UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-K
x
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE
SECURITIES EXCHANGE ACT OF 1934
For
the fiscal year ended December
31, 2007
or
o
TRANSITION
REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF
THE
SECURITIES EXCHANGE ACT OF 1934
For
the transition period from ________________ to
_______________
Commission
file number 001-16043
SYNVISTA
THERAPEUTICS, INC.
(Exact
name of Registrant as specified in its charter)
|
Delaware
|
13-3304550
|
|
(State
or other jurisdiction of
|
(I.R.S.
Employer
|
|
|
Identification
No.)
|
221
W. Grand Avenue, Montvale, New Jersey 07645
(Address
of principal executive offices)
(Zip
Code)
(201)
934-5000
(Registrant's
telephone number, including area code)
Securities
registered pursuant to Section 12(b) of the Act:
|
|
Name
of Each Exchange
|
|
Title
of Each Class
|
On
Which Registered
|
|
|
American
Stock Exchange
|
|
Preferred
Stock Purchase Rights
|
American
Stock Exchange
|
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 x
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Exchange Act. Yes
o
No x
Indicate
by check mark whether the Registrant (1) has filed all reports required to
be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended,
during the preceding 12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes x No o
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of Registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this
Form 10-K. x
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 definitions of “large
accelerated filer,”accelerated filer” and “smaller reporting company” in Rule
12b-2 of the Exchange Act. (Check one):
Large
accelerated filer o Accelerated
filer o Non-accelerated filer o
(Do not check if a smaller reporting
company) Smaller
reporting company x
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes
o
No x
The
aggregate market value of the Registrant’s voting and non-voting common equity
held by non-affiliates of the Registrant, based on the American Stock Exchange
closing price of the common stock ($4.50 per share), as of June 30, 2007, was
$8,510,990.
At
March
15, 2008, 2,586,377 shares of the Registrant’s common stock, par value $.01 per
share, were outstanding.
Documents
Incorporated By Reference
The
following documents (or parts thereof) are incorporated by reference into
the
following parts of this Form 10-K: Certain information required in Part III
of
this Annual Report on Form 10-K is incorporated from the Registrant’s Proxy
Statement for the 2008 Annual Meeting of Stockholders.
PART
I
Item
1. Business.
Overview
Synvista
Therapeutics, Inc. (“we,” “us,” “our,” “Synvista” or the “Company”) is a
product-based biotechnology company engaged in the development of diagnostic
tests and drugs to identify and treat diabetic patients at high risk for the
development of cardiovascular disease. We have identified several promising
product candidates that we believe represent novel approaches for diagnosis
and
treatment in some of the largest pharmaceutical markets. Currently we are
advancing the development and commercialization of a diagnostic product and
two
of our drug candidates are in Phase 2 clinical trials.
We
are
developing a diagnostic kit to identify the subset of patients with diabetes
who
are at increased risk for cardiovascular disease. The technology underlying
this
kit relates to a serum protein called haptoglobin (“Hp”). A common variant of
this protein, known as Hp2-2, which is found in 40% of the population, is
associated with increased cardiovascular risk in diabetic patients. Further,
it
has been shown that this protein variant may identify those diabetic patients
for whom daily use of vitamin E could potentially reduce the rate of heart
attack by 50%. We are developing a kit to identify this high risk variant of
haptoglobin. Any successful commercialization of such a kit could generate
revenues for us in future years and could help focus the development of one
of
our therapeutic product candidates, ALT-2074, described below. We believe that
this test and ancillary items may be useful also in supporting a treatment
plan
for diabetics, particularly those diabetics with Hp2-2. Pending completion
of
development and regulatory approval, we expect to begin commercial sales of
the
diagnostic assay by mid-2009.
We
are
also managing a discovery and development program aiming to produce small
molecule drugs that mimic the enzyme glutathione peroxidase (“GPx”). We believe
that GPx is one of the only enzymes in the human body that reduce oxidized
lipids. By recreating the activity of this enzyme in a small molecule, we may
be
able to treat diseases in which oxidized lipids are thought to play a
significant role, including atherosclerosis, nephropathy (kidney disease) and
degenerative central nervous system diseases, such as Alzheimer’s
Disease.
One
of
our GPx mimetics, ALT-2074, is in Phase 2 clinical trials. Our intention is
to
focus this product candidate on the treatment of diabetic patients with Hp2-2.
These patients have a markedly elevated rate of heart failure and death
following a heart attack, which may relate to elevated levels of oxidized lipids
and consequent atherosclerosis. Our goal for ALT-2074 is to develop it for use
in the treatment of acute coronary syndrome (“ACS”) and explore its
anti-atherosclerotic activity in Hp2-2, diabetic patients.
Our
two
ongoing Phase 2 studies of ALT-2074 are designed to prepare for a pivotal study.
Our first study uses ALT-2074 in Hp2-2, diabetic patients. The drug or placebo
is being administered orally in ascending doses for 28 days as we track
inflammatory biomarkers and functional improvement in cholesterol efflux. This
assay tests the ability of high density lipoprotein (“HDL”) to pull cholesterol
out of cells in the body known as macrophages. This ability may protect the
vasculature from accumulating atherosclerotic plaque. Results from this study
are anticipated in the second quarter of 2008. In addition, we are conducting
a
Phase 2 clinical trial in diabetic patients undergoing angioplasty to see
whether ALT-2074 can protect heart muscle that is not receiving adequate blood
supply. We expect to complete this study in the second quarter of 2008 as
well.
ALT-2074
has demonstrated potential efficacy in a 20-patient clinical trial in ulcerative
colitis.
Alagebrium
chloride or alagebrium (formerly ALT-711), is an Advanced Glycation End-product
Crosslink Breaker being developed for diastolic heart failure (“DHF”). To date,
alagebrium has demonstrated potential efficacy in two Phase 2 clinical trials
in
heart failure, as well as in animal models of heart failure, nephropathy,
hypertension and erectile dysfunction (“ED”). The compound has been tested in
approximately 1,000 patients, which represents a sizeable human safety database.
Our goal is to develop alagebrium in DHF and nephropathy. These diseases
represent a rapidly growing market of unmet medical needs, and are particularly
common among diabetic patients.
The
data
from one Phase 2 clinical study, presented at the American Heart
Association (“AHA”) meeting in November 2005, demonstrated the ability of
alagebrium to improve overall cardiac function, including measures of diastolic
and endothelial function. In this study, alagebrium also demonstrated the
ability to significantly reduce left ventricular mass. In November 2007, a
100-patient, placebo-controlled, two-arm study called BENEFICIAL (Double-blind,
placebo-controlled,
randomized
trial evaluating the efficacy
and safety of alagebrium)
began
patient enrollment to evaluate the efficacy and safety of alagebrium in patients
with chronic heart failure. We expect to report initial results from this study
in the second quarter of 2009.
In
July
2006, we announced that the Juvenile Diabetes Research Foundation (“JDRF”)
awarded a research grant to one of our independent researchers, Mark Cooper,
M.D., Ph.D., Professor at the Baker Heart Research Institute, Melbourne,
Australia. This grant will fund a multinational Phase 2 clinical study of
alagebrium on renal function in patients with type 1 diabetes and
microalbuminuria. Alagebrium will be tested for its ability to reverse kidney
damage caused by diabetes, and to reverse the protein excretion which is
characteristic of diabetic nephropathy. Dr. Cooper has demonstrated promising
preclinical results with alagebrium in diabetic kidney disease. We expect to
enroll patients in this study beginning in the first quarter of 2009 and results
may be available approximately 30 months following enrollment of the first
patient.
Our
compounds and technologies were the subjects of several presentations and
publications over the course of the year.
A
preclinical study presented at the 27th
Annual
Dialysis Conference in Denver, February 18-20, 2007, which was honored with
the
“Best Abstract” award, demonstrated the beneficial effects of alagebrium in a
rat model of peritoneal dialysis. Conducted by Jeong-Ho Lee, M.D. of the
Department of Nephrology, Dongguk University Medical Center, Kyongju, Korea,
the
study entitled, “The breakdown of preformed advanced glycation end products
(A.G.E.s) by intraperitoneal alagebrium” indicates a potential role for
alagebrium in the treatment of kidney diseases and as an adjunct to dialysis.
Data
demonstrating the ability of alagebrium to augment flow-mediated dilation
(“FMD”) was the subject of a paper published in the March 2007, Volume 25, No. 3
issue of the Journal of Hypertension, by Susan Zieman, M.D, Ph.D., Assistant
Professor, Department of Medicine (Cardiology), and colleagues from Johns
Hopkins School of Medicine. The paper, describing an investigator-sponsored
Phase 2 clinical trial, indicates that alagebrium can induce changes in
flow-mediated dilation and a variety of biomarkers related to inflammation,
matrix turnover and endothelial function.
In
October 2007, preclinical data demonstrating the ability of alagebrium to reduce
serum levels of advanced glycated end-products and restore neuronal nitric
oxide
synthase (“nNOS”) activity in rats with diabetes was published in the journal
Neurogastroenterology
and Motility.
Loss of
gastrointestinal nNOS activity is one of the major putative mechanisms for
the
development of diabetic complications involving the gut including gastroparesis
and intestinal dysfunction and has been the subject of both intense
investigation and thorough review. Diabetic gastroparesis is a motility disorder
in which the stomach takes too long to empty its contents. It is a disease
of
significant unmet medical need, as no pharmaceutical products are approved
for
the treatment of this condition, which afflicts one million type 1 and type
2
diabetic patients in the U.S. and many more worldwide. Pankaj J. Pasricha,
M.D.,
Ph.D., Professor and Chief, Division of Gastroenterology & Hepatology at
Stanford University School of Medicine, and colleagues; Dr. Prince VS Jeyabal,
Dr. Raj Kumar, Dr. Pandu RR Gangula, Dr. Mary-Adelaide Micci; from the
University of Texas Medical Branch authored the paper. Dr. Pasricha is also
Chairman of the NIH-funded Diabetic Gastroparesis Consortium, which has a
mandate to better characterize the underlying biology and develop therapeutic
interventions for patients with diabetic gastroparesis.
In
a
presentation in November at the American Heart Association Scientific Sessions
2007, titled “Tight Diabetic Glycemic Control Reduces the Risk of Cardiovascular
Disease Only in Individuals With the Hp2-2 Genotype,” Shany Blum, M.D., of the
Rappaport Institute of the Technion University, Haifa, Israel, reported the
results of a prospective population-based study of more than 3,000 individuals
age 55 or older with diabetes mellitus, who were tested for Hp type and followed
for two years in a registry. It was observed that Hp2-2 was associated with
a
highly significant increase in incidence of non-fatal-myocardial infarction,
stroke and cardiovascular death and that only patients with the Hp2-2 phenotype
(as compared to patients with Hp1-2 or Hp1-1 phenotypes) were shown to have
a
significant decrease in major cardiovascular events if their level of blood
sugar, as measured by a marker of blood sugar called HbA1c, was maintained
below
7.0, the generally recommended target for tight glycemic (blood sugar)
control.
Also
at
the American Heart Association Scientific Sessions 2007, the results of the
ICARE study were presented. Presenters observed that supplementing Vitamin
E
therapy (400 IU) in patients with diabetes mellitus who have the Hp2-2
phenotype is beneficial. The study met its pre-specified, primary endpoint
of
decreased cardiovascular events (defined as stroke, non-fatal myocardial
infarction, or MI, and cardiovascular death), leading to early termination
of
the four-year study after just 18 months. The study was conducted by Dr. Andrew
P. Levy and his colleagues at the Rappaport Research Institute in the Technion
Faculty of Medicine, Technion-Israel Institute of Technology, Haifa, Israel,
and
Clalit Health Services, Haifa and Western Galilee, Israel.
We
continue to explore strategic relationships to support our development programs
and are focused on fund-raising activities. In
April
2007, we entered into a Series B Preferred Stock and Warrant Purchase Agreement
with institutional investors who purchased on July 25, 2007, $25,000,000 of
newly created Series B Preferred Stock and warrants to purchase shares of Series
B Preferred Stock. The issuance of $25,000,000 of our Series B Preferred Stock
includes the conversion of $6,000,000 of previously issued convertible
promissory notes plus all accrued and unpaid interest thereon, which were
cancelled upon the closing of the financing. The closing of this financing
was
subject to the satisfaction of various conditions, including stockholder
approval (See Note 10 to the consolidated financial statements -- Series B
Preferred Stock and Warrant Purchase Agreement).
On
July
20, 2007, the stockholders of Alteon Inc. approved changing the name of the
company from Alteon Inc. to Synvista Therapeutics, Inc. The name change
became effective on July 25, 2007.
In
January 2008 we announced the signing of an agreement with privately-held Novel
Therapeutic Technologies, Inc. to provide us with formulation work for a topical
cream formulation of ALT-2074, for the treatment of psoriasis. This work will
be
performed under the guidance of Elka Tuoituo, M.D. at the Hebrew University
in
Jerusalem, Israel. ALT-2074 may have potential in the treatment of plaque
psoriasis because ALT-2074
can block TNF-α activated expression of cell adhesion molecules, I-CAM and
V-CAM, which may be essential for cellular migration. TNF- α is an established
target for drug development in psoriasis and other autoimmune diseases. We
have
identified sites
in
Israel to perform a planned Phase 2 clinical trial beginning in mid-2008,
pending approval from the Ministry of Health in Israel.
We
were
incorporated in Delaware in October 1986. Our headquarters, effective February
26, 2007, are located at 221 W. Grand Avenue, Montvale, New Jersey 07645. We
maintain a web site at www.Synvista.com
and our
telephone number is (201) 934-5000. Our annual reports on Form 10-K, our
quarterly reports on Form 10-Q, our current reports on Form 8-K, and all
amendments to those reports, are available to you free of charge through the
“Investor Relations” section of our website as soon as reasonably practicable
after such materials have been electronically filed with, or furnished to,
the
Securities and Exchange Commission (“SEC”).
Our
Business Strategy
Markets
of Opportunity
ALT-2074
and Haptoglobin Markets
ALT-2074
is being developed for two markets in two formulations. An oral formulation
of
the drug is being developed for diabetic patients at high risk for death or
heart failure following a heart attack. A topical formulation is being developed
for mild-to-moderate psoriasis.
Type
II
Diabetes Mellitus (“DM”) is a disease affecting more than 15 million patients in
the United States, with more than one million newly diagnosed patients every
year and an annual incidence growth rate of more than 6%. DM is often described
as part of a continuum beginning with obesity. It is defined largely by glucose
intolerance, or an inability to manage sugar in the blood stream. The disease
is
often associated with metabolic syndrome in which patients tend to be obese,
have lipid abnormalities and high blood pressure. It is important to avoid
the
development of DM or treat it, because DM is associated with microvascular
(small blood vessel) diseases like retinopathy and nephropathy and macrovascular
(large blood vessel) diseases like stroke and heart attack.
According
to the American Diabetes Association, heart disease is the leading cause of
diabetes-related deaths. Heart disease death rates are two to four times higher
in adults with diabetes than adults without diabetes. The risk of stroke is
also
two to four times higher in those with diabetes.
The
Diabetes Control and Complications Trial, a multi-center clinical trial
conducted by the National Institutes of Health, demonstrated that elevated
blood
glucose levels significantly increase the rate of progression of blood vessel,
kidney, eye and nerve complications from diabetes. More than 50% of people
with
diabetes in the United States develop diabetic complications that range from
mild to severe.
Our
oral
formulation of ALT-2074 is being targeted to Hp2-2 DM patients, or the 40%
of DM
patients we believe to be at high risk for heart failure or death following
a
heart attack. There are approximately 160,000 to 200,000 such patients affected
by heart attack every year. We believe this niche, short-term use, indication
can be valuable in the health care system, where this small population of
patients may consume $5 billion to $6 billion in healthcare resources. One
of
our longer term goals is to develop ALT-2074 or a second generation compound,
possibly one in our organoselenium compound discovery program, to be used as
chronic therapy by high risk diabetic patients. Focusing again on the Hp2-2
diabetic population at high risk for heart attack and stroke, we would be
targeting approximately 6,000,000 U.S. patients as the Hp2-2 DM population
represents about 40% of the total 15 million patient DM population in the United
States.
We
believe that a topical form of ALT-2074 may be useful in the treatment of
psoriasis. Psoriasis is an
immune-mediated, genetic disease manifesting in the skin and/or the joints
and
can range from mild to moderate to very severe and disabling. It
affects 125
million people worldwide, according to the World Psoriasis Day consortium.
According to the National Institutes of Health (“NIH”), between 5.8 million and
7.5 million Americans have psoriasis. Researchers believe psoriasis occurs
when
faulty signals in the immune system cause skin cells to grow too rapidly. The
most common form, plaque psoriasis, appears as raised, red patches or lesions
covered with a silvery white buildup of dead skin cells, called scale. There
is
no cure, but many different treatments, both topical
(on the
skin) and systemic
(throughout the body), can clear psoriasis for periods of time. Topical
treatments slow down
or
normalize that excessive cell reproduction and reduce inflammation (redness)
associated with psoriasis. People often need to try different treatments before
they find one that works for them. About 56 million hours of work are lost
each
year by people who suffer from psoriasis, and between $1.6 billion and $3.2
billion is spent per year to treat this disease.
Alagebrium
Markets
Our
research and development efforts have led us to an initial focus on
cardiovascular and other vascular diseases, including heart failure, retinopathy
and nephropathy, as well as other complications of diabetes. Therapeutic
targeting of the A.G.E. pathway may reverse the progressive fibrosis and
stiffening of tissues and organs thus potentially broadening our markets of
opportunity to include additional medical disorders related to aging and
diabetes. Importantly, there are currently no marketed drugs of which we are
aware that are known to work directly on A.G.E.s and the structural stiffening
of tissues and organs that lead to diseases such as heart failure and renal
failure.
Diastolic
Dysfunction in Heart Failure
Approximately
5,000,000 patients in the United States have been diagnosed with heart failure.
The disease is characterized by an inability to pump enough blood into the
aorta
to maintain blood pressure and adequate blood flow to the brain, internal organs
and the extremities. The body compensates for low blood pressure by increasing
blood volume (intravascular volume), because the heart can only fill and eject
adequate blood volume under high pressure. This leads to compensatory high
filling pressure and fluid leakage into the lungs. Following a heart attack,
a
scarred, thinned heart will often show signs of failure, as it will be unable to
pump blood without high filling pressure. It has become increasingly clear,
however, that 1,000,000 to 2,000,000 patients in the United States with heart
failure have no evidence of a scarred, thin heart. Rather, they have strong,
stiff, thickened heart muscle that squeezes adequately, but can not relax
adequately to fill with blood. The body compensates with the same strategy
of
increasing vascular volume to fill the heart at higher pressure. Such patients
with diastolic heart failure, or heart failure with normal ejection fraction,
have similar symptoms to the patients with the low ejection fraction heart
failure seen in patients with scarred, damaged hearts. As a result, we believe
that drugs are currently approved for diastolic heart failure. While drugs
approved for heart failure are often attempted in this subset of patients,
it is
our impression that the effectiveness of those drugs are sorely lacking. Thus
drugs that can treat diastolic heart failure or its earlier phase, called
diastolic dysfunction, may fill an important unmet medical need. We are
developing alagebrium to fill this medical need.
Diabetic
Nephropathy
As
described above, diabetes is often associated with vascular disease. One
consequence of vascular or blood vessel disease, is damage to the kidney, known
as diabetic nephropathy. This disease is characterized by progressive scarring
and fibrosis of the kidney in an inflammatory process that begins with leakiness
of proteins and culminates in decreased function or renal failure. More than
2,000,000 patients in the United States have diabetic nephropathy. Most of
these
patients will gradually develop end stage renal disease with a requirement
for
dialysis and kidney transplant. The cost of treatment may be more than $50
billion annually in the United States. We are developing alagebrium for this
indication as well.
Pathways
Reactive
Oxygen Species and ALT-2074
The
production of energy, necessary to living organisms, including human beings,
involves the consumption of oxygen in a process called oxidation, where oxygen
is added to substances inside or outside of cells. The metabolic machinery
in
the human body involved in oxidation, will create incidental and harmful
byproducts of oxidation, including partially reduced forms of oxygen called
reactive oxygen species or ROS. Not surprisingly, the human body has mechanisms
for disposing of these byproducts, using antioxidants. Some of these
antioxidants are enzymes that promote the conversion or elimination of reactive
oxygen species. Examples of these enzymes are glutathione peroxidase, superoxide
dismutase and catalase. Others are substances that interact with reactive oxygen
species, directly or indirectly, such as glutathione or vitamin E or
haptolgobin. One important hypothesis for the negative effects of reactive
oxygen species is that they promote the conversion of nitric oxide,
NO2
to
peroxynitrite, (ONOO-). While nitric oxide is an important mediator of vascular
health, improving the tone and relaxing capacity of smooth muscle cells that
control the diameter of blood vessels, peroxynitrite is a reactive chemical
that
can alter proteins and lipids leading to changes in molecular signaling and
the
development of inflammation. The relative amounts of oxidants and anti-oxidants
are carefully monitored in the local cellular environment and across an entire
organism. We believe that an increase in reactive oxygen species and the
consumption of nitric oxide and production of peroxynitrite contributes to
worsening vascular disease.
Patients
with Type I or Type II Diabetes, even under conditions of superb medical
management, tend to have higher than normal circulating levels of glucose.
The
presence of glucose induces increased cellular metabolism and the production
of
more reactive oxygen species and in fact, patients with diabetes tend to have
higher levels of reactive oxygen species. We believe that it is sensible to
test
the efficacy of drugs that reduce reactive oxygen species on patients with
diabetes, because the ROS-related diseases are prevalent in this patient
population. One disease in particular that generates significant reactive oxygen
species and is found more commonly in diabetic than non-diabetic patients is
acute coronary syndrome, or heart attack. Loss of blood flow to the heart leads
to immediate deprivation of oxygen in cardiac muscle, and is known as cardiac
or
myocardial ischemia. Since the heart is an organ with a stringent metabolism
for
oxygen containing pathways, it is particularly sensitive to oxygen deprivation.
During a heart attack damage and death of heart tissue arises from multiple
pathways. A clot in the coronary arteries can prevent the delivery of nutrient
rich, oxygen containing blood. As clots dissolve naturally or are opened by
drugs or mechanical therapies (reperfusion), a surge of inflammatory mediators
and cytokines are released, causing further damage to the heart muscle
(myocardium). This process also occurs during angioplasty. During reperfusion,
the surge in oxidative stress induced by inflammatory mediators and oxygen
free
radicals damages tissues. This damage is due in part to the oxygen free radicals
and an inadequate response by the body’s antioxidant capacity, leading to
destruction of all membranes. One essential antioxidant molecule that may limit
this type of damage is glutathione peroxidase. GPx is the only enzyme in the
body that can destroy lipid hydroperoxides, one of the potent inflammatory
mediators released during reperfusion induced myocardial injury. As ALT-2074
was
chosen as a product candidate by virtue of its strong GPx activity, we believe
it may be useful in this patient population. Accordingly, our development plan
is designed to test whether ALT-2074 can be used to improve the outcomes of
heart attack in patients with diabetes. In an attempt to further increase our
chances of success, we anticipate limiting our patient population to the subset
of diabetics who have defects in an anti-oxidant called haptoglobin.
