Catalyst Pharmaceutical Partners, Inc.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[Mark One]
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 |
For the Quarterly Period Ended September 30, 2007
OR
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o |
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TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 |
Commission File No. 001-33057
CATALYST PHARMACEUTICAL PARTNERS, INC.
(Exact name of registrant as specified in its charter)
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Delaware
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76-0837053 |
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(State or other jurisdiction of
incorporation or organization)
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(IRS Employer
Identification No.) |
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355 Alhambra Circle |
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Suite 1370 |
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Coral Gables, Florida
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33134 |
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(Address of principal executive offices)
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(Zip Code) |
Registrants telephone number, including area code: (305) 529-2522
Indicate by checkmark 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 report(s), and (2) has been
subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,
or a non-accelerated filer. See definition of accelerated filer and large accelerated filer 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 x |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes o No x
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of
the latest practicable date: 12,527,564 shares of common stock, $0.001 par value per share, were
outstanding as of November 9, 2007.
CATALYST PHARMACEUTICAL PARTNERS, INC.
INDEX
2
PART I. FINANCIAL INFORMATION
Item 1. CONDENSED FINANCIAL STATEMENTS
CATALYST PHARMACEUTICAL PARTNERS, INC.
(a development stage company)
CONDENSED BALANCE SHEETS
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September 30, 2007 |
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December 31, 2006 |
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(unaudited) |
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ASSETS |
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Current Assets: |
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Cash and cash equivalents |
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$ |
16,886,194 |
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$ |
20,434,702 |
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Interest receivable |
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65,559 |
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85,787 |
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Prepaid expenses |
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495,831 |
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67,333 |
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Total current assets |
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17,447,584 |
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20,587,822 |
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Property and equipment, net |
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125,517 |
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20,157 |
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Other assets |
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20,388 |
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11,500 |
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Total assets |
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$ |
17,593,489 |
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$ |
20,619,479 |
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LIABILITIES AND STOCKHOLDERS EQUITY |
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Current Liabilities: |
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Accounts payable |
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$ |
229,478 |
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$ |
448,072 |
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Accrued expenses |
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175,576 |
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324,774 |
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Total current liabilities |
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405,054 |
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772,846 |
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Stockholders equity |
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Preferred Stock, $.001 par value, 5,000,000 shares
authorized, no shares issued and outstanding |
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Common Stock, par value $0.001 per share,
100,000,000 shares authorized, 12,527,564 and
12,516,620 shares issued and outstanding at
September 30, 2007 and December 31, 2006,
respectively |
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12,528 |
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12,517 |
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Additional paid-in capital |
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26,129,676 |
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25,593,330 |
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Deficit accumulated during the development stage |
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(8,953,769 |
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(5,759,214 |
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Total stockholders equity |
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17,188,435 |
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19,846,633 |
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Total liabilities and stockholders equity |
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$ |
17,593,489 |
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$ |
20,619,479 |
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The accompanying notes are an integral part of these financial statements.
3
CATALYST PHARMACEUTICAL PARTNERS, INC.
(a development stage company)
CONDENSED STATEMENTS OF OPERATIONS (unaudited)
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Cumulative |
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Period from |
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January 4, 2002 |
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(date of |
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inception) |
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For the Three Months |
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For the Nine Months Ended |
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through |
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Ended September 30, |
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September 30, |
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September 30, |
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2007 |
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2006 |
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2007 |
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2006 |
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2007 |
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Revenues |
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$ |
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$ |
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$ |
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$ |
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$ |
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Operating costs and expenses: |
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Research and development |
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503,348 |
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235,467 |
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2,268,648 |
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668,231 |
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5,373,070 |
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General and administrative |
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447,078 |
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1,106,752 |
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1,615,912 |
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1,348,945 |
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4,469,200 |
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Total operating
costs and expenses |
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950,426 |
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1,342,219 |
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3,884,560 |
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2,017,176 |
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9,842,270 |
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Loss from operations |
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(950,426 |
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(1,342,219 |
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(3,884,560 |
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(2,017,176 |
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(9,842,270 |
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Interest income |
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216,079 |
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20,831 |
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690,005 |
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28,963 |
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888,501 |
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Loss before income taxes |
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(734,347 |
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(1,321,388 |
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(3,194,555 |
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(1,988,213 |
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(8,953,769 |
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Provision for income taxes |
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Net loss |
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$ |
(734,347 |
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$ |
(1,321,388 |
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$ |
(3,194,555 |
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$ |
(1,988,213 |
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$ |
(8,953,769 |
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Loss per share basic and
diluted |
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$ |
(0.06 |
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$ |
(0.19 |
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$ |
(0.26 |
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$ |
(0.29 |
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Weighted average shares
outstanding
basic and diluted |
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12,527,564 |
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7,020,508 |
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12,524,678 |
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6,932,332 |
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The accompanying notes are an integral part of these financial statements.
4
CATALYST PHARMACEUTICAL PARTNERS, INC.
(a development stage company)
CONDENSED STATEMENT OF STOCKHOLDERS EQUITY (unaudited)
For the nine months ended September 30, 2007
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Deficit |
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Accumulated |
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During the |
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Preferred |
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Common |
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Additional |
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Development |
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Stock |
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Stock |
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Paid-in Capital |
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Stage |
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Total |
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Balance at
December 31, 2006 |
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$ |
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$ |
12,517 |
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$ |
25,593,330 |
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$ |
(5,759,214 |
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$ |
19,846,633 |
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Issuance of stock options
for services |
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461,969 |
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461,969 |
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Amortization of
restricted
shares for services |
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15,114 |
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15,114 |
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Issuance of common
stock for services |
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11 |
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59,263 |
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59,274 |
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Net loss |
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(3,194,555 |
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(3,194,555 |
) |
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Balance at
September 30, 2007 |
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$ |
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$ |
12,528 |
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$ |
26,129,676 |
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$ |
(8,953,769 |
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$ |
17,188,435 |
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The accompanying notes are an integral part of this financial statement.
5
CATALYST PHARMACEUTICAL PARTNERS, INC.
(a development stage company)
CONDENSED STATEMENTS OF CASH FLOWS (unaudited)
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Cumulative Period |
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from January 4, |
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2002 (date of |
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For the Nine Months Ended |
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inception) through |
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September 30, |
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September 30, |
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2007 |
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2006 |
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2007 |
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Operating Activities: |
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Net loss |
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$ |
(3,194,555 |
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$ |
(1,988,213 |
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$ |
(8,953,769 |
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Adjustments to reconcile net loss to net cash used
in operating activities: |
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Depreciation |
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8,083 |
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4,190 |
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14,750 |
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Stock-based compensation |
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477,083 |
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1,069,943 |
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3,357,071 |
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Change in assets and liabilities |
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Decrease (increase) in interest receivable |
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20,228 |
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(65,559 |
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(Increase) in other prepaid expenses and deposits |
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(437,386 |
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(2,487 |
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(516,219 |
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(Decrease) increase in accounts payable |
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(218,594 |
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350,001 |
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229,477 |
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(Decrease) increase in accrued expenses |
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(147,444 |
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65,685 |
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118,057 |
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Net cash used in operating activities |
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(3,492,585 |
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(500,881 |
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(5,816,192 |
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Investing Activities: |
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Capital expenditures |
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(55,923 |
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(19,876 |
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(82,747 |
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Net cash used in investing activities |
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(55,923 |
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(19,876 |
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(82,747 |
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Financing Activities: |
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Proceeds from issuance of common stock |
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18,789,536 |
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Proceeds from issuance of preferred stock |
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3,225,140 |
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3,895,597 |
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Prepaid expenses for initial public offering |
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(472,074 |
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Net cash provided by financing activities |
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2,753,066 |
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22,685,133 |
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Net increase (decrease) in cash |
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(3,548,508 |
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2,232,309 |
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16,786,194 |
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Cash and cash equivalents at beginning of period |
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20,434,702 |
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771,127 |
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100,000 |
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Cash and cash equivalents at end of period |
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$ |
16,886,194 |
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$ |
3,003,436 |
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$ |
16,886,194 |
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Supplemental disclosure of noncash operating
activity: |
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Tenant lease incentive |
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$ |
52,320 |
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$ |
52,320 |
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The accompanying notes are an integral part of these financial statements.
