UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-KSB
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x
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Annual
Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of
1934 for the fiscal year ended December 31,
2005
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o
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Transition
Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of
1934 for the transition period from
___to___
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Commission
File Number 1-32639
MANHATTAN
PHARMACEUTICALS, INC.
(Exact
name of issuer as specified in its charter)
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Delaware
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36-3898269
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(State
or other jurisdiction of incorporation or organization)
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(IRS
Employer Identification No.)
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810
Seventh Avenue, 4th
Floor, New York, New York
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10019
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(Address
of Principal Executive Offices)
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(Zip
Code)
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(212)
582-3950
(Issuer’s
telephone number)
(Former
Name, Former Address and Former Fiscal Year, if Changed Since Last
Report)
Securities
registered pursuant to Section 12(b) of the Exchange Act:
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Title
of each class
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Name
of each exchange on which registered
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Common
Stock, $0.001 par value
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American
Stock Exchange
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Securities
registered pursuant to Section 12(g) of the Exchange Act:
None
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Check
whether the issuer is not required to file reports pursuant to Section 13
or
15(d) of the Exchange Act. o
Check
whether the issuer: (1) filed all reports required to be filed by Section
13 or
15(d) of the Securities Exchange Act of 1934 during the past 12 months (or
for
such shorter period that the issuer was required to file such reports), and
(2)
has been subject to such filing requirements for the past 90 days. Yes
x No
o
Check
if
there is no disclosure of delinquent filers pursuant to Item 405 of Regulation
S-B is not contained herein, and no disclosure will 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-KSB or any amendment
to
this Form 10-KSB. o
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
issuer’s revenues for the fiscal year ended December 31, 2005 were $0.
The
aggregate market value of the common stock of the issuer held by non-affiliates
of the issuer on March 24, 2006 based on the closing price of the common
stock
as reported on the American Stock Exchange on such date was $54,939,388
.
As
of
March 24, 2006 there were 60,092,697 outstanding shares of common stock,
par value $.001 per share.
Traditional
Small Business Disclosure Format: Yes o
No
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F-1
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References
to the “Company,” the “Registrant,” “we,” “us,” or “our” or in this Annual
Report on Form 10-KSB refer to Manhattan Pharmaceuticals, Inc., a Delaware
corporation, and our consolidated subsidiaries, together taken as a whole,
unless the context indicates otherwise.
Forward-Looking
Statements
This
annual report on Form 10-KSB contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, or the
Securities Act, and Section 21E of the Exchange Act. Any statements about
our expectations, beliefs, plans, objectives, assumptions or future events
or
performance are not historical facts and may be forward-looking. These
statements are often, but not always, made through the use of words or phrases
such as “anticipate,” “estimate,” “plan,” “project,” “expect,” “may,” “intend”
and similar words or phrases. Accordingly, these statements involve estimates,
assumptions and uncertainties that could cause actual results to differ
materially from those expressed in them. These statements are therefore subject
to risks and uncertainties, known and unknown, which could cause actual results
and developments to differ materially from those expressed or implied in
such
statements. Such risks and uncertainties relate to, among other factors:
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the
development of our drug candidates; the regulatory approval of
our drug
candidates;
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our
use of clinical research centers and other contractors;
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our
ability to find collaborative partners for research, development
and
commercialization of potential
products;
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·
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acceptance
of our products by doctors, patients or payers;
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·
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our
ability to market any of our products;
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·
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our
history of operating losses;
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·
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our
ability to compete against other companies and research institutions;
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·
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our
ability to secure adequate protection for our intellectual property;
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·
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our
ability to attract and retain key personnel;
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·
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availability
of reimbursement for our product candidates;
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·
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the
effect of potential strategic transactions on our business;
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·
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our
ability to obtain adequate financing; and
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·
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the
volatility of our stock price.
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Further,
any forward-looking statement speaks only as of the date on which it is made,
and we undertake no obligation to update any forward-looking statement or
statements to reflect events or circumstances after the date on which such
statement is made or to reflect the occurrence of unanticipated events. New
factors emerge from time to time, and it is not possible for us to predict
which
factors will arise. In addition, we cannot assess the impact of each factor
on
our business or the extent to which any factor, or combination of factors,
may
cause actual results to differ materially from those contained in any
forward-looking statements.
| ITEM 1. |
Overview
We
are
engaged in the business of developing and commercializing biomedical and
pharmaceutical technologies. We aim to acquire proprietary rights to these
technologies by licensing or otherwise acquiring an ownership interest, funding
their research and development and eventually bringing the technologies to
market. We do not have any drugs or other products available for sale, but
we
are currently researching and developing three biomedical
technologies:
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·
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Oleoyl-estrone,
an orally administered hormone attached to a fatty-acid that has
been
shown to cause significant weight loss in preclinical animal studies
regardless of dietary
modifications;
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·
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PTH
(1-34), a peptide that regulates epidermal cell growth and differentiation
currently under development as a topical treatment for psoriasis
and
additional hyperproliferative skin disorders.
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Lingual
spray propofol, a proprietary lingual spray technology is used
to deliver
propofol for pre-procedural sedation prior to diagnostic, therapeutic
or
endoscopic procedures.
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Although
we are primarily focused on developing these technologies, we continue to
seek
to acquire proprietary rights to other biomedical and pharmaceutical
technologies, by licensing or acquiring an ownership interest, funding their
research and development and bringing the technologies to market.
Pursuant
to an Agreement and Plan of Merger dated April 1, 2005 (the “Agreement”) between
us, Tarpan Therapeutics, Inc., a Delaware corporation (“Tarpan”), and Tarpan
Acquisition Corp., a Delaware corporation and our wholly-owned subsidiary
(“TAC”), TAC merged with and into Tarpan, with Tarpan remaining as the surviving
corporation and our wholly-owned subsidiary. Tarpan was a privately-held,
New
York based biopharmaceutical company developing dermatological therapeutics.
Through the merger, we acquired Tarpan’s primary product candidate, PTH (1-34),
a peptide believed to be a regulator of epidermal cell growth and
differentiation. In consideration for their shares of Tarpan capital stock
and
in accordance with the Agreement, the stockholders of Tarpan received an
aggregate of approximately 10,731,000 shares, representing approximately
20% of
our then outstanding common stock. This transaction was accounted for as
a
purchase of Tarpan by the Company. As a result of the merger, we assumed
Tarpan’s outstanding indebtedness of approximately $651,000, which resulted from
a series of promissory notes issued to Paramount BioCapital Investments,
LLC and
Horizon BioMedical Ventures, LLC, both of which are owned or controlled by
Dr.
Lindsay Rosenwald. The notes were amended at the time of the merger to provide
that one-half of the outstanding indebtedness was payable upon completion
of the
merger and the remaining one-half will be payable at such time as we raise
at
least $5 million in new financing. As a result of our August 2005 private
placement, we have now satisfied the remaining balance of this indebtedness.
Several
of Tarpan’s former stockholders are directors or significant stockholders of our
company. At the time of the merger, Dr. Rosenwald and various trusts
established for the benefit of Dr. Rosenwald and members of his immediate
family
collectively beneficially owned approximately 46 percent of Tarpan’s common
stock and beneficially owned approximately 26 percent our common stock (Dr.
Rosenwald disclaims beneficial ownership of shares held by such trusts, except
to the extent of any pecuniary interest). In addition, Joshua Kazam, David
Tanen, Dr. Michael Weiser and Timothy McInerney, all of whom were then members
of our board of directors, collectively owned approximately 13.4 percent
of
Tarpan’s outstanding common stock. Dr. Weiser and Mr. McInerney are also
employed by Paramount BioCapital, Inc., an entity owned and controlled by
Dr.
Rosenwald. As a result of such relationships between us and Tarpan, our board
of
directors established a special committee to consider and approve the merger.
The special committee consisted of three disinterested directors, none of
whom
had any prior relationship with Tarpan.
We
were
incorporated in Delaware in May 1993 under the name “Atlantic Pharmaceuticals,
Inc.” and, in March 2000, we changed our name to “Atlantic Technology Ventures,
Inc.” On February 21, 2003, we completed a “reverse acquisition” of
privately-held Manhattan Research Development, Inc. In connection with this
transaction, we also changed our name to “Manhattan Pharmaceuticals, Inc.” From
an accounting perspective, the accounting acquirer is considered to be Manhattan
Research Development, Inc., and accordingly, the historical financial statements
are those of Manhattan Research Development, Inc. with the impact of the
“acquisition” of Atlantic Technology Ventures, Inc. as of February 21,
2003.
Oleoyl-estrone
We
acquired the rights to develop and commercialize oleoyl-estrone, a hormone
modified by an attachment to a fatty acid, pursuant to a February 2002 license
agreement with Oleoylestrone Development, SL., a Spanish corporation.
Oleoyl-estrone is an orally administered small molecule that has been shown
to
cause significant weight loss in preclinical animal studies regardless of
dietary modifications.
Oleoyl-estrone
was initially developed by researchers at the University of Barcelona (“UB”) in
Spain. Through a decade of research, scientists of the Nitrogen-Obesity Research
Group at UB noted that hormones that effect metabolism play a significant
role
in body weight regulation. At the same time, the obesity research community
suggested that weight is regulated by the ponderostat, a central mechanism
in
the hypothalamus of the brain believed to set the point of ideal weight.
Researchers at UB believe that a hormone controls the ponderostat, raising
or
lowering body weight by changing the central set point for the entire body.
We
consider Oleoyl-estrone as a potential out-licensing candidate. We plan to
complete enough development work to ensure that, should the product candidate
be
out licensed, it will continue to be successful and maintain urgency in a
larger
partner’s hands. The potential for out-licensing oleoyl-estrone may also create
an opportunity for non-dilutive financing based on both up-front and ongoing
milestone payments as the drug advances through development.
In
January 2005, the FDA accepted our filed investigational new drug application,
or “IND” for the human clinical testing of Oleoyl-estrone. We completed Phase Ia
and Phase Ib clinical trials in May 2005 and July 2005 and released data
on both
trials in October 2005. Both trials were completed in Basel, Switzerland
after
obtaining formal approval from the Swiss medical authority, Swissmedic, however,
only the Phase Ia trial was conducted pursuant to the IND accepted by the
FDA.
The objective of both dose-escalation studies was to determine the safety
and
tolerability of defined doses of orally administered Oleoyl-estrone in obese
adult volunteers as well as the pharmacokinetic profile (i.e. the manner
in
which the drug is absorbed, distributed, metabolized and excreted by the
body)
of Oleoyl-estrone in both men and women.
The
Phase
Ia study involved 36 obese volunteers. Twelve of the 36 patients received
placebo and 24 received a single dose in one of six strengths ranging from
1 mg
to 150 mg. Oleoyl-estrone was shown to be safe with no serious adverse events
noted in this study.
The
Phase
Ib study was a seven day repeat dose study involving 24 obese volunteers
in four
cohorts of 6 patients each who received either placebo or Oleoyl-estrone
in
doses ranging from 10 mg to 150 mg once daily for seven consecutive days.
The
results indicated that Oleoyl-estrone was generally well-tolerated at all
doses
and no serious adverse events were reported. There were also no clinically
significant changes in the physical exams, vital signs, ECGs, coagulation
and
liver function tests. The study demonstrated evidence of greater weight loss
among the treated groups compared with the placebo group as well as evidence
of
reduction in desire to eat, hunger levels, fasting glucose and LDL cholesterol.
Important clinical laboratories findings included reversible, dose-dependent
elevations in estrone and estradiol levels, as well as reductions in
testosterone levels. We plan to initiate a follow on Phase IIa study
using low doses of Oleoyl-estrone in the first half of 2006.
