional interest expense using the
effective interest method over the remaining term of the debt
instrument.
Lease
Accrual
We are required to make significant judgments and assumptions
when estimating the liability for our net ongoing obligations
under our amended lease agreement relating to our former
executive offices located in Boston, Massachusetts. We use a
discounted cash-flow analysis to calculate the amount of the
liability. We applied a discount rate of 15% representing our
best estimate of our credit-adjusted risk-free rate. The
discounted cash-flow analysis is based on managements
assumptions and estimates of our ongoing lease obligations, and
income from sublease rentals, including estimates of sublease
timing and sublease rental terms. It is possible that our
estimates and assumptions will change in the future, resulting
in additional adjustments to the amount of the estimated
liability, and the effect of any adjustments could be material.
We review our assumptions and judgments related to the lease
amendment on at least a quarterly basis, until the outcome is
finalized, and make whatever modifications we believe are
necessary, based on our best judgment, to reflect any changes in
circumstances.
Stock-Based
Compensation
We measure compensation costs for all share-based awards at fair
value on grant date and recognize it as expense over the
requisite service period or expected performance period of the
award. We estimate the fair value of stock-based awards using
the Black-Scholes valuation model on the grant date. The
Black-Scholes valuation model requires us to make certain
assumptions and estimates concerning the expected term of the
awards, the rate of return of risk-free investments, our stock
price volatility, and our anticipated dividends. If any of our
estimates or assumptions prove incorrect, our results could be
materially affected.
Marketable
Securities
From time to time, we invest in marketable securities. These
marketable securities consist exclusively of investments in
United States agency bonds and corporate debt obligations. These
marketable securities are adjusted to fair value on the
Consolidated Balance Sheet through other comprehensive income.
If a decline in the fair value of a security is considered to be
other than temporary, the investment is written down to a new
cost basis and the unrealized loss is removed from accumulated
other comprehensive loss and recorded in the Consolidated
Statements of Operations. We evaluate whether a decline in fair
value is other than temporary based on factors such as the
significance of the decline, the duration of time for which the
decline has been in existence and our ability and intent to hold
the security to maturity. To date, we have not recorded any
other than temporary impairments related to our marketable
securities. These marketable securities are classified as
current assets because they are highly liquid and are available,
as required, to meet working capital and other operating
requirements.
42
Results
of Operations
Years
Ended December 31, 2009 and 2008
Global market and economic conditions have been, and continue to
be, disruptive and volatile. In particular, the cost of raising
money in the debt and equity markets has increased substantially
while the availability of funds from those markets has
diminished significantly. Recent distress in the financial
markets has adversely affected our ability to raise capital. We
must immediately raise additional funds in order to continue
operations.
Our net loss and net loss attributable to common stockholders
was $10,776,937 during the year ended December 31, 2009 as
compared with $20,847,459 during the year ended
December 31, 2008. Net loss attributable to common
stockholders totaled $0.46 per share during 2009 as compared
with $1.00 per share during 2008. The decrease in net loss in
2009 was primarily due to lower operating expenses resulting
from our decision to significantly curtail operations pending
additional funding. The decrease in net loss attributable to
common stockholders on a per share basis in 2009 was primarily
due to the decrease in net loss in 2009 and an increase in
weighted average shares outstanding of approximately
2,478,000 shares in 2009, which was primarily the result of
common stock issuances during 2009.
Research and development expenses were $3,702,781 during the
year ended December 31, 2009 as compared with $10,851,844
during the year ended December 31, 2008. The decrease in
2009 was primarily attributable to our decision to scale back
operations specifically resulting in (i) lower costs of
approximately $4,254,000 associated with our nerve repair
program, primarily related to Cethrin clinical costs including
our Phase I/IIa trial and suspended preparations for our Phase
IIb trial; (ii) lower costs of approximately $1,375,000
associated with our molecular imaging program primarily related
to decreased Altropane clinical costs and (iii) lower
compensation and related costs of approximately $1,332,000
primarily related to lower headcount. Subject to our ability to
raise additional capital, we are currently planning for an
increase in our research and development expenses over the next
twelve months although there may be significant fluctuations on
a quarterly basis. This expected increase is primarily related
to higher Altropane clinical costs. Our current working capital
constraints may limit our planned expenditures.
General and administrative expenses were $4,623,201 during the
year ended December 31, 2009 as compared with $7,858,968
during the year ended December 31, 2008. The decrease in
2009 was primarily related to (i) lower compensation and
related costs of approximately $1,974,000 primarily related to
decreased headcount; (ii) lower commercialization and
communication costs of approximately $532,000 and
(iii) lower legal, patent and consulting costs of
approximately $459,000 primarily related to slowdowns in
operations and resolution of the dispute with BioAxone. We
currently anticipate that our general and administrative
expenses will decrease over the next twelve months primarily
related to reduced headcount, although there may be significant
fluctuations on a quarterly basis.
Interest expense totaled $2,523,095 during the year ended
December 31, 2009 as compared to $2,215,663 during the year
ended December 31, 2008. The increase in the 2009 period
was primarily attributable to the issuance of $10,000,000 in
convertible promissory notes in 2008 which bear interest at the
rate of 5% per annum and the issuance of $1,350,000 in
promissory notes in 2009 which bear interest at the rate of 7%
per annum.
Investment income was $7,140 during the year ended
December 31, 2009 as compared with investment income of
$79,016 during the year ended December 31, 2008. The
decrease in 2009 was primarily due to lower average cash, cash
equivalent and marketable securities balances in 2009 than in
2008.
At December 31, 2009, we had net deferred tax assets of
approximately $50,538,000 for which a full valuation allowance
has been established. As a result of our concentrated efforts on
research and development, we have a history of incurring net
operating losses, or NOLs, and expect to incur additional net
operating losses for the foreseeable future. Accordingly, we
have concluded that it is more likely than not that the future
benefits related to the deferred tax assets will not be realized
and, therefore, we have provided a full valuation allowance for
these assets. In the event we achieve profitability, these
deferred tax assets may be available to offset future income tax
liabilities and expense, subject to limitations that may occur
from ownership changes under provisions of the Internal Revenue
Code. In 1995 and 2005, we experienced a change in ownership as
defined by Section 382 of the Internal Revenue Code. In
general, an ownership change, as defined by Section 382,
results from transactions increasing the ownership of certain
stockholders or public groups in the
43
stock of a corporation by more than 50 percentage points
over a three-year period. Since our formation, we have raised
capital through the issuance of capital stock on several
occasions which, combined with stockholders subsequent
disposition of those shares, has resulted in two changes of
control, as defined by Section 382. As a result of the 2005
ownership change, utilization of our NOLs is subject to an
annual limitation under Section 382 determined by
multiplying the value of our stock at the time of the ownership
change by the applicable long-term tax-exempt rate resulting in
an annual limitation amount of approximately $1,000,000. Any
unused annual limitation may be carried over to later years, and
the amount of the limitation may, under certain circumstances,
be subject to adjustment if the fair value of our net assets are
determined to be below or in excess of the tax basis of such
assets at the time of the ownership change, and such unrealized
loss or gain is recognized during the five-year period after the
ownership change. Federal research and development tax credits
were also impaired by the ownership change and were reduced
accordingly.
Years
Ended December 31, 2008 and 2007
Our net loss and net loss attributable to common stockholders
was $20,847,459 during the year ended December 31, 2008 as
compared with $19,548,348 during the year ended
December 31, 2007. Net loss attributable to common
stockholders totaled $1.00 per share during 2008 as compared
with $1.04 per share during 2007. The increase in net loss in
2008 was primarily due an increase in interest expense. The
decrease in net loss attributable to common stockholders on a
per share basis in 2008 was primarily due to an increase in
weighted average shares outstanding of approximately
2,009,000 shares in 2008, which was primarily the result of
the conversion of notes payable into common stock in June 2007.
Research and development expenses were $10,851,844 during the
year ended December 31, 2008 as compared with $10,475,158
during the year ended December 31, 2007. The increase in
2008 was primarily attributable to higher costs of approximately
$1,165,000 associated with our nerve repair program, primarily
related to Cethrin clinical costs including our Phase I/IIa
trial and preparations for future clinical development. The
increase was partially offset by (i) lower costs of
approximately $337,000 associated with our molecular imaging
program primarily related to our second generation
technetium-based molecular imaging agent and (ii) lower
compensation and related costs of approximately $309,000
primarily related to lower recruiting and temporary staffing
costs in 2008.
General and administrative expenses were $7,858,968 during the
year ended December 31, 2008 as compared with $8,405,967
during the year ended December 31, 2007. The decrease in
2008 was primarily related to (i) lower legal, patent and
consulting costs of approximately $582,000 and (ii) lower
commercialization and communication costs of approximately
$157,000. The decrease was partially offset by higher
compensation and related costs of approximately $306,000
primarily related to employee severance costs.
Interest expense totaled $2,215,663 during the year ended
December 31, 2008 as compared to $876,071 during the year
ended December 31, 2007. The increase in the 2008 period
was attributable to the issuance of $10,000,000 and $25,000,000
in convertible promissory notes in 2008 and 2007, respectively
that bear interest at the rate of 5% per annum and the related
non-cash interest expense of approximately $621,000 related to
the beneficial conversion features. In March 2007, we issued
amended and restated notes which eliminated all outstanding
principal and accrued interest due under notes previously issued
in August 2006, October 2006 and February 2007. In June 2007,
the $10,000,000 in amended and restated promissory notes was
converted into 4,000,000 shares of common stock.
Investment income was $79,016 during the year ended
December 31, 2008 as compared with investment income of
$208,848 during the year ended December 31, 2007. The
decrease in 2008 was primarily due to lower average cash, cash
equivalent and marketable securities balances in 2008 than in
2007.
Liquidity
and Capital Resources
Global market and economic conditions have been, and continue to
be, disruptive and volatile. In particular, the cost of raising
money in the debt and equity markets has increased substantially
while the availability of funds from those markets has
diminished significantly. Recent distress in the financial
markets has adversely affected our ability to raise capital. We
must immediately raise additional funds in order to continue
operations.
44
Net cash used for operating activities, primarily related to our
net loss, totaled $8,060,298 in 2009 as compared to $14,983,246
in 2008. The decrease in net loss in 2009 is primarily related
to reductions in R&D and G&A spending in 2009 totaling
$10,384,830 partially offset by decreases in accounts payable
and prepaid expenses totaling $3,194,158. There can be no
assurances that the Company will be able to continue these
payment terms. Net cash provided by investing activities totaled
$76,476 in 2009 as compared to cash provided by investing
activities of $1,121,387 in 2008. The change in investing
activities is primarily associated with the sale of marketable
securities used to fund operations. Net cash provided by
financing activities totaled $8,224,812 in 2009 as compared to
$11,002,541 in 2008. The decrease in 2009 primarily reflects the
decrease in notes payable issued in 2009.
To date, we have dedicated most of our financial resources to
the research and development of our product candidates, general
and administrative expenses (including costs related to
obtaining and protecting patents). Since inception, we have
primarily satisfied our working capital requirements from the
sale of our securities through private placements. These private
placements have included the sale and issuance of preferred
stock, common stock, promissory notes and convertible debentures.
A summary of financings completed during the three years ended
March 31, 2010 is as follows:
|
|
|
|
|
|
|
Date
|
|
Net Proceeds Raised
|
|
|
Securities or Debt Instrument Issued
|
|
March 2010
|
|
$
|
0.3 million
|
|
|
Promissory Note
|
February 2010
|
|
$
|
0.2 million
|
|
|
Promissory Note
|
January 2010
|
|
$
|
0.3 million
|
|
|
Promissory Note
|
December 2009
|
|
$
|
0.3 million
|
|
|
Promissory Note
|
November 2009
|
|
$
|
1.0 million
|
|
|
Common Stock
|
September 2009
|
|
$
|
0.7 million
|
|
|
Convertible Preferred Stock
|
August 2009
|
|
$
|
0.6 million
|
|
|
Convertible Preferred Stock
|
July 2009
|
|
$
|
0.6 million
|
|
|
Convertible Preferred Stock
|
June 2009
|
|
$
|
0.5 million
|
|
|
Convertible Preferred Stock
|
May 2009
|
|
$
|
1.0 million
|
|
|
Convertible Preferred Stock
|
April 2009
|
|
$
|
0.5 million
|
|
|
Convertible Preferred Stock
|
March 2009
|
|
$
|
1.0 million
|
|
|
Convertible Preferred Stock
|
February 2009
|
|
$
|
0.2 million
|
|
|
Common Stock
|
February 2009
|
|
$
|
1.0 million
|
|
|
Promissory Notes
|
January 2009
|
|
$
|
1.0 million
|
|
|
Common Stock
|
November 2008
|
|
$
|
1.0 million
|
|
|
Common Stock
|
June 2008
|
|
$
|
5.0 million
|
|
|
Convertible Promissory Notes
|
March 2008
|
|
$
|
5.0 million
|
|
|
Convertible Promissory Notes
|
August 2007
|
|
$
|
10.0 million
|
|
|
Convertible Promissory Notes
|
May 2007
|
|
$
|
6.0 million
|
|
|
Convertible Promissory Notes
|
March 2007
|
|
$
|
9.0 million
|
|
|
Convertible Promissory Notes
|
In the future, our working capital and capital requirements will
depend on numerous factors, including the progress of our
research and development activities, the level of resources that
we devote to the developmental, clinical, and regulatory aspects
of our technologies, and the extent to which we enter into
collaborative relationships with pharmaceutical and
biotechnology companies.
As of December 31, 2009, we have experienced total net
losses since inception of approximately $203,969,000 ,
stockholders deficit of approximately $47,509,000 and a
net working capital deficit of approximately $4,536,000. The
cash and cash equivalents available at December 31, 2009
will not provide sufficient working capital to meet our
anticipated expenditures for the next twelve months. At
March 22, 2010, we had cash and cash equivalents of
approximately $130,000 which combined with our ability to
control certain costs, including those related to clinical trial
programs, preclinical activities, and certain general and
45
administrative expenses will enable us to meet our anticipated
cash expenditures into April, 2010. We must immediately raise
additional funds in order to continue operations.
In order to continue as a going concern, we will need to raise
additional capital through one or more of the following: a debt
financing, an equity offering, or a collaboration, merger,
acquisition or other transaction with one or more pharmaceutical
or biotechnology companies. We are currently engaged in
fundraising efforts. There can be no assurance that we will be
successful in our fundraising efforts or that additional funds
will be available on acceptable terms, if at all. We also cannot
be sure that we will be able to obtain additional credit from,
or effect additional sales of debt or equity securities to
certain of our existing investors (described below). If we are
unable to raise additional or sufficient capital or if we
violate a debt covenant or default under the March 2008 Amended
Purchase Agreement or the June 2008 Purchase Agreement
(described below) we may need to cease operations or reduce,
cease or delay one or more of our research or development
programs
and/or
adjust our current business plan and in any such event may not
be able to continue as a going concern. Additionally, our common
stock was delisted from trading on the NASDAQ Capital Market as
a result of our failure to meet continued listing requirements
of NASDAQ. On May 8, 2009 we began trading on the Pink
Sheets OTC Market. This delisting could have an adverse affect
on our ability to obtain future financing and could adversely
impact our stock price and the liquidity of our common stock.
See the risk factor entitled Our common stock has been
delisted from, the NASDAQ Capital Market.
In connection with the common stock financing completed by us in
March 2005, or the March 2005 Financing, we agreed with the
purchasers in such financing, including Robert Gipson, Thomas
Gipson, and Arthur Koenig, or the March 2005 Investors, that,
subject to certain exceptions, we would not issue any shares of
our common stock at a per share price less than $2.50 without
the prior consent of the March 2005 Investors holding at least a
majority of the shares issued in the March 2005 Financing. On
March 22, 2010, the closing price of our common stock was
$.21. The failure to receive the requisite waiver or consent of
the March 2005 Investors could have the effect of delaying or
preventing the consummation of a financing by us should the
price per share in such financing be set at less than $2.50.
Convertible
Notes Payable
In March 2007, we entered into a convertible promissory note
purchase agreement, or the March 2007 Purchase Agreement, with
Robert Gipson, Thomas Gipson and Arthur Koenig, referred to as
the Purchasers and also the March 2007 Note Holders, pursuant to
which we could borrow up to $15,000,000 from the March 2007 Note
Holders prior to December 31, 2007. In March 2007, we
issued convertible promissory notes to the March 2007 Note
Holders in the aggregate principal amount of $9,000,000 pursuant
to the March 2007 Purchase Agreement. Certain of the material
terms of the convertible promissory notes are described below.
In May 2007, we amended and restated the March 2007 Purchase
Agreement, or the May 2007 Amended Purchase Agreement, to
(i) eliminate the requirement for the March 2007 Note
Holders to make further advances under the March 2007 Purchase
Agreement and (ii) add Highbridge International, LLC, or
Highbridge, as a Purchaser. In May 2007, we issued a convertible
promissory note to Highbridge in the aggregate principal amount
of $6,000,000 pursuant to the May 2007 Amended Purchase
Agreement.
In August 2007, we amended and restated the May 2007 Amended
Purchase Agreement, or the August 2007 Amended Purchase
Agreement, to (i) increase the amount we could borrow by
$10,000,000 to $25,000,000 and (ii) add Ingalls &
Snyder Value Partners LP, or ISVP, as a Purchaser. In August
2007, we issued a convertible promissory note to ISVP in the
aggregate principal amount of $10,000,000 pursuant to the August
2007 Amended Purchase Agreement.
In March 2008, we amended and restated the August 2007 Amended
Purchase Agreement, or the March 2008 Amended Purchase
Agreement, to (i) increase the amount we could borrow by
$5,000,000 to $30,000,000 and (ii) provide that we may
incur up to an additional $5,000,000 of indebtedness from the
Purchasers upon the same terms and conditions as the March 2008
Amended Purchase Agreement. In March 2008, we issued a
convertible promissory note to Robert Gipson, or the March 2008
RG Note, in the aggregate principal amount of $5,000,000
pursuant to the March 2008 Amended Purchase Agreement.
The amounts borrowed by us under the March 2008 Amended Purchase
Agreement bear interest at the rate of 5% per annum and may be
converted, at the option of the Purchasers into (i) shares
of our common stock at a
46
conversion price per share of $2.50, (ii) the right to
receive future royalty payments related to our molecular imaging
products (including Altropane and Fluoratec) in amounts equal to
2% of our pre-commercial revenue related to such products plus
0.5% of future net sales of such products for each $1,000,000 of
outstanding principal and interest that a Purchaser elects to
convert into future payments, or (iii) a combination of
(i) and (ii). Any outstanding notes that are not converted
into our common stock or into the right to receive future
payments will become due and payable by the earlier of
December 31, 2010 or the date on which a Purchaser declares
an event of default (as defined in the March 2008 Amended
Purchase Agreement). However, each Purchaser is prohibited from
effecting a conversion if at the time of such conversion the
common stock issuable to such Purchaser, when taken together
with all shares of common stock then held or otherwise
beneficially owned by a Purchaser exceeds 19.9%, or 9.99% for
Highbridge and ISVP, of the total number of issued and
outstanding shares of our common stock immediately prior to such
conversion unless and until our stockholders approve the
conversion of all of the shares of common stock issuable
thereunder.
In June 2008, we entered into a convertible promissory note
purchase agreement, or the June 2008 Purchase Agreement, with
Robert Gipson pursuant to which we could borrow up to
$5,000,000. In June 2008, we issued a convertible promissory
note to Robert Gipson, or the June 2008 RG Note, in the
aggregate principal amount of $5,000,000 pursuant to the June
2008 Purchase Agreement. The terms of the June 2008 Purchase
Agreement are consistent with those of the March 2008 Amended
Purchase Agreement described above.
We are subject to certain debt covenants pursuant to the March
2008 Amended Purchase Agreement and the June 2008 Purchase
Agreement, or Purchase Agreements. If we (i) fail to pay
the principal or interest due under the Purchase Agreements,
(ii) file a petition for action for relief under any
bankruptcy or similar law or (iii) an involuntary petition
is filed against us, all amounts borrowed under the Purchase
Agreements may become immediately due and payable by us. In
addition, without the consent of the Purchasers, we may not
(i) create, incur or otherwise permit to be outstanding any
additional indebtedness for money borrowed, (ii) declare or
pay any cash dividend, or make a distribution on, repurchase, or
redeem, any class of our stock, subject to certain exceptions or
sell, lease, transfer or otherwise dispose of any of our
material assets or property or (iii) dissolve or liquidate.
In January 2010 the Purchasers agreed to amend the Purchase
Agreements to allow us to make additional borrowings of up to
$5,000,000 on terms acceptable to our Board of Directors.