Specifically, we will look at the approximately 40% of diabetics who have a
variant of haptoglobin, called Hp2-2, which renders them at increased risk
for
cardiovascular disease based on worse atherosclerosis that appears to be caused
by even higher levels of oxidative damage.
The
A.G.E. Pathway
Advanced
Glycation End-Products are glucose/protein complexes and are formed by a
reaction between circulating blood glucose molecules and proteins. They induce
protein crosslinking. These pathological complexes affect the structural
chemistry of tissues and organs, resulting in increased stiffness and fibrosis,
as well as impaired flexibility and compromised function. The A.G.E. pathway
may
provide the scientific explanation for how and why many of the medical
complications of the aging process occur with higher frequency and earlier
in
life in diabetic patients. Diabetic individuals form excessive amounts of
A.G.E.s earlier in life than do non-diabetic individuals, due primarily to
higher levels of blood sugar. For this reason, diabetes may be viewed as an
accelerated form of aging. It is widely acknowledged that diabetics have early
onset and accelerated forms of atherosclerosis.
A.G.E.s
and A.G.E. crosslinks are considered to be likely causative factors in the
development of many age-related and diabetic disorders. For example, proteins
in
the body such as collagen and elastin, which play an important role in
maintaining the elasticity of the cardiovascular system, are prime targets
for
A.G.E. crosslinking. This stiffening process can impair the normal function
of
contractile organs, such as blood vessels, which depend on flexibility for
normal function. A loss of flexibility of the vasculature is associated with
a
number of cardiovascular disorders, including diastolic dysfunction, left
ventricular hypertrophy (“LVH”) and heart failure itself, as well as other
diabetic complications.
In
addition to their role in promoting the fibrosis and stiffening of tissues
and
organs throughout the body, A.G.E.s have been shown to contribute to disease
by
adversely altering multiple inflammatory and metabolic pathways. A.G.E.s can
lead to pathologic alterations commonly associated with diabetic nephropathy,
retinopathy and processes that accelerate atherosclerosis.
In
recent
years, our research and drug development activities targeting the A.G.E. pathway
have focused on the development of A.G.E. Crosslink Breakers and A.G.E.
Formation Inhibitors. We believe that we were the first company to focus on
the
development of compounds to treat diseases caused by A.G.E. formation and
crosslinking. Since our inception, we have created an extensive library of
novel
compounds targeting the A.G.E. pathway and have actively pursued patent
protection for these discoveries.
The
A.G.E. pathway may provide the scientific explanation for how and why many
of
the medical complications of the aging process occur with higher frequency
and
earlier in life in diabetic patients. Diabetic individuals form excessive
amounts of A.G.E.s earlier in life than do non-diabetic individuals, due
primarily to higher levels of blood sugar. For this reason, diabetes may be
viewed as an accelerated form of aging.
A.G.E.
Crosslink Breakers have the potential to treat a number of medical disorders
where loss of flexibility or elasticity leads to a loss in function. Alagebrium
has demonstrated the ability to reverse tissue damage and restore function
to
the cardiovascular system in Phase 2 clinical studies in cardiovascular
distensibility and DHF. Additionally, we are evaluating the development of
several compounds in the breaker class for other indications where A.G.E.
crosslinking leads to abnormal function.
We
have
identified several potential chemical classes of A.G.E. Crosslink Breakers,
and
have an extensive library of compounds.
Alagebrium
Alagebrium
is a small, easily synthesized compound with a rapid mode of action. It is
well
absorbed from an oral tablet formulation. The compound has completed several
Phase 2 studies and is being evaluated in various preclinical models to assess
its safety and potential in a number of other disease states.
Preclinical
Studies
Preclinical
studies with ALT-2074 conducted by Dr. Shany Blum in the laboratory of Dr.
Andrew Levy at the Technion Institute in Israel have documented the ability
of
this compound to effectively reduce the amount of damage to the myocardium
that
occurs in settings of a myocardial infarction in diabetic models with Hp2-2.
These investigators have identified a genetic polymorphism of haptoglobin that
predisposes diabetic individuals to enhanced myocardial damage subsequent to
an
ischemia-reperfusion event. With the use of transgenic animals containing the
human form of the altered haptoglobin gene, these investigators have
demonstrated that ALT-2074 was capable of reducing myocardial damage by greater
than 80% relative to placebo treated animals. This altered genetic form of
haptoglobin is found in about 30% to 40% of the human population and has been
associated with increased risk of death and cardiovascular complications in
diabetic patients. The results of these studies were presented at meetings
of
the American College of Cardiology and the AHA, and were recently published
in
the peer-reviewed Journal of the American College of Cardiology. We believe
that
the use of ALT-2074 can mitigate both the inflammatory and oxidative stress
aspects of ischemia-reperfusion injuries. Glutathione peroxidase is the only
natural anti-oxidant that is able to mitigate the damage to membranes. The
ability of ALT-2074 to mitigate the effects of damage attributable to lipid
peroxides has important implications for treatment of atherosclerosis and
limitation of heart damage in the context of acute coronary syndrome, myocardial
infarction and atherosclerosis. ALT-2074 is believed to have both anti-oxidant
and anti-inflammatory activities, and, as such, we believe that it represents
a
potential therapeutic opportunity to modulate cardiovascular
disease.
Alagebrium
efficacy data are consistent across species. Studies in animal models in several
laboratories around the world have demonstrated rapid reversal of impaired
cardiovascular functions with alagebrium. In these preclinical models,
alagebrium reverses the stiffening of arteries, as well as the stiffening of
the
hearts that are consequences of aging and diabetes.
Preclinical
studies of alagebrium conducted by researchers from the National Institute
on
Aging and Johns Hopkins Geriatric Center demonstrated the ability of the
compound to significantly and rapidly reduce arterial stiffness in elderly
Rhesus monkeys. In a preclinical study of alagebrium in aged dogs,
administration of alagebrium for two months resulted in an decrease in
age-related aorta stiffness, and increased aortic dimension. Additionally,
in
several preclinical studies, alagebrium has been shown to normalize the
thickening of the left ventricle and to have a beneficial, therapeutic effect
on
reversing the pathologic remodeling of the heart. Preclinical studies have
also
demonstrated the beneficial effects of alagebrium and exercise to reverse
diastolic stiffness, alter active diastolic dysfunction, systolic function
contractility and large artery vascular compliance associated with age-related
myocardial dysfunction and vascular stiffness. Other preclinical studies have
investigated the beneficial effects of alagebrium on atherosclerosis, diabetic
kidney disease, ED and certain eye conditions.
Current
Clinical Studies
Oral
ALT-2074 in Acute Coronary Syndrome in Diabetic Patients
We
believe that the ability to identify, through haptoglobin phenotyping, those
diabetic patients who are at extreme risk for cardiovascular complications
and
death will allow physicians to offer directed therapy to those patients when
they present in acute coronary settings. Preclinical studies have indicated
that
ALT-2074, a glutathione peroxidase mimetic that reduces injury due to oxidative
stress, is able to limit damage to rodent myocardium by 85% in acute coronary
settings when the animals have been transgenically manipulated to carry the
human form of the gene for haptoglobin in which high risk is conferred to
patients (Hp2-2).
In
a
Phase 2 randomized, double-blind, placebo controlled, multicenter clinical
trial
underway in Israel, ALT-2074 is being evaluated for its ability to limit
myocardial damage in 60 diabetic patients undergoing elective balloon
angioplasty and stent placement. The primary endpoint is area-under-the-curve
measurement of plasma CK-MB, a marker of myocardial injury, in the 48 hours
following the angioplasty. Trial results are expected to be available by
mid-2008. If the trial results show that ALT-2074 prevents myocardial injury
in
this setting, we intend to embark on a Phase 3 program in which we would test
28
days of treatment with ALT-2074 in diabetic patients with the haptoglobin 2-2
phenotype who present with acute coronary syndrome. We expect the primary
endpoint for such a study to be a “hard” composite endpoint, including death and
MI.
In
another Phase 2 study underway in diabetic patients with coronary artery
disease, this one in the U.S., we are attempting to identify biomarkers of
oxidative stress that differ between patients with different haptoglobin
phenotypes and to examine the effects of treatment with ALT-2074 on these
biomarkers in patients with the haptoglobin 2-2 phenotype. If we can succeed,
we
believe that this will provide additional evidence for drug activity and help
to
support proceeding to a Phase 3 clinical trial. These results are also expected
to be available by mid-2008.
Topical
ALT-2074 in Psoriasis
Because
the ability to reduce oxidative stress also counters inflammatory pathways,
we
intend to begin testing a topical formulation of ALT-2074 in psoriasis. The
first Phase 2 clinical study of ALT-2074 in psoriasis, a randomized,
double-blind, placebo controlled study to be conducted in 40 patients with
moderate psoriasis in Israel, is scheduled to begin by mid-2008 and we expect
to
report results before the end of 2008.
Oral
Alagebrium for Heart Failure
Alagebrium
has been shown in animal models to be effective in systolic hypertension,
diabetic nephropathy, and heart failure caused by diabetes mellitus or
hypertension. A phase 2 study in hypertension failed to show efficacy, but
two
small, open label clinical studies in heart failure (DIAMOND and PEDESTAL)
yielded encouraging results. We are pursuing development of alagebrium in the
indication of heart failure.
In
a
Phase 2 randomized, double-blind, placebo controlled clinical trial being
conducted in 100 patients in The Netherlands, the effect of 9 months of
treatment with alagebrium is being investigated in patients with heart failure
and a low cardiac ejection fraction (systolic heart failure). The primary
readout is a measure of exercise ability known as MVO2. We believe that exercise
ability, coupled with measures of quality of life, is a registerable endpoint
for this indication. We expect this trial to report results before the end
of
2009.
A
second
randomized, double-blind, placebo controlled Phase 2 study of alagebrium in
heart failure is scheduled to start in May 2008 at approximately 25 sites in
the
U.S. and will enroll 160 patients. As with the trial described immediately
above, the primary readout of this trial is a measure of exercise ability.
This
study, in contrast to the first, is targeting heart failure patients with normal
cardiac ejection fraction (diastolic heart failure), a disease that is
particularly prevalent in diabetic and hypertensive patients. This study also
is
scheduled to report results before the end of 2009.
Manufacturing
We
have
no manufacturing facilities for either production of bulk chemicals or the
manufacturing of pharmaceutical dosage forms. We have relied in the past on
third-party contract manufacturers to produce the raw materials and chemicals
used as the active drug ingredients in our products used in clinical studies,
and we expect to rely on third parties to perform the tasks necessary to
process, package and distribute these products in finished form.
We
plan
to inspect any third-party contract manufacturers and their consultants with
whom we may contract in the future in order to confirm their compliance with
current Good Manufacturing Practice, or cGMP, required for pharmaceutical
products. We believe we will be able to obtain sufficient quantities of bulk
chemicals at reasonable prices to satisfy anticipated needs.
ALT-2074
is currently manufactured for us by external contract research organizations
(“CRO’s”) and contract manufacturing organizations (“CMO’s”) to Current
Standards of Good Manufacturing Practices (“cGMP”). These CROs and CMOs also
conduct ongoing stability testing and packaging of ALT-2074 for us. All ongoing
bulk and product stability information has been submitted to the Cardio-Renal
Division of the FDA under an approved IND. These efforts are currently
sufficient to support our ongoing clinical investigations of ALT-2074 in Israel
and in the U.S., as well as various preclinical and toxicology studies.
We
have
manufactured enough alagebrium tablets for our ongoing domestic and
international trials. Past manufacturing and ongoing stability testing are
in
accordance with cGMP and International Conference on Harmonisation
(“ICH”)
guidelines.
Marketing
and Sales
We
retain
worldwide marketing rights to our A.G.E. Crosslink Breaker compounds. We believe
that alagebrium may address the cardiovascular, diabetes and primary care
physician markets. We have an exclusive worldwide license to ALT-2074 and other
organoselenium compounds. We believe that ALT-2074 may address large
cardiovascular markets. We plan to market and sell our products, if and when
they are successfully developed and approved for commercial sale, directly
or
through co-promotion or other licensing arrangements with third parties. Such
arrangements may be exclusive or nonexclusive and may provide for marketing
rights worldwide or in a specific market.
Patents,
Trade Secrets and Licenses
Proprietary
protection for our product candidates, processes and know-how is important
to
our business. We aggressively file and prosecute patents covering our
proprietary technology, and, if warranted, will defend our patents and
proprietary technology. As appropriate, we seek patent protection for our
proprietary technology and products in the United States and Canada and in
key
commercial European and Asia/Pacific countries. We also rely upon trade secrets,
know-how, continuing technological innovation and licensing opportunities to
develop and maintain our competitive position. In addition to our own patent
filings, we have licensed or obtained technology and patent portfolios from
others relating to organoselenium and A.G.E.-formation and crosslinking
technology currently under development by us.
As
of the
date of this report, our patent estate of owned or licensed patent rights
consists of a total of 193 issued patents and 116 pending applications in the
United States and internationally. The majority of our patents and
patent applications are in the following three areas: there are 146 issued
patents and 45 pending applications in the United States and world-wide, related
to A.G.E. crosslink breakers. In addition there are 43 issued patents and 20
pending applications related to Glutathione Peroxidase Mimetics, and 3 issued
U.S. patents and 37 patent applications, world-wide, related to the haptoglobin
diagnostic kit. Our
issued patents expire on dates ranging from 2011 to 2025.
On
April
2, 2007, we entered into an Amended and Restated Exclusive License Agreement
with Oxis International, Inc. (“OXIS”) that includes a worldwide exclusive
license granted by Oxis to us and covering a family of orally bioavailable
organoselenium compounds that have shown anti-oxidant and anti-inflammatory
properties in clinical and preclinical studies, and which changes certain rights
and obligations under our previous agreement with Oxis. Among other changes,
the
amended agreement broadens the field of our license to all uses of the licensed
technology and eliminates the exclusive right of Oxis to act as a supplier
of
licensed product to us. Royalty and milestone payments also are changed in
the
amended agreement, including the addition of a right to reduce royalty payments
to Oxis in the event a royalty on a licensed product is payable to a third
party.
The
amended agreement also requires that we make certain fixed payments to Oxis
of
up to $500,000 over six months, which have been made, and enter into a share
purchase agreement for the purchase of $500,000 of newly issued shares of Oxis
common stock at a premium over the then current market price. In August 2007,
we
acquired 2,083,333 shares of Oxis pursuant to the share purchase agreement
for
$500,000, of which $100,000 premium was expensed at the date of the acquisition.
These shares must be held for a period of not less than 18 months. We further
commit to a minimum investment in a development program from licensed
products.
We
also
entered into a license agreement with BIO-RAP Ltd. (“BIO-RAP”), on its own and
on behalf of the Rappaport Family Institute for Research in the Medical
Sciences, in July 2004. Under the agreement, we received an exclusive,
worldwide, royalty-bearing license, with the right to grant sublicenses, to
certain technology, patents and technology relating to products in the field
of
testing and/or measurement for diagnostic predictive purposes of vascular or
cardiac diseases. We are obligated to make annual research funding
payments to BIO-RAP and pay a portion of BIO-RAP’s direct overhead costs. We are
also obligated to make future payments upon achievement of certain milestones,
including FDA-related milestones, as well as royalty payments on sales, net
of
various customary discounts, attributable to therapeutic products derived from
the technology being licensed to us by BIO-RAP. We have a first right to acquire
a license to any of the technology developed as part of the research conducted
pursuant to the agreement. If we exercise this right but the parties
acting in good faith fail to reach an agreement with respect to such license,
then we have a right of first refusal to license the research technology on
the
same terms offered by BIO-RAP to a third party.
On
April
1, 2007, we entered into an amendment of our License and Research Agreement
with
Bio-Rap. Among other changes, the amendment extends to all fields our rights
to
sell therapeutic and diagnostic product pursuant to the licenses granted in
that
agreement. The
amendment also will result in an increase in annual research funding provided
by
us to Bio-Rap, and in our making certain defined payments to Bio-Rap over the
course of the next 18 months. Other payments due to Bio-Rap based on our sales
of diagnostic products or grant of sublicense rights, including royalties,
milestone payments and payments attributable to sublicense revenue, are
significantly reduced. The amendment gives us the right to further reduce
royalty payments on diagnostic products on making a one-time payment within
eight years, and to further reduce payments resulting from sublicense revenue
on
making a one-time payment made within the next five years. In
addition, under the amendment we assume all of Bio-Rap’s right and interest in a
license with ARUP Laboratories at the University of Utah (“ARUP”). ARUP will, in
the future, be a sublicensee of us.
In
connection with our merger with HaptoGuard in July 2006, we issued to Genentech
rights to collect milestones and royalties on net sales of alagebrium.
Further, Genentech was given a right of first negotiation on ALT-2074 if
we seek a licensing partner for the drug.
We
previously exclusively licensed from The Picower Institute for Medical Research,
or The Picower, certain patentable inventions and discoveries relating to A.G.E.
technology. The Picower license agreement was terminated as of April 15, 2002,
when we entered into a Termination Agreement, pursuant to which The Picower
assigned to us all of its patents, patent applications and other technology
related to A.G.E.s. We agreed to prosecute and maintain the patents and patent
applications and will pay to the trustee for The Picower royalties on any sales
of products falling within the claims of these patents and patent applications
until they expire or are allowed to lapse.
We
believe that our licensed and owned patents provide a substantial proprietary
base that will allow us and our collaborative partners to commercialize products
in this field. We believe our research and development plans will expand and
broaden our rights within our technological and patent base. We are also
prepared to in-license additional technology that may be useful in building
our
proprietary position. There can be no assurance, however, that pending or future
applications will issue, that the claims of any patents which do issue will
provide any significant protection of our technology or that our directed
discovery research will yield compounds and products of therapeutic and
commercial value.
Where
appropriate, we utilize trade secrets and unpatentable improvements to enhance
our technology base and improve our competitive position. We require all
employees, scientific consultants and contractors to execute confidentiality
agreements as a condition of engagement. There can be no assurance, however,
that we can limit unauthorized or wrongful disclosures of unpatented trade
secret information.
We
believe that our estate of licensed and owned issued patents, if upheld, and
pending applications, if granted and upheld, will be a substantial factor in
our
success. The patent positions of pharmaceutical firms, including ours, are
generally uncertain and involve complex legal and factual questions.
Consequently, even though we are currently prosecuting such patent applications
in the United States and foreign patent offices, we do not know whether any
of
such applications will result in the issuance of any additional patents or,
if
any additional patents are issued, whether the claims thereof will provide
significant proprietary protection or will be circumvented or
invalidated.
Competitors
or potential competitors have filed for or have received United States and
foreign patents and may obtain additional patents and proprietary rights
relating to compounds or processes competitive with those of ours. Accordingly,
there can be no assurance that our patent applications will result in patents
being issued or that, if issued, the claims of the patents will afford
protection against competitors with similar technology; nor can there be any
assurance that others will not obtain patents that we would need to license
or
circumvent. See “Competition.”
Our
success will depend, in part, on our ability to obtain patent protection for
our
products, preserve our trade secrets and operate without infringing on the
proprietary rights of third parties. There can be no assurance that our current
patent estate will enable us to prevent infringement by third parties or that
competitors will not develop competitive products outside the protection that
may be afforded by the claims of such patents. To the extent we rely on trade
secrets and unpatented know-how to maintain our competitive technological
position, there can be no assurance that others may not develop independently
the same or similar technologies. Failure to maintain our current patent estate
or to obtain requisite patent and trade secret protection, which may become
material or necessary for product development, could delay or preclude us or
our
licensees or marketing partners from marketing our products and could thereby
have a material adverse effect on our business, financial condition and results
of operations.
Government
Regulation
We
and
our products are subject to comprehensive regulations by the U.S. Food and
Drug
Administration (“FDA”) and by comparable authorities in other countries. These
national agencies and other federal, state and local entities regulate, among
other things, the preclinical and clinical testing, safety, effectiveness,
approval, manufacturing, labeling, marketing, export, storage, record keeping,
advertising and promotion of our products.
The
process required by the FDA before our products may be approved for marketing
in
the United States generally involves (1) preclinical new drug laboratory and
animal tests, (2) submission to the FDA of an investigational new drug
application (“IND”), which must become effective before clinical trials may
begin, (3) adequate and well-controlled human clinical trials to establish
the
safety and efficacy of the drug for its intended indication, (4) submission
to
the FDA of a new drug application (“NDA”), and (5) FDA review of the NDA in
order to determine, among other things, whether the drug is safe and effective
for its intended uses. There is no assurance that the FDA review process will
result in product approval on a timely basis, if at all.
Preclinical
tests include laboratory evaluation of product chemistry and formulation, as
well as animal studies to assess the potential safety and efficacy of the
product. Certain preclinical tests are subject to FDA regulations regarding
current Good Laboratory Practices. The results of the preclinical tests are
submitted to the FDA as part of an IND and are reviewed by the FDA prior to
the
commencement of clinical trials or during the conduct of the clinical trials,
as
appropriate.
Clinical
trials are conducted under protocols that detail such matters as the objectives
of the study, the parameters to be used to monitor safety and the efficacy
criteria to be evaluated. Each protocol must be submitted to the FDA as part
of
the IND. Further, each protocol must be reviewed and approved by an independent
review board (“IRB”).
Clinical
trials are typically conducted in three sequential phases, which may overlap.
During Phase 1, when the drug is initially given to human subjects, the product
is tested for safety, dosage tolerance, absorption, metabolism, distribution
and
excretion. Phase 2 involves studies in a limited patient population to (1)
evaluate preliminarily the efficacy of the product for specific targeted
indications, (2) determine dosage tolerance and optimal dosage, and (3) identify
possible adverse effects and safety risks. Phase 3 trials are undertaken in
order to further evaluate clinical efficacy and to further test for safety
within an expanded patient population. The FDA may suspend clinical trials
at
any point in this process if it concludes that clinical subjects are being
exposed to an unacceptable health risk.
We
will
need FDA approval of our products, including a review of the manufacturing
processes and facilities used to produce such products, before such products
may
be marketed in the United States. The process of obtaining approvals from the
FDA can be costly, time-consuming and subject to unanticipated delays. There
can
be no assurance that the FDA will grant approvals of our proposed products,
processes or facilities on a timely basis, if at all. Any delay or failure
to
obtain such approvals would have a material adverse effect on our business,
financial condition and results of operations. Moreover, even if regulatory
approval is granted, such approval may include significant limitations on
indicated uses for which a product could be marketed.
Among
the
conditions for NDA approval is the requirement that the prospective
manufacturer’s operating procedures conform to cGMP requirements, which must be
followed at all times. In complying with these requirements, manufacturers,
including a drug sponsor’s third-party contract manufacturers, must continue to
expend time, money and effort in the area of production and quality control
to
ensure compliance. Domestic manufacturing establishments are subject to periodic
inspections by the FDA in order to assess, among other things, cGMP compliance.