Results
from both Phase I studies are being used, in conjunction with
extensive preclinical work, to establish the protocol and obtain approval
from
the relevant regulatory authority to begin Phase II clinical trials. Under
our
license agreement with Oleoylestrone Developments, we made a $250,000 milestone
payment upon the treatment of the first patient in the Phase I trial. Upon
initiation of the Phase IIa trial, an additional milestone payment of $250,000
will be made. In
preparation for beginning the phase IIa clinical trial, the clinical study
protocol is currently in the regulatory review cycle in Switzerland, having
received local ethics committee review and approval. The trial will begin
immediately following receipt of final regulatory approval from Swissmedic,
the
Swiss Medical Authority.
PTH(1-34)
We
acquired our rights to PTH (1-34) in connection with our acquisition of Tarpan
Therapeutics in April 2005. Tarpan acquired an exclusive, worldwide license
to
develop and commercialize this drug compound pursuant to an April 2004 agreement
with IGI, Inc.
In
August 2003, researchers, led by Michael Holick, PhD, MD, Professor of Medicine,
Physiology, and Biophysics at Boston University Medical Center, reported
positive results from a US Phase I and II clinical trial evaluating the safety
and efficacy of PTH (1-34) as a topical treatment for psoriasis. This
double-blind, controlled trial in 15 patients compared PTH (1-34) formulated
in
the Novasome® Technology versus the Novasome® vehicle alone. Following 8 weeks
of treatment, the topical application of PTH (1-34) resulted in complete
clearing of the treated lesion in 60% of patients and partial clearing in
85% of
patients. Additionally, there was a statistically significant improvement
in the
global severity score. Ten patients continued receiving PTH(1-34) in an open
label extension study in which the Psoriasis Area and Severity Index (PASI)
was
measured; PASI improvement across all 10 patients achieved statistically
significant improvement compared to baseline. This study showed PTH (1-34)
to be
well tolerated and efficacious for the treatment of plaque psoriasis with
no
patients experiencing any clinically significant adverse events.
Due
to the high response rate seen in patients in the initial trial with PTH
(1-34),
we believe that it may have an important clinical advantage over current
topical
psoriasis treatments. A
follow
on physician IND Phase IIa trial involving PTH (1-34) was initiated in December
2005 under the auspices of Boston University. Patient recruitment is ongoing;
dosing has not yet begun.
Lingual
Spray Propofol
On
April
4, 2003, we entered into a License and Development Agreement (the “Propofol
License”) with NovaDel Pharma Inc. (“NovaDel”) for the worldwide, exclusive
rights to NovaDel’s proprietary lingual spray technology to deliver propofol for
preprocedural sedation prior to diagnostic, therapeutic or endoscopic
procedures.
Propofol
is currently delivered intravenously as an oily emulsion for induction and
maintenance of general anesthesia or “monitored anesthesia care” in operating
rooms, or deep sedation in intensive care units. Propofol has not previously
been available for dosing via a convenient route of administration for
office-based and other ambulatory uses. Accordingly, we have filed a patent
application for this new method of use. Other patent applications are being
prepared related to our novel formulation.
We
believe that delivering propofol via this proprietary delivery system provides
many advantages over currently formulated sedatives. In addition to the
convenience and ease of administration, we believe the lingual spray route
will
eliminate delayed onset and poor coordination of timing associated with
administering oral sedatives, and allow for rapid clinical responses typical
of
intravenous delivery (i.e., less than 5 minutes). Lingual spray propofol
is
intended to allow patients to tolerate unpleasant procedures, by relieving
anxiety and producing a pleasant, short-term amnesia. Particularly in children
and adults unable to cooperate, mild sedation expedites the conduct of numerous
ambulatory procedures that are not particularly painful, but which require
the
patient to remain still for the best technical result.
NovaDel’s
delivery systems (both patented and patent-pending) are lingual sprays, enabling
drug absorption through the oral mucosa and more rapid absorption into the
bloodstream than presently available oral delivery systems. NovaDel refers
to
its delivery system as Immediate-Immediate Release (I2R
TM)
because
its delivery system is designed to provide therapeutic benefits within minutes
of administration. We are working with NovaDel to develop, manufacture and
commercialize the licensed product, having jointly announced commencement
of a
development program for lingual spray propofol in June 2003.
In
July
2004, we released the results of the first human trial for our proprietary
lingual spray formulation of propofol. The
study, which took place in the United Kingdom, was a single-center, randomized,
double-blind, placebo-controlled dose-escalating study of propofol lingual
spray
in twelve healthy adult volunteers. The primary objectives were to compare
the
safety and tolerability of three dose levels of the propofol spray to a
single
intravenous bolus low dose of propofol, as well as to determine the respective
pharmacokinetic profiles and relative bioavailability of the three escalating
doses.
No
serious adverse events, nor dose-dependent changes in vital signs, occurred
in
any group. The mean time to maximum blood concentration of propofol following
spray was approximately 30 min across all doses. Propofol was detectable
in
blood as early as 4 minutes following spray administration. The mean maximum
blood concentrations plateaued at the highest of the three doses tested,
and the
mean bioavailability of the current spray formulation was up to 18% of
that of
the intravenous formulation.
In
January 2005, the FDA accepted our IND for the initiation of the human
clinical
trials in the United States of lingual spray propofol. We continue to pursue
FDA
approval of Propofol LS under the 505b2 regulatory pathway. Section 505b2
of the
U.S. Food, Drug & Cosmetic Act allows the FDA to approve a drug on the basis
of existing data in the scientific literature or data used by the FDA in
the
approval of other drugs. See "—Government Regulation – Drug Approval Process."
Accordingly, the FDA has indicated to us that we will be able to utilize
Section
505b2 to proceed directly to a pivotal Phase III trial for lingual spray
propofol following completion of Phase I trials. We are actively planning
the
next steps of the development process for Propofol LS, particularly meeting
with
scientific advisors, NovaDel and other formulation partners regarding optimum
formulation development. See also “Management’s Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital Resources
- Research and Development Projects - Lingual Spray Propofol.
Although
we have the sole right and obligation to develop and commercialize lingual
spray
propofol on a worldwide basis, NovaDel has undertaken to perform certain
development activities on our behalf. NovaDel’s responsibilities include
formulation development, formulation stability testing, formulation analytic
method development and testing and manufacture of clinical trial material
for
the pre-clinical and early clinical development. We are also working with
other
formulation partners to develop an optimal formulation. We will oversee
pre-clinical testing, as necessary, and have responsibility for overall
product
development and product management. In addition, we will design and oversee
clinical trials and be responsible for regulatory filings and meetings.
The
license agreement provides that these development activities are to be
performed
under the supervision of a development committee, which is comprised of
an equal
number of appointees of us and NovaDel. Within 30 days of the end of each
calendar quarter in which any agreed-upon development activities are to
be
performed, each of us and NovaDel are to provide a written progress report
to
the development committee, which should describe the activities that have
been
performed and evaluate the work performed in relation to the goals of the
development plan and budget. The NovaDel license agreement also provides
that
NovaDel will manufacture and supply us with lingual spray propofol for
use in
clinical development and for commercial purposes pursuant to a manufacturing
agreement to be entered into between us and NovaDel.
Market and Competition
Obesity
According to estimates, the market for prescription anti-obesity drugs
is in
excess of $10 billion, or roughly equal to that of diabetes. It is
estimated that 65 percent of Americans are overweight and that 30 percent
are
obese. According to the Center for Disease Control and Prevention (CDC),
the medical costs attributed to both overweight and obesity accounted
for 9.1
percent of the total U.S. medical expenditures in 1998 and may have
reached as
high as $78.5 billion. The U.S. Department of Health and Human
Services has estimated that in 2000 the total costs for the treatment
of obesity
had reached $117 billion. Meridia®
and
Xenical®,
two
currently approved anti-obesity medications, together accounted for
approximately $700 million in worldwide sales in 2004. We believe that the
disease currently lacks a treatment that is safe and effective for
most patient
groups, and that oleoyl-estrone has the potential to meet the needs
of this
market.
Competition
in the pharmaceutical industry, and the anti-obesity drug market in particular,
is intensely competitive. In addition to Abbott Laboratories, Inc. and
Roche
Holdings AG, the makers of Meridia® and Xenical,® respectively, some of the
largest drug companies in the world have anti-obesity drugs currently
in
development, including GlaxoSmithKline PLC, Johnson & Johnson, Inc.,
Bristol-Myers Squibb Company, Regeneron Pharmaceutical, Inc., Phytopharm,
PLC,
Amgen, Inc. These companies are all substantially larger and more established
than we are and have significantly greater financial and other resources
than we
do.
Psoriasis
The
efficacy and safety profile of PTH (1-34) potentially make it an attractive
alternative to existing topical treatments, photo therapies and systemic
treatments such as methotrexate and biologics for the treatment of psoriasis.
We
intend to achieve market share as a monotherapy at the expense of existing
and
established products to be used in combination with currently available
therapies. Some of PTH (1-34)’s competitors would include, but are not limited
to over-the-counter, or “OTC,” and prescription topical treatments, Dovonex,
phototherapies, laser treatment, methotrexate, cyclosporine, Johnson
&
Johnson (Remicade), Amgen (Enbrel), BiogenIdec (Amevive) and Genentech
(Raptiva).
Topical
treatments include numerous OTC ointments that help to reduce inflammation,
soothe skin and enhance the efficacy of other therapies. Additionally,
steroids
are prescribed as an adjunct therapy for pain and anti-inflammation.
One of the
most frequently prescribed topical treatments is Calcipotriene (Dovonex),
which
is an active vitamin D3 analogue. Approximately 60% of patients show
some
response to Dovonex in the first few months of treatment, however, 60%
of these
become resistant to treatment in 6-12 months. Dovonex achieved $700 million
in
sales in its first two years after launch but sales have now declined
to $130
million due to high incidence of resistance.
There
are two main types of phototherapy, Ultra-violet A, or “UVA” and Ultra-violet B,
or “UVB.” UVA penetrates deeper into the skin but requires the use of
photo-sensitizing agent and carries a higher risk of skin cancer. UVB,
on the
other hand, is 1,000 times more powerful than UVA in producing sunburn.
UV
treatments are often combined with other treatments such as topicals
and
methotrexate. Phototherapy treatments have been shown to clear the disease
and
induce remission but they require frequent doctor visits, making treatment
expensive and inconvenient.
Systemic
treatments are generally reserved for severe patients due to their harsh
side
effect profiles. The most effective systemic treatments are methotrexate
and
cyclosponine. Methotrexate is a classical antifolate commonly used for
the
treatment of widespread plaque psoriasis the psoriatic arthritis and
other
autoimmune diseases. The low cost and effectiveness of methotrexate is
counter
balanced by the significant risk of liver and kidney toxicity and inability
to
be used by pregnant women. Cyclosporine inhibits Nuclear Factor of Activated
T-Cells (NFAT), which requires the transcription of cytokines and the
immune
response. It is only indicated in patients who have failed prior systemic
therapies and carries the risk of impaired renal function and severe
immunosuppression. Unlike methotrexate, cyclosporine is relatively expensive
and
costs over $6,000 per year.
Biologics
are likely to play a large role in the treatment of patients with moderate
to
severe psoriasis but due to their high cost, use will likely be limited
to
patients that have failed all other treatments or have experienced intolerable
side effects or toxicity with other therapies. Therefore the market will
likely
be limited to the patient population that can no longer be treated with
methotrexate or cyclosporine. Amgen’s TNF-a inhibitor, Enbrel, recently received
marketing approval for psoriasis and is expected to have strong sales
due to
physician familiarity and efficacy data. However, Enbrel has been shown
to cause
serious infections and sepsis. Genentech and Serono’s Raptiva received FDA
approval in 2003 for the treatment of chronic moderate to severe plaque
psoriasis in adults. Raptiva is a humanized monoclonal antibody that
binds to
CD11a, leading to inhibition of T-cell activation and migration to sites
of
inflammation. Clinical trials show Raptiva to have a fast onset of action
and to
be relatively effective, however, the companies are required to conduct
post
market safety and efficacy studies. There are other biologics that are
either
approved or in clinical studies for psoriasis, including BiogenIdec’s Amevive
and Johnson & Johnson’s Remicade. Use of many of these will be limited by
their side effect profiles, cost and method of delivery.