Promissory
Notes
In December 2009 we issued a promissory note to Robert Gipson in
the amount of $350,000 and payable on demand. The Note bears
interest at the rate of 7% per annum.
Convertible
Preferred Stock
During 2009 the we completed the following sales of
Series F Convertible Preferred Stock to Robert Gipson:
|
|
|
|
|
|
|
|
|
|
|
Number of Shares
|
|
|
|
|
Date of Issuance
|
|
Issued
|
|
|
Gross Proceeds
|
|
|
March 19, 2009
|
|
|
20,000
|
|
|
$
|
500,000
|
|
March 31, 2009
|
|
|
20,000
|
|
|
|
500,000
|
|
April 16, 2009
|
|
|
20,000
|
|
|
|
500,000
|
|
May 12, 2009
|
|
|
40,000
|
|
|
|
1,000,000
|
|
June 10, 2009
|
|
|
20,000
|
|
|
|
500,000
|
|
July 9, 2009
|
|
|
12,000
|
|
|
|
300,000
|
|
July 23, 2009
|
|
|
12,000
|
|
|
|
300,000
|
|
August 11, 2009
|
|
|
12,000
|
|
|
|
300,000
|
|
August 26, 2009
|
|
|
12,000
|
|
|
|
300,000
|
|
September 10, 2009
|
|
|
12,000
|
|
|
|
300,000
|
|
September 28, 2009
|
|
|
16,000
|
|
|
|
400,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
196,000
|
|
|
$
|
4,900,000
|
|
|
|
|
|
|
|
|
|
|
47
The key terms of the Series F Stock are summarized below:
Dividend. The Series F Stock is entitled
to receive any dividend that is paid to holders of our common
stock. Any subdivisions, combinations, consolidations or
reclassifications to the common stock must also be made
accordingly to Series F Stock, respectively.
Liquidation Preference. In the event of our
liquidation, dissolution or winding up, before any payments are
made to holders of our common stock or any other class or series
of our capital stock ranking junior as to liquidation rights to
the Series F Stock, the holders of the Series F Stock
will be entitled to receive the greater of (i) $25.00 per
share (subject to adjustment in the event of any stock dividend,
stock split, combination or other similar recapitalization
affecting such shares) plus any outstanding and unpaid dividends
thereon and (ii) such amount per share as would have been
payable had each share been converted into common stock. After
such payment to the holders of Series F Stock and the
holders of shares of any other series of our preferred stock
ranking senior to the common stock as to distributions upon
liquidation, the remaining our assets will be distributed pro
rata to the holders of our common stock.
Voting Rights. Each share of Series F
Stock shall entitle its holder to a number of votes equal to the
number of shares of our common stock into which such share of
Series F Stock is convertible.
Conversion. Each share of Series F Stock
is convertible at the option of the holder thereof at any time.
Each share of Series F Stock is initially convertible into
25 shares of common stock, subject to adjustment in the
event of certain dividends, stock splits or stock combinations
affecting the Series F Stock or the common stock, and
subject to adjustment on a weighted-average basis in the event
of certain issuances by us of securities for a price less than
the then-current price at which the Series F Stock converts
into common stock.
Redemption. At any time after
September 1, 2011, any holder of Series F Stock may
elect to have some or all of such shares redeemed by us at a
price equal to the aggregate of (i) $25 per share (subject
to appropriate adjustment in the event of any stock dividend,
stock split, combination or other similar recapitalization
affecting such shares), or the Original Issue Price, plus
(ii) all declared but unpaid dividends thereon, plus
(iii) an amount computed at a rate per annum of 7% of the
Original Issue Price from March 19, 2009 until the
redemption date.
The terms of the Series F Stock contain provisions that may
require redemption in circumstances that are beyond the
Companys control. Therefore, the shares have been
recorded, net of issuance costs of approximately $25,000, as
convertible, redeemable stock outside of permanent equity. The
Series F Stock was recorded at fair value on the date of
issuance. As of December 31, 2009, the Company recorded
approximately $192,000 in accretion on the Series F Stock.
Common
Stock
In November 2008, we completed a private placement with Robert
Gipson of 543,478 shares of our common stock which raised
$1,000,000 in gross proceeds. In connection with the November
2008 private placement, we also issued warrants to Mr. Gipson
(the November 2008 Warrants) to purchase 543,478
additional shares of common stock that were exercisable at $1.84
per share between six months and two years after the closing. In
connection with the private placement, we agreed with
Mr. Gipson (the Letter Agreement) that if we
sold shares of our common stock at a price below $1.84, subject
to certain exceptions, prior to December 31, 2009,
Mr. Gipson would be entitled to receive, for no additional
consideration, additional shares of common stock and warrants in
accordance with a pre-determined formula. In addition, Dawson
James Securities, Inc., (Dawson James) in its
capacity as agent for the private placement, was entitled to a
warrant to purchase 38,043 shares of common stock (the
Agent Warrant). The Agent Warrant had a term of five
years and was exercisable at a price equal to $1.84. In February
2009, Dawson James gave up its right to the Agent Warrant.
In January 2009, we completed a private placement with Robert
Gipson of 1,000,000 shares of its common stock which raised
$1,000,000 in gross proceeds. In addition, we issued an
additional 456,522 shares of our common stock to
Mr. Gipson pursuant to a Letter Agreement. In connection
with the January 2009 private placement, Mr. Gipson agreed
to the cancellation of the November 2008 Warrants.
48
In February 2009, we entered into a private placement with Cato
Holding Company (Cato) of 200,000 shares of our
common stock at a purchase price of $1.00 per share. In
connection with the February 2009 private placement, we agreed
with Cato that if we sell shares of our common stock, or
securities convertible into common stock, prior to
September 30, 2009, and the purchaser of such securities
receives warrants to purchase additional shares of common stock
(a Qualified Financing), subject to certain
exceptions, Cato shall be entitled to receive, for no additional
consideration, a warrant to purchase shares of common stock with
the same terms and conditions as those provided to a purchaser
in a Qualified Financing.
In November 2009, we entered into a private placement with
Robert Gipson of 2,500,000 shares of our common stock which
raised $1,000,000 in gross proceeds. In addition, in March 2010
we issued an additional 1,500,000 shares of our common
stock to Mr. Gipson pursuant to a Letter Agreement.
Contractual
Obligations and Commitments
As of December 31, 2009, our approximate future minimum
contractual obligations were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
|
|
|
|
|
Less Than One
|
|
|
One to
|
|
|
Three to Five
|
|
|
More Than
|
|
Contractual Obligations
|
|
Total
|
|
|
Year
|
|
|
Three Years
|
|
|
Years
|
|
|
Five Years
|
|
|
Operating Lease Obligations(1)
|
|
$
|
1,247,000
|
|
|
$
|
592,000
|
|
|
$
|
655,000
|
|
|
$
|
|
|
|
$
|
|
|
Convertible Notes Payable(2)
|
|
|
34,880,000
|
|
|
|
|
|
|
|
34,880,000
|
|
|
|
|
|
|
|
|
|
Other Contractual Obligations(3)
|
|
|
29,000
|
|
|
|
19,000
|
|
|
|
10,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
36,156,000
|
|
|
$
|
611,000
|
|
|
$
|
35,545,000
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Such amounts primarily consist of minimum rental payments for
our Hopkinton, Massachusetts office lease through its expiration
in 2011. In addition, we have an office lease in Boston,
Massachusetts that expires in 2012 for which we have entered
into two sublease agreements covering the entire leased space.
Total rent expense under all of our leases was approximately
$277,000 for the year ended December 31, 2009. |
|
(2) |
|
Such amount was adjusted for the beneficial conversion features
reducing the carrying values of the notes. |
|
(3) |
|
Such amounts primarily reflect research and development
commitments with third parties. |
Recent
Accounting Pronouncements
In April 2009, the Financial Accounting Standards Board, or
FASB, issued FASB Accounting Standards Codification, or ASC,
825-10-65,
Interim Disclosures about Fair Value of Financial
Instruments. ASC
825-10-65
amends ASC
825-10 to
require disclosures about fair value of financial instruments
for interim reporting periods of publicly traded companies as
well as annual financial statements. The ASC requires a publicly
traded company to include disclosures about the fair value of
its financial instruments whenever it issues summarized
financial information for interim reporting periods. Such entity
is required to disclose in the body or in the accompanying notes
of its summarized financial information for interim reporting
periods and in its financial statements for annual reporting
periods the fair value of all financial instruments for which it
is practicable to estimate that value, whether recognized or not
recognized in the statement of financial position. Fair value
information disclosed in the notes must be presented together
with the related carrying amount in a form that makes it clear
whether the fair value and carrying amount represent assets or
liabilities and how the carrying amount relates to what is
reported in the statement of financial position. Such entity
also must disclose the methods and significant assumptions used
to estimate the fair value of financial instruments and describe
changes in methods and significant assumptions during the
period. We adopted this ASC for the quarter ended June 30,
2009 and the adoption did not have a material impact on our
consolidated results of operations and financial position.
In April 2009, FASB issued ASC
820-10-65,
Determining Fair Value When the Volume and Level of
Activity for the Asset or Liability Have Significantly Decreased
and Identifying Transactions That Are Not Orderly. This
ASC provides additional guidance for estimating fair value in
accordance with ASC 820, Fair
49
Value Measurements, when the volume and level of activity
for the asset or liability have significantly decreased. This
ASC also includes guidance on identifying circumstances that
indicate a transaction is not orderly. This ASC emphasizes that
even if there has been a significant decrease in the volume and
level of activity for the asset or liability and regardless of
the valuation technique(s) used, the objective of a fair value
measurement remains the same. Fair value is the price that would
be received to sell an asset or paid to transfer a liability in
an orderly transaction (that is, not a forced liquidation or
distressed sale) between market participants at the measurement
date under current market conditions. We adopted this ASC for
the quarter ended June 30, 2009 and the adoption did not
have a material impact on our consolidated results of operations
and financial position.
In May 2009, the FASB issued ASC
855-10,
Subsequent Events to establish accounting and
disclosure standards for events that occur after the balance
sheet date but before financial statements are issued or are
available to be issued. It defines financial statements as
available to be issued, requiring the disclosure of the date
through which an entity has evaluated subsequent events and the
basis for that date, whether it be the date the financial
statements were issued or the date they were available to be
issued. We adopted this pronouncement upon issuance. This
standard had no material impact on our financial position,
results of operations or cash flows.
In June 2009, the FASB issued ASC
105-10,
The FASB Accounting Standards Codification, and the
Hierarchy of Generally Accepted Accounting Principles, or
the Codification as the single source of authoritative
nongovernmental Generally Accepted Accounting Principles in the
United States. The Codification is effective for interim and
annual periods ending after September 15, 2009. Upon the
effective date, the Codification will be the single source of
authoritative accounting principles to be applied by all
nongovernmental U.S. entities. All other accounting
literature not included in the Codification will be
nonauthoritative. The adoption of the Codification had no
material impact on our financial position or results of
operations.
Off-Balance
Sheet Arrangements
We had no off balance sheet arrangements (as defined
in Item 303(a)(4) of
Regulation S-K)
during the year ended December 31, 2009.
|
|
Item 7A.
|
Quantitative
and Qualitative Disclosures about Market Risk.
|
We generally maintain a portfolio of cash equivalents, and
short-term and long-term marketable securities in a variety of
securities which can include commercial paper, certificates of
deposit, money market funds and government and non-government
debt securities. The fair value of these
available-for-sale
securities are subject to changes in market interest rates and
may fall in value if market interest rates increase. Our
investment portfolio includes only marketable securities with
active secondary or resale markets to help insure liquidity. We
have implemented policies regarding the amount and credit
ratings of investments. Due to the conservative nature of these
policies, we do not believe we have material exposure due to
market risk. We may not have the ability to hold our fixed
income investments until maturity, and therefore our future
operating results or cash flows could be affected if we are
required to sell investments during a period in which increases
in market interest rates have adversely affected the value of
our securities portfolio. For fixed rate debt, changes in
interest rates generally affect the fair market value of the
debt instrument, but not earnings or cash flows. We do not have
an obligation to prepay any fixed rate debt prior to maturity
and, therefore, interest rate risk and changes in the fair
market value of fixed rate debt should not have a significant
impact on earnings or cash flows until such debt is refinanced,
if necessary. The terms related to our fixed rate debt are
described in Note 5 to the consolidated financial
statements. For variable rate debt, changes in interest rates
generally do not impact the fair market value of the debt
instrument, but do affect future earnings and cash flows. We did
not have any variable rate debt outstanding during the fiscal
year ended December 31, 2009.
50
|
|
Item 8.
|
Financial
Statements and Supplementary Data.
|
Report of
Independent Registered Public Accounting Firm
To the Board
of Directors and Stockholders
Alseres Pharmaceuticals, Inc.
We have audited the accompanying consolidated balance sheets of
Alseres Pharmaceuticals, Inc. and Subsidiaries (the
Company) (a development stage enterprise) as of
December 31, 2009 and 2008, and the related consolidated
statements of operations, comprehensive loss and
stockholders (deficit) equity and cash flows for each of
the three years in the period ended December 31, 2009 and
for the period from October 16, 1992 (Inception) to
December 31, 2009. These financial statements are the
responsibility of the Companys management. Our
responsibility is to express an opinion on these financial
statements based on our audits. The financial statements for the
period from October 16, 1992 (inception) to
December 31, 2006 were audited by other auditors and our
opinion, insofar as it relates to cumulative amounts included
for such prior periods, is based solely on the reports of such
other auditors.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits and the
reports of the other auditors provide a reasonable basis for our
opinion.
In our opinion, based on our audits and the reports of other
auditors, the consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of Alseres Pharmaceuticals, Inc. and Subsidiaries as of
December 31, 2009 and 2008, and the results of their
operations and their cash flows for each of the three years in
the period ended December 31, 2009 and the period from
October 16, 1992 (Inception) to December 31, 2009, in
conformity with U.S. generally accepted accounting
principles.
We were not engaged to examine managements assessment of
the effectiveness of Alseres Pharmaceuticals, Inc. and
Subsidiaries internal control over financial reporting as
of December 31, 2009, included in the accompanying
Managements Annual Report on Internal Control over
Financial Reporting, and, accordingly, we do not express an
opinion thereon.
The accompanying consolidated financial statements have been
prepared assuming that the Company will continue as a going
concern. As discussed in Note 1 to the consolidated
financial statements, the Company has suffered recurring losses
from operations, its total liabilities exceed its total assets,
and it has determined that it will need to raise additional
capital. This raises substantial doubt about the Companys
ability to continue as a going concern. Managements plans
in regard to these matters are also described in Note 1.
The financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
/s/
McGladrey & Pullen, LLP
Burlington,
Massachusetts
March 31, 2010
51
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Alseres
Pharmaceuticals, Inc.:
In our opinion, the consolidated statements of operations, of
comprehensive loss and stockholders (deficit) equity and
of cash flows for the period from October 16, 1992 (date of
inception) to December 31, 2006 (not separately presented
herein) present fairly, in all material respects, the results of
operations and cash flows of Alseres Pharmaceuticals, Inc.
(formerly Boston Life Sciences, Inc.) and its subsidiaries (a
development stage enterprise) for the period from October 16,
1992 (date of inception) to December 31, 2006 (not separately
presented herein) in conformity with accounting principles
generally accepted in the United States of America. These
financial statements are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these financial statements based on our audit. We
conducted our audit of these statements in accordance with the
standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant
estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
The accompanying consolidated financial statements have been
prepared assuming that the Company will continue as a going
concern. As discussed in Note 1 to the consolidated financial
statements, the Company has a net working capital deficit, a
stockholders deficit and has suffered recurring losses and
negative cash flows from operations that raise substantial doubt
about the Companys ability to continue as a going concern.
Managements plans in regard to these matters are also
described in Note 1. The consolidated financial statements do
not include any adjustments that might result from the outcome
of this uncertainty.
/s/ PricewaterhouseCoopers
LLP
Boston, Massachusetts
April 2, 2007
52
ALSERES
PHARMACEUTICALS, INC.
(A Development Stage Enterprise)
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
314,964
|
|
|
$
|
73,974
|
|
|
|
|
|
|
|
|
|
Marketable securities (Note 2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Security deposits
|
|
|
38,928
|
|
|
|
79,728
|
|
|
|
|
|
|
|
|
|
Prepaid expenses and other current assets
|
|
|
34,231
|
|
|
|
163,706
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
388,123
|
|
|
|
317,408
|
|
|
|
|
|
|
|
|
|
Fixed assets, net (Note 3)
|
|
|
106,272
|
|
|
|
178,643
|
|
|
|
|
|
|
|
|
|
Indemnity fund (Note 10)
|
|
|
115,720
|
|
|
|
115,462
|
|
|
|
|
|
|
|
|
|
Security deposits and other assets
|
|
|
180,700
|
|
|
|
233,737
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
790,815
|
|
|
$
|
845,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS DEFICIT
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses (Note 4)
|
|
$
|
3,522,581
|
|
|
$
|
4,895,799
|
|
|
|
|
|
|
|
|
|
Notes payable (Note 5)
|
|
|
1,350,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued lease (Note 6)
|
|
|
51,493
|
|
|
|
45,425
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
4,924,074
|
|
|
|
4,941,224
|
|
|
|
|
|
|
|
|
|
Convertible notes payable (Note 5)
|
|
|
34,155,632
|
|
|
|
33,456,374
|
|
|
|
|
|
|
|
|
|
Accrued interest payable (Note 5)
|
|
|
4,057,086
|
|
|
|
2,313,090
|
|
|
|
|
|
|
|
|
|
Accrued lease, excluding current portion (Note 6)
|
|
|
96,426
|
|
|
|
147,923
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
43,233,218
|
|
|
|
40,858,611
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 9)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series F convertible redeemable preferred stock,
$.01 par value; 200,000 shares designated; 196,000 and
0 shares issued and outstanding at December 31, 2009
and 2008, respectively (liquidation preference of $4,900,000 at
December 31, 2009)
|
|
|
5,066,919
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders deficit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock, $.01 par value; 1,000,000 shares
authorized; 25,000 shares designated Convertible
Series A, 500,000 shares designated Convertible
Series D, and 800 shares designated Convertible
Series E; no shares issued and outstanding at
December 31, 2009 and 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock, $.01 par value; 80,000,000 shares
authorized; 25,555,645 and 21,399,123 shares issued and
outstanding at December 31, 2009 and 2008, respectively
|
|
|
255,556
|
|
|
|
213,991
|
|
|
|
|
|
|
|
|
|
Additional paid-in capital
|
|
|
146,913,395
|
|
|
|
143,671,984
|
|
|
|
|
|
|
|
|
|
Deficit accumulated during development stage
|
|
|
(194,678,273
|
)
|
|
|
(183,899,336
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders deficit
|
|
|
(47,509,322
|
)
|
|
|
(40,013,361
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders deficit
|
|
$
|
790,815
|
|
|
$
|
845,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated
financial statements.
53
ALSERES
PHARMACEUTICALS, INC.
(A Development Stage Enterprise)
CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From Inception
|
|
|
|
|
|
|
|
|
|
|
|
|
(October 16,
|
|
|
|
|
|
|
|
|
|
|
|
|
1992) to
|
|
|
|
For the Year Ended December 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2009
|
|
|
Revenues
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
900,000
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
3,702,781
|
|
|
|
10,851,844
|
|
|
|
10,475,158
|
|
|
|
115,482,830
|
|
General and administrative
|
|
|
4,623,201
|
|
|
|
7,858,968
|
|
|
|
8,405,967
|
|
|
|
64,124,454
|
|
Purchased in-process research and development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,146,544
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
8,325,982
|
|
|
|
18,710,812
|
|
|
|
18,881,125
|
|
|
|
191,753,828
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(8,325,982
|
)
|
|
|
(18,710,812
|
)
|
|
|
(18,881,125
|
)
|
|
|
(190,853,828
|
)
|
Other expenses
|
|
|
65,000
|
|
|
|
|
|
|
|
|
|
|
|
(1,517,878
|
)
|
Interest expense
|
|
|
(2,523,095
|
)
|
|
|
(2,215,663
|
)
|
|
|
(876,071
|
)
|
|
|
(10,006,996
|
)
|
Investment income
|
|
|
7,140
|
|
|
|
79,016
|
|
|
|
208,848
|
|
|
|
7,702,429
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(10,776,937
|
)
|
|
|
(20,847,459
|
)
|
|
|
(19,548,348
|
)
|
|
|
(194,676,273
|
)
|
Preferred stock beneficial conversion feature
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,062,712
|
)
|
Accrual of preferred stock dividends and modification of
warrants held by preferred stock stockholders (Note 7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,229,589
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to common stockholders
|
|
$
|
(10,776,937
|
)
|
|
$
|
(20,847,459
|
)
|
|
$
|
(19,548,348
|
)
|
|
$
|
(203,968,574,
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss attributable to common stockholders
per share
|
|
$
|
(0.46
|
)
|
|
$
|
(1.00
|
)
|
|
$
|
(1.04
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
23,361,458
|
|
|
|
20,883,066
|
|
|
|
18,874,070
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated
financial statements.