To supply a product for use in the United States, foreign manufacturing
establishments must comply with cGMP and are subject to periodic inspection
by
the FDA or by regulatory authorities from other countries, as
applicable.
Both
before and after approval is obtained, a product, its manufacturer and the
holder of the NDA for the product are subject to comprehensive regulatory
oversight. Violations of regulatory requirements at any stage, including the
preclinical and clinical testing process, the approval process, or thereafter,
including after approval, may result in various adverse consequences, including
the FDA’s delay in approving or refusal to approve a product, withdrawal of an
approved product from the market and/or the imposition of criminal penalties
against the manufacturer and/or NDA holder. In addition, later discovery of
previously unknown problems may result in restrictions on the product,
manufacturer or NDA holder, including withdrawal of the product from the market.
Also, new government requirements may be established that could delay or prevent
regulatory approval of our products under development.
For
marketing outside of the United States, we will have to satisfy foreign
regulatory requirements governing human clinical trials and marketing approval
for drugs and diagnostic products. The requirements governing the conduct of
clinical trials, product licensing, pricing and reimbursement vary widely from
country to country. We do not currently have any facilities or personnel outside
of the United States.
Competition
We
are
aware of many companies pursuing research and development of compounds for
the
indications in which we intend to develop ALT-2074 and alagebrium. Our
competition will be determined, in part, by the potential indications for which
our compounds are developed and ultimately approved by regulatory authorities.
An important factor in competition may be the timing of market introduction
of
our or our competitors’ products. Accordingly, the relative speed with which we
can develop products, complete the clinical trials and approval processes and
supply commercial quantities of the products to the market are important
competitive factors. We expect that competition among any products that are
approved for sale will be based on, among other things, product efficacy,
safety, reliability, availability, price and patent position. Our competitive
position also depends upon our ability to obtain sufficient capital resources,
attract and retain qualified personnel, and obtain protection for or otherwise
develop proprietary products or processes.
We
are
competing in an industry in which technologies can become obsolete over time,
thereby reducing or eliminating the market for any pharmaceutical product.
For
example, competitive drugs based on other therapeutic mechanisms are currently
marketed and are being developed to treat cardiovascular disease and diabetic
complications. The development by others of competitive treatment modalities
could render any products that we develop non-competitive. Therapeutic
approaches being pursued by others include treating cardiovascular disease
and
diabetic complications via gene therapy and cell transplantation, as well as
pharmaceutical intervention with agents such as aldose reductase
inhibitors.
There
are
many drugs currently being used for the treatment of heart failure, including
ACE inhibitors, angiotensin receptor blockers, adrenergic alpha 1 antagonists,
aldosterone inhibitors, beta-blockers and diuretics, among others. The
treatments for a heart attack are myriad and the patient variability is
formidable.
Most
of
our competitors and potential competitors have significantly greater financial
resources than we have. Our competitive position also depends on our ability
to
enter into a collaboration agreement with respect to ALT-2074 and alagebrium,
and we cannot assure that we will be able to do so on reasonable terms, or at
all.
Medical
and Clinical Advisors
Our
Medical and Clinical Advisors are individuals with recognized expertise in
medical and pharmaceutical sciences and related fields who advise us about
present and long-term scientific planning, research and development. These
advisors consult and meet with our management informally on a frequent basis.
All advisors are employed by employers other than us, who may also be
competitors of ours, and may have commitments to, or consulting or advisory
agreements with, other entities that may limit their availability to us. The
advisors have agreed, however, not to provide any services to any other entities
that might conflict with the activities that they provide us. Each member also
has executed a confidentiality agreement for our benefit.
The
following persons are our Medical and Clinical Advisors:
Dalane
Kitzman, M.D.,
Professor, Cardiology, Wake Forest University Baptist Medical
Center
William
Little, M.D.,
Section
Head, Professor, Cardiology, Wake Forest University Baptist Medical
Center
Michael
Zile, M.D.,
Medical
University of South Carolina
Bertram
Pitt, M.D.,
University of Michigan
Scott
S. Solomon, M.D.,
Brigham
and Women’s Hospital, Harvard University Medical School
Burton
Sobel, M.D.,
University of Vermont, Director of the Cardiovascular Research
Institute
David
Greenblatt, M.D.,
Tufts
University School of Medicine, New England Medical Center
As
of
March 1, 2008, we employed nine persons; two engaged in research and
development, and seven engaged in administration and management. Three employees
hold Ph.D. and/or M.D. degrees. We believe that we have been successful in
the
past in attracting skilled and experienced personnel. Our employees are not
covered by collective bargaining agreements, but all employees are covered
by
confidentiality agreements. We believe that our relationship with our employees
is good. We have also engaged consultants for certain administrative and
scientific functions.
Forward-Looking
Statements and Cautionary Statements
Statements
in this Form 10-K that are not statements or descriptions of historical facts
are "forward-looking" statements under Section 21E of the Securities Exchange
Act of 1934, as amended, and the Private Securities Litigation Reform Act of
1995, and are subject to numerous risks and uncertainties. These forward-looking
statements and other forward-looking statements made by us or our
representatives are based on a number of assumptions. The words "believe,"
"expect," "anticipate," "intend," "estimate," “may” or other expressions, which
are predictions of or indicate future events and trends and which do not relate
to historical matters, identify forward-looking statements. The forward-looking
statements represent our judgments and expectations as of the date of this
Report. We assume no obligation to update any such forward-looking statements.
Readers are cautioned not to place undue reliance on these forward-looking
statements, as they involve risks and uncertainties, and actual results could
differ materially from those currently anticipated due to a number of factors,
including those set forth in this section and elsewhere in this Form 10-K.
These
factors include, but are not limited to, the risks set forth below.
The
forward-looking statements set forth in this document represent our judgment
and
expectations as of the date of this Report. We assume no obligation to update
any such forward-looking statements.
Item
1A. Risk Factors.
We
will continue to need additional capital, but access to such capital is
uncertain.
As
of
December 31, 2007, we had cash and cash equivalents on hand of approximately
$15,646,000. Our future capital needs will depend on many factors, including
our
research and development activities and the success thereof, the scope of our
clinical trial programs, the timing of regulatory approval for our products
under development and the successful commercialization of our products. Our
needs may also depend on the magnitude and scope of our activities, the progress
and the level of success in our clinical trials, the costs of preparing, filing,
prosecuting, maintaining and enforcing patent claims and other intellectual
property rights, competing technological and market developments, changes in
or
terminations of existing collaboration and licensing arrangements, the
establishment of new collaboration and licensing arrangements and the cost
of
manufacturing scale-up and development of marketing activities, if undertaken
by
us. In addition, the holders of our Series B Preferred Stock have the option
to
receive dividends in the form of cash or additional shares of Series B Preferred
Stock. The amount of funds that we will have available in the future for the
development of our product candidates may be reduced if the holders of our
Series B preferred stock choose to receive dividends in the form of cash. We
currently do not have committed external sources of funding and may not be
able
to secure additional funding on any terms or on terms that are favorable to
us.
If we raise additional funds by issuing additional stock, further dilution
to
our existing stockholders will result, and new investors may negotiate for
rights superior to existing stockholders. If adequate funds are not available,
we may be required to:
|
|
·
|
delay,
reduce the scope of or eliminate one or more of our development
programs;
|
|
|
·
|
obtain
funds through arrangements with collaboration partners or others
that may
require us to relinquish rights to some or all of our technologies,
product candidates or products that we would otherwise seek to develop
or
commercialize ourselves;
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|
|
·
|
license
rights to technologies, product candidates or products on terms that
are
less favorable to us than might otherwise be
available;
|
|
|
·
|
seek
a buyer for all or a portion of our business;
or
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|
|
·
|
wind
down our operations and liquidate our assets on terms that are unfavorable
to us.
|
We
have historically incurred operating losses and we expect these losses to
continue.
We
have
historically incurred substantial operating losses due to our research and
development and other operating activities and expect these losses to continue
for the foreseeable future. As of December 31, 2007, we had an accumulated
deficit of $263,092,520. Our net losses during fiscal years 2007 and 2006 were
$16,093,022 and $17,679,737, respectively. Our net losses applicable to common
stockholders during fiscal years 2007 and 2006 were $19,946,659 and $20,332,416,
respectively. We expect to expend significant amounts on research and
development programs for alagebrium and ALT-2074. Research and development
activities are time consuming and expensive, and will involve the need to engage
in additional fund-raising activities, identify appropriate strategic and
collaborative partners, reach agreement on basic terms, and negotiate and sign
definitive agreements. We expect to continue to incur significant operating
losses for the foreseeable future.
Clinical
studies required for our product candidates are time-consuming, and their
outcome is uncertain.
Before
obtaining regulatory approvals for the commercial sale of any of our products
under development, we must demonstrate through preclinical and clinical studies
that the product is safe and effective for use in each target indication.
Success in preclinical studies of a product candidate may not be predictive
of
similar results in humans during clinical trials. None of our products has
been
approved for commercialization in the United States or elsewhere. In December
2004, we announced that findings of a routine two-year rodent toxicity study
indicated that male Sprague Dawley rats exposed to high doses of alagebrium
over
their natural lifetime developed dose-related increases in liver cell
alterations and tumors, and that the liver tumor rate was slightly over the
expected background rate in this gender and species of rat. In February 2005,
based on the initial results from one of the follow-on preclinical toxicity
experiments, we voluntarily and temporarily suspended enrollment of new subjects
into each of the ongoing clinical studies pending receipt of additional
preclinical data. We withdrew our IND for the EMERALD (Efficacy
and Safety of Alagebrium
in
Erectile
Sysfunction in Male
Diabetics)
study in February 2006 in order to focus our resources on the development of
alagebrium in cardiovascular indications. We subsequently submitted an IND
to
the Cardio-Renal Division of the FDA for a trial using alagebrium to treat
heart
failure. The FDA has indicated that we may proceed with trials in this
indication. The BENEFICIAL trial, a double-blind, placebo-controlled, randomized
trial evaluating the efficacy and safety of alagebrium in patients with chronic
heart failure, was planned and submitted under a Clinical Trial Application
in
the Netherlands, where the health authorities have permitted us to proceed
with
initiation of the study. Freedom to initiate clinical studies does not mean
that
regulatory agencies will not require additional explanation of the two-year
rodent toxicity study.
If
we do
not prove in clinical trials that our product candidates are safe and effective,
we will not obtain marketing approvals from the FDA and other applicable
regulatory authorities. In particular, one or more of our product candidates
may
not exhibit the expected medical benefits in humans, may cause harmful side
effects, may not be effective in treating the targeted indication or may have
other unexpected characteristics that preclude regulatory approval for any
or
all indications of use or limit commercial use if approved.
The
length of time necessary to complete clinical trials varies significantly and
is
difficult to predict. Factors that can cause delay or termination of our
clinical trials include:
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·
|
slower
than expected patient enrollment due to the nature of the protocol,
the
proximity of subjects to clinical sites, the eligibility criteria
for the
study, competition with clinical trials for other drug candidates
or other
factors;
|
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·
|
adverse
results in preclinical safety or toxicity
studies;
|
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·
|
lower
than expected recruitment or retention rates of subjects in a clinical
trial;
|
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·
|
inadequately
trained or insufficient personnel at the study site to assist in
overseeing and monitoring clinical
trials;
|
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·
|
delays
in approvals from a study site’s review board, or other required
approvals;
|
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·
|
longer
treatment time required to demonstrate effectiveness or determine
the
appropriate product dose;
|
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·
|
lack
of sufficient supplies of the product
candidate;
|
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·
|
adverse
medical events or side effects in treated
subjects;
|
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·
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lack
of effectiveness of the product candidate being tested;
and
|
Even
if
we obtain positive results from preclinical or clinical studies for a particular
product, we may not achieve the same success in future studies of that product.
Data obtained from preclinical and clinical studies are susceptible to varying
interpretations that could delay, limit or prevent regulatory approval. In
addition, we may encounter delays or rejections based upon changes in FDA policy
for drug approval during the period of product development and FDA regulatory
review of each submitted new drug application. We may encounter similar delays
in foreign countries. Moreover, regulatory approval may entail limitations
on
the indicated uses of the drug. Failure to obtain requisite governmental
approvals or failure to obtain approvals of the scope requested will delay
or
preclude our licensees or marketing partners from marketing our products or
limit the commercial use of such products and will have a material adverse
effect on our business, financial condition and results of operations.
In
addition, some or all of the clinical trials we undertake may not demonstrate
sufficient safety and efficacy to obtain the requisite regulatory approvals,
which could prevent or delay the creation of marketable products. Our product
development costs will increase if we have delays in testing or approvals,
if we
need to perform more, larger or different clinical or preclinical trials than
planned or if our trials are not successful. Delays in our clinical trials
may
harm our financial results and the commercial prospects for our products.
The
FDA regulates the development, testing, manufacture, distribution, labeling
and
promotion of pharmaceutical products in the United States pursuant to the
Federal Food, Drug, and Cosmetic Act and related regulations. We must receive
pre-market approval by the FDA prior to any commercial sale of any drug
candidates. Before receiving such approval, we must provide preclinical data
and
proof in human clinical trials of the safety and efficacy of our drug
candidates, which trials can take several years. In addition, we must show
that
we can produce any drug candidates consistently at quality levels sufficient
for
administration in humans. Pre-market approval is a lengthy and expensive
process. We may not be able to obtain FDA approval for any commercial sale
of
any drug candidate. By statute and regulation, the FDA has 180 days to
review an application for approval to market a drug candidate; however, the
FDA
frequently exceeds the 180-day time period, at times taking up to
18 months. In addition, based on its review, the FDA or other regulatory
bodies may determine that additional clinical trials or preclinical data are
required. Except for any potential licensing or marketing arrangements with
other pharmaceutical or biotechnology companies, we will not generate any
revenues in connection with any of our drug candidates unless and until we
obtain FDA approval to sell such products in commercial quantities for human
application.
Even
if a
clinical trial is commenced, the FDA may delay, limit, suspend or terminate
clinical trials at any time, or may delay, condition or reject approval of
any
of our product candidates, for many reasons. For example:
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ongoing
preclinical or clinical study results may indicate that the product
candidate is not safe or effective;
|
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·
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the
FDA may interpret our preclinical or clinical study results to indicate
that the product candidate is not safe or effective, even if we interpret
the results differently; or
|
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·
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the
FDA may deem the processes and facilities that our collaborative
partners,
our third-party manufacturers or we propose to use in connection
with the
manufacture of the product candidate to be
unacceptable.
|
Our
success will largely depend on the development of ALT-2074 or alagebrium, and
we
cannot be sure that the efforts to commercialize ALT-2074 or alagebrium will
succeed.
ALT-2074
and alagebrium are still in early clinical trials and any success to date should
not be seen as indicative of the probability of any future success. The failure
to complete clinical development and commercialize ALT-2074 or alagebrium for
any reason or due to a combination of reasons will have a material adverse
impact on our business.
We
are
dependent on the successful outcome of clinical trials and will not be able
to
successfully develop and commercialize products if clinical trials are not
successful.
We
received approval from Israel’s Ministry of Health to conduct Phase 2 trials of
ALT-2074 in diabetic patients recovering from a recent myocardial infarction
or
acute coronary syndrome. The purpose of the study is to evaluate the biological
effects on cardiac tissue in patients treated with ALT-2074. The study was
opened for enrollment in May 2006 and we now have six sites open for enrollment.
Recruitment has been slow and while we predict that the study will be completed
in the first half of 2008, we can neither guarantee its completion nor the
likelihood of gaining positive results. The same is true for the biomarker
study
using ALT-2074 which begun in June 2007.
We
are developing a diagnostic kit and our efforts may never lead to a product
which gains regulatory approval or is commercialized.
We
are in
the early stage of developing a diagnostic kit to identify the subset of
patients with diabetes who are at increased risk for cardiovascular disease.
The
technology underlying this kit relates to a serum protein called haptoglobin,
or
Hp. A common variant of this protein, known as Hp 2-2, which is found in 40%
of
the population, is associated with increased cardiovascular risk in diabetic
patients. We are developing a kit to identify this variant of haptoglobin.
Successful commercialization of such a kit could generate revenues for us in
future years and could help focus the development of our therapeutic product
candidate, ALT-2074. However, we cannot assure you that we will succeed in
developing such a kit or obtain the approvals necessary for its
commercialization. Even
if
we obtain the necessary regulatory approvals, we may not succeed in persuading
physicians and others to purchase sufficient quantities of the kit to cover
the
costs of its development. Failure
to
successfully develop and commercialize the kit will have a material adverse
effect on our business.
If
we are unable to form the successful collaborative relationships that our
business strategy requires, our programs will suffer and we may not be able
to
develop products.
Our
strategy for developing and deriving revenues from our products depends, in
large part, upon entering into arrangements with research collaborators,
corporate partners and others. The potential market, preclinical and clinical
study results and safety profile of our product candidates may not be attractive
to potential corporate partners. We face significant competition in seeking
appropriate collaborators, and these collaborations are complex and
time-consuming to negotiate and document. We may not be able to negotiate
collaborations on acceptable terms, or at all. If that were to occur, we may
have to curtail the development of a particular product candidate, reduce or
delay our development program or one or more of our other development programs,
delay our potential commercialization or reduce the scope of our sales or
marketing activities, or increase our expenditures and undertake development
or
commercialization activities at our own expense. If we elect to increase our
expenditures to fund development or commercialization activities on our own,
we
may need to obtain additional capital, which may not be available to us on
acceptable terms, or at all. If we do not have sufficient funds, we will not
be
able to bring our product candidates to market and generate product revenue.
If
we are able to form collaborative relationships, but are unable to maintain
them, our product development may be delayed and disputes over rights to
technology may result.
We
may
form collaborative relationships that, in some cases, will make us dependent
upon outside partners to conduct preclinical testing and clinical studies and
to
provide adequate funding for our development programs.
In
general, collaborations involving our product candidates pose the following
risks to us:
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·
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collaborators
may fail to adequately perform the scientific and preclinical studies
called for under our agreements with
them;
|
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·
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collaborators
have significant discretion in determining the efforts and resources
that
they will apply to these
collaborations;
|
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·
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collaborators
may not pursue further development and commercialization of our product
candidates or may elect not to continue or renew research and development
programs based on preclinical or clinical study results, changes
in their
strategic focus or available funding or external factors, such as
an
acquisition that diverts resources or creates competing
priorities;
|
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·
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collaborators
may delay clinical trials, provide insufficient funding for a clinical
program, stop a clinical study or abandon a product candidate, repeat
or
conduct new clinical trials or require a new formulation of a product
candidate for clinical testing;
|
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·
|
collaborators
could independently develop, or develop with third parties, products
that
compete directly or indirectly with our products or product candidates
if
the collaborators believe that competitive products are more likely
to be
successfully developed or can be commercialized under terms that
are more
economically attractive; collaborators with marketing and distribution
rights to one or more products may not commit enough resources to
their
marketing and distribution;
|
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·
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collaborators
may not properly maintain or defend our intellectual property rights
or
may use our proprietary information in such a way as to invite litigation
that could jeopardize or invalidate our proprietary information or
expose
us to potential litigation;
|
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·
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disputes
may arise between us and the collaborators that result in the delay
or
termination of the research, development or commercialization of
our
product candidates or that result in costly litigation or arbitration
that
diverts management attention and resources;
and
|
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·
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collaborations
may be terminated and, if terminated, may result in a need for additional
capital to pursue further development of the applicable product
candidates.
|
In
addition, there have been a significant number of business combinations among
large pharmaceutical companies that have resulted in a reduced number of
potential future collaborators. If a present or future collaborator of ours
were
to be involved in a business combination, the continued pursuit and emphasis
on
our product development program could be delayed, diminished or terminated.
If
we are unable to attract and retain the key personnel on whom our success
depends, our product development, marketing and commercialization plans could
suffer.
We
depend
heavily on the principal members of our management and scientific staff to
realize our strategic goals and operating objectives. We depend on Dr. Noah
Berkowitz as our Chief Executive Officer and Dr. Carl Mendel as our Vice
President of Clinical Development and Chief Medical Officer. The loss of
services in the near term of any of our principal members of management and
scientific staff could impede the achievement of our development priorities.
Furthermore, recruiting and retaining qualified scientific personnel to perform
research and development work in the future will also be critical to our
success, and there is significant competition among companies in our industry
for such personnel. We may be required to provide additional retention and
severance benefits to our employees in the future if we prepare to effect a
strategic transaction, such as a sale or merger with another company. However,
we cannot assure you that we will be able to attract and retain personnel on
acceptable terms given the competition between pharmaceutical and healthcare
companies, universities and non-profit research institutions for experienced
managers and scientists, and given the recent clinical and regulatory setbacks
that we have experienced. In addition, we rely on consultants to assist us
in
formulating our research and development strategy. All of our consultants are
employed by other entities and may have commitments to or consulting or advisory
contracts with those other entities that may limit their availability to us.
If
we do not successfully develop any products, or are unable to derive revenues
from product sales, we will never be profitable.
Virtually
all of our revenues to date have been generated from collaborative research
agreements and investment income. We have not received any revenues from product
sales. We may not realize product revenues on a timely basis, if at all, and
there can be no assurance that we will ever be profitable.
At
December 31, 2007, we had an accumulated deficit of $263,092,520. We anticipate
that we will incur substantial, potentially greater, losses in the future as
we
continue our research, development and clinical studies. We have not yet
requested or received regulatory approval for any product from the FDA or any
other regulatory body. All of our product candidates are still in research,
preclinical or clinical development. We may not succeed in the development
and
marketing of any therapeutic or diagnostic product. We do not have any product
candidates other than alagebrium and ALT-2074 in clinical development, and
there
can be no assurance that we will be able to bring any other compound into
clinical development. Adverse results of any preclinical or clinical study
could
cause us to materially modify our clinical development programs, resulting
in
delays and increased expenditures, or cease development for all or part of
our
ongoing studies of alagebrium.
To
achieve profitable operations, we must, alone or with others, successfully
identify, develop, introduce and market proprietary products. Such products
will
require significant additional investment, development and preclinical and
clinical testing prior to potential regulatory approval and commercialization.
The development of new pharmaceutical products is highly uncertain and
expensive
and subject
to a number of significant risks. Potential products that appear to be promising
at early stages of development may not reach the market for a number of reasons.
Potential products may be found ineffective or cause harmful side effects during
preclinical testing or clinical studies, fail to receive necessary regulatory
approvals, be difficult to manufacture on a large scale, be uneconomical, fail
to achieve market acceptance or be precluded from commercialization by
proprietary rights of third parties. We may not be able to undertake additional
clinical studies. In addition, our product development efforts may not be
successfully completed, we may not have
the
funds to complete any ongoing clinical trials, we may not obtain
regulatory approvals, and our products, if introduced, may not be successfully
marketed or achieve customer acceptance. We do not expect any of our products,
including alagebrium, to be commercially available for a number of years, if
at
all.
Failure
to maintain effective internal control in accordance with Section 404 of the
Sarbanes-Oxley Act of 2002 could have a material adverse effect on our business
and stock price.
We
have
experienced material weaknesses in our internal control over financial reporting
in past periods. We have taken remedial measures to address and correct these
past material weaknesses. However, we cannot assure you that our internal
controls over financial reporting will remain effective for any period of time.