6
CATALYST PHARMACEUTICAL PARTNERS, INC.
(a development stage company)
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. Organization and Description of Business.
Catalyst Pharmaceutical Partners, Inc. (the Company) is a development-stage
biopharmaceutical company focused on the acquisition, development and commercialization of
prescription drugs for the treatment of drug addiction. The Company was incorporated in Delaware
in July 2006. It is the successor by merger to Catalyst Pharmaceutical Partners, Inc., a Florida
corporation, which commenced operations in January 2002.
The Company has incurred operating losses in each period from inception through September 30,
2007. The Company has been able to fund its cash needs to date through an initial funding from its
founders, four subsequent private placements and an initial public offering (IPO) of its common
stock.
Merger
On September 7, 2006, the Company completed a merger with Catalyst Pharmaceutical Partners,
Inc., a Florida corporation (CPP-Florida) in which CPP-Florida was merged with and into the
Company and all of CPP-Floridas assets, liabilities and attributes were transferred to the Company
by operation of law. Prior to the merger, the Company was a wholly-owned subsidiary of
CPP-Florida. The merger was effected to reincorporate the Company in Delaware.
2. |
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Basis of Presentation and Significant Accounting Policies. |
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a. |
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DEVELOPMENT STAGE COMPANY. Since inception, the Company has devoted
substantially all of its efforts to business planning, research and development,
recruiting management and technical staff, acquiring operating assets and raising
capital. Accordingly, the Company is considered to be in the development stage and the
Companys financial statements are presented in accordance with Statement of Financial
Accounting Standard No. 7, Accounting and Reporting by Development Stage Enterprises.
The Companys primary focus is on the development and commercialization of CPP-109, its
product candidate based on the chemical compound gamma-vinyl-GABA, commonly referred to
as vigabatrin, as a potential treatment for drug addiction, including cocaine
addiction, methamphetamine addiction, and certain obsessive compulsive disorders. |
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b. |
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INTERIM FINANCIAL STATEMENTS. The accompanying unaudited interim condensed
financial statements have been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission for reporting of interim financial information.
Pursuant to such rules and regulations, certain information and footnote disclosures
normally included in financial statements prepared in accordance with accounting
principles generally accepted in the United States have been condensed or omitted. |
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In the opinion of management, the accompanying unaudited interim condensed financial
statements of the Company contain all adjustments (consisting of only normal
recurring adjustments) necessary to present fairly the financial position of the
Company as of the dates and for the periods presented. Accordingly, these
statements should be read in conjunction with the financial statements and notes
thereto for the year ended December 31, 2006 included in the Form 10-K filed by the
Company with the Securities and Exchange Commission. The consolidated results of
operations for the three and nine months ended September 30, 2007 are not
necessarily indicative of the results to be expected for any future period or for
the full fiscal year. |
7
2. |
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Basis of Presentation and Significant Accounting Policies. (continued) |
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c. |
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USE OF ESTIMATES. The preparation of financial statements in conformity with
U.S. generally accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
During the three month period ended September 30, 2007, the
Company revised its estimate of accrued license fees, and as a
result research and development expenses were reduced by
approximately $166,000. |
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d. |
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EARNINGS (LOSS) PER SHARE. Basic earnings (loss) per share is computed by
dividing net earnings (loss) for the period by the weighted average number of common shares outstanding during the period. Diluted earnings (loss) per share is computed by
dividing net earnings (loss) for the period by the weighted average number of common shares outstanding during the period, plus the dilutive effect of common stock
equivalents, such as restricted common stock and stock options. Due to the net loss
for all periods presented, all common stock equivalents were excluded because their
inclusion would have been anti-dilutive. |
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Potentially dilutive common stock equivalents as of September 30, 2007 include (i)
stock options to purchase up to 2,568,149 shares of common stock at exercise prices
ranging from $0.69 to $6.00 per share and (ii) 15,000 shares of restricted common
stock that will vest over the next three years. |
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Potentially dilutive common stock equivalents as of September 30, 2006 include stock
options to purchase up to 2,361,016 shares of common stock at exercise prices
ranging from $0.69 to $6.00 per share. |
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e. |
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STOCK COMPENSATION PLANS. Through July 2006, the Company did not have a formal
stock option plan, although stock options were granted pursuant to written agreements.
In July 2006, the Company adopted the 2006 Stock Incentive Plan (the Plan). See Note
7. |
|
|
|
|
As of September 30, 2007, there were outstanding stock options to purchase 2,568,149
shares of common stock (including options to purchase 215,888 shares granted under
the Plan), of which stock options to purchase 2,320,781 shares of common stock were
exercisable as of September 30, 2007. Additionally, as of September 30, 2007 there
were 15,000 shares of restricted common stock granted under the Plan, none of which
were vested. |
|
|
|
|
For the three and nine month periods ended September 30, 2007 and 2006, the Company
recorded stock compensation expense as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended |
|
|
For the nine months ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
Research and development |
|
$ |
75,997 |
|
|
$ |
88,993 |
|
|
$ |
315,710 |
|
|
$ |
302,368 |
|
General and administrative |
|
|
18,485 |
|
|
|
739,825 |
|
|
|
161,373 |
|
|
|
767,575 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stock based
compensation |
|
$ |
94,482 |
|
|
$ |
828,818 |
|
|
$ |
477,083 |
|
|
$ |
1,069,943 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
f. |
|
PREPAID EXPENSES. Prepaid expenses consist primarily of advances under research
and development contracts, including advances to the Contract Research Organization
(CRO) that is overseeing the Companys clinical trials. Such advances are recorded
as expense as the related goods are received or the related services are performed. |
8
2. |
|
Basis of Presentation and Significant Accounting Policies. (continued) |
|
g. |
|
Recent Accounting Pronouncements |
|
|
|
|
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (SFAS
No. 157). This statement provides a single definition of fair value, a framework
for measuring fair value, and expanded disclosures concerning fair value.
Previously, different definitions of fair value were contained in various accounting
pronouncements creating inconsistencies in measurement and disclosures. SFAS No. 157
applies under those previously issued pronouncements that prescribe fair value as
the relevant measure of value, except SFAS No. 123(R) and related interpretations
and pronouncements that require or permit measurement similar to fair value but are
not intended to measure fair value. This pronouncement is effective for fiscal
years beginning after November 15, 2007. The Company is evaluating the impact of
SFAS No. 157, but does not expect the adoption of SFAS No. 157 to have a material
impact on its financial position, results of operations, or cash flows. |
|
|
|
|
In February 2007, the FASB issued Statement of Financial Accounting Standards No.