54
ALSERES
PHARMACEUTICALS, INC.
(A Development Stage Enterprise)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
AND STOCKHOLDERS (DEFICIT) EQUITY
For the Period from inception (October 16, 1992) to
December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
Accumulated
|
|
|
Total
|
|
|
|
Preferred Stock
|
|
|
Common Stock
|
|
|
|
|
|
|
|
|
Other
|
|
|
During
|
|
|
Stockholders
|
|
|
|
Number of
|
|
|
|
|
|
Number of
|
|
|
|
|
|
Additional Paid-
|
|
|
Deferred
|
|
|
Comprehensive
|
|
|
Development
|
|
|
(Deficit)
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Par Value
|
|
|
In Capital
|
|
|
Compensation
|
|
|
Income (Loss)
|
|
|
Stage
|
|
|
Equity
|
|
|
Issuance of common stock to founders
|
|
|
|
|
|
|
|
|
|
|
304,009
|
|
|
$
|
3,040
|
|
|
$
|
45,685
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
48,725
|
|
Issuance of common stock upon exercise of warrants and options
|
|
|
|
|
|
|
|
|
|
|
1,185,039
|
|
|
|
11,850
|
|
|
|
7,584,589
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,596,439
|
|
Issuance of common stock and warrants, net of issuance costs of
$1,928,421
|
|
|
|
|
|
|
|
|
|
|
11,516,790
|
|
|
|
115,168
|
|
|
|
56,343,378
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
56,458,546
|
|
Issuance of common stock and warrants upon Merger
|
|
|
|
|
|
|
|
|
|
|
723,947
|
|
|
|
7,239
|
|
|
|
14,596,709
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,603,948
|
|
Issuance of common stock upon conversion of convertible
debentures
|
|
|
|
|
|
|
|
|
|
|
31,321
|
|
|
|
313
|
|
|
|
988,278
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
988,591
|
|
Issuance of warrants in connection with debentures, net of
issuance costs of $392,958
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,632,632
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,632,632
|
|
Issuance of warrants in connection with preferred series C
stock issuance and related beneficial conversion feature, net of
issuance costs of $590,890
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,736,789
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,736,789
|
|
Accretion of preferred series C stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,327,679
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,327,679
|
)
|
Issuance of preferred stock, net of issuance costs of $4,078,821
|
|
|
240,711
|
|
|
$
|
2,296,355
|
|
|
|
|
|
|
|
|
|
|
|
23,288,101
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,584,456
|
|
Conversion of preferred stock into common stock and payment of
interest in common stock, net of issuance costs of $27,664
|
|
|
(240,149.7
|
)
|
|
|
(1,491,474
|
)
|
|
|
1,553,749
|
|
|
|
15,538
|
|
|
|
7,655,122
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,179,186
|
|
Conversion of debentures and payment of interest in common
stock, net of issuance costs of $307,265
|
|
|
|
|
|
|
|
|
|
|
317,083
|
|
|
|
3,171
|
|
|
|
4,844,249
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,847,420
|
|
Conversion of preferred stock into common stock and modification
of warrants
|
|
|
(561.3
|
)
|
|
|
(3,501,539
|
)
|
|
|
900,646
|
|
|
|
9,006
|
|
|
|
3,492,533
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock conversion inducement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(600,564
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(600,564
|
)
|
Amortization of preferred stock Series E beneficial
conversion feature
|
|
|
|
|
|
|
2,696,658
|
|
|
|
|
|
|
|
|
|
|
|
(2,696,658
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of warrants in connection with Series E Stock, net
of issuance costs of $278,426
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,049,297
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,049,297
|
|
Issuance of common stock in connection with cancellation of
warrants
|
|
|
|
|
|
|
|
|
|
|
42,667
|
|
|
|
427
|
|
|
|
(427
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrual of dividends on preferred Series E stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(573,597
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(573,597
|
)
|
Beneficial conversion feature on 10% convertible secured
promissory notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
558,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
558,000
|
|
Deferred compensation related to stock options and warrants
granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
804,607
|
|
|
$
|
(804,607
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation expense related to stock options and warrants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,470,199
|
|
|
|
804,607
|
|
|
|
|
|
|
|
|
|
|
|
4,274,806
|
|
Modification of options and warrants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,804,694
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,804,694
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
783
|
|
|
|
8
|
|
|
|
69,925
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
69,933
|
|
Comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss from inception (October 16, 1992) to
December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(143,503,529
|
)
|
|
|
(143,503,529
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
16,576,034
|
|
|
|
165,760
|
|
|
|
126,765,862
|
|
|
|
|
|
|
|
|
|
|
|
(143,503,529
|
)
|
|
|
(16,571,907
|
)
|
Issuance of common stock upon exercise of warrants and options
|
|
|
|
|
|
|
|
|
|
|
202,183
|
|
|
|
2,022
|
|
|
|
143,683
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
145,705
|
|
Issuance of common stock upon conversion of notes payable
|
|
|
|
|
|
|
|
|
|
|
4,000,000
|
|
|
|
40,000
|
|
|
|
9,960,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,000,000
|
|
Beneficial conversion feature on convertible notes payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,880,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,880,000
|
|
Compensation expense related to stock options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,665,155
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,665,155
|
|
Expense related to modification of stock options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,614
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,614
|
|
Comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain on marketable securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,310
|
|
|
|
|
|
|
|
9,310
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(19,548,348
|
)
|
|
|
(19,548,348
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(19,539,038
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
20,778,217
|
|
|
|
207,782
|
|
|
|
140,420,314
|
|
|
|
|
|
|
|
9,310
|
|
|
|
(163,051,877
|
)
|
|
|
(22,414,471
|
)
|
Issuance of common stock upon exercise of options
|
|
|
|
|
|
|
|
|
|
|
1,100
|
|
|
|
11
|
|
|
|
2,530
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,541
|
|
Issuance of common stock upon conversion of notes payable
|
|
|
|
|
|
|
|
|
|
|
48,000
|
|
|
|
480
|
|
|
|
119,520
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
120,000
|
|
55
ALSERES
PHARMACEUTICALS, INC.
(A Development Stage Enterprise)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
AND STOCKHOLDERS (DEFICIT) EQUITY
(Continued)
For the Period from inception (October 16, 1992) to
December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
Accumulated
|
|
|
Total
|
|
|
|
Preferred Stock
|
|
|
Common Stock
|
|
|
|
|
|
|
|
|
Other
|
|
|
During
|
|
|
Stockholders
|
|
|
|
Number of
|
|
|
|
|
|
Number of
|
|
|
|
|
|
Additional Paid-
|
|
|
Deferred
|
|
|
Comprehensive
|
|
|
Development
|
|
|
(Deficit)
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Par Value
|
|
|
In Capital
|
|
|
Compensation
|
|
|
Income (Loss)
|
|
|
Stage
|
|
|
Equity
|
|
|
Beneficial conversion feature on convertible notes payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
380,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
380,000
|
|
Compensation expense related to stock options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,670,063
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,670,063
|
|
Issuance of common stock
|
|
|
|
|
|
|
|
|
|
|
571,806
|
|
|
|
5,718
|
|
|
|
1,079,557
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,085,275
|
|
Comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized loss on marketable securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,310
|
)
|
|
|
|
|
|
|
(9,310
|
)
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(20,847,459
|
)
|
|
|
(20,847,459
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(20,856,769
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
|
|
|
|
$
|
|
|
|
|
21,399,123
|
|
|
$
|
213,991
|
|
|
$
|
143,671,984
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(183,899,336
|
)
|
|
$
|
(40,013,361
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock upon exercise of options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation expense related to stock options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,473,083
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,473,083
|
|
Issuance of common stock
|
|
|
|
|
|
|
|
|
|
|
4,156,522
|
|
|
|
41,565
|
|
|
|
1,960,435
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,002,000
|
|
Issuance of preferred stock
|
|
|
196,000
|
|
|
$
|
5,066,919
|
|
|
|
|
|
|
|
|
|
|
|
(192,107
|
)
|
|
|
|
|
|
|
|
|
|
|
(2,000
|
)
|
|
|
4,872,812
|
|
Comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,776,937
|
)
|
|
|
(10,776,937
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,776,937
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009
|
|
|
196,000
|
|
|
$
|
5,066,919
|
|
|
|
25,555,645
|
|
|
$
|
255,556
|
|
|
$
|
146,913,395
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(194,678,273
|
)
|
|
$
|
(42,442,403
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ALSERES
PHARMACEUTICALS, INC.
(A Development Stage Enterprise)
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From Inception
|
|
|
|
|
|
|
|
|
|
|
|
|
(October 16,
|
|
|
|
|
|
|
|
|
|
|
|
|
1992) to
|
|
|
|
For the Year Ended December 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2009
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(10,776,937
|
)
|
|
$
|
(20,847,459
|
)
|
|
$
|
(19,548,348
|
)
|
|
$
|
(194,676,273
|
)
|
Adjustments to reconcile net loss to net cash used for operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased in-process research and development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,146,544
|
|
Write-off of acquired technology
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,500,000
|
|
Interest expense settled through issuance of notes payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
350,500
|
|
Non-cash interest expense
|
|
|
716,358
|
|
|
|
638,367
|
|
|
|
221,523
|
|
|
|
3,224,923
|
|
Non-cash charges related to options, warrants and common stock
|
|
|
1,473,086
|
|
|
|
1,755,338
|
|
|
|
1,670,769
|
|
|
|
11,052,881
|
|
Amortization and depreciation
|
|
|
72,371
|
|
|
|
52,953
|
|
|
|
84,861
|
|
|
|
2,791,317
|
|
Changes in current assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease (increase) in prepaid expenses and other current assets
|
|
|
129,475
|
|
|
|
718,356
|
|
|
|
(614,330
|
)
|
|
|
688,335
|
|
(Decrease) increase in accounts payable and accrued expenses
|
|
|
(1,435,956
|
)
|
|
|
1,169,321
|
|
|
|
(6,947,420
|
)
|
|
|
2,687,178
|
|
Increase in accrued interest payable
|
|
|
1,806,734
|
|
|
|
1,572,673
|
|
|
|
740,417
|
|
|
|
4,119,824
|
|
(Decrease) increase in accrued lease
|
|
|
(45,429
|
)
|
|
|
(42,795
|
)
|
|
|
(30,753
|
)
|
|
|
147,919
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used for operating activities
|
|
|
(8,060,298
|
)
|
|
|
(14,983,246
|
)
|
|
|
(24,423,281
|
)
|
|
|
(153,966,852
|
)
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash acquired through Merger
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,758,037
|
|
Purchases of fixed assets
|
|
|
|
|
|
|
(143,112
|
)
|
|
|
(36,912
|
)
|
|
|
(1,652,114
|
)
|
Decrease (increase) in security deposits and other assets
|
|
|
76,734
|
|
|
|
35,550
|
|
|
|
33,398
|
|
|
|
(419,763
|
)
|
(Increase) in indemnity fund
|
|
|
(258
|
)
|
|
|
(2,284
|
)
|
|
|
(5,328
|
)
|
|
|
(115,720
|
)
|
Purchases of marketable securities
|
|
|
|
|
|
|
|
|
|
|
(3,359,879
|
)
|
|
|
(132,004,923
|
)
|
Sales and maturities of marketable securities
|
|
|
|
|
|
|
1,231,233
|
|
|
|
2,128,646
|
|
|
|
132,004,923
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used for) investing activities
|
|
|
76,476
|
|
|
|
1,121,387
|
|
|
|
(1,240,075
|
)
|
|
|
(429,560
|
)
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of common stock
|
|
|
2,000,000
|
|
|
|
1,002,541
|
|
|
|
145,705
|
|
|
|
66,731,339
|
|
Proceeds from issuance of preferred stock
|
|
|
4,900,000
|
|
|
|
|
|
|
|
|
|
|
|
39,922,170
|
|
Preferred stock conversion inducement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(600,564
|
)
|
Proceeds from issuance of promissory notes
|
|
|
1,350,000
|
|
|
|
10,000,000
|
|
|
|
27,000,000
|
|
|
|
52,935,000
|
|
Proceeds from issuance of convertible debentures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,000,000
|
|
Principal payments of notes payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,146,967
|
)
|
Dividend payments on Series E Cumulative Convertible
Preferred Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(516,747
|
)
|
Payments of financing costs
|
|
|
(25,188
|
)
|
|
|
|
|
|
|
(57,722
|
)
|
|
|
(5,612,855
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
8,224,812
|
|
|
|
11,002,541
|
|
|
|
27,087,983
|
|
|
|
154,711,376
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
240,990
|
|
|
|
(2,859,318
|
)
|
|
|
1,424,627
|
|
|
|
314,964
|
|
Cash and cash equivalents, beginning of period
|
|
|
73,974
|
|
|
|
2,933,292
|
|
|
|
1,508,665
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
314,964
|
|
|
$
|
73,974
|
|
|
$
|
2,933,292
|
|
|
$
|
314,964
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow disclosures:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash transactions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
628,406
|
|
The accompanying notes are an integral part of the consolidated
financial statements.
57
ALSERES
PHARMACEUTICALS, INC.
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
1.
|
The
Company and its Significant Accounting Policies
|
Alseres Pharmaceuticals, Inc. and its subsidiaries (the
Company) is a biotechnology company engaged in the
development of therapeutic and diagnostic products primarily for
disorders in the central nervous system. The Company was founded
in 1992 and merged with a publicly held company in 1995 (the
Merger) whereby the Company changed its name to
Boston Life Sciences, Inc. Effective June 7, 2007, the
Company changed its name to Alseres Pharmaceuticals, Inc. During
the period from inception through December 31, 2009, the
Company has devoted substantially all of its efforts to business
planning, raising financing, furthering the research and
development of its technologies, and corporate partnering
efforts. Accordingly, the Company is considered to be in the
development stage as defined in Statement of Financial
Accounting Standards (SFAS) No. 7,
Accounting and Reporting by Development Stage
Enterprises.
The accompanying consolidated financial statements have been
prepared on a basis which assumes that the Company will continue
as a going concern which contemplates the realization of assets
and the satisfaction of liabilities in the normal course of
business. The uncertainty inherent in the need to raise
additional capital and the Companys recurring losses from
operations raise substantial doubt about the Companys
ability to continue as a going concern. The consolidated
financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
As of December 31, 2009, we have experienced total net
losses since inception of approximately $203,969,000 ,
stockholders deficit of approximately $47,509,000 and a
net working capital deficit of approximately $4,536,000. For the
foreseeable future, the Company expects to experience continuing
operating losses and negative cash flows. The cash and cash
equivalents available at December 31, 2009 will not provide
sufficient working capital to meet our anticipated expenditures
for the next twelve months. At March 22, 2010, we had cash
and cash equivalents of approximately $130,000 which combined
with our ability to control certain costs, including those
related to clinical trial programs, preclinical activities, and
certain general and administrative expenses will enable us to
meet our anticipated cash expenditures into April, 2010. We must
immediately raise additional funds in order to continue
operations.
In order to continue as a going concern, the Company must
immediately raise additional funds through one or more of the
following: a debt financing, an equity offering or a
collaboration, merger, acquisition or other transaction with one
or more pharmaceutical or biotechnology companies. The Company
is currently engaged in fundraising efforts. There can be no
assurance that the Company will be successful in its fundraising
efforts or that additional funds will be available on acceptable
terms, if at all. The Company also cannot be sure that it will
be able to obtain additional credit from, or effect additional
sales of debt or equity securities to the Purchasers
(Note 5). If the Company is unable to raise additional or
sufficient capital or if it violates a debt covenant or defaults
under the March 2008 Amended Purchase Agreement or the June 2008
Purchase Agreement (Note 5), it will need to cease
operations or reduce, cease or delay one or more of its research
or development programs
and/or
adjust its current business plan and in any such event may not
be able to continue as a going concern. Additionally, our common
stock was delisted from trading on the NASDAQ Capital Market as
a result of our failure to meet continued listing requirements
of NASDAQ. On May 8, 2009 we began trading on the Pink
Sheets OTC Market. This delisting has had an adverse affect on
our ability to obtain future financing and could continue to
adversely impact our stock price and the liquidity of our common
stock.
In connection with the common stock financing completed by the
Company in March 2005 (the March 2005 Financing),
the Company agreed with the purchasers in such financing,
including Robert Gipson, Thomas Gipson and Arthur Koenig (the
March 2005 Investors) that, subject to certain
exceptions, it would not issue any shares of its common stock at
a per share price less than $2.50 without the prior consent of
the March 2005 Investors holding at least a majority of the
shares issued in the March 2005 Financing. The failure to
receive the requisite waiver or consent of the March 2005
Investors could have the effect of delaying
58
ALSERES
PHARMACEUTICALS, INC.
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
or preventing the consummation of a financing by the Company
should the price per share in such financing be set at less than
$2.50.
A summary of the Companys significant accounting policies
is as follows:
Basis
of Presentation
The Companys consolidated financial statements include the
accounts of its six subsidiaries where all of the Companys
operations are conducted. At December 31, 2009, all of the
subsidiaries were wholly-owned. All significant intercompany
transactions and balances have been eliminated. The Company
operates as one segment and all long-lived assets are maintained
in the United States of America.
Use of
Estimates
The preparation of consolidated financial statements in
conformity with accounting principles generally accepted in the
United States of America requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities, the disclosures of contingencies at the date of the
consolidated financial statements and the reported amounts of
expenses during the reporting period. Significant estimates in
these consolidated financial statements have been made in
connection with the calculation of research and development
expenses, marketable securities, the fair value and
classification of financial instruments, our lease accrual and
stock-based compensation expense. The Company bases its
estimates on historical experience and various other assumptions
that management believes to be reasonable under the
circumstances. Actual results could differ from those estimates.
Changes in estimates are reflected in reported results in the
period in which they become known.
Cash,
Cash Equivalents and Marketable Securities
The Company considers all highly liquid marketable securities
purchased with an original maturity of three months or less to
be cash equivalents. The Company invests its cash equivalents
primarily in overnight repurchase agreements, money market
funds, and United States treasury and agency obligations. The
Companys cash balances may exceed federally insured limits
periodically throughout the year. However, the Company does not
believe that it is subject to any unusual credit risk beyond the
normal credit risk associated with commercial banking
relationships.
Marketable securities, which are classified as
available-for-sale,
are recorded at fair value. Unrealized gains or losses are not
immediately recognized in the Consolidated Statements of
Operations but are reflected in the Consolidated Statements of
Comprehensive Loss and Stockholders Deficit as a component
of accumulated other comprehensive income (loss) until realized.
Realized gains (losses) are determined based on the specific
identification method. If a decline in the fair value of a
security is considered to be other than temporary, the
investment is written down to a new cost basis and the
unrealized loss is removed from accumulated other comprehensive
loss and recorded in the Consolidated Statement of Operations.
The Company evaluates whether a decline in fair value is other
than temporary based on factors such as the significance of the
decline, the duration of time for which the decline has been in
existence and the Companys ability and intent to hold the
security to maturity. To date, the Company has only recorded
temporary impairments related to marketable securities.
Marketable securities consist of United States agency bonds and
corporate debt obligations (Note 2). The Company classifies
marketable securities as current assets because they are highly
liquid and available, as required, to meet working capital and
other operating requirements.
59
ALSERES
PHARMACEUTICALS, INC.
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Financial
Instruments
The carrying amounts of the Companys financial
instruments, which include cash and cash equivalents, marketable
securities, accounts payable and accrued expenses approximate
their fair values as of December 31, 2009 and 2008 due to
their short maturity. It is not practicable to estimate the fair
value of the Companys convertible debt. However, it is
likely that the fair value of the debt would be materially less
than the carrying value of the debt because the conversion price
of $2.50 is higher than the Companys stock price of $0.20
as of December 31, 2009.
Fixed
Assets
Fixed assets are stated at cost and depreciated using the
straight-line method over the estimated useful lives of the
assets, ranging from three to five years. Leasehold improvements
are stated at cost and amortized using the straight-line method
over the term of the lease or the estimated useful lives of the
assets, whichever is shorter.
Research
and Development Expenses
All research and development expenses are expensed as incurred.