Pre-procedural
Sedation
To
date,
Midazolam (now a generic), which is delivered both intravenously and
orally, has
dominated the preprocedural sedation market, posting sales of $536 million
in
1999. However, serious adverse events are reported in the Midazolam package
insert, including respiratory depression, airway obstruction, oxygen
desaturation, apnea and even respiratory arrest. In contrast, at the
doses being
developed by us, we believe that propofol lingual spray may offer a safer,
noninvasively administered alternative to Midazolam. Propofol’s rapid onset
profile will allow clinicians to more accurately time its peak effects
during
procedures, as well as to determine the precise concentration needed
for desired
levels of sedation.
Intellectual
Property and License Agreements
Our
goal
is to obtain, maintain and enforce patent protection for our products,
formulations, processes, methods and other proprietary technologies,
preserve
our trade secrets, and operate without infringing on the proprietary
rights of
other parties, both in the United States and in other countries. Our
policy is
to actively seek to obtain, where appropriate, the broadest intellectual
property protection possible for our product candidates, proprietary
information
and proprietary technology through a combination of contractual arrangements
and
patents, both in the U.S. and elsewhere in the world.
We
also
depend upon the skills, knowledge and experience of our scientific and
technical
personnel, as well as that of our advisors, consultants and other contractors,
none of which is patentable. To help protect our proprietary know-how
which is
not patentable, and for inventions for which patents may be difficult
to
enforce, we rely on trade secret protection and confidentiality agreements
to
protect our interests. To this end, we require all employees, consultants,
advisors and other contractors to enter into confidentiality agreements
which
prohibit the disclosure of confidential information and, where applicable,
require disclosure and assignment to us of the ideas, developments, discoveries
and inventions important to our business.
Oleoyl-estrone
License Agreement
We
currently have worldwide, exclusive license rights to the U.S. and foreign
patents and patent applications regarding oleoyl-estrone and its use
for the
treatment of human disease:
|
1.
|
US
Patent No. 5,798,348 entitled “Fatty-acid monesters of estrogens for the
treatment of obesity and/or overweight.” M. Alemany, Inventor. Application
filed, October 30, 1996. Patent issued August 25, 1998. This
patent
expires on October 30, 2016.
|
|
2.
|
European
Patent No. 771.817 entitled “Oleate monoesters of estrogens for the
treatment of obesity and/or overweight.” M. Alemany, Inventor. Application
filed, October 28, 1996. Patent issued March 26, 2003. This
patent expires
on October 28, 2016.
|
|
3.
|
Spanish
Patent Application No. ES 200100785 entitled “Fatty-acid monoesters of
estrogens acting as anti-diabetic and hypolipidemia agents.” M. Alemany
Lamana, Francisco Javier Remesar Betiloch, and Jose Antonio
Fernandez
Lopez, Inventors. Application filed March 28, 2001, European
Patent
Application No. EP1380300A1, filed March 25, 2002, and Canadian
Patent
Application No. 2441890, filed March 25, 2002.
|
The
U.S.
and European patents have numerous, detailed, and specific claims for
both the
composition of oleoyl-estrone, and its method of use for weight loss.
Our rights
to these patents are subject to the terms of a February 2002 license
agreement
between us and Oleoylestrone Developments. The license agreement provides
us
with an exclusive, worldwide right to the intellectual property covered
by the
license agreement, including the right to grant sublicenses. Our success
in
developing oleoyl-estrone depends on our ability to maintain and enforce
the
patents relating to oleoyl-estrone.
In
consideration for the license, we paid an initial license fee of $175,000.
The
license agreement provides for further cash payments of $9,250,000 in
the
aggregate, payable as follows: $250,000 payable upon treatment of the
first
patient in a Phase I clinical trial under an IND sponsored by us; $250,000
upon
treatment of the first patient in a Phase II clinical trial; $750,000
upon the
first successful completion of a Phase II clinical trial; $2,000,000
upon the
first successful completion of a Phase III clinical trial; and $6,000,000
upon
the first final approval of a New Drug Application (“NDA”) for oleoyl-estrone by
the FDA. The license agreement does not require us to make any royalty
payments.
Through December 31, 2005, we have paid the initial license fee of $175,000
and
$250,000 in milestone payments.
Subject
to earlier termination as described below, the term of the license expires
on
the last to expire patent right licensed under the agreement, which is
currently
October 2016. Oleoylestrone Developments has the right to terminate the
license
agreement sooner, subject to certain requirements to provide us advance
notice,
in the event we become bankrupt or similar proceedings are initiated,
fail to
make the required milestone payments required under the agreement or
otherwise
materially breach the license agreement. We have the right to terminate
the
license agreement for any reason upon written notice.
PTH
(1-34) License Agreement.
On
April
1, 2005 as part of the acquisition of Tarpan Therapeutics, Inc., we acquired
a
Sublicense Agreement with IGI, Inc. (the “IGI Agreement”) dated April 14,
2004. We
currently have worldwide, exclusive license rights to the U.S. and foreign
patents and patent applications for all topical uses of PTH(1-34) for
the
treatment of hyperproliferative skin disorders including psoriasis:
|
1.
|
U.S.
Patent No. 5,527,772, entitled “Regulation of cell proliferation and
differentiation using peptides.” M.F. Holick, Inventor. Application filed
July, 28, 1994. Patent issued June 18,
1996.
|
|
2.
|
U.S.
Patent No. 5,840,690, entitled “Regulation of cell proliferation and
differentation using peptides.” M.F. Holick, Inventor. Application filed
June 6, 1995. Patent issued November 24,
1998.
|
|
3.
|
U.S.
Patent No. 6,066,618, entitled “Regulation of cell proliferation and
differentiation using peptides.” M.F. Holick, Inventor. Application filed
November 13, 1998. Patent issued May 23,
2000.
|
|
4.
|
European
Patent Specification PCT/US88/03639
|
These
patents have numerous, detailed and specific claims relating to the topical
use
of PTH (1-34) In consideration for our rights under the IGI Agreement, a
payment
of $300,000 was made upon execution of the agreement, prior to our acquisition
of Tarpan. In addition the IGI Agreement requires us to make certain milestone
payments as follows: $300,000 payable upon the commencement of a Phase II
clinical trial; $500,000 upon the commencement of a Phase III clinical trial;
$1,500,000 upon the acceptance of an NDA application by the FDA; $2,400,000
upon
the approval of an NDA by the FDA; $500,000 upon the commencement of a Phase
III
clinical trial for an indication other than psoriasis; $1,500,000 upon the
acceptance of and NDA application for an indication other than psoriasis
by the
FDA; and $2,400,000 upon the approval of an NDA for an indication other than
psoriasis by the FDA.
In
addition, we are obligated to pay IGI, Inc. an annual royalty of 6% annual
net
sales on annual net sales up to $200,000,000. In any calendar year in which
net
sales exceed $200,000,000, we are obligated to pay IGI, Inc. an annual royalty
of 9% annual net sales. Through December 31, 2005, we have not paid any such
milestones or royalties.
IGI,
Inc.
may terminate the agreement (i) upon 60 days’ notice if we fail to make any
required milestone or royalty payments, or (ii) if we become bankrupt or
if a
petition in bankruptcy is filed, or if we are placed in the hands of a receiver
or trustee for the benefit of creditors. IGI, Inc. may terminate the agreement
upon 60 days’ written notice and an opportunity to cure in the event we commit a
material breach or default. Eighteen months from the date of the IGI Agreement,
we may terminate the agreement in whole or as to any portion of the PTH patent
rights upon 90 days’ notice to IGI, Inc.
Propofol
LS License Agreement
Pursuant
to the NovaDel license agreement, we have an exclusive, worldwide license
to
NovaDel’s proprietary lingual spray technology to deliver propofol for
preprocedural sedation prior to diagnostic, therapeutic or endoscopic
procedures. Our rights under the NovaDel License include license rights to
the
following patents held by NovaDel:
|
1.
|
U.S.
Patent No. 5,955,098, entitled “Buccal Non Polar Spray or Capsule.” H.A.
Dugger, III, Inventor. Application filed April 12, 1996. Patent
issued
September 21, 1999. This patent expires April 12,
2016.
|
|
2.
|
U.S.
Patent No. 6,110,486, entitled “Buccal Polar Spray or Capsule.” H.A.
Dugger, III, Inventor. Application filed November 25, 1998. Patent
issued
August 29, 2000. This patent expires April 12,
2016.
|
|
3.
|
U.S.
Patent No. 6,969,508, entitled “Buccal, polar and non-polar spray or
capsule containing drugs for treating pain.” H.A. Dugger, III, Inventor.
Application filed December 4, 2003. Patent issued November 29,
2005.
|
|
4.
|
European
Patent No. 0904055 entitled “Buccal, Non-Polar Spray or Capsule.” H.A.
Dugger, III, Inventor. Application filed, February 21, 1997. Patent
issued
April 16, 2003. This patent expires February 21,
2017.
|
|
5.
|
U.S.
Patent Application No. 10/834815 entitled “Buccal, Polar and Non-Polar
Sprays Containing Propofol.” H.A. Dugger and M.A. El-Shafy, Inventors.
Application filed April 27, 2004.
|
These
issued patents have numerous, detailed, and specific claims relating to the
formulation for lingual spray applications and their method of use. We have
the
right to use the technology in connection with one application - delivering
propofol. Our success in developing lingual spray propofol depends substantially
on the maintenance and enforcement of NovaDel’s patents covering its proprietary
spray technology. In consideration for our rights under the NovaDel license
agreement, we paid NovaDel an initial license fee of $500,000 upon the
completion of our $10 million private placement of Series A Convertible
Preferred Stock in November 2003. In addition, the license agreement requires
us
to make certain milestone payments as follows: $1,000,000 payable following
the
date that the first NDA for lingual spray propofol is accepted for review
by the FDA; $1,000,000 following the date that the first European Marketing
Application is accepted for review by any European Union country; $2,000,000
following the date when the first filed NDA for lingual spray propofol is
approved by the FDA; $2,000,000 following the date when the first filed European
Marketing Application for lingual spray propofol is approved by a European
Union
country; $1,000,000 following the date on which an application for commercial
approval of lingual spray propofol is approved by the appropriate regulatory
authority in each of Australia, Canada, Japan and South Africa; and $50,000
following the date on which an application for commercial approval for lingual
spray propofol is approved in any other country (other than the U.S., a member
of the European Union, Australia, Canada, Japan or South Africa). In addition,
we are obligated to pay NovaDel an annual royalty based on a fixed rate of
net
sales of licensed products, or if greater, the annual royalty is based on
our
net profits from the sale of licensed products at a rate that is twice the
net
sales rate.
Subject
to certain requirements to provide us with notice and an opportunity to cure,
NovaDel may terminate the license agreement in the event we (1) become subject
to a bankruptcy or similar proceeding that is not dismissed within 60 days,
(2)
default in our obligation to make a required payment under the license
agreement, or (3) otherwise materially breach the license agreement. We may
terminate the license agreement for any reason upon 90 days’ notice to
NovaDel.
Manufacturing
We
do not
have any manufacturing capabilities. We are in contact with several contract
“Good Manufacturing Process” (GMP) manufacturers for the supply of
Oleoyl-estrone, lingual spray propofol, and PTH(1-34) that will be necessary
to
conduct Phase I and Phase II human clinical trials. A method has been identified
for synthesizing oleoyl-estrone, and can be done through simple reactions
that
produce the substance at above 99 percent purity. We believe that the production
of oleoyl-estrone will involve one contract manufacturer for clinical trials.
In
addition, we will be outsourcing the manufacture of lingual spray propofol
and
PTH(1-34) as well.
Government
Regulation
The
research, development, testing, manufacture, labeling, promotion, advertising,
distribution, and marketing, among other things, of our products are extensively
regulated by governmental authorities in the United States and other countries.