The failure to maintain effective internal control over financial reporting
could have a material adverse effect on our business and stock
price.
Our
product candidates will remain subject to ongoing regulatory review even if
they
receive marketing approval. If we fail to comply with continuing regulations,
we
could lose these approvals and the sale of our products could be suspended.
Even
if
we receive regulatory approval to market a particular product candidate, the
approval could be granted with the condition that we conduct additional costly
post-approval studies or that we limit the indicated uses included in our
labeling. Moreover, the product may later cause adverse effects that limit
or
prevent its widespread use, force us to withdraw it from the market or impede
or
delay our ability to obtain regulatory approvals in additional countries. In
addition, the manufacturer of the product and its facilities will continue
to be
subject to FDA review and periodic inspections to ensure adherence to applicable
regulations. After receiving marketing approval, the manufacturing, labeling,
packaging, adverse event reporting, storage, advertising, promotion and record
keeping related to the product will remain subject to extensive regulatory
requirements. We may be slow to adapt, or we may never adapt, to changes in
existing regulatory requirements or adoption of new regulatory requirements.
If
we
fail to comply with the regulatory requirements of the FDA and other applicable
United States and foreign regulatory authorities or if previously unknown
problems with our products, manufacturers or manufacturing processes are
discovered, we could be subject to administrative or judicially imposed
sanctions, including:
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restrictions
on the products, manufacturers or manufacturing
processes;
|
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|
civil
or criminal penalties;
|
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·
|
product
seizures or detentions;
|
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·
|
voluntary
or mandatory product recalls and publicity
requirements;
|
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|
suspension
or withdrawal of regulatory
approvals;
|
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·
|
total
or partial suspension of production;
and
|
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refusal
to approve pending applications for marketing approval of new drugs
or
supplements to approved
applications.
|
In
similar fashion to the FDA, foreign regulatory authorities require demonstration
of product quality, safety and efficacy prior to granting authorization for
product registration which allows for distribution of the product for commercial
sale. International organizations, such as the World Health Organization, and
foreign government agencies, including those for the Americas, Middle East,
Europe, Asia and the Pacific, have laws, regulations and guidelines for
reporting and evaluating the data on safety, quality and efficacy of new drug
products. Although most of these laws, regulations and guidelines are very
similar, each of the individual nations reviews all of the information available
on the new drug product and makes an independent determination for product
registration. A finding of product quality, safety or efficiency in one
jurisdiction does not guarantee approval in any other jurisdiction, even if
the
other jurisdiction has similar laws, regulations and guidelines.
If
we cannot successfully form and maintain suitable arrangements with third
parties for the manufacturing of the products we may develop, our ability to
develop or deliver products may be impaired.
We
have
no experience in manufacturing products and do not have manufacturing
facilities. Consequently, we will depend on contract manufacturers for the
production of any products for development and commercial purposes. The
manufacture of our products for clinical trials and commercial purposes is
subject to current good manufacturing practices, or cGMP, regulations
promulgated by the FDA. In the event that we are unable to obtain or retain
third-party manufacturing capabilities for our products, we will not be able
to
commercialize our products as planned. Our reliance on third-party manufacturers
will expose us to risks that could delay or prevent the initiation or completion
of our clinical trials, the submission of applications for regulatory approvals,
the approval of our products by the FDA or the commercialization of our products
or result in higher costs or lost product revenues. In particular, contract
manufacturers:
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·
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could
encounter difficulties in achieving volume production, quality control
and
quality assurance and suffer shortages of qualified personnel, which
could
result in their inability to manufacture sufficient quantities of
drugs to
meet our clinical schedules or to commercialize our product
candidates;
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could
terminate or choose not to renew the manufacturing agreement, based
on
their own business priorities, at a time that is costly or inconvenient
for us;
|
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|
could
fail to establish and follow FDA-mandated cGMP, as required for FDA
approval of our product candidates, or fail to document their adherence
to
cGMP, either of which could lead to significant delays in the availability
of material for clinical study and delay or prevent filing or approval
of
marketing applications for our product candidates;
and
|
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|
could
breach, or fail to perform as agreed, under the manufacturing
agreement.
|
Changing
any manufacturer that we engage for a particular product or product candidate
may be difficult, as the number of potential manufacturers is limited, and
we
will have to compete with third parties for access to those manufacturing
facilities. cGMP processes and procedures typically must be reviewed and
approved by the FDA, and changing manufacturers may require re-validation of
any
new facility for cGMP compliance, which would likely be costly and
time-consuming. We may not be able to engage replacement manufacturers on
acceptable terms quickly or at all. In addition, contract manufacturers located
in foreign countries may be subject to import limitations or bans. As a result,
if any of our contract manufacturers are unable, for whatever reason, to supply
the contracted amounts of our products that we successfully bring to market,
a
shortage would result which would have a negative impact on our revenues.
Drug
manufacturers are subject to ongoing periodic unannounced inspection by the
FDA,
the U.S. Drug Enforcement Agency and corresponding state and foreign agencies
to
ensure strict compliance with cGMP, other government regulations and
corresponding foreign standards. While we are obligated to audit the performance
of third-party contractors, we do not have control over our third-party
manufacturers’ compliance with these regulations and standards. Failure by 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 the government to grant pre-market approval of drugs,
delays, suspension or withdrawal of approvals, seizures or recalls of product,
operating restrictions and criminal prosecutions. Our dependence upon others
for
the manufacture of any products that we develop may adversely affect our profit
margin, if any, on the sale of any future products and our ability to develop
and deliver such products on a timely and competitive basis.
If
we are not able to protect the intellectual property rights that are critical
to
our success, the development and any possible sales of our product candidates
could suffer and competitors could force our products completely out of the
market.
Our
success will depend on our ability to obtain patent protection for our products,
preserve our trade secrets, prevent third parties from infringing upon our
proprietary rights and operate without infringing upon the proprietary rights
of
others, both in the United States and abroad.
The
degree of patent protection afforded to pharmaceutical inventions is uncertain
and our potential products are subject to this uncertainty. Competitors may
develop competitive products outside the protection that may be afforded by
the
claims of our patents. We are aware that other parties have been issued patents
and have filed patent applications in the United States and foreign countries
with respect to other agents that have an effect on A.G.E.s, or the formation
of
A.G.E. crosslinks. In addition, although we have several patent applications
pending to protect proprietary technology and potential products, these patents
may not be issued, and the claims of any patents that do issue, may not provide
significant protection of our technology or products. In addition, we may not
enjoy any patent protection beyond the expiration dates of our currently issued
patents.
We
also
rely upon unpatented trade secrets and improvements, unpatented know-how and
continuing technological innovation to maintain, develop and expand our
competitive position, which we seek to protect, in part, by confidentiality
agreements with our corporate partners, collaborators, employees and
consultants. We also have invention or patent assignment agreements with our
employees and certain, but not all, corporate partners and consultants. Relevant
inventions may be developed by a person not bound by an invention assignment
agreement. Binding agreements may be breached, and we may not have adequate
remedies for such breach. In addition, our trade secrets may become known to
or
be independently discovered by competitors.
If
we are unable to operate our business without infringing upon intellectual
property rights of others, we may not be able to operate our business
profitably.
Our
success depends on our ability to operate without infringing upon the
proprietary rights of others. We are aware that patents have been applied for
and/or issued to third parties claiming technologies for A.G.E.s or Glutathione
Peroxidase Mimetics that may be similar to those needed by us. To the extent
that planned or potential products are covered by patents or other intellectual
property rights held by third parties, we would need a license under such
patents or other intellectual property rights to continue development and
marketing of our products. Any required licenses may not be available on
acceptable terms, if at all. If we do not obtain such licenses on reasonable
terms, we may not be able to proceed with the development, manufacture or sale
of our products.
Litigation
may be necessary to defend against claims of infringement or to determine the
scope and validity of the proprietary rights of others. Litigation or
interference proceedings could result in substantial additional costs and
diversion of management focus. If we are ultimately unsuccessful in defending
against claims of infringement, we may be unable to operate profitably.
ALT-2074
and other compounds are licensed by third parties and if we are unable to
continue licensing this technology, our future prospects may be materially
adversely affected.
We
are a
party to various license agreements with third parties that give us exclusive
and partial exclusive rights to use specified technologies applicable to
research, development and commercialization of our products, including
alagebrium and ALT-2074. We anticipate that we will continue to license
technology from third parties in the future. To maintain the license for certain
technology related to ALT-2074 that we received from OXIS, we are obligated
to
meet certain development and clinical trial milestones and to make certain
payments. There can be no assurance that we will be able to meet any milestone
or make any payment required under the license with OXIS. In addition, if we
fail to meet any milestone or make any payment, there can be no assurance that
we may be able to negotiate an arrangement with OXIS, as we have successfully
done in the past, whereby we will continue to have access to the ALT-2074
technology.
The
technology that our subsidiary HaptoGuard licensed from third parties would
be
difficult or impossible to replace and the loss of this technology would
materially adversely affect our business, financial condition and any future
prospects.
If
we are not able to compete successfully with other companies in the development
and marketing of cures and therapies for cardiovascular diseases, diabetes,
and
the other conditions for which we seek to develop products, we may not be able
to continue our operations.
We
are
engaged in pharmaceutical fields characterized by extensive research efforts
and
rapid technological progress. Many established pharmaceutical and biotechnology
companies with financial, technical and human resources greater than ours are
attempting to develop, or have developed, products that would be competitive
with our products. Many of these companies have extensive experience in
preclinical and human clinical studies. Other companies may succeed in
developing products that are safer, more efficacious or less costly than any
we
may develop and may also be more successful than us in production and marketing.
Rapid technological development by others may result in our products becoming
obsolete before we recover a significant portion of the research, development
or
commercialization expenses incurred with respect to those products.
Certain
technologies under development by other pharmaceutical companies could result
in
better treatments for cardiovascular disease, and diabetes and its related
complications. Several large companies have initiated or expanded research,
development and licensing efforts to build pharmaceutical franchises focusing
on
these medical conditions, and some companies already have products approved
and
available for commercial sale to treat these indications. It is possible that
one or more of these initiatives may reduce or eliminate the market for some
of
our products. In addition, other companies have initiated research in the
inhibition or crosslink breaking of A.G.E.s.
Our
ability to compete successfully against currently existing and future
alternatives to our product candidates and systems, and competitors who compete
directly with us in the small molecule drug industry will depend, in part,
on
our ability to:
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attract
and retain skilled scientific and research personnel;
|
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|
develop
technologically superior products;
|
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|
develop
competitively priced products;
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|
obtain
patent or other required regulatory approvals for our products;
|
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|
be
early entrants to the market; and
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manufacture,
market and sell our products, independently or through
collaborations.
|
We
depend on third parties for research and development activities necessary to
commercialize certain of our patents.
We
utilize the services of several scientific and technical consultants to oversee
various aspects of our protocol design, clinical trial oversight and other
research and development functions. We contract most of our research and
development operations using third-party contract manufacturers for drug
inventory and shipping services and third-party contract research organizations
in connection with preclinical and/or clinical studies in accordance with our
designed protocols, as well as conducting research at medical and academic
centers.
Because
we rely on third parties for much of our research and development work, we
have
less direct control over our research and development. We face risks that these
third parties may not be appropriately responsive to our time frames and
development needs and could devote resources to other customers. In addition,
certain of these third parties may have to comply with FDA regulations or other
regulatory requirements in the conduct of this research and development work,
which they may fail to do.
If
governments and third-party payers continue their efforts to contain or decrease
the costs of healthcare, we may not be able to commercialize our products
successfully.
In
the
United States, we expect that there will continue to be federal and state
initiatives to control and/or reduce pharmaceutical expenditures. In certain
foreign markets, pricing and/or profitability of prescription pharmaceuticals
are subject to government control. In addition, increasing emphasis on managed
care in the United States will continue to put pressure on pharmaceutical
pricing. Cost control initiatives could decrease the price that we receive
for
any products for which we may receive regulatory approval to develop and sell
in
the future and could have a material adverse effect on our business, financial
condition and results of operations. Further, to the extent that cost control
initiatives have a material adverse effect on our corporate partners, our
ability to commercialize our products may be adversely affected.
Our
ability to commercialize pharmaceutical products may depend, in part, on the
extent to which reimbursement for the products will be available from government
health administration authorities, private health insurers and other third-party
payers. Significant uncertainty exists as to the reimbursement status of newly
approved healthcare products, and third-party payers, including Medicare,
frequently challenge the prices charged for medical products and services.
In
addition, third-party insurance coverage may not be available to subjects for
any products developed by us. Government and other third-party payers are
attempting to contain healthcare costs by limiting both coverage and the level
of reimbursement for new therapeutic products and by refusing in some cases
to
provide coverage for uses of approved products for disease indications for
which
the FDA has not granted labeling approval. If government and other third-party
payers for our products do not provide adequate coverage and reimbursement
levels, the market acceptance of these products would be adversely affected.
If
the users of the products that we are developing claim that our products have
harmed them, we may be subject to costly and damaging product liability
litigation, which could have a material adverse effect on our business,
financial condition and results of operations.
We
may
face exposure to product liability and other claims due to allegations that
our
products cause harm. These risks are inherent in the clinical trials for
pharmaceutical products and in the testing, and future manufacturing and
marketing of, our products. Although we currently maintain product liability
insurance, such insurance is becoming increasingly expensive, and we may not
be
able to obtain adequate insurance coverage in the future at a reasonable cost,
if at all. If we are unable to obtain product liability insurance in the future
at an acceptable cost or to otherwise protect against potential product
liability claims, we could be inhibited in the commercialization of our
products, which could have a material adverse effect on our business. The
coverage will be maintained and limits reviewed from time to time as the
combined company progresses to later stages of its clinical trials, and as
the
length of the trials and the number of patients enrolled in the trials changes.
We
intend
to obtain a combined coverage policy that includes tail coverage in order to
cover any claims that are made for any events that have occurred prior to the
merger. We currently have a policy covering $10 million of product liability
for
our clinical trials, for which our annual premium is approximately $164,000.
However, insurance coverage and our resources may not be sufficient to satisfy
any liability resulting from product liability claims. A successful product
liability claim or series of claims brought against us could have a material
adverse effect on our business, financial condition and results of operations.
Risks
Related to Owning Our Common Stock
The
holders of the Series B Preferred Stock are entitled to rights
and preferences that are significantly greater than the rights and preferences
of the holders of our common stock, including preferential payments upon a
liquidation, as well as a dividend and registration rights associated with
their
shares.
Holders
of our Series B Preferred Stock are entitled to a number of rights and
preferences which holders of shares of our outstanding common stock do not
and
will not have. Among these rights and preferences is a preference on liquidation
of the Company, which means that holders of the Series B Preferred Stock will
be
entitled to receive the proceeds out of any sale or liquidation of the Company
before any such proceeds are paid to holders of our common stock. In general,
if
the proceeds received upon any sale or liquidation do not exceed the total
liquidation proceeds payable to the holders of the Series B Preferred Stock,
holders of common stock would received no value for their shares upon such
a
sale or liquidation. In addition, shares of the Series B Preferred Stock accrue
dividends at a rate of 8% per year for a period of five years from the date
on
which the shares of Series B Preferred Stock were issued.
Holders
of the Series B Preferred Stock also have significant rights with respect to
certain actions that we may wish to take from time to time. At any time when
any
shares of Series B Preferred Stock remain outstanding, we may not, without
the
consent of the holders of a majority of the shares held by holders of at least
$4,000,000 (measured as of the original issue date) worth of Series B Preferred
Stock:
| |
|
incur
debt in excess of $2,000,000;
|
| |
|
authorize
the sale of securities at a price per share less than the price per
share
that the Series B Preferred Stock has been sold under the Series
B
Purchase Agreement;
|
| |
|
increase
the authorized capital of the Company;
|
| |
|
create
any new classes or series of stock with rights senior to the common
stock;
|
| |
|
issue
any shares of our Series A Preferred Stock, other than in accordance
with
our shareholder rights plan;
|
| |
|
amend
any provision of our Certificate of Incorporation or Bylaws that
changes
the rights of the Series B Preferred Stock;
|
| |
|
pay
or declare any dividend on any capital stock of the Company other
than the
Series B Preferred Stock;
|
| |
|
purchase
or redeem any securities;
|
| |
|
issue
any securities to employees other than pursuant to the Plan, or increase
the number of shares of common stock reserved for issuance under
the Plan;
|
| |
|
liquidate,
dissolve or wind-up;
|
| |
|
merge
with another entity;
|
| |
|
sell
or dispose of any assets of the Company, including the sale or
license of its intellectual property;
|
| |
|
change
the number of directors;
|
| |
|
amend
any portion of our Certificate of Incorporation or Bylaws;
|
| |
|
materially
change the nature of our business;
|
| |
|
intentionally
take any action that may result in our stock no longer being approved
for
quotation on the AMEX or NASDAQ, or that would cause our common stock
to
no longer be registered pursuant to Section 12 of the Securities
Exchange
Act of 1934, as amended; or
|
| |
|
amend
any material agreement that has been filed with the Securities and
Exchange Commission.
|
As
a
result, we will not be able to take any of these actions without first seeking
and obtaining the approval of the holders of the Series B Preferred Stock.
We
may not be able to obtain such approval in a timely manner or at all, even
if we
think that taking the action for which we seek approval is in the best interests
of the Company.
In
connection with the closing of the financing, we entered into an Amendment
No. 1
to the Registration Rights Agreement (“Amendment”) with institutional investors
(the “Buyers”). The Amendment amends the Registration Rights Agreement dated
July 25, 2007, by extending the schedule under which we are required to file
registration statements with the Securities and Exchange Commission for the
resale of the shares of common stock issuable upon conversion of the shares
of
Series B Preferred Stock issued to the Buyers, as well as upon conversion of
the
shares of Series B Preferred Stock underlying the warrants issued to the Buyers.
The Amendment also grants the Buyers additional piggy-back registration rights
in the event of an underwritten public offering of our securities and demand
registration rights at the option of a majority of the Buyers. The Amendment
also relieves us of our obligation to pay the Buyers liquidated damages in
certain circumstances, as described in the Amendment.
The
holders of the Series B Preferred Stock represent a significant voting interest
in the Company.
The
Series B Preferred Stock is convertible into common stock at any time at the
option of the holder at an initial conversion rate of 1:1, subject to adjustment
pursuant to the terms of the Series B Preferred Stock. Assuming the full
conversion of all of the shares of Series B Preferred Stock into our common
stock, and the exercise all of warrants to acquire shares of Series B Preferred
Stock which are then converted into shares of our common stock, the holders
of
the Series B Preferred Stock would represent approximately 83% of our issued
and
outstanding capital stock as of December 31, 2007. Accordingly, in the event
that all of the shares of Series B Preferred Stock were to be converted into
our
common stock, a change in control of the Company would occur. Prior to such
conversion, each holder of Series B Preferred Stock is entitled to cast the
number of votes equal to one-half of the number of whole shares of common stock
into which the shares of Series B Preferred Stock held by such holder are
convertible. Therefore, on the date of issuance of the Series B Preferred Stock,
the holders of Series B Preferred Stock held approximately 41% of the voting
power of the Company.
Our
stock price is volatile and you may not be able to resell your shares at a
profit.
We
first
publicly issued common stock on November 8, 1991 at $750.00 per share in our
initial public offering and it has been subject to fluctuations since that
time.
For example, during 2007, the closing sale price of our common stock has ranged
from a high of $7.50 per share to a low of $1.75 per share. The market price
of
our common stock could continue to fluctuate substantially due to a variety
of
factors, including:
| |
·
|
quarterly
fluctuations in results of operations;
|
| |
·
|
material
weaknesses in our internal control over financial
reporting;
|
| |
·
|
the
announcement of new products or services by us or competitors;
|
| |
·
|
sales
of common stock by existing stockholders or the perception that these
sales may occur;
|
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·
|
adverse
judgments or settlements obligating the combined company to pay damages;
|
| |
·
|
developments
concerning proprietary rights, including patents and litigation matters;
and
|
| |
·
|
clinical
trial or regulatory developments in both the United States and foreign
countries.
|
In
addition, overall stock market volatility has often significantly affected
the
market prices of securities for reasons unrelated to a company’s operating
performance. In the past, securities class action litigation has been commenced
against companies that have experienced periods of volatility in the price
of
their stock. Securities litigation initiated against the combined company could
cause it to incur substantial costs and could lead to the diversion of
management’s attention and resources, which could have a material adverse effect
on revenue and earnings.
We
have a large number of authorized but unissued shares of common stock, which
our
Board of Directors may issue without further stockholder approval, thereby
causing dilution of your holdings of our common stock.
As
of
December 31, 2007, there were 297,413,623 shares of authorized but unissued
shares of our common stock. Our management will continue to have broad
discretion to issue shares of our common stock in a range of transactions,
including capital-raising transactions, mergers, acquisitions, for anti-takeover
purposes, and in other transactions, without obtaining stockholder approval,
unless stockholder approval is required for a particular transaction under
the
rules of AMEX, Delaware law, or other applicable laws. If our management
determines to issue shares of our common stock from the large pool of such
authorized but unissued shares for any purpose in the future without obtaining
stockholder approval, your ownership position would be diluted without your
further ability to vote on that transaction.
The
sale of a substantial number of shares of our common stock could cause the
market price of our common stock to decline and may impair the combined
company’s ability to raise capital through additional offerings.
We
currently have outstanding warrants and options to purchase an aggregate of
4,407,422 shares of our common stock. Sales of these shares in the public
market, or the perception that future sales of such shares could occur, could
have the effect of lowering the market price of our common stock below current
levels and make it more difficult for us and our stockholders to sell our equity
securities in the future.
Our
executive officers, directors and holders of more than 5% of our common stock
collectively beneficially own approximately 30% of the outstanding common stock,
which includes fully vested options to purchase common stock. In addition,
approximately 876,706 shares of common stock issuable upon exercise of vested
stock options could become available for immediate resale if such options were
exercised.
Sale
or
the availability for sale, of shares of common stock by stockholders could
cause
the market price of our common stock to decline and could impair our ability
to
raise capital through an offering of additional equity securities.
Anti-takeover
provisions may frustrate attempts to replace our current management and
discourage investors from buying our common stock.
We
have
entered into a Stockholders’ Rights Agreement pursuant to which each holder of a
share of our common stock is granted a Right to purchase our Series F Preferred
Stock (“Preferred Stock”) under certain circumstances if a person or group
acquires, or commences a tender offer for, 20% of our outstanding common
stock. We also have severance obligations to certain employees in the event
of termination of their employment after or in connection with a triggering
event as defined in the Alteon Severance Plan. In addition, the Board of
Directors has the authority, without further action by the stockholders, to
fix
the rights and preferences of, and issue shares of, Preferred Stock. The
staggered board terms, Fair Price Provision, Stockholders’ Rights
Agreement, severance arrangements, Preferred Stock provisions and other
provisions of our charter and Delaware corporate law may discourage certain
types of transactions involving an actual or potential change in
control.
Item
1B. Unresolved Staff Comments.