Research and development expenses include costs incurred in
performing research and development activities such as salary
and benefits, stock-based compensation expense, facility costs,
license fees, contractual services, sponsored research and
development, and clinical trial costs.
The Company has entered into licensing agreements with certain
collaborators that provide the Company with the rights to
certain patents and technologies, and the right to market and
distribute any products developed. Obligations initially
incurred to acquire these rights are recognized and expensed on
the date that the Company acquires the rights due to the early
stage of the related technology. Terms of the various license
agreements may require the Company to make milestone payments
upon the achievement of certain product development objectives
and pay royalties on future sales, if any, of commercial
products resulting from the collaboration.
Stock-Based
Compensation Expense
We measure compensation costs for all share-based awards at fair
value on grant date and recognize it as expense over the
requisite service period or expected performance period of the
award. We estimate the fair value of stock-based awards using
the Black-Scholes valuation model on the grant date. The
Black-Scholes valuation model requires us to make certain
assumptions and estimates concerning the expected term of the
awards, the rate of return of risk-free investments, our stock
price volatility, and our anticipated dividends. If any of our
estimates or assumptions prove incorrect, our results could be
materially affected.
The Company recognizes stock-based compensation expense on
awards with performance conditions in accordance with Financial
Accounting Standards Board (FASB) ASC 718,
Compensation- Stock Compensation All stock-based awards to
non-employees are accounted for in accordance with FASB ASC
505-50
Equity-Based Payments to Non-Employees.
Income
Taxes
The Company uses the liability method of accounting for income
taxes. Under this method, deferred tax assets and liabilities
are recorded for the expected future tax consequences of
temporary differences between the financial reporting and income
tax bases of assets and liabilities and are measured using the
enacted tax rates and laws that are expected to be in effect
when the differences reverse. A valuation allowance is
established to reduce net deferred tax assets to the amount
expected to be realized.
60
ALSERES
PHARMACEUTICALS, INC.
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Effective January 1, 2007, the Company adopted the
provisions of FASB ASC 740, Income Taxes which clarifies the
accounting for income tax positions by prescribing a minimum
recognition threshold that a tax position is required to meet
before being recognized in the financial statements. Under ASC
740 the Company recognizes the tax benefit from an uncertain tax
position only if it is more likely than not that the tax
position will be sustained upon examination by the taxing
authorities, based on the technical merits of the tax position.
The Company records reserves for uncertain tax positions in
accordance with ASC 740.
Net
Loss Per Share
Basic and diluted net loss per share attributable to common
stockholders has been calculated by dividing net loss
attributable to common stockholders by the weighted average
number of common shares outstanding during the period. All
potentially dilutive common shares have been excluded from the
calculation of weighted average common shares outstanding since
their inclusion would be antidilutive.
The following common stock equivalents, on an as exercised or
converted basis, were excluded from the computation of diluted
net loss per common share because they were anti-dilutive. The
exercise of those common stock equivalents outstanding at
December 31, 2009 could potentially dilute earnings per
share in the future.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Stock options
|
|
|
3,695,745
|
|
|
|
4,184,403
|
|
|
|
4,457,965
|
|
Warrants
|
|
|
2,000
|
|
|
|
583,521
|
|
|
|
2,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,697,745
|
|
|
|
4,767,924
|
|
|
|
4,459,965
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beneficial
Conversion Feature
The Company has, at certain times, issued preferred stock and
notes which were convertible into common stock at a discount
from the common stock market price at the date of issuance. The
amount of the discount associated with such conversion rights
represents an incremental yield, i.e. a beneficial
conversion feature, that is recorded when the
consideration allocated to the convertible security, divided by
the number of common shares into which the security converts, is
below the fair value of the common stock at the date of issuance
of the convertible instrument.
A beneficial conversion feature associated with preferred stock
is recognized as a return to the preferred stockholders and
represents a non-cash charge in the determination of net loss
attributable to common stockholders. The beneficial conversion
feature is recognized in full immediately if there is no
redemption date for the preferred stock, or over the period of
issuance through the redemption date, if applicable. A
beneficial conversion feature associated with debentures, notes
or other debt instruments is recognized as discount to the debt
and is amortized as additional interest expense using the
effective interest method over the remaining term of the debt
instrument.
Convertible
Redeemable Shares
The Company follows the guidance found in ASR 268
(Rule 5-02.28
of
Regulation S-X),
as well as
ASC 480-10-S99-3
(EITF
Topic D-98)
in determining if convertible, redeemable shares are more akin
to equity or a liability. Due to the fact that the Series F
shares are mandatorily redeemable for cash or for a variable,
uncapped, number of common shares, they are more akin to a
liability and as such are classified outside of permanent equity.
61
ALSERES
PHARMACEUTICALS, INC.
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Recent
Accounting Pronouncements
In April 2009, the Financial Accounting Standards Board, or
FASB, issued FASB Accounting Standards Codification, or ASC,
825-10-65,
Interim Disclosures about Fair Value of Financial
Instruments. ASC
825-10-65
amends ASC
825-10 to
require disclosures about fair value of financial instruments
for interim reporting periods of publicly traded companies as
well as annual financial statements. The ASC requires a publicly
traded company to include disclosures about the fair value of
its financial instruments whenever it issues summarized
financial information for interim reporting periods. Such entity
is required to disclose in the body or in the accompanying notes
of its summarized financial information for interim reporting
periods and in its financial statements for annual reporting
periods the fair value of all financial instruments for which it
is practicable to estimate that value, whether recognized or not
recognized in the statement of financial position. Fair value
information disclosed in the notes must be presented together
with the related carrying amount in a form that makes it clear
whether the fair value and carrying amount represent assets or
liabilities and how the carrying amount relates to what is
reported in the statement of financial position. Such entity
also must disclose the methods and significant assumptions used
to estimate the fair value of financial instruments and describe
changes in methods and significant assumptions during the
period. We adopted this ASC for the quarter ended June 30,
2009 and the adoption did not have a material impact on our
consolidated results of operations and financial position.
In April 2009, FASB issued ASC
820-10-65,
Determining Fair Value When the Volume and Level of
Activity for the Asset or Liability Have Significantly Decreased
and Identifying Transactions That Are Not Orderly. This
ASC provides additional guidance for estimating fair value in
accordance with ASC 820, Fair Value Measurements,
when the volume and level of activity for the asset or liability
have significantly decreased. This ASC also includes guidance on
identifying circumstances that indicate a transaction is not
orderly. This ASC emphasizes that even if there has been a
significant decrease in the volume and level of activity for the
asset or liability and regardless of the valuation technique(s)
used, the objective of a fair value measurement remains the
same. Fair value is the price that would be received to sell an
asset or paid to transfer a liability in an orderly transaction
(that is, not a forced liquidation or distressed sale) between
market participants at the measurement date under current market
conditions. We adopted this ASC for the quarter ended
June 30, 2009 and the adoption did not have a material
impact on our consolidated results of operations and financial
position.
In May 2009, the FASB issued ASC
855-10,
Subsequent Events to establish accounting and
disclosure standards for events that occur after the balance
sheet date but before financial statements are issued or are
available to be issued. It defines financial statements as
available to be issued, requiring the disclosure of the date
through which an entity has evaluated subsequent events and the
basis for that date, whether it be the date the financial
statements were issued or the date they were available to be
issued. We adopted this pronouncement upon issuance. This
standard had no material impact on our financial position,
results of operations or cash flows.
In June 2009, the FASB issued ASC
105-10,
The FASB Accounting Standards Codification, or the
Codification, and the Hierarchy of Generally Accepted Accounting
Principles, as the single source of authoritative
nongovernmental Generally Accepted Accounting Principles in the
United States. The Codification is effective for interim and
annual periods ending after September 15, 2009. Upon the
effective date, the Codification will be the single source of
authoritative accounting principles to be applied by all
nongovernmental U.S. entities. All other accounting
literature not included in the Codification will be
nonauthoritative. The adoption of the Codification had no
material impact on our financial position or results of
operations.
62
ALSERES
PHARMACEUTICALS, INC.
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Risks
and Uncertainties
The Company is subject to risks and uncertainties common to the
biotechnology industry. Such risks and uncertainties include,
but are not limited to: (i) results from current and
planned clinical trials, (ii) scientific data collected on
the Companys technologies currently in preclinical
research and development, (iii) decisions made by the Food
and Drug Administration (FDA) or other regulatory
bodies with respect to the initiation of human clinical trials,
(iv) decisions made by the FDA or other regulatory bodies
with respect to approval and commercial sale of any of the
Companys proposed products, (v) the commercial
acceptance of any products approved for sale and the ability of
the Company to manufacture, distribute and sell for a profit any
products approved for sale, (vi) the Companys ability
to obtain the necessary patents and proprietary rights to
effectively protect its technologies, (vii) the outcome of
any collaborations or alliances entered into by the Company in
the future with pharmaceutical or other biotechnology companies,
(viii) dependence on key personnel, (ix) maintaining
NASDAQ listing requirements, (x) competition with better
capitalized companies, (xi) ability to raise additional
funds and (xii) compliance with debt agreements.
.
Fixed assets consist of the following at December 31:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Leasehold improvements
|
|
$
|
132,170
|
|
|
$
|
132,170
|
|
Computer equipment
|
|
|
88,985
|
|
|
|
102,244
|
|
Office furniture and equipment
|
|
|
78,403
|
|
|
|
84,498
|
|
|
|
|
|
|
|
|
|
|
|
|
|
299,558
|
|
|
|
318,912
|
|
Less accumulated depreciation and amortization
|
|
|
193,286
|
|
|
|
140,269
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
106,272
|
|
|
$
|
178,643
|
|
|
|
|
|
|
|
|
|
|
Amortization and depreciation expense on fixed assets for the
years ended December 31, 2009, 2008 and 2007 was
approximately $72,000, $53,000 and $85,000, respectively,
and $1,553,000 for the period from inception
(October 16, 1992) through December 31, 2009.
|
|
3.
|
Accounts
Payable and Accrued Expenses
|
Accounts payable and accrued expenses consist of the following
at December 31:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Research and development related
|
|
$
|
1,774,943
|
|
|
$
|
2,874,827
|
|
Accrued compensation and related
|
|
|
124,915
|
|
|
|
639,390
|
|
General and administrative related
|
|
|
328,435
|
|
|
|
640,123
|
|
Accrued interest expense
|
|
|
62,738
|
|
|
|
|
|
Accrued professional fees
|
|
|
1,231,550
|
|
|
|
741,459
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,522,581
|
|
|
$
|
4,895,799
|
|
|
|
|
|
|
|
|
|
|
63
ALSERES
PHARMACEUTICALS, INC.
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
4.
|
Notes
Payable and Debt
|
Convertible
Notes Payable to Significant Stockholders
In August 2006, the Company issued to Robert Gipson an unsecured
promissory note (the RG Note), pursuant to which the
Company could borrow up to an aggregate principal amount of
$3,000,000 from Robert Gipson. In October 2006, the Company
issued an amended and restated unsecured promissory note (the
Amended RG Note) to Robert Gipson to replace the RG
Note. Under the Amended RG Note, (i) the aggregate
principal amount that could be borrowed by the Company was
increased from $3,000,000 to $4,000,000, and (ii) one of
the dates triggering repayment under the definition of Maturity
Date (as discussed below) was moved from December 31, 2007
to June 30, 2007.
In October 2006, the Company issued to Thomas Gipson (together
with Robert Gipson, the Lenders) an unsecured
promissory note, pursuant to which the Company could borrow up
to an aggregate principal amount of $4,000,000 (the TG
Note, together the with Amended RG Note, the First
Amended Notes). The Company borrowed a total of $8,000,000
pursuant to the First Amended Notes. The outstanding principal
amount borrowed under the First Amended Notes was due and
payable upon the earliest to occur of: (i) June 30,
2007; (ii) the date on which the Company consummates an
equity financing in which the gross proceeds to the Company
total at least $10,000,000; and (iii) the date on which a
Lender declares an event of default (as defined in the Notes),
the first of these three events to occur referred to as the
Maturity Date. Interest accrued on the outstanding
principal amount under the First Amended Notes was initially
payable on the Maturity Date at a rate of 9% per annum from the
date of the advance to the Maturity Date.
In February 2007, the Company issued amended and restated
unsecured promissory notes to the Lenders to replace the First
Amended Notes (the Second Amended Notes). Under the
Second Amended Notes, the aggregate principal amount that could
be collectively borrowed by the Company was increased from
$8,000,000 to $10,000,000. The Company borrowed an additional
$2,000,000 from the Lenders, or $10,000,000 in the aggregate,
pursuant to the Second Amended Notes.
In March 2007, the Company issued an amended and restated
unsecured promissory note of $5,000,000 to each of the Lenders
(the Amended Notes). The Amended Notes eliminated
all outstanding principal and accrued interest due under the
Second Amended Notes and the Companys right to prepay any
portion of the Amended Notes. The Amended Notes also required
the Lenders to effect a conversion of the outstanding principal
under the Amended Notes into shares of the Companys common
stock at a conversion price of $2.50 per share (the
Amended Notes Conversion) upon approval by the
Companys stockholders of the conversion. The Company
recorded a gain related to the forgiveness of interest of
approximately $273,000 to net interest expense on the
Companys Consolidated Statement of Operations during the
year ended December 31, 2007. On June 7, 2007, the
Companys stockholders approved the Amended Notes
Conversion. On June 15, 2007, the Lenders converted the
outstanding principal under the Amended Notes into
4,000,000 shares of the Companys common stock.
March
2008 Amended Purchase Agreement
In March 2007, the Company entered into a convertible promissory
note purchase agreement (the March 2007 Purchase
Agreement) with Robert Gipson, Thomas Gipson and Arthur
Koenig (the Purchasers and also referred to as the
March 2007 Note Holders) pursuant to which the
Company could borrow up to $15,000,000 from the March 2007 Note
Holders prior to December 31, 2007. In March 2007, the
Company issued convertible promissory notes to the March 2007
Note Holders (the March Notes) in the aggregate
principal amount of $9,000,000 pursuant to the March 2007
Amended Purchase Agreement. Certain of the material terms of the
convertible promissory notes are described below.
64
ALSERES
PHARMACEUTICALS, INC.
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In May 2007, the Company amended and restated the March 2007
Purchase Agreement (the May 2007 Amended Purchase
Agreement) to (i) eliminate the requirement for the
March 2007 Note Holders to make further advances under the March
2007 Purchase Agreement and (ii) add Highbridge as a
Purchaser. In May 2007, the Company issued a convertible
promissory note to Highbridge (the Highbridge Note)
in the aggregate principal amount of $6,000,000 pursuant to the
May 2007 Amended Purchase Agreement.
In August 2007, the Company amended and restated the May 2007
Amended Purchase Agreement (the August 2007 Amended
Purchase Agreement) to (i) increase the amount the
Company could borrow by $10,000,000 to $25,000,000 and
(ii) add ISVP as a Purchaser. In August 2007, the Company
issued a convertible promissory note to ISVP (the 2007
ISVP Note) in the aggregate principal amount of
$10,000,000 pursuant to the August 2007 Amended Purchase
Agreement.
In March 2008, the Company amended and restated the August 2007
Amended Purchase Agreement (the March 2008 Amended
Purchase Agreement) to (i) increase the amount the
Company could borrow by $5,000,000 to $30,000,000 and
(ii) provide that the Company may incur up to an additional
$5,000,000 of indebtedness from the Purchasers upon the same
terms and conditions as the March 2008 Amended Purchase
Agreement. In March 2008, the Company issued a convertible
promissory note to Robert Gipson (the March 2008 RG
Note) in the aggregate principal amount of $5,000,000
pursuant to the March 2008 Amended Purchase Agreement.
All terms of the cumulative $30,000,000 in convertible
promissory notes remain as originally agreed to. These amounts
borrowed by the Company under the March 2008 Amended Purchase
Agreement bear interest at the rate of 5% per annum and may be
converted, at the option of the Purchasers, into (i) shares
of the Companys common stock at a conversion price per
share of $2.50, (ii) the right to receive future payments
related to the Companys molecular imaging products
(including Altropane and FLUORATEC) in amounts equal to 2% of
the Companys pre-commercial revenue related to such
products plus 0.5% of future net sales of such products for each
$1,000,000 of outstanding principal and interest that a
Purchaser elects to convert into future payments, or
(iii) a combination of (i) and (ii). Any outstanding
notes that are not converted into the Companys common
stock or into the right to receive future payments will become
due and payable by the earlier of December 31, 2010 or the
date on which a Purchaser declares an event of default (as
defined in the March 2008 Amended Purchase Agreement). However,
each Purchaser is prohibited from effecting a conversion if at
the time of such conversion the common stock issuable to such
Purchaser, when taken together with all shares of common stock
then held or otherwise beneficially owned by such Purchaser
exceeds 19.9%, or 9.99% for Highbridge and ISVP, of the total
number of issued and outstanding shares of the Companys
common stock immediately prior to such conversion unless and
until the Companys stockholders approve the conversion of
all of the shares of common stock issuable thereunder.
June
2008 Amended Purchase Agreement
In June 2008, the Company entered into a convertible promissory
note purchase agreement (the June 2008 Purchase
Agreement) with Robert Gipson pursuant to which the
Company could borrow up to $5,000,000. In June 2008, the Company
issued a convertible promissory note to Robert Gipson (the
June 2008 RG Note) in the aggregate principal amount
of $5,000,000 pursuant to the June 2008 Purchase Agreement. The
terms of the June 2008 Purchase Agreement are consistent with
those of the March 2008 Amended Purchase Agreement described
above.
Beneficial
Conversion Features
The Highbridge Note was issued with a conversion price of $2.50
which was below the market price of the Companys common
stock on the date the May 2007 Amended Purchase Agreement was
entered into. The Company recorded a beneficial conversion
feature (BCF) of $480,000 (the Highbridge
BCF) which was
65
ALSERES
PHARMACEUTICALS, INC.
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
recognized as a decrease in the carrying value of the Highbridge
Note and an increase to additional paid-in capital. The value of
the Highbridge BCF is being recognized as interest expense using
the effective interest method through December 31, 2010.
The Company recorded interest expense related to the Highbridge
BCF in the accompanying Consolidated Statement of Operations of
approximately $131,000, $123,000 and $78,000 during the years
ended December 31, 2009, 2008 and 2007, respectively.
The 2007 ISVP Note was issued with a conversion price of $2.50
which was below the market price of the Companys common
stock on the date the August 2007 Amended Purchase Agreement was
entered into. Accordingly, the Company recorded a BCF of
$1,400,000 (the ISVP BCF) which was recognized as a
decrease in the carrying value of the 2007 ISVP Note and an
increase to additional paid-in capital. The ISVP BCF is being
recognized as interest expense using the effective interest
method through December 31, 2010. The Company recorded
interest expense related to the ISVP BCF in the accompanying
Consolidated Statement of Operations of approximately $434,000,
$392,000 and $137,000 during the years ended December 31,
2009, 2008 and 2007, respectively.
The March 2008 RG Note was issued with a conversion price of
$2.50 which was below the market price of the Companys
common stock on the date the March 2008 Amended Purchase
Agreement was entered into. Accordingly, the Company recorded a
BCF of $380,000 (the 2008 RG BCF) which was
recognized as a decrease in the carrying value of the March 2008
RG Note and an increase to additional paid-in capital. The 2008
RG BCF is being recognized as interest expense using the
effective interest method through December 31, 2010. The
Company recorded interest expense related to the 2008 RG BCF in
the accompanying Consolidated Statements of Operations of
approximately $135,000 and $99,000 during the years ended
December 31, 2009 and 2008, respectively.
In September 2008, Highbridge converted $120,000 of outstanding
principal under the Highbridge Note into 48,000 shares of
the Companys common stock. In connection with the
conversion, the Company recorded additional interest expense of
approximately $6,300 during the year ended December 31,
2008 related to the unamortized portion of the Highbridge BCF.
At December 31, 2009, the aggregate carrying value of the
Highbridge Note, the March Notes, the 2007 ISVP Note, the March
2008 RG Note and the June 2008 RG Note of $34,155,632 and the
related accrued interest was classified as a long-term liability.
The Company is subject to certain debt covenants pursuant to the
March 2008 Amended Purchase Agreement and the June 2008 Purchase
Agreement (the Purchase Agreements). If the Company
(i) fails to pay the principal or interest due under the
Purchase Agreements, (ii) files a petition for action for
relief under any bankruptcy or similar law or (iii) an
involuntary petition is filed against the Company, all amounts
borrowed under the Purchase Agreements may become immediately
due and payable by the Company. In addition, without the consent
of the Purchasers, the Company may not (i) create, incur or
otherwise, permit to be outstanding any indebtedness for money
borrowed, (ii) declare or pay any cash dividend, or make a
distribution on, repurchase, or redeem, any class of the
Companys stock, subject to certain exceptions or sell,
lease, transfer or otherwise dispose of any of the
Companys material assets or property or
(iii) dissolve or liquidate.