In the United States, the FDA regulates drugs under the Federal Food, Drug,
and
Cosmetic Act, or the “FDCA,” and its implementing regulations. Failure to comply
with the applicable U.S. requirements may subject us to administrative or
judicial sanctions, such as FDA refusal to approve pending NDAs, warning
letters, product recalls, product seizures, total or partial suspension of
production or distribution, injunctions, and/or criminal
prosecution.
Drug
Approval Process. None
of our drugs may be marketed in the U.S. until the drug has received FDA
approval. The steps required before a drug may be marketed in the U.S. include:
| · |
preclinical
laboratory tests, animal studies, and formulation
studies,
|
| · |
submission
to the FDA of an IND for human clinical testing, which must become
effective before human clinical trials may
begin,
|
| · |
adequate
and well-controlled human clinical trials to establish the safety
and
efficacy of the drug for each
indication,
|
| · |
submission
to the FDA of an NDA,
|
| · |
satisfactory
completion of an FDA inspection of the manufacturing facility or
facilities at which the drug is produced to assess compliance with
current
good manufacturing practices, or “cGMPs,”
and
|
| · |
FDA
review and approval of the NDA.
|
Preclinical
tests include laboratory evaluation of product chemistry, toxicity, and
formulation, as well as animal studies. The conduct of the preclinical tests
and
formulation of the compounds for testing must comply with federal regulations
and requirements. The results of the preclinical tests, together with
manufacturing information and analytical data, are submitted to the FDA as
part
of an IND, which must become effective before human clinical trials may begin.
An IND will automatically become effective 30 days after receipt by the FDA,
unless before that time the FDA raises concerns or questions about issues
such
as the conduct of the trials as outlined in the IND. In such a case, the
IND
sponsor and the FDA must resolve any outstanding FDA concerns or questions
before clinical trials can proceed. We cannot be sure that submission of
an IND
will result in the FDA allowing clinical trials to begin.
Clinical
trials involve the administration of the investigational drug to human subjects
under the supervision of qualified investigators. Clinical trials are conducted
under protocols detailing the objectives of the study, the parameters to
be used
in monitoring safety, and the effectiveness criteria to be evaluated. Each
protocol must be submitted to the FDA as part of the IND.
Clinical
trials typically are conducted in three sequential phases, but the phases
may
overlap. The study protocol and informed consent information for study subjects
in clinical trials must also be approved by an Institutional Review Board
for
each institution where the trials will be conducted. Study subjects must
sign an
informed consent form before participating in a clinical trial. Phase I usually
involves the initial introduction of the investigational drug into people
to
evaluate its short-term safety, dosage tolerance, metabolism, pharmacokinetics
and pharmacologic actions, and, if possible, to gain an early indication
of its
effectiveness. Phase II usually involves trials in a limited patient population
to (i) evaluate dosage tolerance and appropriate dosage; (ii) identify possible
adverse effects and safety risks; and (iii) preliminarily evaluate the efficacy
of the drug for specific indications. Phase III trials usually further evaluate
clinical efficacy and test further for safety by using the drug in its final
form in an expanded patient population. There can be no assurance that phase
I,
phase II, or phase III testing will be completed successfully within any
specified period of time, if at all. Furthermore, the Company or the FDA
may
suspend clinical trials at any time on various grounds, including a finding
that
the subjects or patients are being exposed to an unacceptable health risk.
The
FDCA
permits FDA and the IND sponsor to agree in writing on the design and size
of
clinical studies intended to form the primary basis of an effectiveness claim
in
an NDA application. This process is known as Special Protocol Assessment,
or
SPA. These agreements may not be changed after the clinical studies begin,
except in limited circumstances.
Assuming
successful completion of the required clinical testing, the results of the
preclinical and clinical studies, together with other detailed information,
including information on the manufacture and composition of the drug, are
submitted to the FDA in the form of a NDA requesting approval to market the
product for one or more indications. The testing and approval process requires
substantial time, effort, and financial resources. The agencies review the
application and may deem it to be inadequate to support the registration
and we
cannot be sure that any approval will be granted on a timely basis, if at
all.
The FDA may also refer the application to the appropriate advisory committee,
typically a panel of clinicians, for review, evaluation and a recommendation
as
to whether the application should be approved. The FDA is not bound by the
recommendations of the advisory committee.
The
FDA
has various programs, including fast track, priority review, and accelerated
approval, that are intended to expedite or simplify the process for reviewing
drugs, and/or provide for approval on the basis surrogate endpoints. Generally,
drugs that may be eligible for one or more of these programs are those for
serious or life-threatening conditions, those with the potential to address
unmet medical needs, and those that provide meaningful benefit over existing
treatments. We cannot be sure that any of our drugs will qualify for any
of
these programs, or that, if a drug does qualify, that the review time will
be
reduced.
Section
505b2 of the FDCA allows the FDA to approve a follow-on drug on the basis
of
data in the scientific literature or data used by FDA in the approval of
other
drugs. This procedure potentially makes it easier for generic drug manufacturers
to obtain rapid approval of new forms of drugs based on proprietary data
of the
original drug manufacturer.
Before
approving an NDA, the FDA usually will inspect the facility or the facilities
at
which the drug is manufactured, and will not approve the product unless cGMP
compliance is satisfactory. If the FDA evaluates the NDA and the manufacturing
facilities as acceptable, the FDA may issue an approval letter, or in some
cases, an approvable letter followed by an approval letter. Both letters
usually
contain a number of conditions that must be met in order to secure final
approval of the NDA. When and if those conditions have been met to the FDA’s
satisfaction, the FDA will issue an approval letter. The approval letter
authorizes commercial marketing of the drug for specific indications. As
a
condition of NDA approval, the FDA may require postmarketing testing and
surveillance to monitor the drug’s safety or efficacy, or impose other
conditions.
After
approval, certain changes to the approved product, such as adding new
indications, making certain manufacturing changes, or making certain additional
labeling claims, are subject to further FDA review and approval. Before we
can
market our product candidates for additional indications, we must obtain
additional approvals from FDA. Obtaining approval for a new indication generally
requires that additional clinical studies be conducted. We cannot be sure
that
any additional approval for new indications for any product candidate will
be
approved on a timely basis, or at all.
Post-Approval
Requirements. Often
times, even after a drug has been approved by the FDA for sale, the FDA may
require that certain post-approval requirements be satisfied, including the
conduct of additional clinical studies. If such post-approval conditions
are not
satisfied, the FDA may withdraw its approval of the drug. In addition, holders
of an approved NDA are required to: (i) report certain adverse reactions
to the
FDA, (ii) comply with certain requirements concerning advertising and
promotional labeling for their products, and (iii) continue to have quality
control and manufacturing procedures conform to cGMP after approval. The
FDA
periodically inspects the sponsor’s records related to safety reporting and/or
manufacturing facilities; this latter effort includes assessment of compliance
with cGMP. Accordingly, manufacturers must continue to expend time, money,
and
effort in the area of production and quality control to maintain cGMP
compliance. We intend to use third party manufacturers to produce our products
in clinical and commercial quantities, and future FDA inspections may identify
compliance issues at the facilities of our contract manufacturers that may
disrupt production or distribution, or require substantial resources to correct.
In addition, discovery of problems with a product after approval may result
in
restrictions on a product, manufacturer, or holder of an approved NDA, including
withdrawal of the product from the market.
Orphan
Drug. The
FDA may grant orphan drug designation to drugs intended to treat a “rare disease
or condition,” which generally is a disease or condition that affects fewer than
200,000 individuals in the United States. Orphan drug designation must be
requested before submitting an NDA. If the FDA grants orphan drug designation,
which it may not, the identity of the therapeutic agent and its potential
orphan
use are publicly disclosed by the FDA. Orphan drug designation does not convey
an advantage in, or shorten the duration of, the review and approval process.
If
a product which has an orphan drug designation subsequently receives the
first
FDA approval for the indication for which it has such designation, the product
is entitled to orphan exclusivity, meaning that the FDA may not approve any
other applications to market the same drug for the same indication, except
in
certain very limited circumstances, for a period of seven years. Orphan drug
designation does not prevent competitors from developing or marketing different
drugs for that indication.
Non-United
States Regulation. Before
our products can be marketed outside of the United States, they are subject
to
regulatory approval similar to that required in the United States, although
the
requirements governing the conduct of clinical trials, including additional
clinical trials that may be required, product licensing, pricing and
reimbursement vary widely from country to country. No action can be taken
to
market any product in a country until an appropriate application has been
approved by the regulatory authorities in that country. The current approval
process varies from country to country, and the time spent in gaining approval
varies from that required for FDA approval. In certain countries, the sales
price of a product must also be approved. The pricing review period often
begins
after market approval is granted. Even if a product is approved by a regulatory
authority, satisfactory prices may not be approved for such product.
In
Europe, marketing authorizations may be submitted at a centralized, a
decentralized or national level. The centralized procedure is mandatory for
the
approval of biotechnology products and provides for the grant of a single
marketing authorization that is valid in all EU members states. As of January
1995, a mutual recognition procedure is available at the request of the
applicant for all medicinal products that are not subject to the centralized
procedure. There can be no assurance that the chosen regulatory strategy
will
secure regulatory approvals on a timely basis or at all.
Employees
We
currently have 8 employees, including 3 persons devoted to research and
development and 5 persons in administration and finance, including our senior
management.
Risk
Factors
An
investment in our securities is speculative in nature, involves a high degree
of
risk, and should not be made by an investor who cannot bear the economic
risk of
its investment for an indefinite period of time and who cannot afford the
loss
of its entire investment. You should carefully consider the following risk
factors and the other information contained elsewhere in this Annual Report
before making an investment in our securities.
Risks
Related to Our Business
We
currently have no product revenues and will need to raise additional funds
in
the future. If we are unable to obtain the funds necessary to continue our
operations, we will be required to delay, scale back or eliminate one or
more of
our drug development programs.
We
have
generated no product revenues to date and will not until, and if, we receive
approval from the FDA and other regulatory authorities for our product
candidates. We have already spent substantial funds developing our potential
products and business, however, and we expect to continue to have negative
cash
flow from our operations for at least the next several years. As of December
31,
2005, we had $9,826,336 of cash and cash equivalents and $1,007,818 of
short-term investments. We
will
have to raise additional funds to complete the development of our drug
candidates and to bring them to market. Beyond the capital requirements
mentioned above, our future capital requirements will depend on numerous
factors, including:
| · |
the
results of any clinical trials;
|
| · |
the
scope and results of our research and development
programs;
|
| · |
the
time required to obtain regulatory
approvals;
|
| · |
our
ability to establish and maintain marketing alliances and collaborative
agreements; and
|
| · |
the
cost of our internal marketing
activities.
|
Additional
financing may not be available on acceptable terms, if at all. If adequate
funds
are not available, we will be required to delay, scale back or eliminate
one or
more of our drug development programs or obtain funds through arrangements
with
collaborative partners or others that may require us to relinquish rights
to
certain of our technologies or products that we would not otherwise
relinquish.
We
are not currently profitable and may never become
profitable.
We
have a
history of losses and expect to incur substantial losses and negative operating
cash flow for the foreseeable future, and we may never achieve or maintain
profitability. For each of the fiscal years ended December 31, 2005, 2004,
2003
and 2002 and from August 6, 2001 (inception) through December 31, 2001, we
incurred net losses of $19,140,997, $5,896,031, $5,960,907, $1,037,320, and
$56,796, respectively. Even if we succeed in developing and commercializing
one
or both of our product candidates, we expect to incur substantial losses
for the
foreseeable future and may never become profitable. We also expect to continue
to incur significant operating and capital expenditures and anticipate that
our
expenses will increase substantially in the foreseeable future as
we:
| · |
continue
to undertake pre-clinical development and clinical trials for our
product
candidates;
|
| · |
seek
regulatory approvals for our product
candidates;
|
| · |
implement
additional internal systems and infrastructure;
|
| · |
lease
additional or alternative office facilities;
and
|
| · |
hire
additional personnel.
|
We
also
expect to experience negative cash flow for the foreseeable future as we
fund
our operating losses and capital expenditures. As a result, we will need
to
generate significant revenues in order to achieve and maintain profitability.