None
Item
2. Properties.
On
January 19, 2007, we entered into a Lease Agreement for approximately 4,162
square feet of office space in Montvale, New Jersey. The lease is for a term
of
three years, which commenced on February 26, 2007, and we have the opportunity
to extend the lease for two additional three-year terms by providing written
notice to the landlord. The basic monthly rent is $8,151, together with a
security deposit of $15,261. We consider our property to be generally in good
condition, well maintained and generally suitable and adequate to carry on
our
business for the foreseeable future.
Item
3. Legal
Proceedings.
We
are
not a party to any litigation, and management is not aware of any contemplated
proceeding by any governmental authority against us.
Item
4. Submission
of Matters to a Vote of Security Holders.
No
matters were submitted to a vote of our security holders during the fourth
quarter of the year ended December 31, 2007.
PART
II
| Item
5. |
Market
for the Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity
Securities.
|
Market
Information
Our
common stock is traded on the American Stock Exchange under the symbol “SYI.”
The following table sets forth, for the periods indicated, the high and low
sales price for our common stock, as reported by the American Stock
Exchange:
|
2007
|
|
High
|
|
Low
|
|
|
First
Quarter
|
|
$
|
7.50
|
|
$
|
4.00
|
|
|
Second
Quarter
|
|
|
5.00
|
|
|
2.50
|
|
|
Third
Quarter
|
|
|
4.51
|
|
|
2.40
|
|
|
Fourth
Quarter
|
|
|
3.23
|
|
|
1.75
|
|
| |
|
|
|
|
|
|
|
|
2006
|
|
|
High
|
|
|
Low
|
|
|
First
Quarter
|
|
$
|
16.00
|
|
$
|
9.00
|
|
|
Second
Quarter
|
|
|
14.00
|
|
|
8.00
|
|
|
Third
Quarter
|
|
|
10.50
|
|
|
6.50
|
|
|
Fourth
Quarter
|
|
|
9.50
|
|
|
7.00
|
|
The
market prices for securities of biotechnology and pharmaceutical companies,
including ours, have historically been highly volatile, and the market has
from
time to time experienced significant price and volume fluctuations that are
unrelated to the operating performance of particular companies. Factors, such
as
fluctuations in our operating results, announcements of technological
innovations or new therapeutic products by us or others, clinical trial results,
developments concerning agreements with collaborators, governmental regulation,
developments in patent or other proprietary rights, public concern as to the
safety of drugs developed by us or others, future sales of substantial amounts
of common stock by existing stockholders and general market conditions, can
have
an adverse effect on the market price of the common stock.
Stockholders
As
of
March 19, 2008, there were 104 holders of the common stock. On March 18, 2008,
the last sale price reported on the American Stock Exchange for the common
stock
was $2.30 per share.
Dividends
We
have
neither paid nor declared dividends on our common stock since our inception
and
do not plan to pay dividends in the foreseeable future. Any earnings that we
may
realize will be retained to finance our growth.
Unregistered
Sales of Securities
Not
applicable.
Issuer
Purchases of Equity Securities
Not
applicable.
Item
6. Selected
Financial Data.
Not
applicable.
Item
7. Management’s
Discussion and Analysis of Financial Condition and
Results of Operations.
Overview
We
are a
product-based biotechnology company engaged in the development of diagnostic
tests and drugs to identify and treat diabetic patients at high risk for the
development of cardiovascular disease. We have identified several promising
product candidates that we believe represent novel approaches for diagnosis
and
treatment in some of the largest pharmaceutical markets. Currently we are
advancing the development and commercialization of a diagnostic product and
two
of our drug candidates are in Phase 2 clinical trials.
We
are
developing a diagnostic kit to identify the subset of patients with diabetes
who
are at increased risk for cardiovascular disease. The technology underlying
this
kit relates to a serum protein called haptoglobin, or Hp. A common variant
of
this protein, known as Hp 2-2, which is found in 40% of the population, is
associated with increased cardiovascular risk in diabetic patients. Further,
it
has been shown that this protein variant may identify those diabetic patients
for whom daily use of vitamin E could potentially reduce the rate of heart
attack by 50% annually. We are developing a kit to identify this high risk
variant of haptoglobin. Any successful commercialization of such a kit could
generate revenues for us in future years and could help focus the development
of
one of our therapeutic product candidates, ALT-2074, described
below.
We
are
also managing a discovery and development program aiming to produce small
molecule drugs that mimic, the enzyme glutathione peroxidase. We believe that
GPx is one of the only enzyme in the human body that reduce oxidized lipids.
By
recreating the activity of this enzyme in a small molecule we may be able to
treat diseases in which oxidized lipids are thought to play a significant role.
One
of
our GPx mimetics, ALT-2074, is in Phase 2 clinical trials. Our intention is
to
focus this product candidate on the treatment of diabetic patients with Hp2-2.
These patients have a markedly elevated rate of heart failure and death
following a heart attack, which may relate to elevated levels of oxidized lipids
and consequent atherosclerosis. Our goal for ALT-2074 is to develop it for
use
in the treatment of acute coronary syndrome (“ACS”) and explore its
anti-atherosclerotic activity in Hp2-2, diabetic patients.
Our
two
ongoing Phase 2 studies of ALT-2074 are designed to prepare for a pivotal study.
Our first study uses ALT-2074 in Hp2-2, diabetic patients. The drug or placebo
is being administered orally in ascending doses for 28 days as we track
inflammatory biomarkers and functional improvement in cholesterol efflux.
Results from this study are anticipated in the second quarter of 2008. In
addition, we are conducting a Phase 2 clinical trial in diabetic patients
undergoing angioplasty to see whether ALT-2074 can protect heart muscle that
is
not receiving adequate blood supply. We expect to complete this study in the
second quarter of 2008 as well.
We
are
developing a second compound, Alagebrium chloride or alagebrium (formerly
ALT-711). Alagebrium is an Advanced Glycation End-product Crosslink Breaker
being developed for diastolic heart failure and diabetic nephropathy. Alagebrium
has demonstrated potential efficacy in two clinical trials in heart failure,
as
well as in animal models of heart failure, nephropathy, hypertension and
erectile dysfunction. These diseases represent rapidly growing markets of unmet
medical needs, particularly common among diabetic patients. The compound has
been tested in approximately 1,000 patients, which represents a sizeable human
safety database, in a number of Phase 2 clinical studies.
Future
Development Plans
Since
we
have been able to complete our Series B Preferred Stock Financing, as described
elsewhere in this annual report, we are proceeding with several studies
involving ALT-2074 and alagebrium. With respect to ALT-2074, in addition
to the myocardial protection study, and the Phase II biomarker study designed
to
correlate the dose and schedule of ALT-2074 with an effect on inflammatory
biomarker levels and various components of cholesterol, we are considering
other
clinical development activities.
In
January 2008 we announced the signing of an agreement with privately-held Novel
Therapeutic Technologies, Inc. to provide us with formulation work for a topical
cream formulation of ALT-2074, for the treatment of psoriasis. This work will
be
performed under the guidance of Elka Tuoituo, M.D. at the Hebrew University
in
Jerusalem, Israel. ALT-2074 may have potential in the treatment of plaque
psoriasis because ALT-2074
can
block TNF-α activated expression of cell adhesion molecules, I-CAM and V-CAM,
which may be essential for cellular migration. TNF- α is an established target
for drug development in psoriasis and other autoimmune diseases. We have
identified sites
in
Israel to perform a planned Phase 2 clinical trial beginning in mid-2008,
pending approval from the Ministry of Health in Israel.
With
respect to alagebrium, we plan, among other things, to initiate a second Phase
2
study to examine the impact of alagebrium on heart function. As previously
reported, we also expect that alagebrium will be studied in a clinical trial
of
patients with Type I diabetes and microalbuminuria (protein in the urine),
funded by the Juvenile Diabetes Research Foundation.
We
continue to evaluate potential pre-clinical and clinical studies in other
therapeutic indications in which alagebrium and ALT-2074 may address significant
unmet needs. For alagebrium, in addition to our anticipated clinical studies
in
heart failure, we have conducted preclinical studies focusing on
atherosclerosis; Alzheimer's disease; photoaging of the skin; eye diseases,
including age-related macular degeneration (“AMD”), and glaucoma; and other
diabetic complications, including renal diseases.
Since
our
inception in October 1986, we have devoted substantially all of our resources
to
research, drug discovery and development programs. To date, we have not
generated any revenues from the sale of products and may not generate any such
revenues for a number of years, if at all. We have incurred an accumulated
deficit of $263,092,520 as of December 31, 2007, and expect to incur net losses,
potentially greater than losses in prior years, for a number of
years.
We
have
financed our operations through proceeds from public offerings of common stock,
private placements of common and preferred equity and debt securities, revenue
from former collaborative relationships, reimbursement of certain of our
research and development expenses by our collaborative partners, investment
income earned on cash and cash equivalent balances and short-term investments
and the sale of a portion of our New Jersey State net operating loss
carryforwards and research and development tax credit
carryforwards.
Our
business is subject to significant risks including, but not limited to, (1)
our
ability to obtain and maintain sufficient financial resources to conduct and
continue enrollment in our clinical studies of ALT-2074 and alagebrium, (2)
the
risks inherent in our research and development efforts, including clinical
trials and the length, expense and uncertainty of the process of seeking
regulatory approvals for our product candidates, (3) uncertainties associated
with obtaining and enforcing our patents and with the patent rights of others,
(4) uncertainties regarding government healthcare reforms and product pricing
and reimbursement levels, (5) technological change and competition, (6)
manufacturing uncertainties, and (7) dependence on collaborative partners and
other third parties. Even if our product candidates appear promising at an
early
stage of development, they may not reach the market for numerous reasons. These
reasons include the possibilities that the products will prove ineffective
or
unsafe during preclinical or clinical studies, will fail to receive necessary
regulatory approvals, will be difficult to manufacture on a large scale, will
be
uneconomical to market or will be precluded from commercialization by
proprietary rights of third parties. These risks and others are discussed under
the heading “Item 1A - Risk Factors.”
Results
of Operations
Years
Ended December 2007 and 2006
License
and Other Revenue
In
2007
and 2006, license and other revenue included $50,000 received from a licensing
agreement with Avon Products, Inc.
Investment
Income
Investment
income for 2007 and 2006 was $459,000 and $188,000, respectively. Income was
derived from interest earned on cash and cash equivalents, other income, and
short-term investments. Investment income in 2007 was higher than in 2006 due
to
higher cash balances as a result of the financing in July of 2007.
Operating
Expenses
Total
expenses increased to $9,963,000 in 2007 from $6,551,000 in 2006, excluding
in-process research and development of $11,379,000. Total expenses consisted
primarily of research and development expenses in 2007 and of general and
administrative expenses in 2006. The $11,379,000 in-process research and
development charge in 2006 was a result of the merger with HaptoGuard. Research
and development expenses were $6,167,000 in 2007 and $1,896,000 in 2006. These
expenses consisted primarily of third-party expenses associated with preclinical
and clinical studies, manufacturing costs, including the development and
preparation of clinical supplies, personnel and personnel-related expenses
and
an allocation of facility expense.
Research
and development expenses increased to $6,167,000 in 2007 from $1,896,000 in
2006, excluding in-process research and development, an increase of $4,271,000,
or 225%. This was primarily related to the increase in clinical trial costs
and
manufacturing expenses as a result of the increase in clinical trial and
preclinical work. The 2007 results include $3,377,000 in clinical trial costs,
$1,447,000 of patent and patent related costs, $382,000 in personnel and
personnel-related costs, $369,000 in discovery, $209,000 in preclinical
expenses, $153,000 in consulting expense, $88,000 in trial-related insurance,
$84,000 in facility allocation and $71,000 for Haptoglobin diagnostics, which
was offset by miscellaneous expenses of $13,000.
General
and administrative expenses were $3,797,000 in 2007, which is a decrease from
$4,655,000 in 2006. The decrease in 2007 was related to the absence of severance
costs offset by the increase in corporate expense primarily in the areas of
administrative, legal, public relations and investor relations.
At
December 31, 2007, we had available federal net operating loss carryforwards
of
approximately $181,775,000, which expire in various amounts from the years
2008
through 2027, and state net operating loss carryforwards of approximately
$81,007,000, which expire in the years 2008 through 2014. In addition, at
December 31, 2007, we had federal research and development tax credit
carryforwards of approximately $7,085,000 and state research and development
tax
credit carryforwards of approximately $1,866,000.
Net
Loss
We
had
net losses of $16,093,000, and $17,680,000 in 2007 and 2006, respectively.
Included
in the net loss applicable to common stockholders for 2007 and 2006 were
preferred stock dividends of $3,854,000 and $2,653,000,
respectively.
Liquidity
and Capital Resources
We
had
cash and cash equivalents at December 31, 2007, of $15,646,000 compared to
$1,479,000 at December 31, 2006, an increase of $14,167,000. Cash used in
operating activities for the year ended December 31, 2007, totaled $7,947,000
and consisted primarily of research and development expenses, personnel and
related costs, and facility expenses. Cash used in investing activities totaled
$417,000 for the year ended December 31, 2007 and included $400,000 for the
purchase of Oxis common stock. Cash provided by financing activities for the
year ended December 31, 2007 was $22,531,000 and arose from the completion
of
the debt financing and the July 2007 preferred stock financing.
In
April
2007, we entered into a Series B Preferred Stock and Warrant Purchase Agreement
with institutional investors who purchased, on July 25, 2007, $25,000,000 of
newly created Series B Preferred Stock and warrants to purchase shares of Series
B Preferred Stock. The issuance of $25,000,000 of our Series B Preferred Stock
includes the conversion of $6,000,000 of previously issued convertible
promissory notes plus all accrued and unpaid interest thereon, which were
cancelled upon the closing of the financing (See Note 9 to the consolidated
financial statements - Convertible Notes Payable). The closing of this financing
was subject to the satisfaction of various conditions, including stockholder
approval (See Note 10 to the consolidated financial statements -- Series B
Preferred Stock and Warrant Purchase Agreement).
On
July
20, 2007, at our annual meeting of stockholders, our stockholders approved
the
issuance of securities pursuant to the Series B Preferred Stock and Warrant
Purchase Agreement. At the closing of the financing on July 25, 2007, we issued
10,000,000 shares of our Series B Preferred Stock and warrants to purchase
2,500,000 shares of Series B Preferred Stock. The Series B Preferred Stock
accrues dividends at 8.0% per year on the original issue price of $2.50 per
share for a period of five years from the date on which the shares of Series
B
Preferred Stock were issued. The warrants are exercisable for a period of five
years commencing on July 25, 2007 at an exercise price of $2.50 per share (See
Note
10
to the consolidated financial statements - Series B Preferred Stock and Warrant
Purchase Agreement).
We
submitted a Plan of Compliance to AMEX on November 6, 2006, outlining our
operational plan and strategic objectives, and amended our Plan of Compliance
on
January 3, 2007 and January 5, 2007. The Plan of Compliance was prepared in
response to a letter received from AMEX on October 9, 2006, indicating we were
below certain continued listing standards. These standards were (i) Section
1003(a)(i) of the AMEX Company Guide, as a result of the Company’s stockholder’s
equity of less than $2,000,000 and losses from continuing operations and/or
net
losses in two out of its three most recent fiscal years; (ii) Section
1003(a)(ii) of the AMEX Company Guide, as a result of the Company’s
stockholder’s equity of less than $4,000,000 and losses from continuing
operations and/or net losses in three out of its four most recent fiscal years;
and (iii) Section 1003(a)(iii) of the AMEX Company Guide, as a result of the
Company’s stockholder’s equity of less than $6,000,000 and losses from
continuing operations and/or net losses in its five most recent fiscal years.
To
date, we have not regained compliance with such continued listing standards,
but
we are working towards achieving that goal consistent with our Plan of
Compliance. On September 20, 2007, we received a notice from the staff of AMEX,
that we have resolved the continued listing deficiencies, but pursuant to the
AMEX Company Guide, our plan period will remain open until we have been able
to
demonstrate compliance with the continued listing standards for two consecutive
quarters. We expect to regain compliance by the end of the first quarter of
2008.
We
do not
have any approved products and currently derive cash from sales of our
securities, sales of our New Jersey state net operating loss carryforwards
and
interest on cash and cash equivalents. We are highly susceptible to conditions
in the global financial markets and in the pharmaceutical industry. Positive
and
negative movement in those markets will continue to pose opportunities and
challenges to us. Previous downturns in the market valuations of biotechnology
companies and of the equity markets more generally have restricted our ability
to raise additional capital on favorable terms.
We
expect
to utilize cash and cash equivalents to fund our operating activities, including
continued development of ALT-2074 and alagebrium and development of a diagnostic
kit. Based on our projected spending levels, the remaining cost of these trials
and the development of such a diagnostic kit, which are expected to continue
into 2009, exclusive of our internal cost, is estimated to be $4.5 million.
The
cost includes executed, but cancelable, agreements with outside organizations.
The amount and timing of our future capital requirements will depend on numerous
factors, including the timing
of
resuming
our
research and development programs, if at all, the number and characteristics
of
product candidates that we pursue, the conduct of preclinical tests and clinical
studies, the status and timelines of regulatory submissions, the costs
associated with protecting patents and other proprietary rights, the ability
to
complete strategic collaborations and the availability of third-party funding,
if any.
We
will
require, over the longer term, substantial additional funding to pursue
development and commercialization of ALT-2074, alagebrium and our other product
candidates and to continue our operations. We believe that satisfying these
capital requirements over the long term will require successful
commercialization of our product candidates. However, it is uncertain whether
any product candidates will be approved or will be commercially
successful.
Selling
securities to satisfy our capital requirements may have the effect of materially
diluting the current holders of our outstanding stock. We may also seek
additional funding through corporate collaborations and other financing
vehicles. There can be no assurances that such funding will be available at
all
or on terms acceptable to us. If funds are obtained through arrangements with
collaborative partners or others, we may be required to relinquish rights to
our
technologies or product candidates and alter our plans for the development
of
our product candidates. If we are unable to obtain the necessary funding, we
may
be forced to cease operations. There can be no assurance that the products
or
technologies acquired in the merger will result in revenues to the combined
company or any meaningful return on investment to our stockholders.
Critical
Accounting Policies
Effective
January 1, 2007, we adopted Financial Accounting Standards Board (“FASB”)
Interpretation 48 (“FIN 48”), “Accounting for Uncertainty in Income Taxes — an
interpretation of FASB Statement No. 109.” The interpretation contains a
two-step approach to recognizing and measuring uncertain tax positions accounted
for in accordance with SFAS No. 109, “Accounting for Income Taxes.” The
first step is to evaluate the tax position for recognition by determining
if the
weight of available evidence indicates that it is more likely than not that
the
position will be sustained on audit, including resolution of related appeals
or
litigation processes, if any. The second step is to measure the tax benefit
as
the largest amount which is more than 50% likely of being realized upon ultimate
settlement.
We
have
sustained losses since inception which has generally resulted in a zero percent
effective tax rate; hence, we have not incurred any interest or penalties.
Our
policy is to recognize interest and penalties accrued on any unrecognized tax
benefits as a component of tax expense. At December 31, 2007, we had an
$88,500,000 deferred tax asset which was fully offset by a valuation
allowance due to its history of losses.
In
addition, we have net operating loss carryfowards (“NOLs”) that were subject to
substantial annual restrictions due to the ownership change limitations provided
by the Internal Revenue Code. The Company’s analysis as of December 31, 2007,
resulted in severe limitation on federal NOL carryfowards for future use.
However, given our history of losses and our fully reserved deferred tax
assets,
this evaluation has not had a material impact on our consolidated financial
statements.
In
December 2004, the Financial Accounting Standards Board (“FASB”) issued
Statement of Financial Accounting Standards (“SFAS”) No. 123 (revised 2004),
“Share-Based Payment,” (“SFAS 123R”), which replaces “Accounting for Stock-Based
Compensation,” (“SFAS 123”) and supersedes Accounting Principles Board (“APB”)
Opinion No. 25, “Accounting for Stock Issued to Employees.” SFAS 123R requires
all share-based payments to employees, including grants of employee stock
options, to be recognized in the financial statements based on their fair values
beginning with the first annual reporting period that begins after December
15,
2005. Under SFAS 123R, the pro forma disclosures previously permitted under
SFAS
123 are no longer an alternative to financial statement
recognition.
We
account for employee stock-based compensation, awards issued to non-employee
directors, and stock options issued to consultants and contractors in accordance
with SFAS 123R, SFAS No. 148 “Accounting for Stock-Based Compensation—Transition
and Disclosure” and Emerging Issues Task Force Issue No. 96-18, “Accounting for
Equity Instruments that are Issued to Other Than Employees for Acquiring or
in
Conjunction with Selling Goods or Services.” For the year ended December 31,
2007, we recognized research and development consulting expenses of $2,732.
We
have
adopted the new standard, SFAS 123R, effective January 1, 2006 and have selected
the Black-Scholes method of valuation for share-based compensation. We have
adopted the modified prospective transition method which requires that
compensation cost be recorded, as earned, for all unvested stock options and
restricted stock outstanding at the beginning of the first quarter of adoption
of SFAS 123R, and is recognized over the remaining service period after the
adoption date based on the options’ original estimate of fair value. For the
year ended December 31, 2007, we recognized share-based employee compensation
cost of $367,268 in accordance with SFAS 123R, which was recorded as general
and
administrative expenses.
Research
and Development
Research
and development expense consists of costs incurred in connection with developing
and advancing our drug discovery technology and identifying and developing
our
product candidates. We charge all research and development expenses to
operations as incurred.
Our
research and development expense consists of:
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· |
internal
costs associated with research, preclinical and clinical
activities;
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· |
payments
to third-party contract research organizations, investigative
sites and
consultants in connection with our preclinical and clinical development
programs;
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· |
costs
associated with drug formulation and supply of drugs for clinical
trials;
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· |
personnel
related expenses, including salaries, stock-based compensation,
benefits
and travel; and
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· |
overhead
expenses, including rent.
|
We
currently have two lead products in clinical development, and we are also
developing a diagnostic kit. On July 25, 2007, we completed a $25 million
financing, which has enabled us to resume our Phase 2 clinical trials. We
have
not been tracking our clinical development costs on a project by project
basis
because we only had one product in clinical development until June 2006 and
were
forced to curtail research activities due to lack of funding until July 2007.
We
plan to keep track of our clinical development costs on a project by project
basis going forward and will provide applicable by project disclosures in
our
first Quarterly Report on Form 10-Q for fiscal year 2008.
We
do not
know if we will be successful in developing our product candidates. While
expenses associated with the development of our current clinical programs
are
expected to be substantial and to increase over time, we believe that accurately
projecting total program-specific expenses through commercialization is not
possible at this time due to the following factors: the timing and amount
of
these expenses will depend upon the costs associated with potential future
clinical trials of our product candidates, and the related expansion of our
research and development organization, regulatory requirements, advancement
of
our preclinical programs and product manufacturing costs, many of which cannot
be determined with accuracy at this time based on our stage of development.