Subsidiary
Promissory Note
In February 2009, Neurobiologics, Inc. (the
Subsidiary), a subsidiary of the Company, issued to
Robert Gipson an unsecured promissory note, pursuant to which
the Subsidiary borrowed an aggregate principal amount of
$1,000,000 (the Subsidiary Note). Interest on the
Subsidiary Note accrues at the rate of 7% per annum and all
principal and accrued interest is due and payable on demand of
Mr. Gipson.
66
ALSERES
PHARMACEUTICALS, INC.
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
According to a Schedule 13G/A filed with the SEC on
January 30, 2009, Robert Gipson beneficially owned
approximately 47.2% of the outstanding common stock of the
Company on December 31, 2008. Robert Gipson, who serves as
a Senior Director of I&S and a General Partner of ISVP,
served as a director of the Company from June 15, 2004
until October 28, 2004. According to a Schedule 13G/A
filed with the SEC on January 30, 2009, Thomas Gipson
beneficially owned approximately 29.0% of the outstanding common
stock of the Company on December 31, 2008. According to a
Schedule 13G/A filed with the SEC on January 30, 2009,
Arthur Koenig beneficially owned approximately 9.7% of the
outstanding common stock of the Company on December 31,
2008. According to a Schedule 13G filed with the SEC on
January 30, 2009, ISVP owned approximately 16.5% of the
outstanding common stock of the Company on December 31,
2008. According to a Schedule 13G filed with the SEC on
February 10, 2009, Highbridge beneficially owned
approximately 9.50% of the outstanding common stock of the
Company on December 31, 2008.
Promissory
Notes
In December 2009 the Company issued a promissory note to Robert
Gipson in the amount of $350,000 and payable on demand. The Note
bears interest at the rate of 7% per annum.
In September 2005, the Company relocated its headquarters to
office space in Hopkinton, Massachusetts. In addition, the
Company amended its Lease Agreement (the Lease
Amendment), dated as of January 28, 2002 by and
between the Company and Brentwood Properties, Inc. (the
Landlord) relating to the Companys former
principal executive offices (the Premises) located
in Boston, Massachusetts (the Lease Agreement).
Pursuant to the terms of the Lease Amendment, the Landlord
consented to, among other things, two sublease agreements which
run through May 30, 2012, the term of the Lease Agreement,
and which occupy all rentable square feet of the Premises. In
consideration for the Landlords consent, the Company
agreed to increase its security deposit provided for under the
Lease Agreement from $250,000 to $388,600 subject to periodic
reduction pursuant to a predetermined formula. At
December 31, 2009, the security deposit under the Lease
Agreement was approximately $124,500.
As a result of the Companys relocation, an expense was
recorded for the cost associated with the exit activity at its
fair value in the period in which the liability is incurred. The
liability recorded for the Lease Amendment was calculated by
discounting the estimated cash flows for the two sublease
agreements and the Lease Agreement using an estimated
credit-adjusted risk-free rate of 15%. The expense and accrual
recorded requires the Company to make significant estimates and
assumptions. These estimates and assumptions will be evaluated
and adjusted as appropriate on at least a quarterly basis for
changes in circumstances. It is reasonably possible that such
estimates could change in the future resulting in additional
adjustments, and the effect of any such adjustments could be
material.
The activity related to the lease accrual at December 31,
2009, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrual at
|
|
|
Cash Payments,
|
|
|
Accrual at
|
|
|
|
December 31,
|
|
|
Net of Sublease
|
|
|
December 31,
|
|
|
|
2008
|
|
|
Receipts 2009
|
|
|
2009
|
|
|
Lease Amendment
|
|
$
|
193,348
|
|
|
$
|
45,429
|
|
|
$
|
147,919
|
|
Short-term portion of lease accrual
|
|
|
45,425
|
|
|
|
|
|
|
|
51,493
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term portion of lease accrual
|
|
$
|
147,923
|
|
|
|
|
|
|
$
|
96,426
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the years ended December 31, 2009, 2008 and 2007,
the Company recorded approximately $26,000, $34,000 and $38,000,
respectively of expense related to the imputed cost of the lease
expense accrual included in general and administrative expenses
in the accompanying Consolidated Statements of Operations.
67
ALSERES
PHARMACEUTICALS, INC.
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In May 2007, the Company decided to consolidate certain
activities, cease operations at its Baltimore, Maryland location
and terminate the two employees working at that location
effective June 30, 2007. The Company recognized
approximately $192,000 primarily related to one-time termination
benefits in the accompanying Consolidated Statements of
Operations during the year ended December 31, 2007.
Common
Stock
In November 2008, the Company completed a private placement with
Robert Gipson of 543,478 shares of its common stock which
raised $1,000,000 in gross proceeds. In connection with the
November 2008 private placement, the Company also issued
warrants (the November 2008 Warrants) to purchase
543,478 additional shares of common stock that were exercisable
at $1.84 per share between six months and two years after the
closing. In connection with the private placement, the Company
agreed with Mr. Gipson (the Letter Agreement)
that if the Company sold shares of its common stock at a price
below $1.84, subject to certain exceptions, prior to
December 31, 2009, Mr. Gipson would be entitled to
receive, for no additional consideration, additional shares of
common stock and warrants in accordance with a pre-determined
formula. In addition, Dawson James Securities, Inc.,
(Dawson James) in its capacity as agent for the
private placement, was entitled to a warrant to purchase
38,043 shares of common stock (the Agent
Warrant). The Agent Warrant had a term of five years and
was exercisable at a price equal to $1.84. In February 2009,
Dawson James gave up its right to the Agent Warrant.
In January 2009, the Company completed a private placement with
Robert Gipson of 1,000,000 shares of its common stock which
raised $1,000,000 in gross proceeds. In addition, the Company
issued an additional 456,522 shares of its common stock to
Mr. Gipson pursuant to a Letter Agreement. In connection
with the January 2009 private placement, Mr. Gipson agreed
to the cancellation of the November 2008 Warrants.
In February 2009, the Company entered into a private placement
with Cato Holding Company (Cato) of
200,000 shares of its common stock at a purchase price of
$1.00 per share. In connection with the February 2009 private
placement, the Company agreed with Cato that if the Company
sells shares of its common stock, or securities convertible into
common stock, prior to September 30, 2009, and the
purchaser of such securities receives warrants to purchase
additional shares of common stock (a Qualified
Financing), subject to certain exceptions, Cato shall be
entitled to receive, for no additional consideration, a warrant
to purchase shares of common stock with the same terms and
conditions as those provided to a purchaser in a Qualified
Financing.
In November 2009, the Company entered into a private placement
with Robert Gipson of 2,500,000 shares of its common stock
which raised $1,000,000 in gross proceeds. In addition, in March
2010 the Company issued an additional 1,500,000 shares of
its common stock to Mr. Gipson pursuant to a Letter
Agreement.
Preferred
Stock
The Company has authorized 1,000,000 shares of preferred
stock of which 25,000 shares have been designated as
Series A Convertible Preferred Stock, 500,000 shares
have been designated as Series D Convertible Preferred
Stock, and 800 shares have been designated as Series E
Cumulative Convertible Preferred Stock (the Series E
Stock). In March 2009, the Company designated
200,000 shares as Series F Convertible Preferred Stock
(Series F Stock). The remaining authorized
shares have not been designated.
68
ALSERES
PHARMACEUTICALS, INC.
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Convertible
Preferred Stock
During 2009 the company completed the following sales of
Series F convertible Preferred Stock to Robert Gipson:
|
|
|
|
|
|
|
|
|
|
|
Number of Shares
|
|
|
|
|
Date of Issuance
|
|
Issued
|
|
|
Gross Proceeds
|
|
|
March 19, 2009
|
|
|
20,000
|
|
|
$
|
500,000
|
|
March 31, 2009
|
|
|
20,000
|
|
|
|
500,000
|
|
April 16, 2009
|
|
|
20,000
|
|
|
|
500,000
|
|
May 12, 2009
|
|
|
40,000
|
|
|
|
1,000,000
|
|
June 10, 2009
|
|
|
20,000
|
|
|
|
500,000
|
|
July 9, 2009
|
|
|
12,000
|
|
|
|
300,000
|
|
July 23, 2009
|
|
|
12,000
|
|
|
|
300,000
|
|
August 11, 2009
|
|
|
12,000
|
|
|
|
300,000
|
|
August 26, 2009
|
|
|
12,000
|
|
|
|
300,000
|
|
September 10, 2009
|
|
|
12,000
|
|
|
|
300,000
|
|
September 28, 2009
|
|
|
16,000
|
|
|
|
400,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
196,000
|
|
|
$
|
4,900,000
|
|
|
|
|
|
|
|
|
|
|
The key terms of the Series F Stock are summarized below:
Dividend. The Series F Stock is entitled
to receive any dividend that is paid to holders of our common
stock. Any subdivisions, combinations, consolidations or
reclassifications to the common stock must also be made
accordingly to Series F Stock, respectively.
Liquidation Preference. In the event of our
liquidation, dissolution or winding up, before any payments are
made to holders of our common stock or any other class or series
of our capital stock ranking junior as to liquidation rights to
the Series F Stock, the holders of the Series F Stock
will be entitled to receive the greater of (i) $25.00 per
share (subject to adjustment in the event of any stock dividend,
stock split, combination or other similar recapitalization
affecting such shares) plus any outstanding and unpaid dividends
thereon and (ii) such amount per share as would have been
payable had each share been converted into common stock. After
such payment to the holders of Series F Stock and the
holders of shares of any other series of our preferred stock
ranking senior to the common stock as to distributions upon
liquidation, the remaining our assets will be distributed pro
rata to the holders of our common stock.
Voting Rights. Each share of Series F
Stock shall entitle its holder to a number of votes equal to the
number of shares of our common stock into which such share of
Series F Stock is convertible.
Conversion. Each share of Series F Stock
is convertible at the option of the holder thereof at any time.
Each share of Series F Stock is initially convertible into
25 shares of common stock, subject to adjustment in the
event of certain dividends, stock splits or stock combinations
affecting the Series F Stock or the common stock, and
subject to adjustment on a weighted-average basis in the event
of certain issuances by us of securities for a price less than
the then-current price at which the Series F Stock converts
into common stock.
Redemption. At any time after
September 1, 2011, any holder of Series F Stock may
elect to have some or all of such shares redeemed by us at a
price equal to the aggregate of (i) $25 per share (subject
to appropriate adjustment in the event of any stock dividend,
stock split, combination or other similar recapitalization
affecting such shares), or the Original Issue Price, plus
(ii) all declared but unpaid dividends
69
ALSERES
PHARMACEUTICALS, INC.
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
thereon, plus (iii) an amount computed at a rate per annum
of 7% of the Original Issue Price from March 19, 2009 until
the redemption date.
Accretion. The terms of the Series F
Stock contain provisions that may require redemption in
circumstances that are beyond the Companys control.
Therefore, the shares have been recorded, net of issuance costs
of approximately $25,000, as convertible, redeemable stock
outside of permanent equity. The Series F Stock was
recorded at fair value on the date of issuance. As of
December 31, 2009, the Company recorded approximately
$192,000 in accretion on the Series F Stock.
Stock
Options and Warrants
Stock
Option Plans
The Company can issue both nonqualified and incentive stock
options to employees, officers, consultants and scientific
advisors of the Company under the Amended and Restated 2005
Stock Incentive Plan (the 2005 Plan). At
December 31, 2009, the 2005 Plan provided for the issuance
of options, restricted stock, restricted stock units, stock
appreciation rights or other stock-based awards to purchase
3,050,000 shares of the Companys common stock. The
2005 Plan contains a provision that allows for an annual
increase in the number of shares available for issuance under
the 2005 Plan on the first day of each of the Companys
fiscal years during the period beginning in fiscal year 2006 and
ending on the second day of fiscal year 2014. The annual
increase in the number of shares shall be equal to the lowest of
400,000 shares; 4% of the Companys outstanding shares
on the first day of the fiscal year; and an amount determined by
the Board of Directors. No adjustment to the 2005 Plan was made
on January 1, 2010.
The Company also has outstanding stock options in three other
stock option plans, the 1998 Omnibus Plan, the Amended and
Restated Omnibus Stock Option Plan and the Amended and Restated
1990 Non-Employee Directors Non-Qualified Stock Option
Plan. Both of these plans have expired and no future issuance of
awards is permissible.
The Companys Board of Directors determines the term,
vesting provisions, price, and number of shares for each award
that is granted. The term of each option cannot exceed ten
years. The Company has outstanding options with performance
conditions which, if met, would accelerate vesting upon
achievement of the applicable milestones.
Stock-based employee compensation expense recorded during the
years ended December 31, 2009, 2008 and 2007 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Research and development
|
|
$
|
447,612
|
|
|
$
|
506,534
|
|
|
$
|
522,766
|
|
General and administrative
|
|
|
825,471
|
|
|
|
1,163,660
|
|
|
|
1,142,389
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,273,083
|
|
|
$
|
1,670,194
|
|
|
$
|
1,665,155
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impact on basic and diluted net loss attributable to common
stockholders per share
|
|
$
|
(0.05
|
)
|
|
$
|
(0.08
|
)
|
|
$
|
(0.09
|
)
|
70
ALSERES
PHARMACEUTICALS, INC.
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Company uses the Black-Scholes option-pricing model to
calculate the fair value of each option grant on the date of
grant. The fair value of stock options granted during the years
ended December 31, 2009, 2008 and 2007 was calculated using
the following estimated weighted-average assumptions:
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
2007
|
|
Expected term
|
|
5 years
|
|
5 years
|
|
6 years
|
Risk-free interest rate
|
|
1.36%
|
|
2.5% - 3.7%
|
|
3.5% - 5.1%
|
Stock volatility
|
|
90%
|
|
76%
|
|
90%
|
Dividend yield
|
|
0%
|
|
0%
|
|
0%
|
Expected term The Company determined the
weighted-average expected term assumption for plain
vanilla and performance-based option grants based on
historical data on exercise behavior.
Risk-free interest rate The risk-free interest rate
used for each grant is equal to the U.S. Treasury yield
curve in effect at the time of grant for instruments with a
similar expected term.
Expected volatility The Companys expected
stock-price volatility assumption is based on historical
volatilities of the underlying stock which is obtained from
public data sources.
Expected dividend yield The Company has never
declared or paid any cash dividends on its common stock and does
not expect to do so in the foreseeable future. Accordingly, the
Company uses an expected dividend yield of zero to calculate the
grant-date fair value of a stock option.
Stock
Options
A summary of the Companys outstanding stock options for
the year ended December 31, 2009 is presented below.
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
|
|
|
|
Weighted-Average
|
|
|
|
Shares
|
|
|
Exercise Price
|
|
|
Outstanding at beginning of year
|
|
|
4,184,403
|
|
|
$
|
2.90
|
|
Granted
|
|
|
2,732,500
|
|
|
|
1.15
|
|
Exercised
|
|
|
|
|
|
|
|
|
Forfeited and expired
|
|
|
(3,221,158
|
)
|
|
|
2.88
|
|
|
|
|
|
|
|
|
|
|
Outstanding at end of year
|
|
|
3,695,745
|
|
|
|
1.63
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at year-end
|
|
|
3,524,495
|
|
|
|
1.65
|
|
71
ALSERES
PHARMACEUTICALS, INC.
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table summarizes information about stock options
outstanding at December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
|
Options Exercisable
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Weighted-
|
|
|
|
|
|
Average
|
|
|
Weighted-
|
|
|
|
|
|
|
Remaining
|
|
|
Average
|
|
|
|
|
|
Remaining
|
|
|
Average
|
|
|
|
Number
|
|
|
Contractual
|
|
|
Exercise
|
|
|
Number
|
|
|
Contractual
|
|
|
Exercise
|
|
Range of Exercise Prices
|
|
Outstanding
|
|
|
Life
|
|
|
Price
|
|
|
Exercisable
|
|
|
Life
|
|
|
Price
|
|
|
$ 1.15 $ 1.36
|
|
|
2,713,000
|
|
|
|
4.4 years
|
|
|
$
|
1.15
|
|
|
|
2,541,750
|
|
|
|
4.2 years
|
|
|
$
|
1.15
|
|
$ 2.00 $ 3.00
|
|
|
678,642
|
|
|
|
5.4 years
|
|
|
|
2.32
|
|
|
|
678,642
|
|
|
|
5.4 years
|
|
|
|
2.32
|
|
$ 3.10 $ 4.65
|
|
|
255,363
|
|
|
|
6.7 years
|
|
|
|
3.40
|
|
|
|
255,363
|
|
|
|
6.7 years
|
|
|
|
3.40
|
|
$ 4.99 $ 6.96
|
|
|
28,500
|
|
|
|
4.0 years
|
|
|
|
5.47
|
|
|
|
28,500
|
|
|
|
4.0 years
|
|
|
|
5.47
|
|
$ 8.95 $13.06
|
|
|
8,740
|
|
|
|
1.7 years
|
|
|
|
10.55
|
|
|
|
8,740
|
|
|
|
1.7 years
|
|
|
|
10.55
|
|
$15.62 $22.36
|
|
|
11,500
|
|
|
|
0.4 years
|
|
|
|
17.04
|
|
|
|
11,500
|
|
|
|
0.4 years
|
|
|
|
17.04
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,695,745
|
|
|
|
4.7 years
|
|
|
$
|
1.63
|
|
|
|
3,524,495
|
|
|
|
4.6 years
|
|
|
$
|
1.65
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There was no intrinsic value of outstanding and exercisable
options as of December 31, 2009. The intrinsic value of
options vested during the year ended December 31, 2009 was
$0. The intrinsic value of options exercised during the years
ended December 31, 2009, 2008 and 2007 was $0, $759 and
$50,700, respectively. The weighted-average fair value of
options granted at fair market value during 2009, 2008 and 2007
was $0.80, $1.52 and $2.17, respectively.
As of December 31, 2009, 384,172 shares are available
for grant under the Companys option plans.
As of December 31, 2009, there remained approximately
$35,000 of compensation costs related to non-vested stock
options to be recognized as expense over a weighted-average
period of approximately .56 years.
On January 14, 2009, the Companys compensation
committee approved the cancellation of options to purchase an
aggregate of 2,617,000 shares of the Companys common
stock and the regrant of options to purchase an aggregate of
2,562,500 shares of the Companys common stock. The
per share exercise prices of the cancelled options ranged from
$1.96 to $4.06, with a weighted average exercise price of $2.92.
These cancellations were effected under the 2005 Plan and
inducement grants pursuant to Nasdaq Marketplace Rule 4350,
each of which expressly permitted option exchanges and all
regrants were effected under the 2005 Plan. Each of the
regranted options contains the following terms: (i) an
exercise price equal to the fair market value on the grant date
which was the last sale price on January 14, 2009, or $1.15
per share; (ii) exercisable through January 31, 2014;
and (iii) 50% vesting on the date of grant, 25% vesting on
February 28, 2009, and 25% vesting on March 31, 2009.
Warrants
As of December 31, 2009, warrants outstanding to purchase
common stock were as follows:
|
|
|
|
|
|
|
|
|
|
|
Date of Issue
|
|
Exercise Price per Share
|
|
Warrants Outstanding
|
|
Expiration Date
|
|
October 2001
|
|
$
|
9.50
|
|
|
|
2,000
|
|
|
October 2011
|
Each warrant is exercisable into one share of common stock. No
warrants were exercised in 2009. At December 31, 2009, the
Company has reserved 4,081,917 shares of common stock to
meet its option and warrant obligations.
72
ALSERES
PHARMACEUTICALS, INC.
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Rights
Agreement
On September 11, 2001, the Company entered into a Rights
Agreement (the Rights Plan) dated as of
September 11, 2001, with Continental Stock
Transfer & Trust Company, as rights agent (the
Rights Agent), and declared a dividend of one right
(a Right) to purchase from the Company
one-thousandth of a share of its Series D Preferred Stock
at an exercise price of $25 for each outstanding share of the
Companys common stock at the close of business on
September 13, 2001. The Rights will expire on
September 11, 2011.
In general, the Rights will be exercisable only if a person or
group acquires 15% or more of the Companys common stock or
announces a tender offer, the consummation of which would result
in ownership by a person or group of 15% or more of the
Companys common stock. If, after the Rights become
exercisable, the Company is acquired in a merger or other
business combination transaction, or sells 25% or more of its
assets or earning power, each unexercised Right will entitle its
holder to purchase a number of the acquiring companys
common shares as defined in the Rights Plan. At any time after
any person or group has acquired beneficial ownership of 15% or
more of the Companys common stock, the Board, in its sole
discretion, may exchange all or part of the then outstanding and
exercisable Rights for shares of the Companys common stock
at an exchange ratio of one share of common stock per Right.