159 (SFAS No. 159) The Fair Value Option for Financial Assets and Financial
Liabilities. SFAS No. 159 permits entities to choose to measure many financial
instruments and certain other items at fair value. The provisions of SFAS No. 159
will be effective for the Company beginning January 1, 2008. The Company is in the
process of determining the effect, if any, that the adoption of SFAS No. 159 will
have on its financial statements. |
|
|
|
|
In June 2007, the FASB ratified a consensus opinion reached by the Emerging Issues
Task Force (EITF) on EITF Issue 07-3, Accounting for Nonrefundable Advance
Payments for Goods or Services Received for Use in Future Research and Development
Activities. The guidance in EITF Issue 07-3 requires the Company to defer and
capitalize nonrefundable advance payments made for goods or services to be used in
research and development activities until the goods have been delivered or the
related services have been performed. If the goods are no longer expected to be
delivered nor the services expected to be performed, the Company would be required
to expense the related capitalized advance payments. The consensus in EITF Issue
07-3 is effective for fiscal years, and interim periods within those fiscal years,
beginning after December 15, 2007 and is to be applied prospectively to new
contracts entered into on or after December 15, 2007. The Company intends to adopt
EITF Issue 07-3 effective January 1, 2008. The impact of applying this consensus
will depend on the terms of the Companys future research and development
contractual arrangements entered into on or after December 15, 2007. |
3. |
|
Property and Equipment. |
|
|
|
Property and equipment, net consists of the following: |
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2007 |
|
|
2006 |
|
Computer equipment |
|
$ |
25,867 |
|
|
$ |
18,368 |
|
Furniture and equipment |
|
|
34,225 |
|
|
|
8,457 |
|
Leasehold improvements |
|
|
80,176 |
|
|
|
|
|
Accumulated depreciation |
|
|
(14,751 |
) |
|
|
(6,668 |
) |
|
|
|
|
|
|
|
Total property and equipment, net |
|
$ |
125,517 |
|
|
$ |
20,157 |
|
|
|
|
|
|
|
|
|
|
Depreciation expense was $3,413 and $2,139 and $8,083 and $4,190, respectively, for
the three month and nine month periods ended September 30, 2007 and 2006. |
9
4. |
|
Accrued Expenses. |
|
|
|
Accrued expenses consist of the following: |
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2007 |
|
|
2006 |
|
Common stock issuable |
|
$ |
|
|
|
$ |
59,274 |
|
Accrued professional fees |
|
|
79,192 |
|
|
|
72,571 |
|
Deferred lease incentive |
|
|
51,490 |
|
|
|
|
|
Accrued compensation & benefits |
|
|
19,478 |
|
|
|
21,198 |
|
Other (See
Note 9) |
|
|
25,416 |
|
|
|
171,731 |
|
|
|
|
|
|
|
|
Total accrued expenses |
|
$ |
175,576 |
|
|
$ |
324,774 |
|
|
|
|
|
|
|
|
5. |
|
Commitments |
|
|
|
The Company has contracted with a CRO, various drug manufacturers, and other vendors to assist
in clinical trial work, analysis, and the filing of an NDA with the FDA. The contracts are
cancelable at any time, but obligate the Company to reimburse the providers for any time or costs
incurred through the date of termination. |
|
|
|
The Company has executed noncancellable operating lease agreements for its corporate offices.
As of September 30, 2007, future minimum annual lease payments under the noncancellable operating
lease agreements are as follows: |
|
|
|
|
|
2007 |
|
$ |
12,648 |
|
2008 |
|
|
63,281 |
|
2009 |
|
|
58,402 |
|
2010 |
|
|
60,155 |
|
2011 |
|
|
61,959 |
|
Thereafter |
|
|
58,354 |
|
|
|
|
|
|
|
$ |
314,799 |
|
|
|
|
|
|
|
During the quarter ended March 31, 2007, the Company entered into a new lease agreement for
its corporate offices in Coral Gables, Florida. Rent expense was $11,642 and $4,791 and $27,987
and $14,190, respectively, for the three month and nine month periods ended September 30, 2007 and
2006. The Companys office leases expire on various dates from December 2007 to November 2012. |
|
|
|
Obligations under capital leases are not significant. |
|
|
|
For commitments related to our license agreement, see Note 9. |
10
6. |
|
Income Taxes. |
|
|
|
The Company adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty
in Income Taxes, (FIN No. 48), on January 1, 2007. Previously, the Company had accounted for
tax contingencies in accordance with Statement of Financial Accounting Standards No. 5, Accounting
for Contingencies. As required by FIN 48, which clarifies FASB Statement No. 109, Accounting for
Income Taxes, the Company recognizes the financial statement benefit of a tax position only after
determining that the relevant tax authority would more likely sustain the position following an
audit. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the
financial statements is the largest benefit that has a greater than 50 percent likelihood of being
realized upon ultimate settlement with the relevant tax authority. At the adoption date, the
Company applied FIN 48 to all tax positions for which the statute of limitation remained open. No
resulting unrecognized tax benefits were identified in connection with the implementation of FIN
48. |
|
|
|
The Company is subject to income taxes in the U.S. federal jurisdiction, and various states
jurisdictions. Tax regulations within each jurisdiction are subject to the interpretation of the
related tax laws and regulations and require significant judgment to apply. The Company is not
subject to U.S. federal, state and local tax examinations by tax authorities for the years before
2002. If the Company were to subsequently record an unrecognized tax benefit, associated penalties
and tax related interest expense would be reported as a component of income tax expense. |
|
7. |
|
Stock Compensation. |
|
|
|
Stock Options |
|
|
|
The Company has granted stock options to employees, officers, directors and scientific
advisors of the Company, generally at exercise prices equal to the market value of the stock at the
date of grant. The options generally vest ratably over four years, based on continued employment,
with a maximum term between five and 10 years. |
|
|
|
The tables below summarize options outstanding and exercisable at September 30, 2007: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
Remaining |
|
|
Aggregate |
|
|
|
|
|
|
|
Average Exercise |
|
|
Contractual |
|
|
Intrinsic |
|
|
|
Options |
|
|
Price |
|
|
Term (in years) |
|
|
Value |
|
Options outstanding at December 31, 2006 |
|
|
2,374,149 |
|
|
$ |
1.19 |
|
|
|
4.85 |
|
|
|
|
|
Granted |
|
|
194,000 |
|
|
|
4.20 |
|
|
|
5.44 |
|
|
|
|
|
Exercised |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at September 30, 2007 |
|
|
2,568,149 |
|
|
$ |
1.42 |
|
|
|
4.90 |
|
|
$ |
4,577,186 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at September 30, 2007 |
|
|
2,320,781 |
|
|
$ |
1.15 |
|
|
|
4.70 |
|
|
$ |
4,746,014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11
7. |
|
Stock Compensation (continued) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
Options Exercisable |
|
|
|
|
|
|
|
Remaining |
|
|
Weighted |
|
|
|
|
|
|
Weighted |
|
|
|
Number |
|
|
Contractual |
|
|
Average |
|
|
Number |
|
|
Average |
|
Range of Exercise Prices |
|
Outstanding |
|
|
Life (Years) |
|
|
Exercise Price |
|
|
Exercisable |
|
|
Exercise Price |
|
$0.69 - $1.37 |
|
|
2,060,417 |
|
|
|
4.98 |
|
|
$ |
0.89 |
|
|
|
2,060,417 |
|
|
$ |
0.89 |
|
$2.98 |
|
|
291,844 |
|
|
|
4.05 |
|
|
$ |
2.98 |
|
|
|
182,402 |
|
|
$ |
2.98 |
|
$3.60 - $4.00 |
|
|
154,000 |
|
|
|
5.22 |
|
|
$ |
3.74 |
|
|
|
70,666 |
|
|
$ |
3.81 |
|
$6.00 |
|
|
61,888 |
|
|
|
5.45 |
|
|
$ |
6.00 |
|
|
|
7,296 |
|
|
$ |
6.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,568,149 |
|
|
|
4.90 |
|
|
$ |
1.42 |
|
|
|
2,320,781 |
|
|
$ |
1.15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning January 1, 2006, the Company adopted the provisions of Statement of Financial
Accounting Standards 123(R) Share-Based Payment (SFAS No.123R) using the modified prospective
transition method. The Company utilizes the Black-Scholes option-pricing model to determine the
fair value of stock options on the date of grant. This model derives the fair value of stock
options based on certain assumptions related to expected stock price volatility, expected option
life, risk-free interest rate and dividend yield. The Companys expected volatility is based on
the historical volatility of other publicly traded development stage companies in the same