This
is due to the numerous risks and uncertainties associated with the duration
and
cost of clinical trials, which vary significantly over the life of a project
as
a result of unanticipated events arising during clinical development, including
those with respect to:
·
the
number of clinical sites included in the trial;
·
the
length of time required to enroll suitable subjects;
·
the
number of subjects that ultimately participate in the trials; and
·
the
efficacy and safety results of our clinical trials and the number of additional
required clinical trials.
Our
expenditures are subject to additional uncertainties, including the terms
and
timing of regulatory approvals and the expense of filing, prosecuting, defending
or enforcing any patent claims or other intellectual property rights. In
addition, we may obtain unexpected or unfavorable results from our clinical
trials. We may elect at any time to discontinue, delay or modify clinical
trials
of some product candidates or focus on others. A change in the outcome of
any of
the foregoing variables in the development of a product candidate could mean
a
significant change in the costs and timing associated with the development
of
that product candidate. For example, if the FDA or other regulatory authority
were to require us to conduct clinical trials beyond those that we currently
anticipate, or if we experience significant delays in any of our clinical
trials, we would be required to expend significant additional financial
resources and time on the completion of clinical development. Additionally,
future commercial and regulatory factors beyond our control will evolve and
therefore impact our clinical development programs and plans over time. Due
to
the risks and uncertainties described above, we cannot currently estimate
when
material net cash flows from significant projects may commence, if at all.
Revenue
Recognition
Our
revenue recognition policy is consistent with the criteria set forth in Staff
Accounting Bulletin 104 -“Revenue Recognition in Financial Statements” (“SAB
104”) for determining when revenue is realized or realizable and earned. In
accordance with the requirements of SAB 104, we recognize revenue when (1)
persuasive evidence of an arrangement exists; (2) delivery has occurred; (3)
the
seller’s price is fixed or determinable; and (4) collectability is reasonably
assured.
Due
to
the immaterial nature of our current licensing revenues, we have recognized
revenues from non-refundable, up-front license fees as received which
approximates the straight-line basis.
New
Accounting Pronouncements
In
September 2006, the FASB issued SFAS No. 157, “Fair Value
Measurements”. SFAS No. 157 defines fair value, establishes a framework for
measuring fair value and expands disclosure requirements about fair value
measurements. We believe that the adoption of SFAS No. 157 will not have a
material impact on our consolidated financial statements.
In
June 2007, the EITF issued EITF Issue No. 07-3, “Accounting for
Nonrefundable Advance Payments for Goods or Services to be Used in Future
Research and Development Activities”. The consensus requires companies to
defer and capitalize prepaid, nonrefundable research and development payments
to
third parties over the period that the research and development activities
are
performed or the services are provided, subject to an assessment of
recoverability. EITF Issue No. 07-3 is effective for new contracts
entered into in fiscal years beginning after December 15, 2007, including
interim periods within those fiscal years. We do not expect the adoption of
EITF
Issue No. 07-3 to have a material impact on our financial
statements.
In
November 2007, the EITF issued EITF Issue No. 07-1, “Accounting for
Collaborative Arrangements Related to the Development and Commercialization
of
Intellectual Property”. Companies may enter into arrangements with other
companies to jointly develop, manufacture, distribute, and market a product.
Often the activities associated with these arrangements are conducted by the
collaborators without the creation of a separate legal entity (that is, the
arrangement is operated as a “virtual joint venture”). The arrangements
generally provide that the collaborators will share, based on contractually
defined calculations, the profits or losses from the associated activities.
Periodically, the collaborators share financial information related to product
revenues generated (if any) and costs incurred that may trigger a sharing
payment for the combined profits or losses. The consensus requires collaborators
in such an arrangement to present the result of activities for which they act
as
the principal on a gross basis and report any payments received from (made
to)
other collaborators based on other applicable GAAP or, in the absence of other
applicable GAAP, based on analogy to authoritative accounting literature or
a
reasonable, rational, and consistently applied accounting policy election.
EITF
Issue No. 07-1 is effective for collaborative arrangements in place at the
beginning of the annual period beginning after December 15, 2007. As
our collaborative agreements do not incorporate such revenue- and cost-sharing
arrangements, we do not expect the adoption of EITF Issue No. 07-1 to have
a material impact on our financial statements.
In
December 2007, the FASB issued SFAS 141 (Revised), “Business Combinations”
(“SFAS 141R”). SFAS 141R requires most identifiable assets,
liabilities, noncontrolling interests, and goodwill acquired in a business
combination to be recorded at fair value. SFAS 141R applies to all business
combinations, including combinations among mutual entities and combinations
by
contract alone. Under SFAS 141R, all business combinations will be
accounted for by applying the acquisition method. SFAS 141R is effective for
business combinations for which the acquisition date is on or after the
beginning of the first annual reporting period beginning on or after
December 15, 2008. Earlier application of SFAS 141R is prohibited.
In
December 2007, the FASB issued SFAS No. 160 (“SFAS 160”), “Noncontrolling
interests in Consolidated Financial Statements”, an amendment of ARB No. 51.
SFAS 160 is based on the economic entity concept of consolidated financial
statements, under which all residual economic interest holders in an entity
have
an equity interest in the consolidated entity, even if the residual interest
is
relative to only a portion of the entity. SFAS 160 requires that a
noncontrolling interest in a consolidated subsidiary be displayed in the
consolidated statement of financial position as a separate component of equity
because the FASB concluded that noncontrolling interests meet the definition
of
equity of the consolidated entity. SFAS 160 is effective for the first annual
reporting period on or after December 15, 2008, and earlier adoption is
prohibited. We are currently evaluating the effect that the adoption of SFAS
160
will have on our consolidated results of operations and financial
condition.
In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option
for Financial Assets and Financial Liabilities — Including an amendment of FASB
Statement No. 115” (“SFAS 159”). SFAS 159 expands the use of fair value
accounting but does not affect existing standards that require assets or
liabilities to be carried at fair value. Under SFAS 159, a company may elect
to
use fair value to measure various assets and liabilities including accounts
receivable, available-for-sale and held-to-maturity securities, equity method
investments, accounts payable, guarantees and issued debt. If the use of fair
value is elected, any upfront costs and fees related to the item must be
recognized in earnings and cannot be deferred. The fair value election is
irrevocable and generally made on an instrument-by-instrument basis, even if
a
company has similar instruments that it elects not to measure based on fair
value. At the adoption date, unrealized gains and losses on existing items
for
which fair value has been elected are reported as a cumulative adjustment to
beginning retained earnings. Subsequent to the adoption of SFAS 159, changes
in
fair value are recognized in earnings. SFAS 159 is effective for our fiscal
year
2008. We are currently evaluating the impact, if any, of SFAS 159 on our
Consolidated Financial Statements.
Item
7A. Quantitative
and Qualitative Disclosures About Market Risk.
Our
exposure to market risk for changes in interest rates relates primarily to
our
investment in marketable securities. We do not use derivative financial
instruments in our investments. In 2007, all of our investments resided in
money
market accounts. Accordingly, we do not believe that there is any material
market risk exposure with respect to derivative or other financial instruments
that would require disclosure under this Item.
Item
8. Financial
Statements and Supplementary Data.
Not
applicable.
Item
9. Changes
in and Disagreements with Accountants on Accounting and
Financial Disclosure.
Not
applicable.
Item
9AT. Controls
and Procedures.
a) Evaluation of
Disclosure Controls and Procedures.
Our
management has evaluated, with the participation of our Chief Executive Officer
and our principal financial and accounting officer, the effectiveness of our
disclosure controls and procedures (as defined in Rule 13a-15(e) under the
Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of the
end
of the fiscal year covered by this Annual Report on Form 10-K. Based upon that
evaluation, the Chief Executive Officer and the principal financial and
accounting officers have concluded that as of the end of such fiscal year,
our
current disclosure controls and procedures were effective. The Chief Executive
Officer and principal financial and accounting officers believe that our current
disclosure controls and procedures are adequate to ensure that information
required to be disclosed in the reports we file under the Exchange Act is
recorded, processed, summarized and reported on a timely basis.
b) Material
Weaknesses and Changes in Internal Controls.
During
the review of our financial statements for the three- and six-month periods
ended June 30, 2007, our independent registered public accounting firm
identified a material weakness regarding our internal control over the recording
of an obligation related to the restructuring of an agreement related in part
to
the financing and an obligation to purchase an investment during the second
quarter ended June 30, 2007. As defined by the Public Company Accounting
Oversight Board Auditing Standards No. 5, a
material weakness is a significant deficiency, or combination of significant
deficiencies, that results in a reasonable possibility that a material
misstatement of the annual or interim financial statements will not be prevented
or detected.
Since
this material weakness was identified by our independent registered public
accounting firm in connection with its review of our financial statements for
the three- and six-month periods ended June 30, 2007, the transactions subject
to these issues have been correctly accounted for and disclosed by us and no
restatement of any previously filed financial statements was required. On
November 14, 2007, we hired a Controller/principal financial and accounting
officer who has assisted in maintaining progress on several projects focused
on
assessing contractual agreements, better understanding and documenting our
processes, and implementing certain preventative or detective controls to
address key risks. Management has tested its internal controls with regards
to
the process of reviewing agreements and feels that this procedure has been
remediated to ensure continued compliance.
c) Except
for the change in controls described above, there were no changes in our
internal control over financial reporting (as defined in Rules 13a-15(f) and
15d-15(f) under the Exchange Act) during the quarterly period covered by this
Annual Report on Form 10-K that have materially affected, or are reasonably
likely to materially affect, our internal control over financial
reporting.
d) This
Annual Report on Form 10-K does not include an attestation report of our
independent registered public accounting firm regarding internal control over
financial reporting. Management's report was not subject to attestation by
our
independent registered public accounting firm pursuant to temporary rules of
the
Securities and Exchange Commission that permit us to provide only management's
report in this Annual Report.
Management’s
Report on Internal Control Over Financial Reporting
Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting, as such term is defined in Rule 13a-15(f)
under the Exchange Act. Our internal control over financial reporting is
designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes
in
accordance with accounting principles generally accepted in the United States.
However, all internal control systems, no matter how well designed, have
inherent limitations. Therefore, even those systems determined to be effective
can provide only reasonable assurance with respect to financial statement
preparation and reporting.
Management
assessed the effectiveness of our internal control over financial reporting
as
of December 31, 2007. In making this assessment, management used the
criteria set forth by the Committee of the Sponsoring Organizations of the
Treadway Commission (COSO) in Internal Control-Integrated Framework and the
Guidance for Smaller Public Companies as published by COSO in June 2006. Based
on our assessment, management believes that we maintained effective internal
control over financial reporting as of December 31, 2007, based on those
criteria.
Item
9B. Other Information.
Not
applicable.
PART
III
Item
10. Directors,
Executive Officers and Corporate Governance.
The
response to this Item is incorporated by reference from the discussion
responsive thereto under the captions “Management,” “Section 16(a) Beneficial
Ownership Reporting Compliance,” “Code of Business Conduct and Ethics,” and
“Corporate Governance Matters” in our Proxy Statement for the 2008 Annual
Meeting of Stockholders.
Our
Code
of Business Conduct and Ethics is posted on our web site. Disclosure regarding
any amendments to, or waivers from, provisions of the Code of Conduct and Ethics
that apply to our directors, principal executive and financial officers will
be
included in a Current Report on Form 8-K within four business days following
the
date of the amendment or waiver, unless website posting of such amendments
or
waivers is permitted by the Rules of the American Stock Exchange.
Item
11. Executive
Compensation.
The
response to this Item is incorporated by reference from the discussion
responsive thereto under the captions “Executive Compensation,” and
“Compensation Committee Report” in our Proxy Statement for the 2008 Annual
Meeting of Stockholders.
Item
12. Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder
Matters.
The
response to this Item is incorporated by reference from the discussion
responsive thereto under the captions “Security Ownership of Certain Beneficial
Owners and Management,” and “Equity Compensation Plan Information,” in our Proxy
Statement for the 2008 Annual Meeting of Stockholders.
Item
13. Certain
Relationships and Related Transactions, and Director
Independence.
The
response to this Item is incorporated by reference from the discussion
responsive thereto under the captions “Certain Relationships and Related
Transactions” and “Corporate Governance” in our Proxy Statement for the 2008
Annual Meeting of Stockholders.
Item
14. Principal
Accounting Fees and Services.
The
response to this Item is incorporated by reference from the discussion
responsive thereto under the caption “Independent Public Accountants” in our
Proxy Statement for the 2008 Annual Meeting of Stockholders.
Item
15. Financial
Statements and Exhibits.
(a) Consolidated
Financial Statements.
Our
audited consolidated financial statements and the Report of Independent
Registered Public Accounting Firm are included in this Annual Report on Form
10-K. Reference is made to the “Index
to
Consolidated Financial Statements”
on
page
40.
(b) Exhibits.
The
exhibits required to be filed are listed on the “Exhibit Index” attached hereto,
which is incorporated herein by reference.
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, as amended, the Registrant has duly caused this report to be signed on
its
behalf by the undersigned, thereunto duly authorized this 31st day of March,
2008.
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SYNVISTA THERAPEUTICS, INC. |
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By: |
/s/
Noah
Berkowitz |
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Noah
Berkowitz, M.D., Ph.D.
President
and Chief Executive Officer
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Pursuant
to the requirements of the Securities Exchange Act of 1934, as amended, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
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Signature
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Title
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Date
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/s/
Noah Berkowitz
Noah
Berkowitz, M.D., Ph.D.
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President
and Chief Executive Officer
(principal
executive officer)
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March
31, 2008
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/s/
Alex D’Amico
Alex
D’Amico, CPA
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Controller
(principal
accounting officer)
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March
31, 2008
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/s/
Wendy A. Milici
Wendy
A. Milici
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Director
of Finance
(principal
financial officer)
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March
31, 2008
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/s/
John F. Bedard
John
F. Bedard
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Director
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March
31, 2008
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/s/
Wayne P. Yetter
Wayne
P. Yetter
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Director
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March
31, 2008
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/s/
Mary C. Tanner
Mary
C. Tanner
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Director
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March
31, 2008
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INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS
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Page
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Report
of Independent Registered Public Accounting Firm - J.H. Cohn
LLP
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41
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Consolidated
Financial Statements:
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Consolidated
Balance Sheets at December 31, 2007 and 2006
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42
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Consolidated
Statements of Operations for the years ended
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December
31, 2007 and 2006
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43
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Consolidated
Statements of Changes in Stockholders’ Equity for the years
ended
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December
31, 2007 and 2006
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44
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Consolidated
Statements of Cash Flows for the years ended
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December
31, 2007 and 2006
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45
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Notes
to Consolidated Financial Statements
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46
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REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The
Board
of Directors and Stockholders
Synvista
Therapeutics, Inc
We
have
audited the accompanying consolidated balance sheets of Synvista Therapeutics,
Inc and subsidiary as of December 31, 2007 and 2006, and the related
consolidated statements of operations, changes in stockholders' equity and
cash
flows for the years then ended. These consolidated financial statements are
the
responsibility of the Company's management. Our responsibility is to express
an
opinion on these consolidated financial statements based on our
audits.
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 provide a
reasonable basis for our opinion.
In
our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Synvista Therapeutics,
Inc
and subsidiary as of December 31, 2007 and 2006, and their results of operations
and cash flows for the years then ended, in conformity with accounting
principles generally accepted in the United States of America.
/s/
J.H.
Cohn LLP
Roseland,
New Jersey
March
26,
2008
|
SYNVISTA
THERAPEUTICS, INC.
|
|
CONSOLIDATED
BALANCE SHEETS
|
| |
|
December
31,
|
|
December
31,
|
|
|
|
|
2007
|
|
2006
|
|
| |
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current
Assets:
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
15,646,225
|
|
$
|
1,478,780
|
|
|
Other
current assets
|
|
|
234,338
|
|
|
314,156
|
|
| |
|
|
|
|
|
|
|
|
Total
current assets
|
|
|
15,880,563
|
|
|
1,792,936
|
|
| |
|
|
|
|
|
|
|
|
Property
and equipment, net
|
|
|
17,096
|
|
|
10,500
|
|
|
Other
assets
|
|
|
807,646
|
|
|
501,889
|
|
| |
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
16,705,305
|
|
$
|
2,305,325
|
|
| |
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
Current
Liabilities:
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
1,503,355
|
|
$
|
809,492
|
|
|
Accrued
expenses
|
|
|
458,731
|
|
|
253,022
|
|
|
Preferred
stock dividends payable
|
|
|
875,000
|
|
|
—
|
|
| |
|
|
|
|
|
|
|
|
Total
current liabilities
|
|
|
2,837,086
|
|
|
1,062,514
|
|
| |
|
|
|
|
|
|
|
|
Commitments
and contingencies
|
|
|
-
|
|
|
-
|
|
| |
|
|
|
|
|
|
|
|
Stockholders'
Equity:
|
|
|
|
|
|
|
|
|
Preferred
stock, $.01 par value; 15,000,000 shares authorized,
|
|
|
|
|
|
|
|
|
400,000
shares designated as Series A, none issued and outstanding
|
|
|
|
|
|
|
|
|
12,500,000
shares designated as 8% Series B convertible preferred stock,
|
|
|
|
|
|
|
|
|
10,000,000
shares issued and outstanding at December 31, 2007, and 0
|
|
|
|
|
|
|
|
|
at
December 31, 2006
|
|
|
100,000
|
|
|
-
|
|
| |
|
|
|
|
|
|
|
|
Common
stock, $.01 par value; 300,000,000 shares
|
|
|
|
|
|
|
|
|
authorized
and 2,586,377 shares issued
|
|
|
|
|
|
|
|
|
and
outstanding
|
|
|
25,864
|
|
|
25,864
|
|
| |
|
|
|
|
|
|
|
|
Additional
paid-in capital
|
|
|
276,834,875
|
|
|
244,362,808
|
|
| |
|
|
|
|
|
|
|
|
Accumulated
deficit
|
|
|
(263,092,520
|
)
|
|
(243,145,861
|
)
|
| |
|
|
|
|
|
|
|
|
Total
stockholders' equity
|
|
|
13,868,219
|
|
|
1,242,811
|
|
| |
|
|
|
|
|
|
|
|
Total
liabilities and stockholders' equity
|
|
$
|
16,705,305
|
|
$
|
2,305,325
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
|
SYNVISTA
THERAPEUTICS, INC.
|
|
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
| |
|
|
|
|
|
| |
|
Year
Ended
|
|
| |
|
December
31
|
|
| |
|
2007
|
|
2006
|
|
| |
|
|
|
|
|
|
License
and other revenue
|
|
$
|
51,066
|
|
$
|
62,069
|
|
| |
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
Research
and development
|
|
|
6,166,622
|
|
|
1,896,204
|
|
|
In-process
research and development
|
|
|
-
|
|
|
11,379,348
|
|
|
General
and administrative
|
|
|
3,796,726
|
|
|
4,654,689
|
|
| |
|
|
|
|
|
|
|
|
Total
operating expenses
|
|
|
9,963,348
|
|
|
17,930,241
|
|
| |
|
|
|
|
|
|
|
|
Loss
from operations
|
|
|
(9,912,282
|
)
|
|
(17,868,172
|
)
|
| |
|
|
|
|
|
|
|
|
Investment
income
|
|
|
458,789
|
|
|
188,435
|
|
|
Interest
expense
|
|
|
(6,639,529
|
)
|
|
-
|
|
| |
|
|
|
|
|
|
|
|
Net
loss
|
|
|
(16,093,022
|
)
|
|
(17,679,737
|
)
|
| |
|
|
|
|
|
|
|
|
Preferred
stock dividends - Series B
|
|
|
875,000
|
|
|
-
|
|
|
Preferred
stock dividends - Series G and Series H
|
|
|
-
|
|
|
2,652,679
|
|
|
Deemed
dividends to Series B preferred stockholders
on
beneficial conversion feature
|
|
|
2,978,637
|
|
|
-
|
|
| |
|
|
|
|
|
|
|
|
Net
loss applicable to common shares
|
|
$
|
(19,946,659
|
)
|
$
|
(20,332,416
|
)
|
| |
|
|
|
|
|
|
|
|
Net
loss per common share:
|
|
|
|
|
|
|
|
|
Basic
and diluted
|
|
$
|
(7.71
|
)
|
$
|
(11.12
|
)
|
| |
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding:
|
|
|
|
|
|
|
|
|
Basic
and diluted
|
|
|
2,586,377
|
|
|
1,828,688
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
|
SYNVISTA
THERAPEUTICS, INC.
|
|
CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS'
EQUITY
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
Total
|
|
|
|
|
Preferred
Stock
|
|
Common
Stock
|
|
Paid-in
|
|
Accumulated
|
|
Stockholders'
|
|
|
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Capital
|
|
Deficit
|
|
Equity
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2005
|
|
|
5,561
|
|
$
|
56
|
|
|
1,159,934
|
|
$
|
11,600
|
|
$
|
228,793,449
|
|
$
|
(222,813,445
|
)
|
$
|
5,991,660
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(17,679,737
|
)
|
|
(17,679,737
|
)
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private
placement of common stock
|
|
|
-
|
|
|
-
|
|
|
219,208
|
|
|
2,192
|
|
|
2,473,814
|
|
|
-
|
|
|
2,476,006
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of Series G and H preferred stock dividends
|
|
|
238
|
|
|
2
|
|
|
-
|
|
|
-
|
|
|
2,652,677
|
|
|
(2,652,679
|
)
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued in connection with the merger
|
|
|
-
|
|
|
-
|
|
|
747,981
|
|
|
7,480
|
|
|
8,792,520
|
|
|
-
|
|
|
8,800,000
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
stock converted to common stock as a result of the merger
|
|
|
(5,799
|
)
|
|
(58
|
)
|
|
269,847
|
|
|
2,698
|
|
|
(2,640
|
)
|
|
-
|
|
|
-
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assumption
of HaptoGuard vested stock options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
235,000
|
|
|
|
|
|
235,000
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private
placement of common stock
|
|
|
-
|
|
|
-
|
|
|
189,407
|
|
|
1,894
|
|
|
1,328,126
|
|
|
-
|
|
|
1,330,020
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based
compensation
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
66,745
|
|
|
-
|
|
|
66,745
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
issued for consulting services
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
5,122
|
|
|
-
|
|
|
5,122
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation
costs related to restricted stock
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
17,995
|
|
|
-
|
|
|
17,995
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2006
|
|
|
-
|
|
|
-
|
|
|
2,586,377
|
|
|
25,864.00
|
|
|
244,362,808.00
|
|
|
(243,145,861.00
|
)
|
|
1,242,811.00
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(16,093,022
|
)
|
|
(16,093,022
|
)
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
issued and embedded beneficial conversion feature associated
with debt
financing
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
6,000,000
|
|
|
-
|
|
|
6,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of shares of preferred stock through private placement at $2.50
per
share
|
|
|
7,534,246
|
|
|
75,342
|
|
|
-
|
|
|
-
|
|
|
18,760,274
|
|
|
-
|
|
|
18,835,616
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of shares of preferred stock through debt conversion at $2.50
per
share
|
|
|
2,465,754
|
|
|
24,658
|
|
|
-
|
|
|
-
|
|
|
6,139,726
|
|
|
-
|
|
|
6,164,384
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs
incurred in connection with the private placement, including
the issuance
of warrants
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(1,837,954
|
)
|
|
-
|
|
|
(1,837,954
|
)
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deemed
dividends to Series B preferred stockholders on beneficial conversion
feature
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
2,978,637
|
|
|
(2,978,637
|
)
|
|
-
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series
B preferred stock dividend payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(875,000
|
)
|
|
(875,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based
compensation
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
367,268
|
|
|
-
|
|
|
367,268
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
issued for consulting services
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
2,732
|
|
|
-
|
|
|
2,732
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation
costs related to restricted stock
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
61,384
|
|
|
-
|
|
|
61,384
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances,
December 31, 2007
|
|
|
10,000,000
|
|
$
|
100,000
|
|
|
2,586,377
|
|
$
|
25,864
|
|
$
|
276,834,875
|
|
$
|
(263,092,520
|
)
|
$
|
13,868,219
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
|
SYNVISTA
THERAPEUTICS, INC.