We
may not be able to generate these revenues or achieve profitability in the
future. Our failure to achieve or maintain profitability could negatively
impact
the value of our common stock.
We
have a limited operating history upon which to base an investment decision.
We
are a
development-stage company and have not yet demonstrated any ability to
perform
the functions necessary for the successful commercialization of any product
candidates. The successful commercialization of our product candidates
will
require us to perform a variety of functions, including:
| · |
continuing
to undertake pre-clinical development and clinical
trials;
|
| · |
participating
in regulatory approval processes;
|
| · |
formulating
and manufacturing products; and
|
| · |
conducting
sales and marketing activities.
|
Since
inception as Manhattan Research Development, Inc., our operations have
been
limited to organizing and staffing, and acquiring, developing and securing
our
proprietary technology and undertaking pre-clinical trials of principal
product
candidates. These operations provide a limited basis for you to assess
our
ability to commercialize our product candidates and the advisability of
investing in our securities.
We
may not obtain the necessary U.S. or worldwide regulatory approvals to
commercialize our product candidates.
We
will
need FDA approval to commercialize our product candidates in the U.S. and
approvals from the FDA equivalent regulatory authorities in foreign
jurisdictions to commercialize our product candidates in those jurisdictions.
In
order to obtain FDA approval of any of our product candidates, we must
first
submit to the FDA an Investigational New Drug Application, or an “IND,” which
will set forth our plans for clinical testing of our product candidates.
In
January 2005, the FDA accepted INDs for both our Oleoyl-estrone and Propofol
LS
product candidates. We have not yet filed a corporate IND for PTH(1-34).
In May
and July 2005, we completed Phase Ia and Phase Ib trials in Basel, Switzerland
to evaluate the safety and tolerability as well as preliminary signs of
efficacy
of defined doses of orally administered oleoyl-estrone in obese adults,
in
accordance with relevant regulatory guidelines. Assuming formulation work
is
completed satisfactorily, we expect to conduct a Phase I clinical study
for
propofol lingual spray following formulation. Because propofol has already
been
approved by the FDA for intravenous use, the FDA has informed us that we
may
utilize a rapid development strategy that will enable us to go directly
to a
Pivotal Phase III trial following completion of our planned Phase I trials.
Accordingly, we currently anticipate that development of propofol lingual
spray
may be completed as early as 2007. We are unable to estimate the size and
timing
of all the Phase II and Phase III programs for oleoyl-estrone at this time
and,
accordingly, cannot estimate the time when development of that product
candidate
will be completed.
When
the
clinical testing for our product candidates is complete, we will submit
to the
FDA a New Drug Application, or “NDA,” demonstrating that the product candidate
is safe for humans and effective for its intended use. This demonstration
requires significant research and animal tests, which are referred to as
pre-clinical studies, as well as human tests, which are referred to as
clinical
trials. Satisfaction of the FDA’s regulatory requirements typically takes many
years, depends upon the type, complexity and novelty of the product candidate
and requires substantial resources for research, development and testing.
We
cannot predict whether our research and clinical approaches will result
in drugs
that the FDA considers safe for humans and effective for indicated uses.
The FDA
has substantial discretion in the drug approval process and may require
us to
conduct additional pre-clinical and clinical testing or to perform
post-marketing studies. The approval process may also be delayed by changes
in
government regulation, future legislation or administrative action or changes
in
FDA policy that occur prior to or during our regulatory review. Delays
in
obtaining regulatory approvals may:
| · |
delay
commercialization of, and our ability to derive product revenues
from, our
product candidates;
|
| · |
impose
costly procedures on us; and
|
| · |
diminish
any competitive advantages that we may otherwise
enjoy.
|
Even
if
we comply with all FDA requests, the FDA may ultimately reject one or more
of
our NDAs. We cannot be sure that we will ever obtain regulatory clearance
for
our product candidate. Failure to obtain FDA approval of any of our product
candidate will severely undermine our business by reducing our number of
salable
products and, therefore, corresponding product revenues.
In
foreign jurisdictions, we must receive approval from the appropriate regulatory
authorities before we can commercialize our drugs. Foreign regulatory approval
processes generally include all of the risks associated with the FDA approval
procedures described above. We have not yet made any determination as to
which
foreign jurisdictions we may seek approval and have not undertaken any
steps to
obtain approvals in any foreign jurisdiction.
Clinical
trials are very expensive, time-consuming and difficult to design and
implement.
Human
clinical trials are very expensive and difficult to design and implement,
in
part because they are subject to rigorous regulatory requirements. The
clinical
trial process is also time consuming. We estimate that clinical trials
of our
product candidates will take at least several years to complete. Furthermore,
failure can occur at any stage of the trials, and we could encounter problems
that cause us to abandon or repeat clinical trials. The commencement and
completion of clinical trials may be delayed by several factors,
including:
| · |
unforeseen
safety issues;
|
| · |
determination
of dosing issues;
|
| · |
lack
of effectiveness during clinical
trials;
|
| · |
slower
than expected rates of patient
recruitment;
|
| · |
inability
to monitor patients adequately during or after treatment;
and
|
| · |
inability
or unwillingness of medical investigators to follow our clinical
protocols.
|
In
addition, we or the FDA may suspend our clinical trials at any time if
it
appears that we are exposing participants to unacceptable health risks
or if the
FDA finds deficiencies in our IND submissions or the conduct of these
trials.
The
results of our clinical trials may not support our product candidate
claims.
Even
if
our clinical trials are completed as planned, we cannot be certain that
their
results will support our product candidate claims. Success in pre-clinical
testing and early clinical trials does not ensure that later clinical trials
will be successful, and we cannot be sure that the results of later clinical
trials will replicate the results of prior clinical trials and pre-clinical
testing. The clinical trial process may fail to demonstrate that our product
candidates are safe for humans or effective for indicated uses. This failure
would cause us to abandon a product candidate and may delay development
of other
product candidates. Any delay in, or termination of, our clinical trials
will
delay the filing of our NDAs with the FDA and, ultimately, our ability
to
commercialize our product candidates and generate product revenues. In
addition,
we anticipate that our clinical trials will involve only a small patient
population. We expect that our clinical trials will only involve a small
sample
size. Accordingly, the results of such trials may not be indicative of
future
results over a larger patient population.
Physicians
and patients may not accept and use our drugs.
Even
if
the FDA approves our product candidates, physicians and patients may not
accept
and use them. Acceptance and use of our product will depend upon a number
of
factors including:
| · |
perceptions
by members of the health care community, including physicians,
about the
safety and effectiveness of our
drugs;
|
| · |
cost-effectiveness
of our product relative to competing
products;
|
| · |
availability
of reimbursement for our products from government or other healthcare
payers; and
|
| · |
effectiveness
of marketing and distribution efforts by us and our licensees
and
distributors, if any.
|
Because
we expect sales of our current product candidates, if approved, to generate
substantially all of our product revenues for the foreseeable future, the
failure of any of these drugs to find market acceptance would harm our
business
and could require us to seek additional financing.
Our
drug-development program depends upon third-party researchers who are outside
our control.
We
currently are collaborating with NovaDel Pharma, from which we license
our
rights to lingual spray propofol, in the development of that product candidate
in the pre-clinical and early clinical trial stages. Under our agreement
with
NovaDel, it has agreed to perform certain development on our behalf and
at our
expense, including formulation stability testing, formulation analytic
method
development and testing and manufacture of clinical trial material for
the
pre-clinical and early clinical development of propofol lingual spray.
Beyond
those limited activities, we need to engage independent investigators and
other
third party collaborators to conduct pre-clinical and clinical trials for
lingual spray propofol. We are not currently collaborating with any third
party
with respect to the development of oleoyl-estrone, but we intend to engage
third
party independent investigators and collaborators, which may include
universities and medical institutions, to conduct our pre-clinical and
clinical
trials for that product candidate, as well. Accordingly, the successful
development of our product candidates will depend on the performance of
these
third parties. These collaborators will not be our employees, however,
and we
cannot control the amount or timing of resources that they will devote
to our
programs. Our collaborators may not assign as great a priority to our programs
or pursue them as diligently as we would if we were undertaking such programs
ourselves. If outside collaborators fail to devote sufficient time and
resources
to our drug-development programs, or if their performance is substandard,
the
approval of our FDA applications, if any, and our introduction of new drugs,
if
any, will be delayed. These collaborators may also have relationships with
other
commercial entities, some of whom may compete with us. If our collaborators
assist our competitors at our expense, our competitive position would be
harmed.
We
rely exclusively on third parties to formulate and manufacture our product
candidates.
We
have
no experience in drug formulation or manufacturing and do not intend to
establish our own manufacturing facilities. We lack the resources and expertise
to formulate or manufacture our own product candidates. We currently have
no
contract for the manufacture of our product candidate. We intend to contract
with one or more manufacturers to manufacture, supply, store and distribute
drug
supplies for our clinical trials. If
any of
our product candidates receive FDA approval, we will rely on one or more
third-party contractors to manufacture our drugs. Our anticipated future
reliance on a limited number of third-party manufacturers, exposes us to
the
following risks:
| · |
We
may be unable to identify manufacturers on acceptable terms or
at all
because the number of potential manufacturers is limited and
the FDA must
approve any replacement contractor. This approval would require
new
testing and compliance inspections. In addition, a new manufacturer
would
have to be educated in, or develop substantially equivalent processes
for,
production of our products after receipt of FDA approval, if
any.
|
| · |
Our
third-party manufacturers might be unable to formulate and manufacture
our
drugs in the volume and of the quality required to meet our clinical
needs
and commercial needs, if any.
|
| · |
Our
future contract manufacturers may not perform as agreed or may
not remain
in the contract manufacturing business for the time required
to supply our
clinical trials or to successfully produce, store and distribute
our
products.
|
| · |
Drug
manufacturers are subject to ongoing periodic unannounced inspection
by
the FDA, the DEA, and corresponding state agencies to ensure
strict
compliance with good manufacturing practice and other government
regulations and corresponding foreign standards. We do not have
control
over third-party manufacturers’ compliance with these regulations and
standards.
|
| · |
If
any third-party manufacturer makes improvements in the manufacturing
process for our products, we may not own, or may have to share,
the
intellectual property rights to the
innovation.
|
We
may be
unable to identify manufacturers on acceptable terms or at all because
the
number of potential manufacturers is limited and the FDA must approve any
replacement contractor. This approval would require new testing and compliance
inspections. In addition, a new manufacturer would have to be educated
in, or
develop substantially equivalent processes for, production of our products
after
receipt of FDA approval, if any.
Our
third-party manufacturers might be unable to formulate and manufacture
our drugs
in the volume and of the quality required to meet our clinical needs and
commercial needs, if any.
Our
future contract manufacturers may not perform as agreed or may not remain
in the
contract manufacturing business for the time required to supply our clinical
trials or to successfully produce, store and distribute our products. Drug
manufacturers are subject to ongoing periodic unannounced inspection by
the FDA,
the Drug Enforcement Agency, and corresponding state agencies to ensure
strict
compliance with good manufacturing practice and other government regulations
and
corresponding foreign standards. We do not have control over third-party
manufacturers’ compliance with these regulations and standards. If any
third-party manufacturer makes improvements in the manufacturing process
for our
products, we may not own, or may have to share, the intellectual property
rights
to the innovation.
Each
of
these risks could delay our clinical trials, the approval, if any of our
product
candidates by the FDA or the commercialization of our product candidates
or
result in higher costs or deprive us of potential product revenues.
We
have no experience selling, marketing or distributing products and no internal
capability to do so.