industry. The estimated expected option life is based upon estimated employee exercise patterns
and considers whether and the extent to which the options are in-the-money. The risk-free interest
rate assumption is based upon the U.S. Treasury yield curve appropriate for the estimated expected
life of the Companys stock options awards. No options were granted during the three months ended
September 30, 2007. For the nine month periods ended September 30, 2007 and 2006 and the three
month period ended September 30, 2006, the assumptions used were an estimated annual volatility of
100%, average expected holding periods of four to five years, and risk-free interest rates of
4.57%, 5.50% and 5.50%, respectively. The expected dividend rate is zero and no forfeiture rate was
applied. |
|
|
|
The weighted-average grant date fair value of stock options granted during the nine months
ended September 30, 2007 and September 30, 2006 were $2.65 and $5.02, respectively. The total fair
value of vested stock options for the three months ended September 30, 2007 and nine months ended
September 30, 2007 and 2006 were $218,661, $433,736 and $23,729, respectively. |
|
|
|
As of September 30, 2007, there was approximately $807,000 of unrecognized compensation
expense related to non-vested stock compensation awards granted under the Plan. The cost is
expected to be recognized over a weighted average period of approximately 2.05 years. |
|
|
|
Restricted Stock Units |
|
|
|
Under the Plan, participants may be granted restricted stock units, each of which represents a
conditional right to receive shares of common stock in the future. The restricted stock units
granted under this plan generally vest ratably over a three to four-year period. Upon vesting, the
restricted stock units will convert into an equivalent number of shares of common stock. The
amount of expense relating to the restricted stock units is based on the closing market price of
the Companys common stock on the date of grant and is amortized on a straight-line basis over the
requisite service period. Restricted stock unit activity for the nine months ended September 30,
2007 was as follows: |
12
7. |
|
Stock Compensation (continued) |
|
|
|
|
|
|
|
|
|
|
|
Number of |
|
|
Weighted- |
|
|
|
Restricted Stock |
|
|
Average Grant |
|
|
|
Units |
|
|
Date Fair Value |
|
Nonvested balance at December 31, 2006 |
|
|
|
|
|
$ |
|
|
Granted |
|
|
15,000 |
|
|
|
4.03 |
|
Vested |
|
|
|
|
|
|
|
|
Forfeited |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonvested balance at September 30, 2007 |
|
|
15,000 |
|
|
$ |
4.03 |
|
|
|
|
|
|
|
|
|
|
The Company recorded stock-based compensation related to restricted stock units totaling
$5,038 and $0 and $15,114 and $0, respectively, during the three month and nine month periods ended
September 30, 2007 and 2006. As of September 30, 2007, there was $45,337 of total restricted stock
unit compensation expense related to non-vested awards not yet recognized, which is expected to be
recognized over a weighted average period of 2.25 years. |
|
8. |
|
Related Party Transactions. |
|
|
|
Since its inception in 2002, the Company has entered into various consulting agreements with
non-employee officers and with members of the Companys Scientific Advisory Board. During the
three month and nine month periods ended September 30, 2007 and 2006, the Company paid
approximately $15,000 and $38,000 and $42,000 and $103,000, respectively, in consulting fees to
related parties. A fair value of $6.00 and $2.98 per share was used to determine the related
expense with respect to the stock-based portion of this compensation for the nine months ended
September 30, 2006. |
|
|
|
In January 2005, the Company entered into an agreement with Patrick J. McEnany to act as the
Companys Chief Executive Officer. The agreement called for an annual salary of $100,000 per year
commencing on March 1, 2005. The agreement stipulated that half of Mr. McEnanys salary was to be
deferred until the Company raised equity in the amount of not less than $2,000,000. Mr. McEnany
also deferred the other half of his compensation until the equity minimum was met. The condition
requiring full payment of this obligation was satisfied in July 2006 when the Company closed a
private placement, at which time all deferred compensation was paid to Mr. McEnany. The January
2005 agreement was replaced with a new employment agreement in November 2006 in connection with the
completion of the Companys initial public offering. |
9. |
|
Contingent Liability. |
|
|
|
The Company has an exclusive worldwide license agreement with Brookhaven Science Associates,
as operator of Brookhaven National Laboratory (Brookhaven) pursuant to which it licenses
nine U.S. patents, four U.S. patent applications and numerous foreign patents, applications
and filings relating to the use of vigabatrin for a wide variety of substance addictions and
obsessive compulsive disorders. Under the license agreement, the Company has agreed to pay
Brookhaven a fee of $100,000 in the year of NDA approval of CPP-109, $250,000 in the each of
the second and third years following approval and $500,000 per year thereafter until the
license agreement expires. The Company is also obligated to reimburse Brookhaven, upon the
filing of an NDA for CPP-109 and upon obtaining FDA regulatory
approval, to sell any product, for certain of their patent-related
expenses. The Company believes that at September 30, 2007 it had a
contingent liability of approximately $166,000 related to this obligation. |
|
|
|
Subsequent to the end of the quarter ended September 30, 2007, Brookhaven formally advised
the Company that they believe that the amount potentially due for
patent related expenses as of that date is approximately $1,000,000.
The Company believes that it is potentially only liable to Brookhaven for the
approximately $166,000 described above, and it has advised Brookhaven that it disputes their determination of
patent-related expenses due under the license agreement. The Company intends to consult with
Brookhaven in an effort to resolve this dispute. However, there can be no assurance as to
the outcome of this matter. In any event, the total amount of patent-related expenses due to
Brookhaven under the license agreement is payable no earlier than submission by the Company
of an NDA for CPP-109. |
13
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This report and the information incorporated by reference into it include forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. We intend these forward-looking statements to be covered by the
safe harbor provisions for forward-looking statements in these sections. All statements regarding
our expected financial position and operating results, our business strategy, our product
development efforts, our financing plans and trends relating to our business and industry are
forward-looking statements. These statements can sometimes be identified by our use of
forward-looking words such as may, will, anticipate, estimate, expect, intend and
similar expressions. These statements involve known and unknown risks, uncertainties and other
factors that may cause our actual results, performance or achievements to be materially different
from the results, performance or achievements expressed or implied by our forward-looking
statements. We cannot promise that our expectations described in such forward-looking statements
will turn out to be correct. Factors that may impact such forward-looking statements include, among
others, our ability to successfully complete clinical trials required for us to file a new drug
application for CPP-109, our product candidate based on vigabatrin, our ability to complete such
trials on a timely basis and within the budgets we establish for such trials, our ability to
protect our intellectual property, whether others develop and commercialize products competitive to
our products, changes in the regulations affecting our business, our ability to attract and retain
skilled employees, and changes in general economic conditions and interest rates. The risk factors
section of our Annual Report on Form 10-K for the year ended December 31, 2006 describes the
significant risks associated with our business. We undertake no obligation to update or revise
publicly any forward-looking statements, whether as a result of new information, future events or
otherwise, except as required by law.