|
|
|
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
|
(Unaudited)
|
|
| |
|
Years
ended December 31,
|
|
| |
|
2007
|
|
2006
|
|
| |
|
|
|
|
|
|
Cash
Flows from Operating Activities:
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(16,093,022
|
)
|
$
|
(17,679,737
|
)
|
| |
|
|
|
|
|
|
|
|
Adjustments
to reconcile net loss to cash
|
|
|
|
|
|
|
|
|
used
in operating activities:
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
Stock-based
compensation
|
|
|
367,268
|
|
|
66,745
|
|
|
Options
issued for consulting services
|
|
|
2,732
|
|
|
5,122
|
|
|
Compensation
costs related to restricted stock
|
|
|
61,384
|
|
|
17,995
|
|
|
Non-cash
interest expense
|
|
|
164,384
|
|
|
-
|
|
|
In-process
research and development
|
|
|
-
|
|
|
11,379,348
|
|
|
Amortization
of debt discount
|
|
|
6,000,000
|
|
|
-
|
|
|
Amortization
of deferred financing costs
|
|
|
466,413
|
|
|
-
|
|
|
Depreciation
and amortization
|
|
|
10,508
|
|
|
49,116
|
|
| |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Other
current assets
|
|
|
79,818
|
|
|
(408,026
|
)
|
|
Other
assets
|
|
|
94,243
|
|
|
(501,889
|
)
|
|
Accounts
payable and accrued expenses
|
|
|
899,572
|
|
|
(366,949
|
)
|
| |
|
|
|
|
|
|
|
|
Net
cash used in operating activities
|
|
|
(7,946,700
|
)
|
|
(7,438,275
|
)
|
| |
|
|
|
|
|
|
|
|
Cash
Flows from Investing Activities:
|
|
|
|
|
|
|
|
|
Capital
expenditures
|
|
|
(17,104
|
)
|
|
|
|
|
Restricted
cash
|
|
|
-
|
|
|
150,000
|
|
|
Acquisition
costs, net of cash acquired
|
|
|
-
|
|
|
(1,621,929
|
)
|
|
Payments
for securities purchased under the Oxis agreement
|
|
|
(400,000
|
)
|
|
-
|
|
| |
|
|
|
|
|
|
|
|
Net
cash used in investing activities
|
|
|
(417,104
|
)
|
|
(1,471,929
|
)
|
| |
|
|
|
|
|
|
|
|
Cash
Flows from Financing Activities:
|
|
|
|
|
|
|
|
|
Proceeds
from debt financing
|
|
|
6,000,000
|
|
|
0
|
|
|
Proceeds
from issuance of common stock
|
|
|
-
|
|
|
3,806,026
|
|
|
Proceeds
from issuance of preferred stock
|
|
|
18,835,616
|
|
|
0
|
|
|
Payments
for private placement costs
|
|
|
(1,837,954
|
)
|
|
0
|
|
|
Payments
for debt financing costs
|
|
|
(466,413
|
)
|
|
-
|
|
| |
|
|
|
|
|
|
|
|
Net
cash provided by financing activities
|
|
|
22,531,249
|
|
|
3,806,026
|
|
| |
|
|
|
|
|
|
|
|
Net
increase(decrease) in cash and cash equivalents
|
|
|
14,167,445
|
|
|
(5,104,178
|
)
|
|
Cash
and cash equivalents, beginning of year
|
|
|
1,478,780
|
|
|
6,582,958
|
|
| |
|
|
|
|
|
|
|
|
Cash
and cash equivalents, end of year
|
|
$
|
15,646,225
|
|
$
|
1,478,780
|
|
| |
|
|
|
|
|
|
|
|
Supplemental
disclosures of non-cash investing and financing
activities:
|
|
|
|
|
|
|
|
|
Common
stock and other equity consideration issued as a result of the
merger
|
|
$
|
-
|
|
$
|
9,035,058
|
|
|
Warrants
issued and embedded conversion feature associated
|
|
|
|
|
|
|
|
|
with
debt financing
|
|
$
|
6,000,000
|
|
$
|
-
|
|
|
Beneficial
conversion feature on convertible Series B preferred stock
|
|
$
|
13,616,625
|
|
$
|
-
|
|
|
Deemed
dividends to Series B preferred stockholders on beneficial
conversion
|
|
$
|
2,978,637
|
|
$
|
-
|
|
|
Series
B stock dividends payable
|
|
$
|
875,000
|
|
$
|
-
|
|
|
Preferred
stock issued pursuant to conversion of debt and accrued
interest
|
|
$
|
6,164,384
|
|
$
|
-
|
|
|
Fair
value of warrants issued to placement agents for private placement
allocable
|
|
|
|
|
|
|
|
|
to
private placement
|
|
$
|
1,619,256
|
|
$
|
-
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
SYNVISTA
THERAPEUTICS, INC
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
1 - Organization and Summary of Significant Accounting Policies
Basis
of Presentation
On
July
20, 2007, the stockholders of Alteon Inc. approved changing the name of the
company from Alteon Inc. to Synvista Therapeutics, Inc. (the “Company” or
“Synvista”). The name change became effective on July 25,
2007.
On
July
20, 2007, the Company’s stockholders approved an amendment to its certificate of
incorporation to, among other things, effect a reverse stock split of the
Company’s common stock. On July 25, 2007, a 1:50 reverse stock split of the
Company’s common stock became effective. Accordingly, all share, warrant, option
and per share information for all periods presented reflect the reverse stock
split.
Organization
and Business
Synvista
is a product-based biopharmaceutical company engaged in the development of
small
molecule drugs to treat and prevent cardiovascular disease and diabetes. The
Company has identified several product candidates that represent what the
Company believes to be novel approaches to some of the largest pharmaceutical
markets. Synvista has advanced one of these products into Phase 2 clinical
trials. By acquiring HaptoGuard, Inc. (“HaptoGuard”) in July 2006, Synvista
expanded its portfolio with another compound in Phase 2 clinical development
for
cardiovascular complications of diabetes.
Principles
of Consolidation
The
accompanying consolidated financial statements include the accounts of Synvista
Therapeutics, Inc and its wholly-owned subsidiary, HaptoGuard, Inc. All
inter-company accounts and transactions have been eliminated in
consolidation.
Reclassifications
Certain
prior period balances have been reclassified to conform to the current
presentation.
Use
of Estimates
The
preparation of 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 and disclosure of contingent assets and liabilities at the date
of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Estimates
are used for, but not limited to: accrued expenses, income tax valuation
allowances and assumptions utilized within the Black-Scholes option pricing
model and the model itself. Accounting estimates require the use of judgment
regarding uncertain future events and their related effects and, accordingly,
may change as additional information is obtained.
Cash
and Cash Equivalents
Cash
and
cash equivalents include cash and highly-liquid investments that have a maturity
of less than three months at the time of purchase.
SYNVISTA
THERAPEUTICS, INC
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Financial
Instruments
Financial
instruments reflected in the balance sheets are recorded at cost, which
approximates fair value for cash equivalents and accounts payable.
Revenue
Recognition
Our
revenue recognition policy is consistent with the criteria set forth in Staff
Accounting Bulletin 104 -“Revenue Recognition in Financial Statements” (“SAB
104”) for determining when revenue is realized or realizable and earned. In
accordance with the requirements of SAB 104, we recognize revenue when (1)
persuasive evidence of an arrangement exists; (2) delivery has occurred; (3)
the
seller’s price is fixed or determinable; and (4) collectability is reasonably
assured.
Due
to
the immaterial nature of the Company’s current licensing revenues, it has
recognized revenues from non-refundable, up-front license fees as received
which
approximates the straight-line basis.
Property
and Equipment
Property
and equipment are stated at cost. Depreciation and amortization are computed
using the straight-line method over the useful lives of owned assets, which
range from three to five years.
Research
and Development
Research
and development expenses consist primarily of costs associated with determining
feasibility, licensing and preclinical and clinical testing of the Company’s
licensed pharmaceutical candidates, including salaries and related personnel
costs, certain legal expenses, fees paid to consultants and outside service
providers for drug manufacture and development, and other expenses. Expenditures
for research and development are charged to operations as incurred.
Stock-Based
Compensation
The
Company has stockholder-approved stock incentive plans for employees, directors,
officers and consultants.
The
Company follows SFAS No. 123(R), “Share-Based Payment,” (“SFAS 123(R)”) for
employee options and used the modified prospective transition method. SFAS
123(R) revised SFAS 123 to eliminate the option to use the intrinsic value
method and required the Company to expense the fair value of all employee
options over the vesting period. Under the modified prospective transition
method, the Company recognized compensation cost for the year ended December
31,
2006, which includes compensation cost related to share-based payments granted
on or after January 1, 2006, based on the grant date fair value estimated in
accordance with SFAS 123(R).
Options
granted to consultants and other non-employees are accounted for in accordance
with EITF No. 96-18 "Accounting for Equity Instruments That Are Issued to Other
than Employees for Acquiring, or in Conjunction with Selling, Goods or
Services." Accordingly, such options are recorded at fair value at the
date of grant and subsequently adjusted to fair value at the end of each
reporting period until such options vest, and the fair value of the
options, as adjusted, is charged to consulting expense over the related
vesting period. For the year ended December 31, 2007, the Company
recognized research and development consulting expenses of $2,732.
For
the
year ended December 31, 2007, the Company recognized share-based employee
compensation cost of $367,268 in accordance with SFAS 123(R), which was recorded
as general and administrative expense. This expense related to the granting
of
stock options to employees, directors and officers on or after January 1, 2006.
None of this expense resulted from the grants of stock options prior to January
1, 2006. The Company recognized compensation expense related to these stock
options, taking into consideration a forfeiture rate of approximately two and
one-half percent based on historical experience, on a straight-line basis over
the vesting period. The Company did not capitalize any share-based compensation
cost.
SYNVISTA
THERAPEUTICS, INC
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
As
of
December 31, 2007, the total compensation cost related to non-vested option
awards not yet recognized is $1,603,738. The weighted average period over which
it is expected to be recognized is approximately 2.72 years.
As
noted
above, the Company has stockholder-approved stock incentive plans for employees
under which it has granted non-qualified and incentive stock options. Options
granted under these plans must be at a price per share not less than the fair
market value per share of common stock on the date the option is granted. The
options generally vest over a four-year period and expire ten years from the
date of grant.
Recently
Issued Accounting Pronouncements
In
September 2006, the FASB issued SFAS No. 157, “Fair Value
Measurements”. SFAS No. 157 defines fair value, establishes a framework for
measuring fair value and expands disclosure requirements about fair value
measurements. We believe that the adoption of SFAS No. 157 will not have a
material impact on its consolidated financial statements.
In
June 2007, the EITF issued EITF Issue No. 07-3, “Accounting for
Nonrefundable Advance Payments for Goods or Services to be Used in Future
Research and Development Activities”. The consensus requires companies to
defer and capitalize prepaid, nonrefundable research and development payments
to
third parties over the period that the research and development activities
are
performed or the services are provided, subject to an assessment of
recoverability. EITF Issue No. 07-3 is effective for new contracts
entered into in fiscal years beginning after December 15, 2007, including
interim periods within those fiscal years. The Company does not expect the
adoption of EITF Issue No. 07-3 to have a material impact on its financial
statements.
In
November 2007, the EITF issued EITF Issue No. 07-1, “Accounting for
Collaborative Arrangements Related to the Development and Commercialization
of
Intellectual Property”. Companies may enter into arrangements with other
companies to jointly develop, manufacture, distribute, and market a product.
Often the activities associated with these arrangements are conducted by the
collaborators without the creation of a separate legal entity (that is, the
arrangement is operated as a “virtual joint venture”). The arrangements
generally provide that the collaborators will share, based on contractually
defined calculations, the profits or losses from the associated activities.
Periodically, the collaborators share financial information related to product
revenues generated (if any) and costs incurred that may trigger a sharing
payment for the combined profits or losses. The consensus requires collaborators
in such an arrangement to present the result of activities for which they act
as
the principal on a gross basis and report any payments received from (made
to)
other collaborators based on other applicable GAAP or, in the absence of other
applicable GAAP, based on analogy to authoritative accounting literature or
a
reasonable, rational, and consistently applied accounting policy election.
EITF
Issue No. 07-1 is effective for collaborative arrangements in place at the
beginning of the annual period beginning after December 15, 2007. As
the Company’s collaborative agreements do not incorporate such revenue- and
cost-sharing arrangements, it does not expect the adoption of EITF Issue
No. 07-1 to have a material impact on its financial
statements.
In
December 2007, the FASB issued SFAS 141 (Revised), “Business Combinations”
(“SFAS 141R”). SFAS 141R requires most identifiable assets,
liabilities, noncontrolling interests, and goodwill acquired in a business
combination to be recorded at fair value. SFAS 141R applies to all business
combinations, including combinations among mutual entities and combinations
by
contract alone. Under SFAS 141R, all business combinations will be
accounted for by applying the acquisition method. SFAS 141R is effective for
business combinations for which the acquisition date is on or after the
beginning of the first annual reporting period beginning on or after
December 15, 2008. Earlier application of SFAS 141R is prohibited.
In
December 2007, the FASB issued SFAS No. 160 (“SFAS 160”), “Noncontrolling
interests in Consolidated Financial Statements”, an amendment of ARB No. 51.
SFAS 160 is based on the economic entity concept of consolidated financial
statements, under which all residual economic interest holders in an entity
have
an equity interest in the consolidated entity, even if the residual interest
is
relative to only a portion of the entity. SFAS 160 requires that a
noncontrolling interest in a consolidated subsidiary be displayed in the
consolidated statement of financial position as a separate component of equity
because the FASB concluded that noncontrolling interests meet the definition
of
equity of the consolidated entity. SFAS 160 is effective for the first annual
reporting period on or after December 15, 2008, and earlier adoption is
prohibited. The Company is currently evaluating the effect that the adoption
of
SFAS 160 will have on its consolidated results of operations and financial
condition.
SYNVISTA
THERAPEUTICS, INC
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option
for Financial Assets and Financial Liabilities — including an amendment of FASB
Statement No. 115” (“SFAS 159”). SFAS 159 expands the use of fair value
accounting but does not affect existing standards that require assets or
liabilities to be carried at fair value. Under SFAS 159, a company may elect
to
use fair value to measure various assets and liabilities including accounts
receivable, available-for-sale and held-to-maturity securities, equity method
investments, accounts payable, guarantees and issued debt. If the use of fair
value is elected, any upfront costs and fees related to the item must be
recognized in earnings and cannot be deferred. The fair value election is
irrevocable and generally made on an instrument-by-instrument basis, even if
a
company has similar instruments that it elects not to measure based on fair
value. At the adoption date, unrealized gains and losses on existing items
for
which fair value has been elected are reported as a cumulative adjustment to
beginning retained earnings. Subsequent to the adoption of SFAS 159, changes
in
fair value are recognized in earnings. SFAS 159 is effective for our fiscal
year
2008. The Company is currently evaluating the impact, if any, of SFAS 159 on
its
Consolidated Financial Statements.
Income
Taxes
Income
taxes are accounted for under the asset and liability method. Deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to temporary differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax basis and
net operating loss and tax credit carryforwards. A valuation allowance is
provided when it is more likely than not that some portion or all of the
deferred tax assets will not be realized. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in
the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in operations in the period that includes the enactment
date.
Net
Loss Per Share Applicable to Common Stockholders
Basic
net
loss per share is computed by dividing net loss applicable to common
stockholders by the weighted average number of shares outstanding during the
year. Diluted net loss per share is the same as basic net loss per share
applicable to common stockholders, since the assumed exercise of stock options
and warrants and the conversion of preferred stock would be antidilutive. The
amount of potentially dilutive shares excluded from the calculation as of
December 31, 2007 and 2006 was 4,411,702 and 667,442 shares, respectively.
NOTE
2 - Liquidity
The
Company has devoted substantially all of its resources to research, drug
discovery and development programs. To date, it has not generated any revenues
from the sale of products and does not expect to generate any such revenues
for
a number of years, if at all. As a result, Synvista has incurred net losses
since inception, has an accumulated deficit of $263,092,520 at December 31,
2007, and expects to incur net losses, potentially greater than losses in prior
years, for a number of years.
The
Company has financed its operations through proceeds from the sale of common
and
preferred equity securities, debt securities, revenue from former collaborative
relationships, reimbursement of certain its research and development expenses
by
collaborative partners, investment income earned on cash and cash equivalent
balances and short-term investments and in years prior from the sale of a
portion of the Company’s New Jersey state net operating loss carryforwards and
research and development tax credit carryforwards.
SYNVISTA
THERAPEUTICS, INC
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
In
April
2007, the Company entered into a Series B Preferred Stock and Warrant Purchase
Agreement with institutional investors who purchased on July 25, 2007,
$25,000,000 of newly created Series B Preferred Stock and warrants to purchase
shares of Series B Preferred Stock. The issuance of $25,000,000 of the Company’s
Series B Preferred Stock includes the conversion of $6,000,000 of previously
issued convertible promissory notes plus all accrued and unpaid interest
thereon, which were cancelled upon the closing of the financing (See Note 9
-
Convertible Notes Payable). The closing of this financing was subject to the
satisfaction of various conditions, including stockholder approval (See Note
10
— Series B Preferred Stock and Warrant Purchase Agreement).
As
of
December 31, 2007, the Company had working capital of $13,043,477, including
$15,646,225 of cash and cash equivalents. During
2007,
the Company approved the
issuance of securities pursuant to the Series B Preferred Stock and Warrant
Purchase Agreement. At the closing of the financing on July 25, 2007, the
Company issued 10,000,000 shares of its Series B Preferred Stock and warrants
to
purchase 2,500,000 shares of Series B Preferred Stock to the Buyers, raising
net
proceeds of approximately $22,531,000 (See Note
10 -
Series B Preferred Stock and Warrant Purchase Agreement).
The
Company’s cash used in operating activities for the years ended December 31,
2007 and 2006 was $7,946,700 and $7,438,275, respectively.
Synvista
expects to utilize cash and cash equivalents to fund its operating activities,
including continued development of ALT-2074 and alagebrium. The amount and
timing of the Company’s future capital requirements will depend on numerous
factors, including the progress of its
research
and development programs, the number and characteristics of product candidates
that the Company pursues, the conduct of preclinical tests and clinical studies,
the status and timelines of regulatory submissions, the costs associated with
protecting patents and other proprietary rights, the ability to complete
strategic collaborations and the availability of third-party funding, if
any.
The
Company anticipates that it will require substantial new funding in 2009 to
pursue development and commercialization of alagebrium and its other product
candidates and to continue its operations. Synvista believes that satisfying
these capital requirements over the long term will require successful
commercialization of its product candidates. However, it is uncertain whether
any products will be approved or will be commercially successful.
Selling
securities to satisfy its capital requirements may have the effect of materially
diluting the current holders of the Company’s outstanding stock. The Company may
also seek additional funding through corporate collaborations and other
financing vehicles. There can be no assurances that such funding will be
available at all or on terms acceptable to the Company. If funds are obtained
through arrangements with collaborative partners or others, the Company may
be
required to relinquish rights to its technologies or product candidates and
alter its plans for the development of its product candidates. If the Company
is
unable to obtain the necessary funding, it will likely be forced to cease
operations.
NOTE
3 - Other Current Assets
| |
|
December
31,
|
|
|
|
|
2007
|
|
2006
|
|
|
Deferred
financing costs
|
|
$
|
—
|
|
$
|
49,200
|
|
|
Prepaid
insurance
|
|
|
223,166
|
|
|
242,615
|
|
|
Prepaid
other
|
|
|
11,172
|
|
|
22,341
|
|
| |
|
$
|
234,338
|
|
$
|
314,156
|
|
SYNVISTA
THERAPEUTICS, INC
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
4 - Property and Equipment
| |
|
December
31,
|
|
|
|
|
2007
|
|
2006
|
|
|
Laboratory
equipment
|
|
$
|
24,650
|
|
$
|
24,650
|
|
|
Furniture
and equipment
|
|
|
218,627
|
|
|
218,627
|
|
|
Leasehold
improvements
|
|
|
7,480
|
|
|
—
|
|
|
Computer
equipment
|
|
|
168,521
|
|
|
159,529
|
|
| |
|
|
419,278
|
|
|
402,806
|
|
|
Less:
Accumulated depreciation and amortization
|
|
|
(402,182
|
)
|
|
(392,306
|
)
|
| |
|
$
|
17,096
|
|
$
|
10,500
|
|
NOTE
5 - Other Assets
| |
|
December
31,
|
|
|
|
|
2007
|
|
2006
|
|
|
Prepaid
insurance - non-current
|
|
$
|
392,386
|
|
$
|
501,889
|
|
|
Security
deposit
|
|
|
15,260
|
|
|
—
|
|
|
Oxis
common stock
|
|
|
400,000
|
|
|
—
|
|
| |
|
$
|
807,646
|
|
$
|
501,889
|
|
NOTE
6 - Collaborative Research and Development Agreements
Oxis
International, Inc.
On
April
2, 2007, the Company entered into an Amended and Restated Exclusive License
Agreement with Oxis International, Inc. (“OXIS”) that includes a worldwide
exclusive license granted by Oxis to the Company and covering a family of orally
bioavailable organoselenium compounds that have shown anti-oxidant and
anti-inflammatory properties in clinical and preclinical studies, and which
changes certain rights and obligations under its previous agreement with Oxis.
Among other changes, the amended agreement broadens the field of its license
to
all uses of the licensed technology and eliminates the exclusive right of Oxis
to act as a supplier of licensed product to the Company. Royalty and milestone
payments also are changed in the amended agreement, including the addition
of a
right to reduce royalty payments to Oxis in the event a royalty on a licensed
product is payable to a third party.
The
amended agreement also requires that the Company make certain fixed payments
to
Oxis of up to $500,000 over six months, which have been made, and enter into
a
share purchase agreement for the purchase of $500,000 of newly issued shares
of
Oxis common stock at a premium over the then current market price. In August
2007, the Company acquired 2,083,333 shares of Oxis pursuant to the share
purchase agreement for $500,000, of which $100,000 premium was expensed at
the
date of the acquisition. The investment is accounted for at cost and included
in
other assets as of December 31, 2007, since it is a restricted security. These
shares must be held for a period of not less than 18 months. The investment
has
been accounted for at cost and included in other assets. All other amounts
have
been paid as of December 31, 2007. The Company further committed to a minimum
investment in a development program from licensed products.