We
currently have no sales, marketing or distribution capabilities. We do
not
anticipate having the resources in the foreseeable future to allocate to
the
sales and marketing of its proposed products. Our future success depends,
in
part, on our ability to enter into and maintain such collaborative
relationships, the collaborator’s strategic interest in the products under
development and such collaborator’s ability to successfully market and sell any
such products. We intend to pursue collaborative arrangements regarding
the
sales and marketing of oleoyl-estrone and perhaps our other products,
however, there can be no assurance that we will be able to establish or
maintain
such collaborative arrangements, or if able to do so, that they will have
effective sales forces. To the extent that we decide not to, or are unable
to,
enter into collaborative arrangements with respect to the sales and marketing
of
its proposed products, significant capital expenditures, management resources
and time will be required to establish and develop an in-house marketing
and
sales force with technical expertise. There can also be no assurance that
we
will be able to establish or maintain relationships with third party
collaborators or develop in-house sales and distribution capabilities.
To the
extent that we depend on third parties for marketing and distribution,
any
revenues we receive will depend upon the efforts of such third parties,
and
there can be no assurance that such efforts will be successful. In addition,
there can also be no assurance that we will be able to market and sell
our
product in the United States or overseas.
If
we cannot compete successfully for market share against other drug companies,
we
may not achieve sufficient product revenues and our business will suffer.
The
market for our product candidates is characterized by intense competition
and
rapid technological advances. If our product candidates receive FDA approval,
they will compete with a number of existing and future drugs and therapies
developed, manufactured and marketed by others. Existing or future competing
products may provide greater therapeutic convenience or clinical or other
benefits for a specific indication than our products, or may offer comparable
performance at a lower cost. If our products fail to capture and maintain
market
share, we may not achieve sufficient product revenues and our business
will
suffer.
We
will
compete against fully integrated pharmaceutical companies and smaller companies
that are collaborating with larger pharmaceutical companies, academic
institutions, government agencies and other public and private research
organizations. Many of these competitors have product candidates that will
compete with ours already approved or in development. In addition, many
of these
competitors, either alone or together with their collaborative partners,
operate
larger research and development programs and have substantially greater
financial resources than we do, as well as significantly greater experience
in:
| · |
developing
drugs;
|
| · |
undertaking
pre-clinical testing and human clinical
trials;
|
| · |
obtaining
FDA and other regulatory approvals of
drugs;
|
| · |
formulating
and manufacturing drugs; and
|
| · |
launching,
marketing and selling drugs.
|
Developments
by competitors may render our products or technologies obsolete or
non-competitive.
Companies
that currently sell both generic and proprietary anti-obesity compounds
formulations include among others Abbot Laboratories, Inc., Amgen, Inc.,
and
Regeneron Pharmaceuticals, Inc. Alternative technologies are being developed
to
treat obesity and overweight disease, several of which are in advanced
clinical
trials. In addition, companies pursuing different but related fields represent
substantial competition. Many of these organizations competing with us
have
substantially greater capital resources, larger research and development
staffs
and facilities, longer drug development history in obtaining regulatory
approvals and greater manufacturing and marketing capabilities than we
do. These
organizations also compete with us to attract qualified personnel, parties
for
acquisitions, joint ventures or other collaborations.
If
we fail to adequately protect or enforce our intellectual property rights
or
secure rights to patents of others, the value of our intellectual property
rights would diminish.
Our
success, competitive position and future revenues will depend in part on
our
ability and the abilities of our licensors to obtain and maintain patent
protection for our products, methods, processes and other technologies,
to
preserve our trade secrets, to prevent third parties from infringing on
our
proprietary rights and to operate without infringing the proprietary rights
of
third parties.
We
currently do not directly own the rights to any patents or patent applications.
We license the exclusive rights to two issued patents relating to
oleoyl-estrone, which expire in 2016, and three patent applications. We
also
license the exclusive rights to three issued patents relating to lingual
spray
propofol, which expire from 2016 to 2017. In addition, our license for
propofol
lingual spray covers one pending patent application. See “Business -
Intellectual Property and License Agreements.” There are no other pending patent
applications relating to either of our product candidates, although we
anticipate the need to file additional patent applications both in the
U.S. and
in other countries, as appropriate.
However,
with regard to the patents covered by our license agreements and any future
patents issued to which we will have rights, we cannot predict:
| · |
the
degree and range of protection any patents will afford us against
competitors including whether third parties will find ways to
invalidate
or otherwise circumvent our
patents;
|
| · |
if
and when patents will issue;
|
| · |
whether
or not others will obtain patents claiming aspects similar to
those
covered by our patents and patent applications;
or
|
| · |
whether
we will need to initiate litigation or administrative proceedings
which
may be costly whether we win or
lose.
|
Our
success also depends upon the skills, knowledge and experience of our scientific
and technical personnel, our consultants and advisors as well as our licensors
and contractors. To help protect our proprietary know-how and our inventions
for
which patents may be unobtainable or difficult to obtain, we rely on trade
secret protection and confidentiality agreements. To this end, we require
all of
our employees, consultants, advisors and contractors to enter into agreements
which prohibit the disclosure of confidential information and, where applicable,
require disclosure and assignment to us of the ideas, developments, discoveries
and inventions important to our business. These agreements may not provide
adequate protection for our trade secrets, know-how or other proprietary
information in the event of any unauthorized use or disclosure or the lawful
development by others of such information. For example, despite covenants
in our
license agreements with Oleoylestrone Developments and NovaDel Pharma,
from
which we license oleoyl-estrone and lingual spray propofol, respectively,
that
generally prohibit those companies from disclosing information relating
to our
licensed technology, the respective license agreements allow for each company
to
publish data and other information relating to our licensed technology.
If any
of our trade secrets, know-how or other proprietary information is disclosed,
the value of our trade secrets, know-how and other proprietary rights would
be
significantly impaired and our business and competitive position would
suffer.
If
we infringe the rights of third parties we could be prevented from selling
products, forced to pay damages, and defend against litigation.
Our
business is substantially dependent on the intellectual property on which
our
product candidates are based. To date, we have not received any threats
or
claims that we may be infringing on another’s patents or other intellectual
property rights. If our products, methods, processes and other technologies
infringe the proprietary rights of other parties, we could incur substantial
costs and we may have to:
| · |
obtain
licenses, which may not be available on commercially reasonable
terms, if
at all;
|
| · |
redesign
our products or processes to avoid
infringement;
|
| · |
stop
using the subject matter claimed in the patents held by
others;
|
| · |
pay
damages; or
|
| · |
defend
litigation or administrative proceedings which may be costly
whether we
win or lose, and which could result in a substantial diversion
of our
valuable management resources.
|
Our
ability to generate product revenues will be diminished if our drugs sell
for
inadequate prices or patients are unable to obtain adequate levels of
reimbursement.
Our
ability to commercialize our drugs, alone or with collaborators, will depend
in
part on the extent to which reimbursement will be available from:
| · |
government
and health administration
authorities;
|
| · |
private
health maintenance organizations and health insurers;
and
|
| · |
other
healthcare payers.
|
Significant
uncertainty exists as to the reimbursement status of newly approved healthcare
products. Healthcare payers, including Medicare, are challenging the prices
charged for medical products and services. Government and other healthcare
payers increasingly attempt to contain healthcare costs by limiting both
coverage and the level of reimbursement for drugs. Even if our product
candidates are approved by the FDA, insurance coverage may not be available,
and
reimbursement levels may be inadequate, to cover our drugs. If government
and
other healthcare payers do not provide adequate coverage and reimbursement
levels for any of our products, once approved, market acceptance of our
products
could be reduced.
We
may not successfully manage our growth.
Our
success will depend upon the expansion of our operations and the effective
management of our growth, which will place a significant strain on our
management and on our administrative, operational and financial resources.
To
manage this growth, we must expand our facilities, augment our operational,
financial and management systems and hire and train additional qualified
personnel. If we are unable to manage our growth effectively, our business
may
suffer.
If
we are unable to hire additional qualified personnel, our ability to grow
our
business may be harmed.
We
will
need to hire additional qualified personnel with expertise in pre-clinical
testing, clinical research and testing, government regulation, formulation
and
manufacturing and sales and marketing. We compete for qualified individuals
with
numerous biopharmaceutical companies, universities and other research
institutions. Competition for such individuals is intense, and we cannot
be
certain that our search for such personnel will be successful. Attracting
and
retaining qualified personnel will be critical to our success.
We
may incur substantial liabilities and may be required to limit commercialization
of our products in response to product liability lawsuits.
The
testing and marketing of medical products entail an inherent risk of product
liability. If we cannot successfully defend ourselves against product liability
claims, we may incur substantial liabilities or be required to limit
commercialization of our products. We currently carry clinical trial insurance
in an amount up to $2,000,000, which may be inadequate to protect against
potential product liability claims or may inhibit the commercialization
of
pharmaceutical products we develop, alone or with corporate collaborators.
Although we intend to maintain clinical trial insurance during any clinical
trials, this may be inadequate to protect us against any potential claims.
Even
if our agreements with any future corporate collaborators entitle us to
indemnification against losses, such indemnification may not be available
or
adequate should any claim arise.
We
are controlled by current officers, directors and principal
stockholders.
Our
directors, executive officers and principal stockholders beneficially own
approximately 32 percent of our outstanding voting stock and, including
shares
underlying outstanding options and warrants, this group beneficially owns
approximately 35 percent of our common stock. Accordingly, these persons
and
their respective affiliates will have the ability to exert substantial
influence
over the election of our Board of Directors and the outcome of issues submitted
to our stockholders.
Risks
Related to Our Securities
Our
stock price is, and we expect it to remain, volatile, which could limit
investors’ ability to sell stock at a profit.
During
the last two fiscal years, our stock price has traded at a low of $0.65
(in the
fourth quarter of 2004) to a high of $2.48 (in the second quarter of 2004).
The
volatile price of our stock makes it difficult for investors to predict
the
value of their investment, to sell shares at a profit at any given time,
or to
plan purchases and sales in advance. A variety of factors may affect the
market
price of our common stock. These include, but are not limited to:
|
·
|
publicity
regarding actual or potential clinical results relating to products
under
development by our competitors or
us;
|
|
·
|
delay
or failure in initiating, completing or analyzing pre-clinical
or clinical
trials or the unsatisfactory design or results of these
trials;
|
|
·
|
achievement
or rejection of regulatory approvals by our competitors or
us;
|
|
·
|
announcements
of technological innovations or new commercial products by our
competitors
or us;
|
|
·
|
developments
concerning proprietary rights, including
patents;
|
|
·
|
developments
concerning our collaborations;
|
|
·
|
regulatory
developments in the United States and foreign
countries;
|
|
·
|
economic
or other crises and other external factors;
|
|
·
|
period-to-period
fluctuations in our revenues and other results of
operations;
|
|
·
|
changes
in financial estimates by securities analysts;
and
|
|
·
|
sales
of our common stock.
|
We
will
not be able to control many of these factors, and we believe that
period-to-period comparisons of our financial results will not necessarily
be
indicative of our future performance.
In
addition, the stock market in general, and the market for biotechnology
companies in particular, has experienced extreme price and volume fluctuations
that may have been unrelated or disproportionate to the operating performance
of
individual companies. These broad market and industry factors may seriously
harm
the market price of our common stock, regardless of our operating
performance.
We
have never paid dividends.
We
have
never paid dividends on our capital stock and do not anticipate paying
any
dividends for the foreseeable future. You should not rely on an investment
in
our stock if you require dividend income. Further, you will only realize
income
on an investment in our stock in the event you sell or otherwise dispose
of your
shares at a price higher than the price you paid for your shares. Such
a gain
would result only from an increase in the market price of our common stock,
which is uncertain and unpredictable.
| ITEM 2. |
We
are
not a party to any legal proceedings.
| ITEM 3. |
Our
executive offices are located at 810 Seventh Avenue, 4th Floor, New York,
New
York 10019. We currently occupy this space pursuant to a written lease
for a
term of four years under which we pay rent of approximately $11,800 per
month.