Overview
We are a development-stage biopharmaceutical company focused on the acquisition, development
and commercialization of prescription drugs for the treatment of drug addiction. Our initial
product candidate is CPP-109, which is based on the chemical compound gamma-vinyl-GABA, commonly
referred to as vigabatrin.
During July 2007, we initiated a randomized, double-blind, placebo-controlled US Phase II
clinical trial in patients with cocaine addiction (see Recent Developments section below). We
intend to commence a U.S. Phase II clinical trial evaluating CPP-109 as a treatment for
methamphetamine addiction in the first quarter of 2008.
In November 2006, we completed an initial public offering in which we raised net proceeds of
approximately $17.6 million. We are using these proceeds to complete clinical and non-clinical
studies evaluating the use of CPP-109 to treat cocaine and methamphetamine addiction. We may also
seek to conduct a proof-of-concept study evaluating the effectiveness of CPP-109 in treating
certain eating disorders, although no such trial has been organized to this date.
The successful development of CPP-109 or any other product we may develop, acquire, or license
is highly uncertain. We cannot reasonably estimate or know the nature, timing, or estimated
expenses of the efforts necessary to complete the development of, or the period in which material
net cash inflows are expected to commence due to the numerous risks and uncertainties associated
with developing, such products, including the uncertainty of:
|
|
the scope, rate of progress and expense of our clinical trials and our other
product development activities; |
|
|
|
the results of future clinical trials, and the number of clinical trials (and the
scope of such trials) that will be required to seek and obtain approval of an NDA for CPP-109;
and |
|
|
|
the expense of filing, prosecuting, defending and enforcing any patent claims and
other intellectual property rights. |
14
We currently estimate that we will require additional funding to complete the Phase III
clinical trial that we believe will be required before we are in a position to file an NDA, or new
drug application, for CPP-109. There can be no assurance that such funding will be available when
required or available on terms acceptable to us. See -Liquidity and Capital Resources below.
Recent Developments
Status of U.S. Phase II clinical trial for cocaine addiction
During July 2007, we initiated a randomized, double-blind, placebo-controlled U.S.
Phase II clinical trial evaluating the use of CPP-109 in treating patients with cocaine addiction.
We have retained Health Decisions, Inc. as the CRO to oversee the trial on our behalf. We estimate
that the cost of this trial will be approximately $5,400,000.
The Phase II trial is designed as a randomized, double-blind, placebo-controlled,
intent-to-treat, multicenter study to evaluate the safety and efficacy of CPP-109 as a treatment
for cocaine addiction. The trial is expected to enroll 180 cocaine dependent patients at 10
addiction treatment clinical centers in the United States. Patients will be treated for a period
of 12 weeks, with an additional 12 weeks of follow-up. The primary endpoint of the trial is to
demonstrate that a larger proportion of CPP-109-treated subjects than placebo-treated subjects will
be cocaine-free during their last two weeks of treatment (weeks 11 and 12). Additionally, we will
be measuring several secondary endpoints based on reductions of cocaine use. We will begin
enrolling patients in our Phase II clinical trial at such time as we receive FDA clearance of the
protocol for the trial, which is expected to be received in the near future.
To be eligible to participate in this trial, participants must meet specific clinical
standards for cocaine addiction, as specified in DSM-IV, a set of diagnosis guidelines established
for clinical professionals. Additionally, trial participants cannot meet the DSM-IV criteria for
dependence on other addictive substances. Further, eye safety studies will be conducted on all
trial participants to determine the extent of visual field defects among such participants, if any.
We expect to have results from this trial during the third quarter of 2008.
Status of U.S. Phase II clinical trial for methamphetamine addiction
We intend to conduct a randomized, double-blind, placebo-controlled U.S. Phase II clinical
trial evaluating the use of CPP-109 in treating patients with methamphetamine addiction. We
currently expect to initiate this study during the first quarter of 2008 and we currently estimate
that the cost of this trial will be approximately $5,400,000. To date, we have spent $125,000
towards our commencement of this study.
Results of bioequivalence study
During the first quarter of 2007, we completed a bioequivalence study demonstrating that
CPP-109 is bioavailable and bioequivalent to Sabril®, the version of vigabatrin marketed in Europe
by Sanofi Aventis. This data potentially provides a basis for linking CPP-109 to the extensive
body of published pre-clinical and clinical literature on Sabril®.
In the bioequivalence study, investigators randomized 30 healthy male and female subjects to
either of two treatments a 500 mg. tablet of Sabril® or a 500 mg. tablet of CPP-109. The
researchers dispensed the assigned medication tablet to the participants after an overnight fast
and collected blood plasma samples before dosing. An additional 21 blood plasma samples were
collected after dosing over a period of 36 hours. After a washout period of eight days, each
participant was crossed over to receive the alternate tablet, and plasma samples were collected
according to the same schedule. A total of 28 subjects completed both arms of the study. This
study was conducted as recommended by the Food and Drug Administrations Guidance for Industry,
Bioavailability and Bioequivalence Studies for Orally Administered Drug Products General
Considerations.
15
Bioequivalence of the two tablet formulations is supported by the pharmacokinetic data
collected for CPP-109 and Sabril®. Specifically, the maximum plasma concentration and area under
the curve for vigabatrin were similar for CPP-109 and Sabril® Tablets. The 90% geometric
confidence intervals attained for these pharmacokinetic parameters were well within the 80% to 125%
range recommended by the Food and Drug Administrations Guidance for Industry, Statistical
Approaches to Establishing Bioequivalence, and the two products meet the requirements to be
considered bioequivalent.
Lease for new facilities
On March 26, 2007, we entered into a lease for approximately 1,616 square feet of
office space in a building located at 355 Alhambra Circle in Coral Gables, Florida. The lease is
for a 63 month term and we will pay base rent under the new lease of approximately $57,000 per
annum. We moved into our new office space in September 2007.
Basis of presentation
Revenues
We are a development stage company and have had no revenues to date. We will not have
revenues until such time as we receive approval of CPP-109, successfully commercialize our products
or enter into a licensing agreement which may include up-front licensing fees, of which there can
be no assurance.
Research and development expenses
Our research and development expenses consist of costs incurred for company-sponsored research
and development activities. These expenses consist primarily of direct and research-related
allocated overhead expenses such as facilities costs, material supply costs, and medical costs for
visual field defect testing, personnel and related costs related to our product development efforts
and outside professional fees related to the clinical development and regulatory matters. It also
includes both cash and stock-based compensation paid to our scientific advisors and consultants
related to our product development efforts. To date, all of our research and development resources
have been devoted to the development of CPP-109, and we expect this to continue for the foreseeable
future. Costs incurred in connection with research and development activities are expensed as
incurred.