In November 2001, the Company and the Rights Agent amended the
Rights Plan to provide that the Rights Plan will be governed by
the laws of the State of Delaware.
In November 2002, the Company and the Rights Agent amended the
Rights Plan to provide that, for purposes of any calculation
under the Rights Plan of the percentage of outstanding shares of
the Companys common stock beneficially owned by a person,
any shares of the Companys common stock such person
beneficially owns that are not outstanding (such as shares
underlying options, warrants, rights or convertible securities)
shall be deemed to be outstanding. The amendment also exempted
each of I&S, ISVP and Robert Gipson (the Ingalls
Parties) from being an Acquiring Person under
the Rights Plan so long as such persons, collectively, together
with all affiliates of such persons, shall beneficially own less
than 20% of the shares of the Companys common stock then
outstanding.
On March 12, 2003, the Company and the Rights Agent amended
the Rights Plan to provide that prior to June 1, 2005, the
Ingalls Parties and their affiliates will be deemed not to
beneficially own certain convertible notes and warrants of the
Company and any common stock issued or issuable upon their
conversion or exercise for purposes of determining whether such
person is an Exempt Person under the Rights Plan.
On December 23, 2003, the Company and the Rights Agent
amended the Rights Plan to add Boucher to the list of persons
included in the definition of Ingalls Parties who are exempt
from being an Acquiring Person so long as such
persons, collectively, together with all affiliates of such
persons, shall beneficially own less than 20% of the shares of
the Companys common stock then outstanding. In addition,
the amendment provides that a person shall not be deemed to
beneficially own securities held by another person solely by
reason of an agreement, arrangement or understanding among such
persons to vote such securities, if such agreement, arrangement
or understanding is for the purpose of (i) soliciting
revocable proxies or consents to elect or remove directors of
the Company pursuant to a proxy or consent solicitation made or
to be made pursuant to, and in accordance with, the applicable
proxy solicitation rules and regulations promulgated under the
Securities Exchange Act of 1934, as amended,
and/or
(ii) nominating one or more individuals (or being
nominated) for election to the Companys Board of Directors
or serving as a director of the Company.
On March 14, 2005, the Company and the Rights Agent amended
the Rights Plan to amend the definition of Exempt Person to
include all purchasers of shares of the Companys common
stock in connection with the Companys private placement
completed in March 2005.
73
ALSERES
PHARMACEUTICALS, INC.
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
7.
|
Fair
Value Measurements
|
The Company adopted certain provisions of Financial Accounting
Standards Board (FASB) Accounting Standards
Codification (ASC) Topic 820 to evaluate the fair
value of certain of its financial instruments required to be
measured on a recurring basis. FASB ASC Topic 820 defines fair
value, establishes a framework for measuring fair value and
expands disclosures about fair value measurements. Fair value is
determined based upon the exit price that would be received to
sell an asset or paid to transfer a liability in an orderly
transaction between market participants exclusive of transaction
costs.
FASB ASC Topic 820 establishes a fair value hierarchy that
prioritizes observable and unobservable inputs used to measure
fair value into three broad levels, described below:
Level 1: Observable inputs that reflect quoted prices
(unadjusted) for identical assets or liabilities in active
markets. The fair value hierarchy gives the highest priority to
Level 1 inputs.
Level 2: Inputs other than quoted prices included in
Level 1 that are observable for the asset or liability,
either directly or indirectly.
Level 3: Unobservable inputs are used when little or no
market data is available. The fair value hierarchy gives the
lowest priority to Level 3 inputs.
The following table sets forth our financial assets that were
measured at fair value on a recurring basis at December 31,
2009 by level within the fair value hierarchy. We did not have
any non-financial assets or liabilities that were measured or
disclosed at fair value on a recurring basis at
December 31, 2009. Assets and liabilities measured at fair
value are classified in their entirety based on the lowest level
of input that is significant to the fair value measurement. The
Companys assessment of the significance of a particular
input to the fair value measurement in its entirety requires
judgment, and considers factors specific to the asset or
liability.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurement at Reporting Date Using
|
|
|
|
|
|
|
Quoted Prices in
|
|
|
Significant
|
|
|
|
|
|
|
Carrying Value
|
|
|
Active Markets
|
|
|
Other
|
|
|
Significant
|
|
|
|
at
|
|
|
for
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
December 31,
|
|
|
Identical Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
Description
|
|
2009
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents and money market funds current
assets
|
|
$
|
314,964
|
|
|
$
|
314,964
|
|
|
$
|
|
|
|
$
|
|
|
Money market funds long term assets
|
|
$
|
115,720
|
|
|
$
|
115,720
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
430,684
|
|
|
$
|
430,684
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices in
|
|
|
Significant
|
|
|
|
|
|
|
Carrying Value
|
|
|
Active Markets
|
|
|
Other
|
|
|
Significant
|
|
|
|
at
|
|
|
for
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
December 31,
|
|
|
Identical Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
|
|
2008
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents and money market funds current
assets
|
|
$
|
73,974
|
|
|
$
|
73,974
|
|
|
$
|
|
|
|
$
|
|
|
Money market funds long term assets
|
|
$
|
115,462
|
|
|
$
|
115,462
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
189,436
|
|
|
$
|
189,436
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
74
ALSERES
PHARMACEUTICALS, INC.
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Money market funds are measured at fair value using quoted
market prices and are classified within Level 1 of the fair
value valuation hierarchy.
Income tax provision (benefit) consists of the following for the
years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Federal
|
|
$
|
(3,913,000
|
)
|
|
$
|
(7,138,000
|
)
|
|
$
|
(6,256,000
|
)
|
State
|
|
|
(1,052,000
|
)
|
|
|
(847,000
|
)
|
|
|
(568,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,965,000
|
)
|
|
|
(7,985,000
|
)
|
|
|
(6,824,000
|
)
|
Valuation allowance
|
|
|
4,965,000
|
|
|
|
7,985,000
|
|
|
|
6,824,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax assets consist of the following at December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Net operating loss carryforwards
|
|
$
|
29,834,000
|
|
|
$
|
25,667,000
|
|
|
$
|
20,382,000
|
|
Capitalized research and development expenses
|
|
|
15,539,000
|
|
|
|
17,367,000
|
|
|
|
15,656,000
|
|
Research and development credit carryforwards
|
|
|
|
|
|
|
|
|
|
|
|
|
License fees
|
|
|
525,000
|
|
|
|
703,000
|
|
|
|
546,000
|
|
Stock-based compensation expense
|
|
|
2,232,000
|
|
|
|
1,761,000
|
|
|
|
1,251,000
|
|
Other
|
|
|
2,408,000
|
|
|
|
1,457,000
|
|
|
|
1,135,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross deferred tax assets
|
|
|
50,538,000
|
|
|
|
46,955,000
|
|
|
|
38,970,000
|
|
Valuation allowance
|
|
|
(50,538,000
|
)
|
|
|
(46,955,000
|
)
|
|
|
(38,970,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A reconciliation between the amount of reported tax benefit and
the amount computed using the U.S. federal statutory rate
of 35% for the year ended December 31 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Benefit at statutory rate
|
|
$
|
(3,772,000
|
)
|
|
$
|
(7,297,000
|
)
|
|
$
|
(6,842,000
|
)
|
State taxes, net of federal benefit
|
|
|
(638,000
|
)
|
|
|
(1,206,000
|
)
|
|
|
(1,135,000
|
)
|
Research and development credit
|
|
|
|
|
|
|
|
|
|
|
758,000
|
|
Expiring state net operating loss carryforwards
|
|
|
734,000
|
|
|
|
315,000
|
|
|
|
236,000
|
|
Permanent items
|
|
|
10,000
|
|
|
|
141,000
|
|
|
|
107,000
|
|
Increase in valuation allowance
|
|
|
3,581,000
|
|
|
|
7,984,000
|
|
|
|
6,824,000
|
|
Other
|
|
|
85,000
|
|
|
|
63,000
|
|
|
|
52,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the years ended December 31, 2009, 2008 and 2007, the
Company did not record any federal or state tax expense given
its continued net operating loss position. The Company has
evaluated the positive and negative evidence bearing upon the
realizability of its deferred tax assets, which are comprised
principally of net operating losses (NOL) and
capitalized research and development expenditures. Management
has determined that it is more likely than not that the Company
will not recognize the benefits of federal and state
75
ALSERES
PHARMACEUTICALS, INC.
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
deferred tax assets and, as a result, a full valuation allowance
was established at December 31, 2009 and 2008.
A reconciliation of the unrecognized tax benefits recorded for
the year ended December 31 is as follows:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Balance at January 1
|
|
$
|
2,545,000
|
|
|
$
|
1,744,000
|
|
Additions based on tax positions related to the current year
|
|
|
253,199
|
|
|
|
801,000
|
|
Additions (reductions) for tax positions of prior years
|
|
|
|
|
|
|
|
|
Settlements
|
|
|
|
|
|
|
|
|
Lapse of applicable statute of limitations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31
|
|
$
|
2,798,199
|
|
|
$
|
2,545,000
|
|
|
|
|
|
|
|
|
|
|
The balance of unrecognized tax benefits at December 31,
2009 of approximately $2,798,199 are tax benefits that, if
recognized, would not affect the Companys effective tax
rate since they are subject to a full valuation allowance.
As of December 31, 2009, the Company had federal and state
NOL carryforwards of approximately $77,622,000 and $51,264,000
respectively and federal and state research and development
(R&D) credit carryforwards of approximately
$1,564,000 and $1,100,000, respectively, which may be available
to offset future federal and state income tax liabilities which
expire at various dates starting in 2010 and going through 2028.
Utilization of the NOL and R&D credit carryforwards may be
subject to a substantial annual limitation due to ownership
change limitations that have occurred previously or that could
occur in the future provided by Section 382 of the Internal
Revenue Code of 1986, as well as similar state and foreign
provisions. These ownership changes may limit the amount of NOL
and R&D credit carryforwards that can be utilized annually
to offset future taxable income and tax, respectively. In fiscal
year 1995 and in fiscal year 2005, the Company experienced a
change in ownership as defined by Section 382 of the
Internal Revenue Code. In general, an ownership change, as
defined by Section 382, results from transactions
increasing the ownership of certain stockholders or public
groups in the stock of a corporation by more than
50 percentage points over a three-year period. Since the
Companys formation, it has raised capital through the
issuance of capital stock on several occasions which, combined
with stockholders subsequent disposition of those shares,
has resulted in two changes of control, as defined by
Section 382. As a result of the 2005 ownership change,
utilization of the Companys NOLs is subject to an annual
limitation under Section 382 determined by multiplying the
value of our stock at the time of the ownership change by the
applicable long-term tax-exempt rate resulting in an annual
limitation amount of approximately $1,000,000. Any unused annual
limitation may be carried over to later years, and the amount of
the limitation may, under certain circumstances, be subject to
adjustment if the fair value of the Companys net assets
are determined to be below or in excess of the tax basis of such
assets at the time of the ownership change, and such unrealized
loss or gain is recognized during the five-year period after the
ownership change. Federal research and development tax credits
were also impaired by the ownership change and were reduced
accordingly. The Company does not expect to have any taxable
income for the foreseeable future. Subsequent ownership changes,
as defined in Section 382, could further limit the amount
of net operating loss carryforwards and research and development
credits that can be utilized annually to offset future taxable
income.
The Companys practice is to recognize interest and
penalties related to income tax matters in income tax expense.
The Company has no accrual for interest and penalties as of
December 31, 2009.
The Company is subject to both federal and state income tax for
the jurisdictions within which it operates, which are primarily
focused in Massachusetts. Within these jurisdictions, the
Company is open to examination for tax years ended
December 31, 2006 through December 31, 2009. However,
because we are
76
ALSERES
PHARMACEUTICALS, INC.
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
carrying forward income tax attributes, such as NOLs from 2005
and earlier tax years, these attributes can still be audited
when utilized on returns filed in the future. The
U.S. Internal Revenue Service (IRS) has proposed an audit
of tax year 2007. The company is in discussions with the IRS
regarding the timing and scope of this proposed audit.
|
|
9.
|
Commitments
and Contingencies
|
The Company recognizes and discloses commitments when it enters
into executed contractual obligations with other parties. The
Company accrues contingent liabilities when it is probable that
future expenditures will be made and such expenditures can be
reasonably estimated.
Commitments
Other commitments consist primarily of research and development
contractual obligations with third parties. The Company leases
office space under noncancelable operating leases. The
Companys current corporate office lease expires in 2011.
The Company has entered into sublease agreements for its former
corporate office lease which expires in 2012 (Note 6).
As of December 31, 2009, approximate future minimum
commitments under the above leases and other contractual
obligations are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
|
|
|
Sublease Income
|
|
|
Operating
|
|
|
|
|
Year Ended December 31,
|
|
Leases
|
|
|
(Note 6)
|
|
|
Leases, net
|
|
|
Other
|
|
|
2010
|
|
|
592,000
|
|
|
|
(231,000
|
)
|
|
|
361,000
|
|
|
|
29,000
|
|
2011
|
|
|
529,000
|
|
|
|
(231,000
|
)
|
|
|
298,000
|
|
|
|
|
|
2012
|
|
|
126,000
|
|
|
|
(96,250
|
)
|
|
|
29,750
|
|
|
|
|
|
2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thereafter
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,247,000
|
|
|
$
|
(558,250
|
)
|
|
$
|
688,750
|
|
|
$
|
29,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total rent expense under noncancelable operating leases was
approximately $277,000, $347,000 and $318,000 for the years
ended December 31, 2009, 2008, and 2007, respectively, and
approximately $3,554,000 for the period from inception
(October 16, 1992) through December 31, 2009. The
operating lease commitments above include commitments related to
the Premises (Note 6). The Company received approximately
$211,000, $211,000 and $211,000 for the years ended
December 31, 2009, 2008, and 2007, respectively, related to
the sublease of the Premises.
License
Agreements
The Company has entered into two license agreements (the
CMCC Licenses) with Childrens Medical Center
Corporation (also known as Childrens Hospital Boston)
(CMCC) to acquire the exclusive worldwide rights to
certain axon regeneration technologies and to replace the
Companys former axon regeneration licenses with CMCC. The
CMCC Licenses provide for future milestone payments of up to an
aggregate of approximately $425,000 for each product candidate
upon achievement of certain regulatory milestones.
The Company has entered into license agreements (the
Harvard License Agreements) with Harvard University
and its affiliated hospitals (Harvard and its
Affiliates) to acquire the exclusive worldwide rights to
certain technologies within its molecular imaging and
neurodegenerative disease programs. The Harvard License
Agreements obligate the Company to pay up to an aggregate of
approximately $2,520,000 in
77
ALSERES
PHARMACEUTICALS, INC.
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
milestone payments in the future. The future milestone payments
are generally payable only upon achievement of certain
regulatory milestones.
The Companys license agreements with Harvard and its
Affiliates and CMCC generally provide for royalty payments equal
to specified percentages of product sales, annual license
maintenance fees and continuing patent prosecution costs.
In December 2006, the Company entered into a license agreement
(the Cethrin License) with BioAxone Therapeutic
Inc., a Canadian corporation (BioAxone), pursuant to
which the Company was granted an exclusive, worldwide license to
develop and commercialize specified compounds including, but not
limited to, Cethrin, as further defined in the Cethrin License.
Under the Cethrin License, the Company agreed to pay $10,000,000
in up-front payments, of which it paid BioAxone $2,500,000 upon
execution of the Cethrin License and $7,500,000 in March 2007.
The Company has also agreed to pay BioAxone up to $25,000,000
upon the achievement of certain milestone events and royalties
based on the worldwide net sales of licensed products, subject
to specified minimums, in each calendar year until either the
expiration of a valid claim covering a licensed product or a
certain time period after the launch of a licensed product, in
each case applicable to the specific country. The Cethrin
License provides for a series of performance milestones any of
which, if not achieved by the Company in the timeframes agreed
in the Cethrin License, could form the basis of a claim for
compensation to BioAxone and possibly the termination of some or
all of the Companys rights under the Cethrin License. The
Cethrin License further provides the Company with relief from
its performance obligations in the event that such performance
is effectively rendered impossible due to safety or efficacy
issues with Cethrin during its development. Additionally, the
Cethrin License provides a warranty that all of the clinical
materials provided to the Company in connection with the Cethrin
License were manufactured in accordance with current Good
Manufacturing Practices (cGMP).
In January 2009, the Company received notice from BioAxone
alleging that we had failed to meet one of the performance
milestones in the Cethrin License that was required to have been
met on or before January 1, 2009. This notice purported to
terminate the Cethrin License, sought payment of a $2,000,000
penalty from us to BioAxone for such purported failure and
requested that we transfer to BioAxone our rights to the Master
Cell Bank (as defined in the Cethrin License) and all licensed
intellectual property under the Cethrin License.
We believed that the purported termination was without effect.
Our performance obligations under the Cethrin License were
specifically excused in the event that a safety issue renders
such performance impossible. Our prior discovery that the Master
Cell Bank from which Cethrin is manufactured may contain an
unintended animal derived contaminant rendering it not in
compliance with the requirements of cGMP, represented such a
safety risk for Cethrin. We notified BioAxone of the
contamination issue and our position that the purported
termination and demand for payment is considered to be without
effect.
In April 2009 we announced that we entered into an Amendment
Agreement, or the Amendment, with BioAxone Therapeutic, Inc.,
pursuant to which the license agreement between the Company and
BioAxone originally executed in December 2006, or the Cethrin
License, was amended. The Amendment replaces all of the
pre-commercial financial and performance-related milestones
contained in the Cethrin License with a formula-based approach
to sharing of any and all income under a
sub-license.
The Amendment establishes provisions under which we would use
reasonable commercial efforts to enter into a
Sub-license
Agreement for the technology covered by the Cethrin License. The
Amendment also provides for the mutual release of claims that
each party had previously alleged against the other under the
Cethrin License. During 2009 our efforts were focused on
identifying and negotiating with appropriate sublicensing
candidates. Under the terms of the Amendment Agreement, our
right to sublicense Cethrin has expired and all rights granted
to us in the License Agreement have reverted to BioAxone. The
Amendment Agreement provides that, in the event BioAxone is able
to license or partner the Cethrin technology in the future, we
are entitle to receive a 30% share of any and all proceeds
received by BioAxone connected with such transaction. It is
unclear if or when
78
ALSERES
PHARMACEUTICALS, INC.
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
BioAxone will license the Cethrin technology to a third party,
so we may not realize any revenue at all under the Amendment
Agreement.
Contingencies
The Company is subject to legal proceedings in the ordinary
course of business. One such matter involves a contract
manufacturing organization (the CMO) for the Cethrin
product. The Company was not satisfied with the services
rendered by the CMO. The two companies have had a number of
meetings to resolve the issues but have been unsuccessful. The
Company informed the CMO that the agreement between the parties
is considered terminated as the Company believes the CMO
materially breached the agreement. Based on the terms of the
agreement, the Company requested that the advance payment held
by the CMO be offset by the amount payable for work performed to
date. The CMO responded claiming they do not believe they
breached the agreement and therefore does not accept the
termination. In addition, the CMO has demanded the Company pay
them for the work performed to date. As of December 31,
2009, no amounts under the agreement with the CMO are accrued in
the accompanying Consolidated Balance Sheet relating to a
potential settlement of this matter. Included in the
accompanying Consolidated Balance Sheet is approximately
$561,000 payable to the CMO for work performed as of
December 31, 2009. The Company expensed the advance payment
of $592,000 during the year ended December 31, 2009. The
Company continues to negotiate with the CMO but there can be no
assurance as to the outcome of this matter.
On January 9, 2009, we announced that Frank Bobe, Executive
Vice President and Chief Business Officer, left our employ. On
March 4, 2009, Mr. Bobe filed a lawsuit in the state
Superior Court in Middlesex County, Massachusetts naming us as
defendant alleging breach of his employment agreement. The
complaint alleges damages in the amount of $349,063 for
severance and other benefits, plus additional attorneys
fees. On November 4, 2009, the Company entered into a
Settlement and Release Agreement with Mr. Bobe pursuant to
which all claims of Mr. Bobe against the Company and the
Company against Mr. Bobe were released in exchange for a
cash payment the amount of which is subject to the
confidentiality provisions of the Settlement and Release
Agreement. At September 30, 2009 the Company adjusted its
accrued liabilities in the accompanying statements of operations
at September 30, 2009 to reflect the outcome of this matter.