We
believe that our existing facilities are adequate to meet our current
requirements. We do not own any real property.
We
held
our Annual Meeting of Stockholders at 210 West 55th
Street,
New York, New York on November 18, 2005. The stockholders took the following
actions:
(i) The
stockholders elected seven directors to serve until the next Annual Meeting
of
Stockholders. The stockholders present in person or by proxy cast the following
numbers of votes in connection with the election of directors, resulting
in the
election of all nominees:
| Nominee |
Votes
For
|
Votes
Withheld
|
|||||
|
Douglas
Abel
|
40,968,529
|
54,074
|
|||||
|
Neil
Herskowitz
|
40,935,131
|
88,372
|
|||||
|
Malcolm
Hoenlein
|
40,935,131
|
88,372
|
|||||
|
Timothy
McInerney
|
40,966,301
|
57,202
|
|||||
|
Joan
Pons Gimbert
|
40,966,301
|
57,202
|
|||||
|
Richard
I. Steinhart
|
40,967,848
|
55,655
|
|||||
|
Michael
Weiser
|
40,941,697
|
81,806
|
|||||
(ii)
The stockholders ratified and approved and amendment to our 2003
Stock Option Plan, increasing the number of shares of our common stock
available
for issuance thereunder to 7,400,000. 33,214,320 votes were cast for the
proposal; 327,255 votes were cast against the proposal; 116,498 votes abstained;
and there were 7,365,430 broker non-votes.
(iii)
The stockholders ratified the appointment of J.H. Cohn LLP as our
independent registered public accounting firm for fiscal 2005. 41,010,443
votes
were cast for the proposal; 11,500 votes were cast against the proposal,
shares
representing 1,560 votes abstained; and there were no broker
non-votes.
Market
for Common Stock
Our
common stock currently trades on
the American Stock Exchange under the symbol “MHA.” Prior to October 7, 2005,
our common stock was quoted
on
the OTC Bulletin Board under the symbol “MHTT.” The following table lists the
high and low price for our common stock as quoted, in U.S. dollars, on
the
American Stock Exchange and OTC Bulletin Board during each quarter within
the
last two fiscal years:
|
Price
Range
|
|||||||||||||
|
2005
|
2004
|
||||||||||||
|
Quarter
Ended
|
High
|
Low
|
High
|
Low
|
|||||||||
|
March
31
|
$
|
2.100
|
$
|
0.850
|
$
|
2.000
|
$
|
1.350
|
|||||
|
June
30
|
1.640
|
1.200
|
2.480
|
1.270
|
|||||||||
|
September
30
|
1.600
|
1.110
|
1.600
|
0.700
|
|||||||||
|
December
31
|
1.520
|
1.040
|
1.050
|
0.650
|
|||||||||
The
quotations from the OTC Bulletin Board reflect inter-dealer prices, without
retail mark-up, mark-down or commission, and may not represent actual
transactions.
Record
Holders
The
number of holders of record of our common stock as of March 14, 2006 was
581.
Dividends
We
have
not paid or declared any dividends on our common stock and we do not anticipate
paying dividends on our common stock in the foreseeable future.
Stock
Repurchases
We
did
not make any repurchases of our common stock during 2005.
| ITEM 6. |
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OR PLAN OF
OPERATIONS.
|
Overview
We
were
incorporated in Delaware in May 1993 under the name “Atlantic Pharmaceuticals,
Inc.” and, in March 2000, we changed our name to “Atlantic Technology Ventures,
Inc.” On February 21, 2003, we completed a “reverse” acquisition of
privately-held Manhattan Research Development, Inc. (formerly Manhattan
Pharmaceuticals, Inc.), a Delaware corporation. To effect this transaction,
we
caused Manhattan Pharmaceuticals Acquisition Corp., our wholly-owned subsidiary,
to merge with and into Manhattan Research Development, with Manhattan Research
Development surviving as our wholly owned subsidiary. In accordance with
the
terms of the merger, the outstanding common stock of Manhattan Research
Development automatically converted into the right to receive an aggregate
of
approximately 80 percent of our outstanding common stock (after giving
effect to
the transaction). In connection with the merger, we also changed our name
to
“Manhattan Pharmaceuticals, Inc.” The financial statements reflect the
activities of Manhattan Research Development, Inc. since its inception,
as the
“accounting acquirer”.
Pursuant
to an Agreement and Plan of Merger dated April 1, 2005 (the “Agreement”) among
us, Tarpan Therapeutics, Inc., a Delaware corporation (“Tarpan”), and Tarpan
Acquisition Corp., a Delaware corporation and our wholly-owned subsidiary
(“TAC”), TAC merged with and into Tarpan, with Tarpan remaining as the surviving
corporation and our wholly-owned subsidiary. Tarpan was a privately-held,
New
York based biopharmaceutical company developing dermatological therapeutics.
Through the merger, we acquired exclusive rights to develop and commercialize
Tarpan’s primary product candidate, PTH (1-34), a peptide believed to be a
regulator of epidermal cell growth and differentiation. In consideration
for
their shares of Tarpan capital stock and in accordance with the Agreement,
the
stockholders of Tarpan received an aggregate of approximately 10,731,000
shares
or approximately 20% of our then outstanding common stock. This transaction
was accounted for as a purchase of Tarpan by the Company. As a result of
the
merger, we assumed Tarpan’s outstanding indebtedness of approximately $651,000,
which resulted from a series of promissory notes issued to Paramount BioCapital
Investments, LLC and Horizon BioMedical Ventures, LLC, both of which are
owned
or controlled by Dr. Lindsay Rosenwald. The notes were amended at the time
of
the merger to provide that one-half of the outstanding indebtedness was
payable
upon completion of the merger and the remaining one-half will be payable
at such
time as we raise at least $5 million in new financing. Further, the remaining
one-half of indebtedness would no longer be interest bearing. As a result
of our
August 2005 private placement, discussed above, we have now satisfied the
remaining balance of this indebtedness.
We
are
engaged in the business of developing and commercializing early-stage
technologies, particularly biomedical and pharmaceutical technologies.
We aim to
acquire proprietary rights to these technologies, by license or acquisition
of
an ownership interest, fund their research and development and eventually
bring
the technologies to market. We currently are researching and developing
three
biomedical technologies: oleoyl-estrone, an orally administered hormone
which we
believe can be used to treat obesity; PTH (1-34), a topical treatment for
psoriasis; and lingual spray propofol, a proprietary lingual spray technology
to
deliver propofol for pre-procedural sedation prior to diagnostic, therapeutic
or
endoscopic procedures.
You
should read the following discussion of our results of operations and financial
condition in conjunction with the consolidated financial statements and
notes
thereto appearing elsewhere in this Form 10-KSB. This discussion includes
“forward-looking” statements that reflect our current views with respect to
future events and financial performance. We use words such as we “expect,”
“anticipate,” “believe,” and “intend” and similar expressions to identify
forward-looking statements. Investors should be aware that actual results
may
differ materially from our expressed expectations because of risks and
uncertainties inherent in future events, particularly those risks identified
under the heading “Risk Factors” following Item 1 in this Annual Report, and
should not unduly rely on these forward looking statements. All share and
per
share information in this discussion has been adjusted for the 1-for-5
combination of our common stock effected on September 25, 2003.
Results
Of Operations
2005
Versus 2004
During
each of the years ended December 31, 2005 and 2004, we had no revenues,
and are
considered a development stage company. We do not expect to have revenues
relating to our technologies prior to December 31, 2006.
For
the
year ended December 31, 2005 research and development expense was $5,178,077
as
compared to $4,152,994 for the year ended December 31, 2004. The increase
of
$1,025,083 is due primarily to an acceleration of pre-clinical and clinical
development of our Oleoyl-estrone drug and, commencing after the April
2005
acquisition of Tarpan, the pre-clinical and clinical development of our
PTH
(1-34) which amounted to approximately $969,508. As we enter Phase IIa
clinical
trials in Oleoyl-estrone and PTH (1-34), we expect research and development
to
continue to increase in 2006.
For
the
year ended December 31, 2005, general and administrative expense was
$2,291,121as compared to $1,989,829 for the year ended December 31, 2004.
The
increase of $301,292 is due primarily to increases in payroll, outside
services
and investor relations expenses of approximately $139,000, $146,000 and
$106,000, respectively. In addition, we had increases in expenses related
to
taxes, depreciation and accounting fees of approximately $50,000, $34,000,
and
$31,000, respectively. These increases are partially offset by reductions
in
consulting, legal fees and all other expenses of approximately $168,000,
$19,000
and $18,000, respectively. As a result of the acquisition of Tarpan and
continued expansion of our infrastructure required to support the planned
growth, we expect general and administrative expenses to continue to increase
in
2006.
The
in-process research and development charge in 2005 relates to the allocation
of
the purchase price of the Tarpan acquisition. See Note 1 to the consolidated
financial statements for further details.
For
the
year ended December 31, 2005, interest and other income including realized
gain
on the sale of marketable equity securities was $216,008 as compared to
$246,792
for the year ended December 31, 2004. The decrease of $30,784 is a result
of a
non-recurring realized gain on sale of marketable equity securities in
2004,
partially offset by higher balances of cash and short-term investments
earning
investment income.
Net
loss
for the year ended December 31, 2005, was $19,140,997 as compared to $5,896,031
for the year ended December 31, 2004. This increase in net loss is attributable
primarily to the in-process research and development charge of $11,887,807
related to the acquisition of Tarpan. Additionally, there were increases
in
research and development expenses of $1,025,083 and general and administrative
expenses of $301,292. Additionally, there was a decrease in interest and
other
income of $30,784.
Preferred
stock dividends of $175,663 and $585,799 reduced earnings per share for
the
years ended December 31, 2005 and 2004 by $0.00 and $0.02,
respectively.
2004
Versus 2003
During
each of the years ended December 31, 2004 and 2003, we had no
revenue.
For
the
year ended December 31, 2004, research and development expense was $4,152,994
as
compared to $1,724,043 for the year ended December 31, 2003. The increase
of
$2,428,951 is due primarily to an acceleration of pre-clinical development
of
our Oleoyl-estrone drug to the pre-clinical and clinical development of
our
Propofol Lingual Spray.
For
the
year ended December 31, 2004, general and administrative expense was $1,989,829
as compared to $1,786,080 for the year ended December 31, 2003. The increase
of
$203,749 is due primarily to investor relations expenses of approximately
$160,000 and consulting expenses of approximately $67,000. In addition,
we had
increases in expenses associated with travel of approximately $85,000 and
meetings and conferences of approximately $54,000 as well as rent and other
expenses of approximately $19,000 and $55,000, respectively. These increases
are
partially offset by a net reduction in legal and accounting fees of
approximately $91,000. Finally, in 2003 we had amortization of intangible
assets
of approximately $145,000 which we did not have in the current
year.
For
the
year ended December 31, 2004, interest and other income was $246,792 as
compared
to $11,324 for the year ended December 31, 2003. The increase of $235,468
is a
result of an increase in cash balances and a gain on sale of short-term
investments.
Net
loss
for the year ended December 31, 2004, was $5,896,031 as compared to $5,960,907
for the year ended December 31, 2003. This decrease in net loss is attributable
primarily to losses in 2003 on the disposition of intangible assets as
a result
of our sale of our remaining rights to CT-3 to Indevus Pharmaceuticals,
Inc. of
$1,213,878 as well as an impairment of intangible assets of $1,248,230
as a
result of a decision by Bausch & Lomb not to pursue the Avantix cataract
removal technology. This decrease in net loss is partially offset by
an increase
in research and development expenses of $2,428,951 and an increase in
general
and administrative expenses of $203,749. These expense increases are
partially
offset by an increase in interest and other income of $235,468.
Preferred
stock dividends of $585,799 increased loss per common share for the year
ended
December 31, 2004 by $0.02. There were no preferred stock dividend requirements
in 2003.