Bio-Rap
Ltd.
Synvista
also entered into a license agreement with BIO-RAP Ltd. (“BIO-RAP”), on its own
and on behalf of the Rappaport Family Institute for Research in the Medical
Sciences, in July 2004. Under this agreement, Synvista received an exclusive,
worldwide, royalty-bearing license, with the right to grant sublicenses, to
certain technology, patents and technology relating to products in the field
of
testing and/or measurement for diagnostic predictive purposes of vascular or
cardiac diseases. Synvista is obligated to make annual research funding
payments to BIO-RAP and pay a portion of BIO-RAP’s direct overhead costs.
Synvista is also obligated to make future payments upon achievement of certain
milestones, including FDA-related milestones, as well as royalty payments on
sales, net of various customary discounts, attributable to therapeutic products
derived from the technology being licensed to Synvista by BIO-RAP. Synvista
has
a first right to acquire a license to any of the technology developed as part
of
the research conducted pursuant to the agreement. If Synvista exercises
this right but the parties acting in good faith fail to reach an agreement
in
respect of such license then Synvista has a right of first refusal to license
the research technology on the same terms offered by BIO-RAP to a third party.
SYNVISTA
THERAPEUTICS, INC
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
On
April
1, 2007, the Company entered into an amendment of the Company’s License and
Research Agreement with BIO-RAP.
Among
other changes, the amendment extends to all fields the Company’s rights to sell
therapeutic and diagnostic product pursuant to the licenses granted in that
agreement. The
amendment also will result in an increase in annual research funding provided
by
the Company to BIO-RAP,
and in
the Company making certain defined payments to BIO-RAP
over the
course of the next 18 months. Other payments due to BIO-RAP
based on
the Company’s sales of diagnostic products or grant of sublicense rights,
including royalties, milestone payments and payments attributable to sublicense
revenue, are significantly reduced. The amendment gives the Company the right
to
further reduce royalty payments on diagnostic products on making a one-time
payment within eight years, and to further reduce payments resulting from
sublicense revenue on making a one-time payment made within the next five
years. In
addition, under the amendment the Company assumes all of BIO-RAP’s
right
and interest in a license with ARUP Laboratories at the University of Utah
(“ARUP”). ARUP will, in the future, be a sublicensee of the Company.
Genentech,
Inc.
As
part
of a stock adjustment in the context of Synvista’s merger with HaptoGuard in
July 2006, Synvista issued to Genentech, Inc. (“Genentech”), rights to collect
milestones and royalties on net sales of alagebrium. Further, as part of
this adjustment, Genentech also was given a right of first negotiation on
ALT-2074 if Synvista were to seek a licensing partner for the drug.
Picower
Institute for Medical Research
On
November 6, 2002, Synvista entered into an agreement, effective as of April
15,
2002, with The Picower Institute for Medical Research, or The Picower, which
terminated its License Agreement dated as of September 5, 1991. Pursuant to
this
termination agreement, The Picower assigned to Synvista all of its patents,
patent applications and other technology related to A.G.E.s and Synvista agreed
to prosecute and maintain the patents and patent applications. Synvista will
pay
The Picower royalties on any sales of products falling within the claims of
these patents and patent applications until they expire or are allowed to
lapse.
The
Company has also entered into various arrangements with independent research
laboratories to conduct studies in conjunction with the development of the
Company's technology. The Company pays for this research and receives certain
rights to inventions or discoveries that may arise from this
research.
NOTE
7 - Accrued Expenses
Accrued
expenses consisted of the following:
| |
|
December
31,
|
|
|
|
|
2007
|
|
2006
|
|
|
Research
and development
|
|
$
|
293,372
|
|
$
|
99,747
|
|
|
Professional
fees
|
|
|
104,621
|
|
|
69,572
|
|
|
Other
|
|
|
60,738
|
|
|
83,703
|
|
| |
|
$
|
458,731
|
|
$
|
253,022
|
|
SYNVISTA
THERAPEUTICS, INC
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
8 - Commitments and Contingencies
Commitments
On
January 19, 2007, Synvista signed a three-year lease, which commenced February
26, 2007, for office space in Montvale, New Jersey. This facility lease includes
two, three-year renewal options. Rent expense for the years ended December
31,
2007 and 2006 was $130,882 and $270,180, respectively.
As
of
December 31, 2007, future minimum rentals under an operating lease, which
has initial or remaining non-cancelable term in excess of one year is as
follows:
| |
|
Operating
Leases
|
|
| |
|
|
|
|
2008
|
|
$
|
97,807
|
|
|
2009
|
|
|
97,807
|
|
|
2010
|
|
|
12,226
|
|
| |
|
$
|
207,840
|
|
The
Company has an employment agreement with a key executive, which provides
severance benefits. If the Company was to terminate the agreement, it would
be
subject to an obligation totaling $300,000.
Contingencies
In
the
ordinary course of its business, the Company may from time to time be subject
to
claims and lawsuits.
NOTE
9 - Convertible Notes Payable
On
June
1, 2007, the Company entered into an omnibus amendment (the “Omnibus Amendment”)
with the holders of the Company’s Senior Secured Convertible Promissory Notes,
dated January 11, 2007 (the “Notes”). The Omnibus Amendment amended the
following documents: (i) the Note and Warrant Purchase Agreement, dated January
11, 2007 (the “Note Purchase Agreement”), (ii) the Notes, and (iii) the warrants
issued to the holders of the Notes, each dated January 11, 2007 (the
“Warrants”). Pursuant to the Omnibus Amendment, the Note Purchase Agreement was
amended to provide for the issuance of an additional $3,000,000 of indebtedness
by the Company. In order to provide for such additional indebtedness, the Notes,
in the original principal amount of $3,000,000, were cancelled and replaced
with
amended and restated senior convertible promissory notes in an aggregate
principal amount of $6,000,000 (the “New Notes”). Each New Note accrued interest
at a rate of 8% per annum. The New Notes increased certain penalties contained
in the Notes if the proposed preferred stock financing transaction between
the
Company and the holders of the Notes was not closed by July 31, 2007, as
follows: the Company would have been obligated to pay to the holders of the
New
Notes a $6,000,000 penalty in addition to the outstanding principal and interest
that would become due under the New Notes on July 31, 2007, and the Company
would have been obligated to pay the holders 30% of any amount received by
the
Company from financing, sale or licensing transactions completed prior to June
30, 2009, subject to a cap of $8,000,000.
On
July
20, 2007, at the Company’s annual meeting of stockholders, stockholders of the
Company approved the
issuance of shares of the Company’s Series B Preferred Stock. The Series B
Preferred Stock accrues dividends at a rate of 8.0% per year for a period of
five years from the date on which the shares of Series B Preferred Stock were
issued. Pursuant to the terms of the Note Purchase Agreement, upon the closing
of the financing on July 25, 2007, as more fully discussed in Note 10 - Series
B
Preferred Stock and Warrant Purchase Agreement, the New Notes plus accrued
and
unpaid interest thereon were converted into shares of the Company’s Series B
Preferred stock and thereafter were cancelled.
In
connection with the Note Purchase Agreement, the Company also issued to the
holders of the Notes (the “Buyers”) warrants to purchase 514,689 shares of the
Company’s common stock, which were exercisable for a period of five years
commencing on January 11, 2007 at an exercise price of $0.01 per share. These
common stock warrants expired upon the closing of the sale of the Company’s
Series B Preferred Stock.
SYNVISTA
THERAPEUTICS, INC
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
The
Company determined the initial carrying value of the New Notes by a two-step
allocation process: first to the associated Warrants and second, to an embedded
conversion option. First, the Company allocated the proceeds from the sale
of
the New Notes between the New Notes and the Warrants based upon their relative
fair values, which resulted in recording a discount on the New Notes. The value
of the Warrants was computed using the Black-Scholes option pricing model.
Second, in accordance with Emerging Issues Task Force (EITF) No. 00-27,
“Application of Issue 98-5 to Certain Convertible Instruments,” after allocating
the Note proceeds as described above, the Company calculated the embedded
conversion price and used it to measure the intrinsic value of the embedded
conversion option. Since the conversion price was less than the fair value
of
the Company’s common stock at the closing date, an embedded conversion option
was recorded as additional paid-in capital.
All
of
the proceeds were allocated to the Warrants and embedded beneficial conversion
feature. This amount was being amortized as non-cash interest expense with
a
corresponding increase to the New Notes over the term of the New Notes. The
fair
value of the beneficial conversion feature and the Warrants substantially
exceeded the face value of the New Notes.
For
the
year ended December 31, 2007, the Company recorded $6,000,000 of non-cash
interest expense related to the accretion of these New Notes.
Contemporaneously
with the execution and delivery of the Note Purchase Agreement and the issuance
by the Company to the Buyers of the Notes and the Warrants, the parties executed
(i) a Security and Guaranty Agreement (the “Security Agreement”), pursuant to
which the Company and its wholly-owned subsidiary HaptoGuard agreed to provide
to the Buyers a first priority security interest in certain Collateral (as
this
term is defined in the Security Agreement) to secure the Company’s obligations
under the Agreement and the New Notes, and (ii) an Intellectual Property
Security Agreement (“Intellectual Property Security Agreement”), pursuant to
which the Company and HaptoGuard agreed to provide to the Buyer a first priority
security interest in certain IP Collateral (as this term is defined in the
Intellectual Property Security Agreements) to collateralize the Company’s
obligations under the Agreement and the New Notes. The
Security Agreement and the security interest in certain Collateral terminated
upon the conversion of the New Notes.
NOTE
10 - Series B Preferred Stock and Warrant Purchase
Agreement
On
April
5, 2007, the Company entered into a Series B Preferred Stock and Warrant
Purchase Agreement (the “Series B Agreement”) with institutional investors (the
“Buyers”). Pursuant to the terms and subject to the conditions contained in the
Series B Agreement, the Company agreed to issue and sell to the Buyers, and
the
Buyers agreed to purchase from the Company $25,000,000 of its newly created
Series B Preferred Stock, $0.01 par value per share and warrants to purchase
shares of the Company’s Series B Preferred Stock.
On
June
1, 2007 the Company entered into Amendment No. 1 to the Series B Preferred
Stock
and Warrant Purchase Agreement (“Amendment No. 1 to the SPA”) by the Company and
the Buyers, which amends the Series B Agreement. Pursuant to Amendment No.
1 to
the SPA, the per share price at which the Series B Preferred Stock of the
Company will be sold in the proposed preferred stock financing, was fixed at
a
price of $0.05 (prior to the reverse stock split) per share. Prior to entering
into Amendment No. 1 to the SPA, the price per share at which the Series B
Preferred Stock of the Company was sold in the financing was to be within a
range between $0.05 and $0.075 (each prior to the implementation of the reverse
stock split) and was to be determined following the requisite shareholder vote
regarding the financing and the reverse stock split, as set forth in the Series
B Agreement.
On
July
20, 2007, at the Company’s annual meeting of stockholders, stockholders of the
Company approved the
issuance of securities pursuant to the Series B Agreement. At the closing of
the
financing on July 25, 2007, the Company issued 10,000,000 shares of its Series
B
Preferred Stock and warrants to purchase 2,500,000 shares of Series B Preferred
Stock to the Buyers. The Series B Preferred Stock accrues dividends at a rate
of
8.0% per year on the original issue price of $2.50 per share for a period of
five years from the date on which the shares of Series B Preferred Stock were
issued. The warrants are exercisable for a period of five years commencing
on
July 25, 2007 at an exercise price of $2.50 per share.
SYNVISTA
THERAPEUTICS, INC
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
On
July
25, 2007, upon
the
closing of the financing, the Notes, in an aggregate principal amount of
$6,000,000, plus all accrued but unpaid interest thereon, were automatically
converted pursuant to their terms into that number of shares of Series B
Preferred Stock equal to the principal plus all accrued but unpaid interest
on
the New Notes divided by the price per share at which the Series B Preferred
Stock was sold, and thereafter the New Notes were cancelled and are of no
further force or effect, and the warrants to purchase an aggregate of 514,689
shares of the Company’s common stock that were issued to the purchasers in such
financing terminated and are of no further force or effect.
On
the
date of issuance, the Company adjusted its balance sheet to reduce the value
of
the Series B Convertible Preferred Stock by $9,445,299 and the warrants by
$4,171,326. The Company used the Black Scholes model to value the Series B
warrants. For purposes of calculating the fair value of the warrants the Company
used a risk free rate of return of 4.88% and a volatility percentage of 114%.
In
accordance with EITF 98-5 and ETIF 00-27 the intrinsic value of the beneficial
conversion feature is considered a deemed dividend to the preferred shareholders
and is amortized over a period of the security’s earliest conversion date.
Pursuant to Amendment No.1 to the Registration Rights Agreement, the Company
will register the securities at various times over a two year period for resale
by the investors, which is when the preferred stock will be convertible. To
amortize the beneficial conversion feature the Company charged the accumulated
deficit account and increased additional paid in capital for the amount of
the
deemed dividend.
In
July 2007, the Company increased its number of authorized shares to
315,000,000, of which 300,000,000 is $0.01 par value common stock and 15,000,000
is $0.01 par value Preferred Stock. Series B Preferred Stock dividends are
payable annually in cash or in shares of preferred stock at a rate of 8% of
the
Series B Original Issue Price of $2.50 for each share of Series B preferred
stock for five years from the Original Issue Date of July 25, 2007. Each holder
of the Series B Preferred Stock shall be entitled to vote one-half the number
of
whole shares of common stock into which the shares of Series B Preferred Stock
held by the holder are convertible as of the record date for any meeting of
the
Company’s stockholders.
The
Series B Preferred Stock is
subject to a mandatory conversion based on a Triggering Event. At such time
when
(A) (i) the thirty day prior trailing average Closing Price of the common stock
for the entire six months preceding such time is equal to at least the Series
B
Original Issue Price, and (ii) one and one-half years have elapsed after the
Company has had declared effective by the Securities and Exchange Commission
and
continuously maintained for such one and one-half year period the effectiveness
of a shelf registration statement providing for the resale of all of the common
stock underlying the Series B Preferred Stock and those certain warrants issued
in connection with the Series B Preferred Stock under the Series B Purchase
Agreement, an equivalent of $7,500,000 (measured as of the Series B Original
Issue Date) of the Series B Preferred Stock shall (a) automatically be converted
into shares of common stock, at the then effective Series B Conversion Price
(determined to be $0.05), and (b) such shares may not be reissued by the
Company, or (B) (i) the thirty day prior trailing average Closing Price of
the
common stock for the entire six months preceding such time is equal to at least
two times the Series B Original Issue Price, and (ii) one and one half years
have elapsed after the Company has had declared effective by the Securities
and
Exchange Commission and continuously maintained for such one and one-half year
period the effectiveness of a shelf registration statement providing for the
resale of all of the common stock underlying the Series B Preferred Stock and
those certain warrants issued in connection with the Series B Preferred Stock,
the remainder of the outstanding Series B Preferred Stock shall (a)
automatically be converted into shares of common stock, at the then effective
Series B Conversion Price.
The
Company engaged Rodman & Renshaw, LLC (“Rodman and Renshaw”) as placement
agent for the Company for the offering. For its services, the Company paid
Rodman & Renshaw a cash commission of $1,312,187 and issued a warrant to
Rodman and Renshaw to purchase 600,000 shares of the Company’s common stock with
an exercise price of $2.50 per share. The warrant issued is exercisable
immediately and will expire on July 25, 2012. The Company used the Black Scholes
model to value the common stock warrants. For purposes of calculating the fair
value of the warrants the Company used a risk free rate of 4.88% and a
volatility percentage of 114%. The fair value of the warrants using the Black
Scholes model is $1,619,256.
SYNVISTA
THERAPEUTICS, INC
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
The
obligations of Synvista and the Buyers to complete the Series B preferred stock
financing were subject to the satisfaction or, to the extent legally
permissible, waiver of certain conditions. The more significant conditions
included: (i) approval by the Synvista stockholders of the issuance of
securities in the Financing pursuant to the Agreement; (ii) the approval by
the
Synvista stockholders and the consummation of a reverse stock split of the
Company’s issued and outstanding common stock within a range of 1:50 to 1:100,
with the final ratio to be determined by the Board of Directors and reasonably
acceptable to the Buyers; (iii) approval by the Synvista stockholders and the
filing with the Secretary of State of the State of Delaware of Synvista’s
Amended and Restated Certificate of Incorporation; and (iv) approval by the
Synvista stockholders of an amendment to the Company’s equity incentive plan in
order to reserve up to an additional 1,060,000 (53,000,000 prior to the
implementation of the reverse stock split) shares of common stock for issuance
thereunder.
In
connection with the closing of the financing, Synvista entered into an Amendment
No. 1 to the Registration Rights Agreement (“Amendment”) with the Buyers. The
Amendment amends the Registration Rights Agreement dated July 25, 2007, by
extending the schedule under which the Company is required to file registration
statements with the Securities and Exchange Commission for the resale of the
shares of common stock issuable upon conversion of the shares of Series B
Preferred Stock issued to the Buyers, as well as upon conversion of the shares
of Series B Preferred Stock underlying the warrants issued to the Buyers. The
Amendment also grants the Buyers additional piggy-back registration rights
in
the event of an underwritten public offering of the Company’s securities and
demand registration rights at the option of a majority of the Buyers. The
Amendment also relieves the Company of its obligation to pay the Buyers
liquidated damages in certain circumstances, as described in the Amendment.
NOTE
11 -- Stockholders' Equity
Common/Preferred
Stock Issuances
On
July
20, 2007, at the Company’s annual meeting of stockholders, stockholders of the
Company approved the
issuance of securities pursuant to the Series B Agreement. At the closing of
the
financing on July 25, 2007, the Company issued 10,000,000 shares of its Series
B
Preferred Stock and warrants to purchase 2,500,000 shares of Series B Preferred
Stock to the Buyers. The Series B Preferred Stock accrues dividends of 8.0%
per
year on the original issue price of $2.50 per share for a period of five years
from the date on which the shares of Series B Preferred Stock were issued.
The
warrants are exercisable for a period of five years commencing on July 25,
2007
at an exercise price of $2.50 per share. (Note
10 -
Series B Preferred Stock and Warrant Purchase Agreement).
In
September 2006, Synvista completed a private placement of Units, consisting
of
common stock and warrants, for net proceeds, after expenses and fees, of
approximately $1,300,000. Each Unit consists of one share of Synvista common
stock and one warrant to purchase one share of Synvista common stock, comprising
a total of approximately 190,000 shares of Synvista common stock and warrants
to
purchase approximately 190,000 shares of Synvista common stock. The Units were
sold at a price of $7.50 per Unit, and the warrants are exercisable for a period
of five years, commencing six months from the date of issuance, at an exercise
price of $9.38 per share. Rodman & Renshaw, LLC served as placement agent in
the transaction and received a 6% placement fee which was paid in Units. In
connection with this offering, certain warrants previously issued in 2000 (the
“2000 Warrants”) were repriced from $50.00 to $7.50 per share pursuant to
antidilution provisions connected to the warrants.
In
April
2006, Synvista completed a private placement of Units, consisting of common
stock and warrants, for gross proceeds of approximately $2,600,000. Each Unit
consisted of one share of Synvista common stock and one warrant to purchase
one
share of Synvista common stock, comprising a total of 206,800 shares of Synvista
common stock and warrants to purchase 206,800 shares of Synvista common stock.
The Units were sold at a price of $12.50 per Unit, and the warrants will be
exercisable for a period of five years commencing six months from the date
of
issue at a price of $15.00 per share. Rodman & Renshaw, LLC served as
placement agent in the transaction and received a 6% placement fee that was
paid
in cash and warrants.
SYNVISTA
THERAPEUTICS, INC
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
In
January 2005, Synvista completed a public offering of 190,476 shares of common
stock at $52.50 per share, which provided net proceeds of approximately
$9,532,000. In connection with this offering, the Company issued a five-year
warrant to purchase 6,247 shares of common stock at $68.50 per
share.
In
July
2004, Synvista completed a public offering of 160,000 shares of common stock
at
$50.00 per share, which provided net proceeds of $7,581,318. In connection
with
this offering, the Company issued a five-year warrant to purchase 5,450 shares
of common stock at $65.00 per share.
The
following table summarizes the outstanding warrants:
|
Warrants
Outstanding at
December
31, 2007
|
|
| |
|
Exercise
Price
|
|
|
Warrants
|
|
Per
Warrant
|
|
|
219,208
|
|
$
|
15.00
|
|
|
6,248
|
|
|
68.50
|
|
|
5,450
|
|
|
65.00
|
|
|
199,810
|
|
|
9.00
|
|
|
3,100,000
|
|
|
2.50
|
|
|
3,530,716
|
|
|
|
|
Stock
Option Plan
In
March
2005, the Company’s Board of Directors approved the adoption of a new stock
plan, the “2005 Stock Plan.” Upon shareholder approval of the 2005 Stock Plan at
the Company’s 2005 annual meeting, the two existing stock option plans were
terminated. On July 21, 2007, the Company’s stockholders approved an amendment
to the 2005 Stock Plan, which was previously approved by the Company’s Board of
Directors, providing for an increase in the number of shares available under
the
2005 Stock Plan from 10,000,000 shares to 63,000,000 shares, an increase of
53,000,000 shares. The options have a maximum term of ten years and vest over
a
period to be determined by the Company’s Board of Directors (generally over a
four-year period) and are issued at an exercise price equal to the fair market
value of the shares at the date of grant. The 2005 Stock Plan expires on April
19, 2015 or may be terminated at an earlier date by vote of the shareholders
or
the Board of Directors of the Company. Under the 2005 Stock Plan, the Company
granted directors options to purchase an aggregate of 70,000 shares of common
stock at an average exercise price of $4.13 for the year ended December 31,
2007.
The
plan
is administered by a committee of the Board of Directors, which may grant either
non-qualified or incentive stock options. The committee determines the exercise
price and vesting schedule at the time the option is granted. Options vest
over
a four-year period and expire 10 years from date of grant. Each option entitles
the holder to purchase one share of common stock at the indicated exercise
price. The plan also provides for certain antidilution and change in control
rights, as defined.
SYNVISTA
THERAPEUTICS, INC
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
The
following table summarizes the activity in the Company’s stock
options:
| |
|
Shares
|
|
Weighted
average exercise price
|
|
Weighted
Average Remaining Contractual Term (years)
|
|
Aggregate
Intrinsic Value
|
|
|
Outstanding
at
|
|
|
|
|
|
|
|
|
|
|
December
31, 2005
|
|
|
129,730
|
|
$
|
76.38
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
38,400
|
|
|
7.50
|
|
|
|
|
|
|
|
|
Assumed
|
|
|
56,336
|
|
|
-
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
Cancelled
|
|
|
(8,662
|
)
|
|
123.05
|
|
|
|
|
|
|
|
|
Outstanding
at
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
215,804
|
|
|
62.25
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|