Clinical trial activities require significant up front expenditures. We anticipate paying
significant portions of a trials cost before it begins, and incurring additional expenditures as
the trial progresses and reaches certain milestones.
Selling and marketing expenses
We do not currently have any selling or marketing expenses, as we have not yet received
approval for the commercialization of CPP-109. We expect we will begin to incur such costs upon
our filing of an NDA, so that we can have a sales force in place to commence our selling efforts
immediately upon receiving approval of such NDA, of which there can be no assurance.
General and administrative expenses
Our general and administrative expenses consist primarily of salaries, consulting fees for one
of our officers and one of our directors and for members of our Scientific Advisory Board,
information technology, and corporate administration functions. Other costs include administrative
facility costs, regulatory fees, and professional fees for legal and accounting services.
16
Stock-based compensation
We recognize costs related to the issuance of stock-based awards to employees and consultants
by using the estimated fair value of the award at the date of grant, in accordance with SFAS 123R.
Income taxes
We have incurred operating losses since inception. Our net deferred tax asset has a 100%
valuation allowance as of September 30, 2007 and December 31, 2006, as we believe it is more likely
than not that the deferred tax asset will not be realized. If an ownership change, as defined
under Internal Revenue Code Section 382, occurs, the use of any of our carry-forward tax losses may
be subject to limitation.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations are based on
our financial statements, which have been prepared in accordance with accounting principles
generally accepted in the U.S. The preparation of these financial statements requires us to make
judgments, estimates, and assumptions that affect the reported amounts of assets and liabilities
and the disclosure of contingent assets and liabilities at the date of the financial statements as
well as the reported revenue and expenses during the reporting periods. We continually evaluate
our judgments, estimates and assumptions. We base our estimates on the terms of underlying
agreements, our expected course of development, historical experience and other factors we believe
are reasonable based on the circumstances, the results of which form our managements basis for
making judgments about the carrying value of assets and liabilities that are not readily apparent
from other sources. Actual results may differ from these estimates.
The list below is not intended to be a comprehensive list of all of our accounting policies.
In many cases, the accounting treatment of a particular transaction is specifically dictated by
generally accepted accounting principles, or GAAP. There are also areas in which our managements
judgment in selecting any available alternative would not produce a materially different result.
Our financial statements and the notes thereto included elsewhere in this report contain accounting
policies and other disclosures required by GAAP.
Pre-clinical study and clinical trial expenses
Research and development expenditures are charged to operations as incurred. Our expenses
related to clinical trials are based on actual and estimated costs of the services received and
efforts expended pursuant to contracts with multiple research institutions and the CRO that
conducts and manages our clinical trials. The financial terms of these agreements are subject to
negotiation and will vary from contract to contract and may result in uneven payment flows.
Generally, these agreements will set forth the scope of the work to be performed at a fixed fee or
unit price. Payments under these contracts will depend on factors such as the successful
enrollment of patients or the completion of clinical trial milestones. Expenses related to
clinical trials generally are accrued based on contracted amounts applied to the level of patient
enrollment and activity according to the protocol. If timelines or contracts are modified based
upon changes in the clinical trial protocol or scope of work to be performed, we would be required
to modify our estimates accordingly on a prospective basis.
Stock-based compensation
Effective January 1, 2006, we adopted the fair value recognition provisions of SFAS 123R,
Share-Based Payment. We utilize the Black-Scholes option pricing model to determine the fair
value of stock options on the date of grant. This model derives the fair value of stock options
based on certain assumptions related to expected stock price volatility, expected option life,
risk-free interest rate and dividend yield. The Companys expected volatility is based on the
historical volatility of other publicly traded development stage companies in the same industry.
The estimated expected option life is based upon estimated employee exercise patterns and considers
whether and the extent to which the options are in-the-money. The risk-free interest rate
assumption is based upon the U.S. Treasury yield curve appropriate for the estimated expected life
of the Companys stock options awards. For the nine month periods ended September 30, 2007 and
2006, the assumptions used were an estimated annual volatility of 100%, average expected holding
periods of four to five years, and risk-free interest rates of 4.57% and
17
5.5%, respectively. The expected dividend rate is zero and no forfeiture rate was applied. No
options were granted during the quarter ended September 30, 2007.
Results of Operations
Revenues. We had no revenues for the three months and nine months periods ended September 30,
2007 and 2006.
Research and Development Expenses. Research and development expenses for the three months
ended September 30, 2007 and 2006 were $503,348 and $235,467, respectively, including stock-based
compensation expense in each of the three month periods of $75,997 and $88,993. Research and
development expenses, in the aggregate, represented approximately 53% and 18% of total operating
costs and expenses, respectively, for the three months ended September 30, 2007 and 2006. Research
and development expenses for the nine months ended September 30,
2007 and 2006 were $2,268,648 and
$668,231, respectively, including stock-based compensation expense of $315,710 and $302,368.
Research and development expenses, in the aggregate, represented
approximately 58% and 33% of total
operating costs and expenses, respectively, for the nine months ended September 30, 2007 and 2006.
The stock-based compensation is non-cash and relates to shares of common stock issued to several of
our consultants and scientific advisors for services rendered and the expense of stock options
awards and restricted stock awards to our employees, officers, directors and scientific advisors.
During the three month period ended September 30, 2007, we
revised our estimate of accrued license fees, and as a
result research and development expenses were reduced by
approximately $166,000. Our cash expenses for research and development for the three and nine months ended September 30,
2007 grew significantly compared to amounts expended in the same period in 2006 as we paid for
services related to the initiation of our Phase II clinical trial evaluating CPP-109 for use in the
treatment of cocaine addiction, paid for certain expenses in preparation for the initiation of our
clinical trial evaluating CPP-109 for use in the treatment of methamphetamine addiction, raw
materials and finished products for use in our upcoming clinical trials, made an unrestricted grant
to the sponsor of a clinical trial that is being conducted in Mexico and conducted our
bioequivalence study comparing CPP-109 to a version of Sabril® marketed in Europe by
Sanofi-Aventis.
We expect that research and development activities will continue to increase substantially now
that we have initiated our U.S. Phase II cocaine clinical trial, are in the planning stages for the
commencement of our contemplated U.S. Phase II methamphetamine clinical trial, and plan to expand
our product development activities generally.
Selling and Marketing Expenses. We had no selling and marketing expenses during the three and
nine months ended September 30, 2007 and 2006. We anticipate that we will begin to incur sales and
marketing expenses when we file an NDA for CPP-109, in order to develop a sales organization to
market CPP-109 and other products we may develop upon the receipt of required approvals.