Guarantor
Arrangements
As permitted under Delaware law, the Company has entered into
agreements whereby the Company indemnifies its executive
officers and directors for certain events or occurrences while
the officer or director is, or was serving, at the
Companys request in such capacity. The term of the
indemnification period is for the officers or
directors lifetime. The maximum potential amount of future
payments the Company could be required to make under these
indemnification agreements is unlimited; however, the Company
has a director and officer insurance policy that limits the
Companys exposure and enables the Company to recover a
portion of any future amounts paid. As a result of the
Companys insurance policy coverage, the Company believes
the estimated fair value of these indemnification agreements is
minimal.
The Company enters into arrangements with certain service
providers to perform research, development, and clinical
services for the Company. Under the terms of these arrangements,
such service providers may use the Companys technologies
in performing their services. The Company enters into standard
indemnification agreements with those service providers, whereby
the Company indemnifies them for any liability associated with
their use of the Companys technologies. The maximum
potential amount of future payments the Company would be
required to make under these indemnification agreements is
unlimited; however, the Company has product liability and
general liability policies that enable the Company to recover a
portion of any amounts paid. As a result of the Companys
insurance policy coverage, the Company believes the estimated
fair value of these indemnification agreements is minimal.
79
ALSERES
PHARMACEUTICALS, INC.
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In connection with the retirement of S. David Hillson, our
former Chairman of the Board and Chief Executive Officer,
Mr. Hillson made a written request under the terms of his
indemnity agreement with the Company that the Company create an
indemnity trust for his benefit and fund the trust in the amount
of $100,000. In response to the request, on June 15, 2004,
the Company entered into a directors and officers indemnity
trust agreement with Mr. Hillson and Boston Private
Bank & Trust Company, as trustee (the
Indemnity Trust Agreement), and funded the
trust with $100,000. Mr. Hillson may, from time to time,
request withdrawals of funds from the trust in the event that he
becomes entitled to receive indemnification payments or advances
from the Company. Any amounts not disbursed from the indemnity
trust will become unrestricted at such time as the Company and
Mr. Hillson agree that the indemnity trust is no longer
required. ASC 460, which is the Codification of FASB
Interpretation No. 45, Guarantors Accounting
and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others
(FIN 45) requires that upon issuance of a
guarantee, the guarantor must recognize a liability for the fair
value of the obligation it assumes under that guarantee. As
required under the provisions of ASC 460, the Company has
evaluated its obligations under the Indemnity
Trust Agreement and has determined that the fair value of
this obligation is immaterial at December 31, 2009.
|
|
10.
|
Related
Party Transactions
|
In September 2006, the Company entered into a consulting
agreement with Dr. Langer, a member of the Companys
board of directors, for scientific and business consulting
services. This Agreement terminated in December 2009. The
Company recorded consulting fees totaling approximately $53,000,
$53,000 and $53,000 during the years ended December 31,
2009, 2008 and 2007, respectively under the consulting agreement.
Robert
L. Gipson, Thomas L. Gipson & Arthur
Koenig
Robert Gipson was a director of the Company from June 2004
through October 2004. Robert Gipson is a Senior Director of
I&S. Boucher is a Managing Director of I&S. ISVP is an
investment partnership managed under an investment advisory
contract with I&S. Robert Gipson and Boucher are the
general partners of ISVP and share the power to vote securities
of the Company held by ISVP.
The Company amended its Rights Plan in connection with
agreements with Robert Gipson, Boucher, I&S and ISVP
(Note 6).
In March 2007, the Company issued the Amended Notes to Robert
Gipson and Thomas Gipson (Note 4).
In March 2008, the Company entered into the March 2008 Amended
Purchase Agreement with Robert Gipson, Thomas Gipson, Arthur
Koenig, Highbridge and ISVP (Note 4).
In June 2008, the Company entered into the June 2008 Purchase
Agreement with Robert Gipson (Note 5).
In November 2008, the Company issued and sold an aggregate of
543,478 shares of its common stock at a purchase price of
$1.84 per share in a private placement (Note 6) to
Robert Gipson.
In January 2009, the Company sold an aggregate of
1,000,000 shares of its common stock at a purchase price of
$1.00 per share in a private placement (Note 6) to
Robert Gipson.
In February 2009, the Subsidiary issued to Robert Gipson the
Subsidiary Note (Note 5).
In March through September 2009, the Company sold Series F
Stock to Robert Gipson (Note 6).
In November 2009 the Company sold common stock to Robert Gipson
(Note 6)
In December 2009 the Company issued a promissory note to Robert
Gipson in the amount of $350,000 and payable on demand. The Note
bears interest at the rate of 7% per annum. (Note 4)
80
ALSERES
PHARMACEUTICALS, INC.
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
11.
|
Employee
Benefit Plan
|
The Company maintains a savings plan (the Plan) with
employer matching provisions which was designed to be qualified
under Section 401(k) of the Internal Revenue Code. Eligible
employees are permitted to contribute to the Plan through
payroll deductions within statutory and Plan limits. For the
years ended December 31, 2009, 2008 and 2007, the Company
made matching contributions of approximately $25,000, $264,000
and $347,000, respectively, to the Plan.
|
|
12.
|
Supplementary
Quarterly Financial Data (Unaudited)
|
The following tables present a summary of quarterly consolidated
results of operations for the years ended December 31, 2009
and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
March 31,
|
|
|
June 30,
|
|
|
September 30,
|
|
|
December 31,
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Net loss
|
|
|
(4,348,356
|
)
|
|
|
(2,614,080
|
)
|
|
|
(2,060,300
|
)
|
|
|
(1,754,201
|
)
|
Basic and diluted net loss per common share
|
|
$
|
(0.19
|
)
|
|
$
|
(0.11
|
)
|
|
$
|
(0.09
|
)
|
|
$
|
(0.07
|
)
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Net loss
|
|
|
(5,325,938
|
)
|
|
|
(6,114,786
|
)
|
|
|
(5,111,315
|
)
|
|
|
(4,295,420
|
)
|
Basic and diluted net loss per common share
|
|
$
|
(0.26
|
)
|
|
$
|
(0.29
|
)
|
|
$
|
(0.25
|
)
|
|
$
|
(0.20
|
)
|
81
|
|
Item 9.
|
Changes
in and Disagreements with Accountants on Accounting and
Financial Disclosure.
|
Not applicable.
|
|
Item 9A(T).
|
Controls
and Procedures.
|
Disclosure
Controls and Procedures
Our management, with the participation of our chief executive
officer and chief financial officer, evaluated the effectiveness
of our disclosure controls and procedures as of
December 31, 2009. The term disclosure controls and
procedures, as defined in
Rules 13a-15(e)
and
15d-15(e)
under the Exchange Act, means controls and other procedures of a
company that are designed to ensure that information required to
be disclosed by the Company in the reports that it files or
submits under the Exchange Act is recorded, processed,
summarized and reported, within the time periods specified in
the SECs rules and forms. Disclosure controls and
procedures include, without limitation, controls and procedures
designed to ensure that information required to be disclosed by
a company in the reports that it files or submits under the
Exchange Act is accumulated and communicated to the
companys management, including its principal executive and
principal financial officers, as appropriate to allow timely
decisions regarding required disclosure. Management recognizes
that any controls and procedures, no matter how well designed
and operated, can provide only reasonable assurance of achieving
their objectives and management necessarily applies its judgment
in evaluating the cost-benefit relationship of possible controls
and procedures. Based on this evaluation our chief executive
officer and chief financial officer concluded that, as of
December 31, 2009, our disclosure controls and procedures
were effective at the reasonable assurance level. During the
fiscal quarter ended March 31, 2010, our corporate
controller left the company. In light of resource constraints we
have no plans to replace this individual with a full time
employee. We are utilizing the services of temporary accounting
staff and management will continually assess the effectiveness
of our internal control over financial reporting during the
upcoming fiscal year.
Internal
Control Over Financial Reporting
Managements
Annual Report on Internal Control Over Financial
Reporting
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting for the
Company. Internal control over financial reporting is defined in
Rule 13a-15(f)
or 15d-15(f)
promulgated under the Securities Exchange Act of 1934 as a
process designed by, or under the supervision of, the
Companys principal executive and principal financial
officers and effected by the Companys board of directors,
management and other personnel, to provide reasonable assurance
regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in
accordance with generally accepted accounting principals and
includes those policies and procedures that:
|
|
|
|
|
Pertain to the maintenance of records that in reasonable detail
accurately and fairly reflect the transactions and dispositions
of the assets of the company;
|
|
|
|
Provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and
that receipts and expenditures of the company are being made
only in accordance with authorizations of management and
directors of the company; and
|
|
|
|
Provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use or disposition of the
companys assets that could have a material effect on the
financial statements.
|
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Projections of any evaluation of effectiveness to future periods
are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
Our management, with the participation of our principal
executive and principal financial officers, assessed the
effectiveness of our internal control over financial reporting
as of December 31, 2009. In making this assessment, our
management used the criteria set forth by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO) in
Internal Control-Integrated Framework.
82
Based on our assessment, management concluded that, as of
December 31, 2009, our internal control over financial
reporting is effective based on those criteria set forth.
The annual report does not include an attestation report of our
registered public accounting firm regarding internal control
over financial reporting. Managements report was not
subject to attestation by our registered public accounting firm
pursuant to temporary rules of the Securities and Exchange
Commission that permit us to provide only managements
report in this annual report.
Changes
in Internal Control Over Financial Reporting
No change in our internal control over financial reporting (as
defined in
Rules 13a-15(f)
and
15d-15(f)
under the Exchange Act) occurred during the fiscal quarter ended
December 31, 2009 that has materially affected, or is
reasonably likely to materially affect, our internal control
over financial reporting. During the fiscal quarter ended
March 31, 2010, our corporate controller left the company.
In light of resource constraints we have no plans to replace
this individual with a full time employee. We are utilizing the
services of temporary accounting staff and management will
continually assess the effectiveness of our internal control
over financial reporting during the upcoming fiscal year.
|
|
Item 9B.
|
Other
Information.
|
In January 2010 the Company amended the Purchase Agreements
covering its convertible promissory notes to provide the Company
with the ability to borrow up to an additional $5,000,000 on
terms acceptable to the Companys Board of Directors.
In each of January, February and March 2010 the Company issued
Promissory Notes to Mr. Robert Gipson totaling $800,000.
The Notes bear interest at 7% per annum and are due and payable
on demand.
In January 2010 the Company announced that 4 of its
7 directors had resigned their positions effective
immediately. These directors were Messrs. Brem, Frashier,
Preston and Langer. At the time of their resignations and at
March 31, 2010 these directors were owed a total of
approximately $250,000 in fees for past services as board
members.
83
PART III
|
|
Item 10.
|
Directors,
Executive Officers and Corporate Governance.
|
Code of
Business Conduct and Ethics
The Company has adopted a Code of Business Conduct and Ethics
(Code). The Code constitutes the Companys Code
of Ethics applicable for all of the Companys directors,
officers and employees. The Code is intended to promote honest
and ethical conduct, full and accurate reporting, and compliance
with laws as well as other matters. The Code can be found on our
web site, which is located at www.alseres.com. We intend to make
all required disclosures concerning any amendments to, or
waivers from, our code of ethics on our web site.
All other information required by this Item 10, with
respect to our directors, nominees for election, executive
officers, and audit committee is incorporated by reference to
the information under the headings Election of
Directors, Executive Officers,
Section 16(a) Beneficial Ownership Reporting
Compliance and Corporate Governance in the
Companys definitive Proxy Statement for the 2010 Annual
Meeting of Stockholders to be filed by the Company with the
Securities and Exchange Commission within 120 days after
the close of its fiscal year.
|
|
Item 11.
|
Executive
Compensation.
|
The information required by this Item 11 is hereby
incorporated by reference to the information under the heading
Executive Compensation in the Companys
definitive Proxy Statement for the 2010 Annual Meeting of
Stockholders to be filed with the Securities and Exchange
Commission within 120 days after the close of its fiscal
year. The information specified in Item 407(e)(5) is not
incorporated by reference.
|
|
Item 12.
|
Security
Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters.
|
The information required by this Item 12 is hereby
incorporated by reference to the information under the heading
Security Ownership of certain Beneficial Owners and
Management in the Companys definitive Proxy
Statement for the 2010 Annual Meeting of Stockholders to be
filed with the Securities and Exchange Commission within
120 days after the close of its fiscal year.
|
|
Item 13.
|
Certain
Relationships and Related Transactions, and Director
Independence.
|
We have entered into indemnity agreements with each of our
directors and executive officers containing provisions that may
require us, among other things, to indemnify those directors and
officers against liabilities that may arise by reason of their
status or service as directors and officers. The agreements also
provide for us to advance to the directors and officers expenses
that they expect to incur as a result of any proceeding against
them related to their service as directors and officers.
All other information required by this Item 13 is hereby
incorporated by reference to the information under the headings
Certain Relationships and Related Transactions and
Corporate Governance in the Companys
definitive Proxy Statement for the 2010 Annual Meeting of
Stockholders to be filed with the Securities and Exchange
Commission within 120 days after the close of its fiscal
year.
|
|
Item 14.
|
Principal
Accountant Fees and Services.
|
The information required by this Item 14 is hereby
incorporated by reference to the information under the heading
Auditors Fees in the Companys definitive
Proxy Statement for the 2010 Annual Meeting of Stockholders to
be filed with the Securities and Exchange Commission within
120 days after the close of its fiscal year.
84
PART IV
|
|
Item 15.
|
Exhibits
and Financial Statement Schedules.
|
(a) The following documents are included as part of this
Annual Report on
Form 10-K.
1. Financial Statements:
|
Consolidated Financial Statements of the Company:
|
Consolidated Balance Sheets at December 31, 2009 and 2008
|
Consolidated Statements of Operations for the fiscal years ended
December 31, 2009, 2008 and 2007 and for the period from
inception (October 16, 1992) through December 31,
2009
|
Consolidated Statements of Comprehensive Loss and
Stockholders (Deficit) Equity for the fiscal years ended
December 31, 2009, 2008 and 2007 and for the period from
inception (October 16, 1992) through December 31,
2009
|
Consolidated Statements of Cash Flows for the fiscal years ended
December 31, 2009, 2008 and 2007, and for the period from
inception (October 16, 1992) through December 31,
2009
|
Notes to Consolidated Financial Statements
|
2. Financial Statement Schedules:
Schedules are omitted since the required information is not
applicable or is not present in amounts sufficient to require
submission of the schedule, or because the information required
is included in the Consolidated Financial Statements or Notes
thereto.
3. Exhibits:
The Exhibits listed in the Exhibit Index immediately
preceding the Exhibits are filed as a part of this Annual Report
on
Form 10-K.
85
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 this 31st day of March, 2010.
Alseres Pharmaceuticals,
Inc.
Peter G. Savas
Chairman and Chief Executive Officer
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/ Peter
G. Savas
Peter
G. Savas
|
|
Chairman and Chief Executive Officer (Principal Executive
Officer)
|
|
March 31, 2010
|
|
|
|
|
|
/s/ Kenneth
L. Rice, Jr.
Kenneth
L. Rice, Jr.
|
|
Executive Vice President Finance and Administration and Chief
Financial Officer (Principal Financial and Accounting Officer)
|
|
March 31, 2010
|
|
|
|
|
|
/s/ William
L.S. Guinness
William
L.S. Guinness
|
|
Director
|
|
March 31, 2010
|
|
|
|
|
|
/s/ Michael
J. Mullen
Michael
J. Mullen
|
|
Director
|
|
March 31, 2010
|
86
EXHIBIT INDEX
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incorporated by Reference to
|
Exhibit
|
|
|
|
|
|
Exhibit
|
|
Filing
|
|
SEC File
|
Number
|
|
Description
|
|
Form
|
|
Number
|
|
Date
|
|
Number
|
|
Articles of Incorporation and By-Laws
|
|
3
|
.1
|
|
Amended and Restated Certificate of Incorporation, dated March
28, 1996
|
|
10-K/A for
12/31/1998
|
|
3.1
|
|
3/19/1999
|
|
000-6533
|
|
3
|
.2
|
|
Certificate of Amendment of Certificate of Incorporation, dated
June 6, 1997
|
|
10-K/A for
12/31/1998
|
|
3.1
|
|
3/19/1999
|
|
000-6533
|
|
3
|
.3
|
|
Certificate of Amendment of Amended and Restated Certificate of
Incorporation, dated June 28, 1999
|
|
10-Q for
9/30/1999
|
|
3.5
|
|
11/15/1999
|
|
000-6533
|
|
3
|
.4
|
|
Certificate of Amendment of Amended and Restated Certificate of
Incorporation, dated June 14, 2000
|
|
10-K for
12/31/2000
|
|
3.3
|
|
3/29/2001
|
|
000-6533
|
|
3
|
.5
|
|
Certificate of Correction to the Amended and Restated
Certificate of Incorporation, dated March 14, 2001
|
|
10-K for
12/31/2000
|
|
3.3
|
|
3/29/2001
|
|
000-6533
|
|
3
|
.6
|
|
Form of Certificate of Amendment of Amended and Restated
Certificate of Incorporation dated June 11, 2002
|
|
Proxy Statement
|
|
App. A
|
|
5/1/2002
|
|
000-6533
|
|
3
|
.7
|
|
Certificate of Amendment of Amended and Restated Certificate of
Incorporation of the Company, dated as of July 9, 2003
|
|
10-Q for
6/30/2003
|
|
3.1
|
|
8/13/2003
|
|
000-6533
|
|
3
|
.8
|
|
Certificate of Amendment of Amended and Restated Certificate of
Incorporation of the Company, dated as of August 5, 2004
|
|
10-Q for
6/30/2004
|
|
3.1
|
|
8/13/2004
|
|
000-6533
|
|
3
|
.9
|
|
Certificate of Amendment of Amended and Restated Certificate of
Incorporation of the Company, dated as of February 4, 2005
|
|
8-K
|
|
3.1
|
|
2/7/2005
|
|
000-6533
|
|
3
|
.10
|
|
Certificate of Amendment of Amended and Restated Certificate of
Incorporation of the Company, dated as of June 7, 2007
|
|
8-K
|
|
3.1
|
|
6/8/2007
|
|
000-6533
|
|
3
|
.11
|
|
Amended and Restated By-Laws, effective as of December 6, 2007
|
|
8-K
|
|
3.1
|
|
12/7/2007
|
|
000-6533
|
Instruments Defining the Rights of Security Holders
|
|
4
|
.1
|
|
Specimen certificate evidencing shares of common stock, par
value $.01 per share
|
|
10-Q for
6/30/2007
|
|
4.1
|
|
8/14/2007
|
|
000-6533
|
Series D
|
|
4
|
.2
|
|
Restated Certificate of Designations, Preferences, and Rights of
Series D Preferred Stock
|
|
8-A/A
|
|
Ex. A to 3.3
|
|
9/13/2001
|
|
000-6533
|
Series F
|
|
4
|
.3
|
|
Certificate of Designations, Preferences, and Rights of Series F
Convertible Preferred Stock
|
|
8-K
|
|
4.1
|
|
3/25/2009
|
|
000-6533
|
Rights Agreement
|
|
4
|
.4
|
|
Rights Agreement, dated as of September 11, 2001, including the
form of Certificate of Designation with Respect to the Series D
Preferred Stock and the form of Rights Certificate, between the
Company and Continental Stock Transfer & Trust Company, as
Rights Agent (the Rights Agreement)
|
|
8-A/A
|
|
1
|
|
9/13/2001
|
|
000-6533
|
87
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incorporated by Reference to
|
Exhibit
|
|
|
|
|
|
Exhibit
|
|
Filing
|
|
SEC File
|
Number
|
|
Description
|
|
Form
|
|
Number
|
|
Date
|
|
Number
|
|
|
4
|
.5
|
|
Amendment No. 1 to the Rights Agreement, dated November 13, 2001
|
|
8-A/A
|
|
2
|
|
11/25/2002
|
|
000-6533
|
|
4
|
.6
|
|
Amendment No. 2 to the Rights Agreement, dated November 22, 2002
|
|
8-A/A
|
|
3
|
|
11/25/2002
|
|
000-6533
|
|
4
|
.7
|
|
Amendment No. 3 to the Rights Agreement, dated March 12, 2003
|
|
8-K
|
|
99.6
|
|
3/13/2003
|
|
000-6533
|
|
4
|
.8
|
|
Amendment No. 4 to the Rights Agreement, dated December 23, 2003
|
|
8-A/A
|
|
5
|
|
12/29/2003
|
|
000-6533
|
|
4
|
.9
|
|
Amendment No. 5 to the Rights Agreement, dated March 14, 2005
|
|
8-K
|
|
4.1
|
|
3/15/2005
|
|
000-6533
|
Miscellaneous
|
|
4
|
.10
|
|
Form of Warrant issued by the Company under the Securities
Purchase Agreement dated November 20, 2008
|
|
8-K
|
|
10.2
|
|
11/25/2008
|
|
000-6533
|
|
4
|
.11
|
|
Promissory Note dated February 11, 2009 issued by
Neurobiologics, Inc. to Robert L. Gipson
|
|
8-K
|
|
10.1
|
|
2/18/2009
|
|
000-6533
|
Ingalls
|
|
4
|
.12
|
|
Amended and Restated Registration Rights Agreement, dated as of
March 9, 2005, by and among the Company and Ingalls, Robert L.