General and Administrative Expenses. General and administrative expenses were $447,078 and
$1,106,752, respectively, for the three months ended September 30, 2007 and 2006. These expenses
include $18,485 and $739,825, respectively, in stock-based non-cash compensation expense relating
to the vesting of stock options and restricted stock grants. General and administrative expenses
represented 47% and 82%, respectively, of total operating costs and expenses, for the three months
ended September 30, 2007 and 2006. General and administrative expenses were $1,615,912 and
$1,348,945, respectively, for the nine months ended September 30, 2007 and 2006. These expenses
include $161,373 and $767,575, respectively, in stock-based non-cash compensation expense relating
to the vesting of stock options and restricted stock grants. General and administrative expenses
represented 42% and 67%, respectively, of total operating costs and expenses, for the nine months
ended September 30, 2007 and 2006. The decrease of $659,674 in general and administrative expenses
from the three months ended September 30, 2007 when compared to the same period in 2006 is due
primarily to a decrease in stock-based compensation expense, offset by increases in other expenses
as we expanded our administrative staff and facilities. The increase of $266,967 in general and
administrative expenses for the nine months ended September 30, 2007 to the same periods in 2006 is
primarily due to the addition of several executives in late 2006 and early 2007 that were not
previously employees and the administrative expenses related to our being a publicly held entity
commencing in November 2006. These increased expenditures were partially offset by a decrease in
stock-based compensation expense. General and administrative expenses include among other
expenses, office expenses, legal and accounting fees and travel expenses for our employees,
consultants, directors and members of our Scientific Advisory Board. We expect general and
administrative efforts to further increase in
18
future periods as we incur general non-research expenses relating to the monitoring and
oversight of our clinical trials and otherwise expend funds to continue to develop our business as
described herein and in our Annual Report on Form 10-K for 2006.
Stock-Based Compensation. Total stock based compensation for the three months ended September
30, 2007 and 2006 was $94,482 and $828,818, respectively. Total stock based compensation for the
nine months ended September 30, 2007 and 2006 was $477,083 and $1,069,943, respectively. As of
September 30, 2007, we had outstanding stock options to purchase 2,568,149 shares of our common
stock, of which options to purchase 2,320,781 shares were vested and options to purchase 247,368
shares were unvested. We also had 15,000 shares of restricted common stock granted as of September
30, 2007, none of which were vested at that date.
Interest Income. We reported interest income in all periods relating to our investment of
funds received from our private placements and IPO. Interest income increased substantially in the
three and nine month periods ended September 30, 2007 when compared to the same periods in 2006 due
to the investment of the proceeds from our IPO. All such funds were invested in short term
interest bearing obligations, certificates of deposit and direct or guaranteed obligations of the
United States government.
Income taxes. We have incurred net operating losses since inception. For the three and nine
month periods ended September 30, 2007 and 2006, we have applied a 100% valuation allowance against
our deferred tax asset as we believe that it is more likely than not that the deferred tax asset
will not be realized.
Liquidity and Capital Resources
Since our inception, we have financed our operations primarily through the net proceeds of
private placements of our equity securities and through our IPO. At September 30, 2007, we had
cash and cash equivalents of $16.9 million and working capital of $16.9 million. At December 31,
2006 we had cash and cash equivalents of $20.4 million and working capital of $19.8 million.
Operating Capital and Capital Expenditure Requirements
We have to date incurred operating losses, and we expect these losses to increase
substantially in the future as we expand our product development programs and prepare for the
commercialization of CPP-109. We anticipate using current cash on hand to finance these
activities. It may take several years to obtain the necessary regulatory approvals to
commercialize CPP-109 in the United States.
We believe that our available resources will be sufficient to meet our projected operating
requirements through December 31, 2008.
Our future funding requirements will depend on many factors, including:
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the scope, rate of progress and cost of our clinical trials and other product
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; |
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the cost and delays in product development as a result of any changes in
regulatory oversight applicable to our products; |
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the cost and timing of establishing sales, marketing and distribution
capabilities; |
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the effect of competition and market developments; |
19
|
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the cost of filing, prosecuting, defending and enforcing any patent claims and
other intellectual property rights; and |
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the extent to which we acquire or invest in other products. |
At the present time, we estimate that we will require additional funding to complete the Phase
III clinical trial that we believe we will be required to complete before we are in a position
to file an NDA for CPP-109. We will also require additional working capital to support our
operations in periods after 2008.
We expect to raise any required additional funds through public or private equity offerings,
debt financings, capital lease transactions, corporate collaborations or other means. We may also
seek to raise additional capital to fund additional product development efforts, even if we have
sufficient funds for our planned operations. Any sale by us of additional equity or convertible
debt securities could result in dilution to our stockholders. There can be no assurance that any
such required additional funding will be available to us at all or available on terms acceptable to
us. Further, to the extent that we raise additional funds through collaborative arrangements, it
may be necessary to relinquish some rights to our technologies or grant sublicenses on terms that
are not favorable to us. If we are not able to secure additional funding when needed, we may have
to delay, reduce the scope of or eliminate one or more research and development programs, which
could have an adverse effect on our business.
Cash Flows
Net cash used in operations was $3,492,585 and $500,881, respectively, for the nine months
ended September 30, 2007 and 2006. During the nine months ended September 30, 2007, net cash used
in operating activities was primarily attributable to our net loss of
$3,194,555, an increase in
prepaid expenses and deposits of $437,386 and decreases of $218,594
in accounts payable and $147,444 in accrued expenses. This was
offset in part by $485,166 of non-cash expenses, a decrease of $20,228 in accrued interest and an
increase of $18,425 in accrued expenses. Non-cash expenses include depreciation and non-cash
compensation expense. During the nine months ended September 30, 2006, net cash used in operating
activities was primarily attributable to our net loss of $1,988,213 partially offset by $1,074,133
of non-cash expenses and increases in accounts payable and accrued expenses of $350,001 and $65,685
respectively.
Net cash used in investing activities was $55,923 and $19,876 for the nine months ended
September 30, 2007 and 2006, respectively. Such funds were used primarily for purchases of
computer equipment, furniture and leasehold improvements.
No cash was provided by (used in) financing activities for the nine months ended September 30,
2007. Net cash provided by financing activities for the nine months ended September 30, 2006 was
$2,753,066. Net cash from financing activities is comprised of the net proceeds of the private
placement completed in July 2006, net of deferred public offering costs relating to our IPO. Such
funds were used to fund our research and development costs and our general and administrative costs
in 2006.
Contractual Obligations
As of September 30, 2007, we had contractual obligations as follows:
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|
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|
|
|
|
|
|
|
Payments Due by Period |
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|
|
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Less than |
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|
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After |
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Total |
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1 year |
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1-3 years |
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4-5 years |
|
|
5 years |
|
Debt |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
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$ |
|
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Capital leases |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating leases |
|
|
314,799 |
|
|
|
61,647 |
|
|
|
117,687 |
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|
124,854 |
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|
10,611 |
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Total |
|
$ |
314,799 |
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|
$ |
61,647 |
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|
$ |
117,687 |
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|
$ |
124,854 |
|
|
$ |
10,611 |
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20
We are also obligated to make the following payments under existing contractual arrangements:
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Payment to Brookhaven under our license agreement. We have agreed to pay Brookhaven a
fee of $100,000 in the year of NDA approval for CPP-109, $250,000 in each of the second and
third years following approval, and $500,000 per year thereafter until the license
agreement expires. We are also obligated to reimburse Brookhaven upon the filing of an NDA
for CPP-109 and upon obtaining FDA regulatory approval to sell any
licensed product for certain of their patent-related expenses. We
believe that such
potential obligation is approximately $166,000 as of September 30, 2007. See
Dispute with Brookhaven below. |
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Payments to our contract manufacturer. We are obligated to pay our contract
manufacturer approximately $828,000, with payments to be based on the achievement of
milestones relating to the schedule of work that it has agreed to perform for us. At
September 30, 2007, we had paid approximately $673,000 of this amount. |
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Payments to our CRO. We are obligated to pay our CRO approximately $4,800,000, with
respect to our U.S. Phase II cocaine trial, with payments to be based on the achievement of
milestones relating to the agreed upon service agreement. At September 30, 2007, we had
paid approximately $780,000 of this amount, $302,414 of which had been advanced to the CRO
for future expenses and as such have been included in prepaid expenses in the accompanying
condensed balance sheet at September 30, 2007. |
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Payments for laboratories and other trial related tests. We are obligated to pay
approximately $567,000, in connection with laboratories and other tests related to our US
Phase II cocaine clinical trial during the next 13 months. At September 30, 2007, we had
paid approximately $157,000 of this amount, $118,000 of which have been advanced upon
signing of the contracts and as such have been included in prepaid expenses in the
accompanying balance sheet at September 30, 2007. |
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Employment agreements. We have entered into employments agreements with two of our
executive officers that require us to make aggregate base salary payments of $515,000 per
annum. |
Dispute with Brookhaven
Subsequent to the end of the quarter ended September 30, 2007, Brookhaven formally advised us
that they believe that the amount potentially due for patent related
expenses as of that date is approximately $1,000,000. We believe that we
are only potentially liable to Brookhaven for approximately $166,000 and have advised Brookhaven that we dispute their
determination of patent-related expenses potentially due under the license agreement. We intend to consult with
Brookhaven in an effort to resolve this dispute. However, there can be no assurance as to the
outcome of this matter. In any event, any amounts of patent-related expenses due to Brookhaven
under the license agreement are payable no earlier than submission by the Company of an NDA for
CPP-109, of which there can be no assurance.