Gipson and Nickolaos D. Monoyios and other Investors
|
|
10-K for
12/31/2004
|
|
10.42
|
|
3/31/2005
|
|
000-6533
|
|
4
|
.13
|
|
Amendment No. 1, dated August 30, 2005, to the Amended and
Restated Registration Rights Agreement, dated as of March 9,
2005, by and among the Company and Ingalls, Robert L. Gipson and
Nickolaos D. Monoyios and other Investors
|
|
10-Q for
9/30/2005
|
|
10.6
|
|
11/14/2005
|
|
000-6533
|
|
4
|
.14
|
|
Common Stock Purchase Agreement, dated March 9, 2005, by and
among the Company, Ingalls and other Investors
|
|
10-K for
12/31/2004
|
|
10.41
|
|
3/31/2005
|
|
000-6533
|
|
4
|
.15
|
|
Common Stock Purchase Agreement, dated August 30, 2005, by and
among the Company, Ingalls and other Investors
|
|
10-Q for
9/30/2005
|
|
10.5
|
|
11/14/2005
|
|
000-6533
|
|
4
|
.16
|
|
Mutual Release of Claims, dated as of June 15, 2004, by and
among the Company, S. David Hillson, Marc E. Lanser, Robert L.
Gipson, Thomas O. Boucher, Jr., Ingalls & Snyder, LLC and
Ingalls
|
|
8-K
|
|
99.3
|
|
6/17/2004
|
|
000-6533
|
Material Contracts Supply, License, Distribution
|
CMCC
|
|
10
|
.1+
|
|
License Agreement between CMCC and the Company dated as of May
10, 2006 (Dr. Larry Benowitz) (relating to INOSINE)
|
|
10-Q for
6/30/2006
|
|
10.1
|
|
8/14/2006
|
|
000-6533
|
|
10
|
.2+
|
|
License Agreement between CMCC and the Company dated as of May
10, 2006 (Dr. Zhigang He) (relating to Oncomodulin)
|
|
10-Q for
6/30/2006
|
|
10.2
|
|
8/14/2006
|
|
000-6533
|
88
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incorporated by Reference to
|
Exhibit
|
|
|
|
|
|
Exhibit
|
|
Filing
|
|
SEC File
|
Number
|
|
Description
|
|
Form
|
|
Number
|
|
Date
|
|
Number
|
|
Harvard
|
|
10
|
.3
|
|
License Agreement between President and Fellows of Harvard
College (Harvard) and NeuroBiologics, Inc. (a
subsidiary of the Company) dated as of December 10, 1993
(relating to ALTROPANE)
|
|
S-4
|
|
10.16
|
|
4/12/1995
|
|
333-91106
|
|
10
|
.4
|
|
Amendment, dated May 7, 2004, to License Agreement between
Harvard and the Company dated as of December 10, 1993 (relating
to ALTROPANE)
|
|
10-Q for
6/30/2005
|
|
10.6
|
|
8/15/2005
|
|
000-6533
|
|
10
|
.5
|
|
License Agreement between Harvard and the Company dated as of
March 15, 2000 (relating to ALTROPANE)
|
|
S-3/A
|
|
10.11
|
|
9/3/2002
|
|
333-88726
|
|
10
|
.6
|
|
Amendment, dated May 11, 2004, to License Agreement between
Harvard and the Company dated as of March 15, 2000 (relating to
ALTROPANE)
|
|
10-Q for
6/30/2005
|
|
10.4
|
|
8/15/2005
|
|
000-6533
|
|
10
|
.7
|
|
License Agreement, effective as of October 15, 1996, between
Harvard and the Company; as amended on August 22, 2001 and on
May 4, 2004 (relating to FLUORATEC)
|
|
10-Q for
9/30/2005
|
|
10.8
|
|
11/14/2005
|
|
000-6533
|
|
10
|
.8
|
|
Third Amendment, dated April 1, 2007, to License Agreement
between Harvard and the Company dated as of October 15, 1996, as
amended on August 22, 2001 and on May 4, 2004 (relating to
FLUORATEC)
|
|
10-Q for
3/31/2007
|
|
10.2
|
|
5/15/2007
|
|
000-6533
|
Nordion
|
|
10
|
.9+
|
|
Manufacturing Agreement dated August 9, 2000 between the Company
and MDS Nordion, Inc. (Nordion Agreement)
|
|
10-K for
12/31/2001
|
|
10.15
|
|
3/29/2002
|
|
000-6533
|
|
10
|
.10+
|
|
Amendment dated August 23, 2001 to Nordion Agreement
|
|
10-K for
12/31/2001
|
|
10.16
|
|
3/29/2002
|
|
000-6533
|
|
10
|
.11
|
|
Amendment No. 2 dated as of September 18, 2002 to Nordion
Agreement
|
|
10-K for
12/31/2002
|
|
10.16
|
|
3/31/2003
|
|
000-6533
|
|
10
|
.12
|
|
Amendment No. 3 dated as of November 22, 2003 to Nordion
Agreement
|
|
10-K for
12/31/2003
|
|
10.17
|
|
3/30/2004
|
|
000-6533
|
|
10
|
.13+
|
|
Amendment No. 4 dated as of December 22, 2004 to Nordion
Agreement
|
|
10-K for
12/31/2004
|
|
10.48
|
|
3/31/2005
|
|
000-6533
|
|
10
|
.14+
|
|
Amendment No. 5 dated as of January 24, 2005 to Nordion Agreement
|
|
10-K for
12/31/2004
|
|
10.48
|
|
3/31/2005
|
|
000-6533
|
|
10
|
.15+
|
|
Amendment No. 6 dated as of December 19, 2005 to Nordion
Agreement
|
|
8-K
|
|
99.1
|
|
12/19/2005
|
|
000-6533
|
|
10
|
.16+
|
|
Amendment No. 7 dated as of December 7, 2006 to Nordion Agreement
|
|
8-K
|
|
10.1
|
|
12/8/2006
|
|
000-6533
|
|
10
|
.17+
|
|
Amendment No. 8 dated as of December 4, 2007 to Nordion Agreement
|
|
8-K
|
|
10.1
|
|
12/7/2007
|
|
000-6533
|
|
10
|
.18+
|
|
Amendment No. 9 dated as of December 3, 2008 to Nordion Agreement
|
|
8-K
|
|
10.1
|
|
12/8/2008
|
|
000-6533
|
89
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incorporated by Reference to
|
Exhibit
|
|
|
|
|
|
Exhibit
|
|
Filing
|
|
SEC File
|
Number
|
|
Description
|
|
Form
|
|
Number
|
|
Date
|
|
Number
|
|
|
10
|
.19+
|
|
Amendment No. 10 dated as of January 4 , 2010 to Nordion
Agreement
|
|
*
|
|
|
|
|
|
|
Organix
|
|
10
|
.20
|
|
License Agreement, effective as of July 1, 2000, between
Organix, Inc. and the Company (Organix Agreement)
(relating to 0-1369)
|
|
10-Q for
9/30/2005
|
|
10.7
|
|
11/14/2005
|
|
000-6533
|
|
10
|
.21
|
|
Amendment, dated May 11, 2004, to Organix Agreement (relating to
0-1369)
|
|
10-Q for
9/30/2005
|
|
10.7
|
|
11/14/2005
|
|
000-6533
|
|
10
|
.22
|
|
Second Amendment, dated April 1, 2007, to Organix Agreement
(relating to 0-1369)
|
|
10-Q for
3/31/2007
|
|
10.3
|
|
5/15/2007
|
|
000-6533
|
BioAxone
|
|
10
|
.23+
|
|
License Agreement, dated December 28, 2006, by and between the
Company and BioAxone Therapeutic Inc. (BioAxone Agreement)
(relating to CETHRIN)
|
|
8-K
|
|
10.1
|
|
1/4/2007
|
|
000-6533
|
|
10
|
.24+
|
|
First Amendment, dated March 23, 2007, to BioAxone Agreement
(relating to CETHRIN)
|
|
10-Q for
3/31/2007
|
|
10.1
|
|
5/15/2007
|
|
000-6533
|
|
10
|
.25
|
|
Amendment to BioAxone License Agreement dated as of April 23,
2009
|
|
*
|
|
|
|
|
|
|
Material Contracts Leases
|
|
10
|
.24
|
|
Lease Agreement, dated as of January 28, 2002, between the
Company and Brentwood Properties, Inc. (Brentwood)
|
|
10-K for
12/31/2004
|
|
10.47
|
|
3/31/2005
|
|
000-6533
|
|
10
|
.25
|
|
Amendment of Lease, dated September 9, 2005, by and between
Brentwood and the Company
|
|
10-Q for
9/30/2005
|
|
10.1
|
|
11/14/2005
|
|
000-6533
|
|
10
|
.26
|
|
Lease Agreement, dated as of June 9, 2005, by and between Straly
Corporation and the Company
|
|
10-Q for
6/30/2005
|
|
10.3
|
|
8/15/2005
|
|
000-6533
|
|
10
|
.27
|
|
Sublease, dated September 9, 2005, by and between Small Army,
Inc. and the Company
|
|
10-Q for
9/30/2005
|
|
10.2
|
|
11/14/2005
|
|
000-6533
|
|
10
|
.28
|
|
Sublease, dated September 9, 2005, by and between Dell Mitchell
Architects, Inc. and the Company
|
|
10-Q for
9/30/2005
|
|
10.3
|
|
11/14/2005
|
|
000-6533
|
Material Contracts Stock Purchase, Financing and
Credit Agreements
|
|
10
|
.29
|
|
Third Amended and Restated Convertible Promissory Note Purchase
Agreement (unsecured), dated March 18, 2008 by and among the
Company and the purchasers listed therein
|
|
8-K
|
|
10.1
|
|
3/20/2008
|
|
000-6533
|
|
10
|
.30
|
|
Convertible Promissory Note Purchase Agreement (unsecured) dated
June 25, 2008, by and between the Company and Robert L. Gipson
|
|
8-K
|
|
10.1
|
|
6/30/2008
|
|
000-6533
|
|
10
|
.31
|
|
Securities Purchase Agreement, dated November 20, 2008, by and
between the Company and Robert L. Gipson
|
|
8-K
|
|
10.1
|
|
11/25/2008
|
|
000-6533
|
|
10
|
.32
|
|
Letter Agreement, dated November 20, 2008, by and between the
Company and Robert L. Gipson
|
|
8-K
|
|
10.3
|
|
11/25/2008
|
|
000-6533
|
|
10
|
.33
|
|
Securities Purchase Agreement, dated January 8, 2009, by and
between the Company and Robert L. Gipson
|
|
*
|
|
|
|
|
|
|
90
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incorporated by Reference to
|
Exhibit
|
|
|
|
|
|
Exhibit
|
|
Filing
|
|
SEC File
|
Number
|
|
Description
|
|
Form
|
|
Number
|
|
Date
|
|
Number
|
|
|
10
|
.34
|
|
Securities Purchase Agreement, dated February 24, 2009, by and
between the Company and Cato Holding Company
|
|
8-K
|
|
10.1
|
|
2/27/2009
|
|
000-6533
|
|
10
|
.35
|
|
Letter Agreement, dated February 24, 2009, by and between the
Company and Cato BioVentures
|
|
8-K
|
|
10.2
|
|
2/27/2009
|
|
000-6533
|
|
10
|
.36
|
|
Securities Purchase Agreement, dated March 19, 2009, by and
between the Company and Robert L. Gipson
|
|
8-K
|
|
10.1
|
|
3/25/2009
|
|
000-6533
|
|
10
|
.37
|
|
Securities Purchase Agreement, dated April 16, 2009, by and
between the Company and Robert L. Gipson
|
|
8-K
|
|
10.7
|
|
4/22/2009
|
|
000-6533
|
|
10
|
.38
|
|
Securities Purchase Agreement, dated May 12, 2009, by and
between the Company and Robert L. Gipson
|
|
10-Q
|
|
10.2
|
|
8/14/2009
|
|
000-6533
|
|
10
|
.39
|
|
Securities Purchase Agreement, dated June 10, 2009, by and
between the Company and Robert L. Gipson
|
|
8-K
|
|
10.7
|
|
6/22/2009
|
|
000-6533
|
|
10
|
.40
|
|
Securities Purchase Agreement, dated July 9, 2009, by and
between the Company and Robert L. Gipson
|
|
8-K
|
|
10.7
|
|
7/13/2009
|
|
000-6533
|
|
10
|
.41
|
|
Securities Purchase Agreement, dated July 23, 2009, by and
between the Company and Robert L. Gipson
|
|
8-K
|
|
10.7
|
|
7/29/2009
|
|
000-6533
|
|
10
|
.42
|
|
Securities Purchase Agreement, dated August 11, 2009, by and
between the Company and Robert L. Gipson
|
|
*
|
|
|
|
|
|
|
|
10
|
.43
|
|
Securities Purchase Agreement, dated August 26, 2009, by and
between the Company and Robert L. Gipson
|
|
8-K
|
|
10.7
|
|
9/1/2009
|
|
000-6533
|
|
10
|
.44
|
|
Securities Purchase Agreement, dated September 10, 2009, by and
between the Company and Robert L. Gipson
|
|
8-K
|
|
10.7
|
|
9/16/2009
|
|
000-6533
|
|
10
|
.45
|
|
Securities Purchase Agreement, dated September 28, 2009, by and
between the Company and Robert L. Gipson
|
|
8-K
|
|
10.7
|
|
10/2/2009
|
|
000-6533
|
|
10
|
.46
|
|
Securities Purchase Agreement, dated November 4, 2009, by and
between the Company and Robert L. Gipson
|
|
8-K
|
|
10.7
|
|
11/10/2009
|
|
000-6533
|
|
10
|
.47
|
|
Promissory Note issued by the Company to Robert Gipson dated
December 23, 2009
|
|
8-K
|
|
10.7
|
|
12/28/2009
|
|
000-6533
|
|
10
|
.48
|
|
Promissory Note issued by the Company to Robert Gipson dated
January 28, 2010
|
|
8-K
|
|
10.7
|
|
1/28/2010
|
|
000-6533
|
|
10
|
.49
|
|
Promissory Note issued by the Company to Robert Gipson dated
February 10, 2010
|
|
*
|
|
|
|
|
|
|
|
10
|
.50
|
|
Promissory Note issued by the Company to Robert Gipson dated
February 26, 2010
|
|
8-K
|
|
10.7
|
|
3/4/2010
|
|
000-6533
|
|
10
|
.51
|
|
Promissory Note issued by the Company to Robert Gipson dated
March 9, 2010
|
|
*
|
|
|
|
|
|
|
91
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incorporated by Reference to
|
Exhibit
|
|
|
|
|
|
Exhibit
|
|
Filing
|
|
SEC File
|
Number
|
|
Description
|
|
Form
|
|
Number
|
|
Date
|
|
Number
|
|
|
10
|
.52
|
|
Promissory Note issued by the Company to Robert Gipson dated
March 25, 2010
|
|
*
|
|
|
|
|
|
|
Management Contract or Compensatory Plan or Arrangement
|
|
10
|
.53#
|
|
Non-Employee Director Compensation Summary
|
|
*
|
|
|
|
|
|
|
|
10
|
.54#
|
|
Executive Officer Compensation Summary
|
|
*
|
|
|
|
|
|
|
|
10
|
.55#
|
|
Form of Indemnity for Directors and Executive Officers
|
|
10-K for
12/31/2003
|
|
10.32
|
|
3/30/2004
|
|
000-6533
|
|
10
|
.56#
|
|
Form of Incentive Stock Option Agreement, as amended
|
|
10-Q for
3/31/2005
|
|
10.1
|
|
5/16/2005
|
|
000-6533
|
|
10
|
.57#
|
|
Form of Non-Statutory Stock Option Agreement, as amended
|
|
10-Q for
3/31/2005
|
|
10.2
|
|
5/16/2005
|
|
000-6533
|
|
10
|
.58#
|
|
Form of Incentive Stock Option Agreement for 2005 Stock
Incentive Plan
|
|
10-K for
12/31/2005
|
|
10.54
|
|
3/31/2006
|
|
000-6533
|
|
10
|
.59#
|
|
Form of Non-Statutory Stock Option Agreement for 2005 Stock
Incentive Plan
|
|
10-K for
12/31/2005
|
|
10.55
|
|
3/31/2006
|
|
000-6533
|
|
10
|
.60#
|
|
Amended and Restated 1990 Non-Employee Directors Non
Qualified Stock Option Plan, as amended
|
|
10-K for
12/31/2008
|
|
10.44
|
|
3/31/2009
|
|
000.6533
|
|
10
|
.61#
|
|
Amended and Restated Omnibus Stock Option Plan
|
|
10-K for
12/31/2008
|
|
10.45
|
|
3/31/2009
|
|
000.6533
|
|
10
|
.62#
|
|
Amended and Restated 1998 Omnibus Stock Option Plan
|
|
10-K for
12/31/2008
|
|
10.46
|
|
3/31/2009
|
|
000.6533
|
|
10
|
.63#
|
|
Amended and Restated 2005 Stock Incentive Plan
|
|
10-K for
12/31/2008
|
|
10.47
|
|
3/31/2009
|
|
000.6533
|
|
10
|
.64#
|
|
Director and Officer Indemnity Trust Agreement, dated June 15,
2004, between S. David Hillson, Boston Private Bank & Trust
Company and the Company
|
|
8-K
|
|
99.6
|
|
6/17/2004
|
|
000-6533
|
|
10
|
.65#
|
|
Amended and Restated Employment Agreement, dated December 31,
2008, between the Company and Peter G. Savas
|
|
8-K
|
|
10.1
|
|
1/6/2009
|
|
000-6533
|
|
10
|
.66#
|
|
Amended and Restated Employment Agreement, dated December 31,
2008, between the Company and Mark J. Pykett
|
|
8-K
|
|
10.2
|
|
1/6/2009
|
|
000-6533
|
|
10
|
.67#
|
|
Amended and Restated Employment Agreement, dated December 31,
2008, between the Company and Kenneth L. Rice, Jr.
|
|
8-K
|
|
10.3
|
|
1/6/2009
|
|
000-6533
|
|
10
|
.68#
|
|
Consulting Agreement dated September 29, 2006, by and between
the Company and Robert S. Langer, Jr.
|
|
8-K
|
|
10.1
|
|
10/4/2006
|
|
000-6533
|
Additional Exhibits
|
|
21
|
|
|
Subsidiaries of the Registrant
|
|
*
|
|
|
|
|
|
|
|
23
|
.1
|
|
Consent of McGladrey & Pullen, LLP
|
|
*
|
|
|
|
|
|
|
|
23
|
.2
|
|
Consent of PricewaterhouseCoopers, LLP
|
|
*
|
|
|
|
|
|
|
|
31
|
.1
|
|
Certification of Chief Executive Officer pursuant to Rule 13a-
14(a)/Rule 15d-14(a) of the Securities Exchange Act of 1934, as
amended
|
|
*
|
|
|
|
|
|
|
92
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incorporated by Reference to
|
Exhibit
|
|
|
|
|
|
Exhibit
|
|
Filing
|
|
SEC File
|
Number
|
|
Description
|
|
Form
|
|
Number
|
|
Date
|
|
Number
|
|
|
31
|
.2
|
|
Certification of Chief Financial Officer pursuant to Rule 13a-
14(a)/Rule 15d-14(a) of the Securities Exchange Act of 1934, as
amended
|
|
*
|
|
|
|
|
|
|
|
32
|
.1
|
|
Certification of Chief Executive Officer pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002
|
|
*
|
|
|
|
|
|
|
|
32
|
.2
|
|
Certification of Chief Financial Officer pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002
|
|
*
|
|
|
|
|
|
|
|
|
|
* |
|
Filed herewith |
|
(#) |
|
Management contract or compensatory plan or arrangement filed as
an exhibit to this Form pursuant to Item 15(b) of
Form 10-K. |
|
(+) |
|
Confidential treatment has been requested as to certain
portions, which portions have been filed separately with the
Securities and Exchange Commission. |
93