Off-Balance Sheet Arrangements
We currently have no debt. Capital lease obligations as of September 30, 2007 were not
material. We have operating leases for our office facilities. We do not have any off-balance
sheet arrangements as such term is defined in rules promulgated by the SEC.
Recent Accounting Pronouncements
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (SFAS No. 157).
This statement provides a single definition of fair value, a framework for measuring fair value,
and expanded disclosures concerning fair value. Previously, different definitions of fair value
were contained in various accounting pronouncements creating inconsistencies in measurement and
disclosures. SFAS No. 157 applies under those previously issued pronouncements that prescribe fair
value as the relevant measure of value, except SFAS No. 123(R) and related interpretations and
pronouncements that require or permit measurement similar to fair value but are not intended to
measure fair value. This pronouncement is effective for fiscal years beginning after November 15,
2007. We are evaluating the impact of SFAS No. 157, but do not expect the adoption of SFAS No. 157
to have a material impact on our financial position, results of operations, or cash flows.
In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159 (SFAS
No. 159) The Fair Value Option for Financial Assets and Financial Liabilities. SFAS No. 159
permits entities to choose to measure many financial instruments and certain other items at fair
value. The provisions of SFAS No. 159 will be effective for us beginning January 1, 2008. We are in
the process of determining the effect, if any, that the adoption of SFAS No. 159 will have on our
financial statements.
21
In June 2007, the FASB ratified a consensus opinion reached by the Emerging Issues Task Force
(EITF) on EITF Issue 07-3, Accounting for Nonrefundable Advance Payments for Goods or Services
Received for Use in Future Research and Development Activities. The guidance in EITF Issue 07-3
requires the Company to defer and capitalize nonrefundable advance payments made for goods or
services to be used in research and development activities until the goods have been delivered or
the related services have been performed. If the goods are no longer expected to be delivered nor
the services expected to be performed, we would be required to expense the related capitalized
advance payments. The consensus in EITF Issue 07-3 is effective for fiscal years, and interim
periods within those fiscal years, beginning after December 15, 2007 and is to be applied
prospectively to new contracts entered into on or after December 15, 2007. We intend to adopt EITF
Issue 07-3 effective January 1, 2008. The impact of applying this consensus will depend on the
terms of future research and development contractual arrangements entered into on or after December
15, 2007.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Market risk represents the risk of changes in the value of market risk-sensitive instruments
caused by fluctuations in interest rates, foreign exchange rates and commodity prices. Changes in
these factors could cause fluctuations in our results of operations and cash flows.
Our exposure to interest rate risk is currently confined to our cash that is invested in
highly liquid money market funds. The primary objective of our investment activities is to
preserve our capital to fund operations. We also seek to maximize income from our investments
without assuming significant risk. We do not use derivative financial instruments in our
investment portfolio. Our cash and investments policy emphasizes liquidity and preservation of
principal over other portfolio considerations.
ITEM 4. CONTROLS AND PROCEDURES
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a. |
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We have carried out an evaluation, under the supervision and with the
participation of our management, including our principal executive officer and
principal financial officer, of the effectiveness of the design and operation of our
disclosure controls and procedures. Based on such evaluation, our principal executive
officer and principal financial officer have concluded that as of September 30, 2007,
our disclosure controls and procedures were effective to ensure that the information
required to be disclosed by us in the reports filed or submitted by us under the
Securities Exchange Act of 1934, as amended, was recorded, processed, summarized or
reported within the time periods specified in the rules and regulations of the SEC, and
include controls and procedures designed to ensure that information required to be
disclosed by us in such reports was accumulated and communicated to management,
including our principal executive officer and principal financial officer, as
appropriate to allow timely decisions regarding required disclosures. |
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b. |
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There have been no changes in our internal controls or in other factors that
could have a material effect, or are reasonably likely to have a material effect, to
the internal controls subsequent to the date of their evaluation in connection with the
preparation of this Quarterly Report on Form 10-Q. |
22
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not a party to any legal proceedings.
ITEM 1A. RISK FACTORS
There are many factors that affect our business, our financial condition, and the results of our
operations. In addition to the information set forth in this quarterly report, you should carefully
read and consider Item 1A. Risk Factors in Part I, and Item 7. Managements Discussion and
Analysis of Financial Condition and Results of Operations in Part II, of our Annual Report on Form
10-K for the year ended December 31, 2006, which contain a description of significant factors that
might cause our actual results of operations in future periods to differ materially from those
currently expected or desired.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
The Company held its 2007 Annual Meeting of Stockholders on August 8, 2007. The results of
that meeting were reported in the Companys Quarterly Report on Form 10-Q for the quarter ended
June 30, 2007.
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS
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31.1 |
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Certification of Principal Executive Officer under Section 302 of the
Sarbanes-Oxley Act of 2002 |
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31.2 |
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Certification of Principal Financial Officer under Section 302 of the
Sarbanes-Oxley Act of 2002 |
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32.1 |
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Certification of Principal Executive Officer under Section 906 of the
Sarbanes-Oxley Act of 2002 |
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32.2 |
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Certification of Principal Financial Officer under Section 906 of the
Sarbanes-Oxley Act of 2002 |
23
SIGNATURES
Pursuant to the Securities Exchange Act of 1934, the Registrant has caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
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Catalyst Pharmaceutical Partners, Inc.
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By: |
/s/ Jack Weinstein
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Jack Weinstein |
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Chief Financial Officer |
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Date: November 14, 2007
24
Exhibit Index
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Exhibit |
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Number |
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Description |
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31.1 |
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Certification of Principal Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002 |
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31.2 |
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Certification of Principal Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002 |
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|
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32.1 |
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Certification of Principal Executive Officer under Section 906 of the Sarbanes-Oxley Act of 2002 |
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32.2 |
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Certification of Principal Financial Officer under Section 906 of the Sarbanes-Oxley Act of 2002 |
25