Liquidity
and Capital Resources
From
inception to December 31, 2005, we incurred a deficit during the development
stage of $33,271,695 primarily as a result of our net losses, and we
expect to
continue to incur additional losses through at least December 31, 2006
and for
the foreseeable future. The acquisition of Tarpan will increase these
losses.
These losses have been incurred through a combination of research and
development activities related to the various technologies under our
control and
expenses supporting those activities.
We
have
financed our operations since inception primarily through equity financing
and
our licensing and sale of residual royalty rights of CT-3 to Indevus.
During the
year ended December 31, 2005, we had a net increase in cash and cash
equivalents
of $8,920,680. This increase resulted from net cash provided by financing
activities, substantially all of which was from the net proceeds of $12,250,209
from the August 2005 private placement of 11,917,680 shares of common stock
at $1.11 and $1.15 per share and investing activities, and also included
proceeds from the sale of short-term investments of $3,499,999. These
increases
are partially offset by net cash used in operating activities of $6,244,942.
Total liquid resources including short term investments as of December
31, 2005
were $10,834,154 compared to $5,419,872 at December 31, 2004.
Our
current liabilities as of December 31, 2005 were $1,665,817 compared
to
$1,195,705 at December 31, 2004, an increase of $470,112. The increase
was
primarily due to an increase in expenditures associated with our Phase
I
clinical trial for our Oleoyl-estrone product candidate and commencement
of
Phase II clinical trial for our PTH (1-34) product candidate. As of December
31,
2005, we had working capital of $9,363,113 compared to $4,264,293 at
December
31, 2004.
In
August
2005, we completed a private placement offering of units consisting of
shares of our common stock and warrants to purchase additional shares
of common
stock. The private placement was completed in two separate closings held
on
August 26, 2005 and August 30, 2005. In the August 26 closing, we sold
a total
of 10,808,971 shares of common stock and five-year warrants to purchase
2,161,767 shares for total gross proceeds of $11,997,954. The warrants
issued at
the August 26 closing are exercisable at a price of $1.44 per share.
On August
30, 2005, we closed on the sale of an additional 1,108,709 shares of
common
stock and warrants to purchase 221,741 common shares, which resulted
in gross
proceeds of $1,275,016. The warrants issued in connection with the August
30
closing are exercisable at a price of $1.49 per share. After payment
of all
related commissions and expenses totaling $1,022,761, we realized total
net
proceeds of $12,250,209.
We
engaged Paramount BioCapital, Inc. an affiliate of a significant stockholder
of
the Company, as placement agent and paid total cash commissions and expenses
of
$879,418, of which $121,625 was paid to certain selected dealers engaged
by
Paramount in connection with the August 26 closing and issued five-year
warrants
to purchase an aggregate of 540,449 shares of common stock exercisable
at a
price of $1.44 per share, of which Paramount received warrants to purchase
462,184 common shares. In connection with the August 30 closing, we paid
cash
commissions to Paramount of $88,550 and issued an additional five-year
warrant
to purchase 55,000 common shares at a price of $1.49 per share. Timothy
McInerney and Dr. Michael Weiser, each a director of the Company, are
employees
of Paramount BioCapital, Inc.
The
terms
of the Company’s Series A Preferred Stock, which was originally issued in
November 2003, provided for its automatic conversion upon the Company’s
completion of a financing that results in gross proceeds to of at least
$10
million at a pre-money valuation of the Company of at least $30 million.
Accordingly, as a result of the August 26, 2005 closing of the Company’s private
placement discussed above, all of the remaining outstanding shares of
the
Company’s Series A Preferred Stock automatically converted into shares of the
Company’s common stock. As of such date, there were 729,626 shares of Series
A
Preferred Stock outstanding, which, upon the closing of the private placement,
converted into an aggregate of 6,632,957 shares of common stock (at a
rate of
9.0909 common shares per share of preferred stock).
On
October 21, 2005, the Company issued 675,675 shares of common stock to
Cato
BioVentures, an affiliate of Cato Research, Inc., in exchange for the
satisfaction of $750,000 of accounts payable owed by the Company to Cato
Research, Inc. The transaction was completed on the same terms as the
private
placement described earlier which closed on August 26, 2005.
Our
available working capital and capital requirements will depend upon numerous
factors, including progress of our research and development programs,
our
progress in and the cost of ongoing and planned pre-clinical and clinical
testing, the timing and cost of obtaining regulatory approvals, the cost
of
filing, prosecuting, defending, and enforcing patent claims and other
intellectual property rights, competing technological and market developments,
changes in our existing collaborative and licensing relationships, the
resources
that we devote to developing manufacturing and commercializing capabilities,
the
status of our competitors, our ability to establish collaborative arrangements
with other organizations and our need to purchase additional capital
equipment.
Our
continued operations will depend on whether we are able to raise additional
funds through various potential sources, such as equity and debt financing,
other collaborative agreements, strategic alliances, and our ability
to realize
the full potential of our technology in development. Such additional
funds may
not become available on acceptable terms and there can be no assurance
that any additional funding that we do obtain will be sufficient to meet
our
needs in the long term. Through
December 31, 2005, a significant portion of our financing has been through
private placements of common stock and warrants. Unless our operations
generate
significant revenues and cash flows from operating activities, we will
continue
to fund operations from cash on hand and through the similar sources
of capital
previously described. We can give no assurances that any additional capital
that
we are able to obtain will be sufficient to meet our needs. Management
believes that we will continue to incur net losses and negative cash
flows from
operating activities for the foreseeable future. Based on the resources
available to us at December 31, 2005, management believes that we will
need
additional equity or debt financing or will need to generate revenues
through
licensing our products or entering into strategic alliances during 2006
to be
able to sustain our operations beyond 2006 and we will need additional
financing
thereafter until we can achieve profitability, if ever.
We
have
reported net losses of $19,140,997 and $5,896,031 for the years ended
December
31, 2005 and 2004, respectively. The net loss from date of inception,
excluding
preferred stock dividends, August 6, 2001 to December 31, 2005, amounts
to
$32,092,051. Management believes that we will continue to incur net losses
through at least December 31, 2006. Based on the current resources available
to
us, we will need additional equity or debt or financing or we will need
to
generate revenues through licensing our products or entering into strategic
alliances to be able to sustain our operations until we can achieve
profitability, if ever. These matters raise substantial doubt about our
ability
to continue as a going concern.
The
report of our independent registered public accounting firm on our consolidated
financial statements includes an explanatory paragraph which states that
our
recurring losses and cash used in operating activities raise substantial
doubt
about our ability to continue as a going concern. Our consolidated financial
statements do not include any adjustments that might result from the
outcome of
this uncertainty.
Development
Commitments
On
February 15, 2002, we entered into a License Agreement (the "License
Agreement")
with Oleoylestrone Developments, S.L. (“OED”). Under the terms of the License
Agreement, OED granted to us a world-wide license to make, use, lease
and sell
the products incorporating the licensed technology. OED also granted
to us the
right to sublicense to third parties the licensed technology or aspects
of the
licensed technology with the prior written consent of OED. OED retains
an
irrevocable, nonexclusive, royalty-free right to use the licensed technology
solely for its internal, noncommercial use. The License Agreement shall
terminate automatically upon the date of the last to expire patent contained
in
the licensed technology or upon our bankruptcy. OED may terminate the
License
Agreement in the event of a material breach by us that is not cured within
the
notice period. We may terminate the License Agreement for any reason
upon 60
days notice.
Under
the
License Agreement, we agreed to pay to OED certain licensing fees which
are
being expensed as they are incurred. We paid $175,000 in up front licensing
fees
which is included in 2002 research and development expense. In addition,
pursuant to the License Agreement, we issued 1,000,000 shares of our common
stock to OED. We valued these shares at their then estimated fair value
of
$1,000.
In
connection with the License Agreement, we have agreed to milestone payments
to
OED as follows:
(i)
$250,000 upon the treatment of the first patient in a Phase I clinical
trial
under a Company-sponsored investigational new drug application ("IND");
(ii)
$250,000 upon the treatment of the first patient in a Phase II clinical
trial
under a Company-sponsored IND; (iii) $750,000 upon the first successful
completion of a Company-sponsored Phase II clinical trial under a
Company-sponsored IND; (iv) $2,000,000 upon the first successful completion
of a
Company-sponsored Phase III clinical trial under a Company sponsored
IND; and
(v) $6,000,000 upon the first final approval of the first new drug application
for the first licensed product by the United States Food and Drug Administration
(“FDA”). Through December 31, 2005, we have paid $425,000 in licensing fees
and milestone payments.
In
addition to the License Agreement, we entered into a consulting agreement
with
OED. The agreement became effective in February 2002, at a fee of $6,250
per
month, and will terminate when the License Agreement terminates. The
fees
associated with the consulting agreement are expensed as incurred. OED
agreed
to designate a member of our Scientific Advisory Board and to render
consultative and advisory services to us. Such services include research,
development and clinical testing of our technology as well as the reporting
of
the findings of such tests, assistance in the filing of patent applications
and
oversight and direction of efforts in regards to personnel for clinical
development.
In
April
2003, we entered into a license and development agreement with NovaDel
Pharma,
Inc. (“NovaDel”), under which we received certain worldwide, exclusive rights to
develop and commercialize products related to NovaDel’s proprietary lingual
spray technology for delivering propofol for pre-procedural sedation.
Under the
terms of this agreement, we agreed to use our commercially reasonable
efforts to
develop and commercialize the licensed products, to obtain necessary
regulatory
approvals and to thereafter exploit the licensed products. The agreement
also
provides that NovaDel will undertake to perform, at our expense, a substantial
portion of the development activities, including without limitation,
preparation
and filing of various applications with applicable regulatory
authorities.
In
consideration of the license, we are required to make certain license
and
milestone payments. Specifically, we were required to pay a $500,000
license fee
at such time as we had completed a financing transaction resulting in
aggregate
gross proceeds of at least $10,000,000. Accordingly, upon completion
of our sale
of $10,000,000 of our Series A Convertible Preferred Stock in November
2003, we
paid and expensed the $375,000 balance of the license fee. We paid and
expensed
the first $125,000 in June 2003.
We
are
also required to make various milestone payments to NovaDel under the
license
agreement as follows: $1,000,000 payable following the date that the
first NDA for lingual spray propofol is accepted for review by the FDA;
$1,000,000 following the date that the first European Marketing Application
is
accepted for review by any European Union country; $2,000,000 following
the date
when the first filed NDA for lingual spray propofol is approved by the
FDA;
$2,000,000 following the date when the first filed European Marketing
Application for lingual spray propofol is approved by a European Union
country;
$1,000,000 following the date on which an application for commercial
approval of
lingual spray propofol is approved by the appropriate regulatory authority
in
each of Australia, Canada, Japan and South Africa; and $50,000 following
the
date on which an application for commercial approval for lingual spray
propofol
is approved in any other country (other than the U.S., a member of the
European
Union, Australia, Canada, Japan or South Africa).
In
addition, we are obligated to pay to NovaDel an annual royalty based
on a fixed
rate of net sales of licensed products, or if greater, the annual royalty
is
based on our net profits from the sale of licensed products at a rate
that is
twice the net sales rate. In the event we sublicense the licensed product
to a
third party, we are obligated to pay royalties based on a fixed rate
of fees or
royalties received from the sublicensee until such time as we recover
our
out-of-pocket costs, and thereafter the royalty rate doubles. Because
of the
continuing development efforts required of NovaDel under the agreement,
the
royalty rates are substantially higher than customary for the
industry.
NovaDel
may terminate the agreement (i) upon 10 days’ notice if we fail to make any
required milestone or royalty payments, or (ii) if we become bankrupt
or if a
petition in bankruptcy or insolvency is filed and not dismissed within
60 days
or if we become subject to a receiver or trustee for the benefit of creditors.
Each party may terminate the agreement upon 30 days’ written notice and an
opportunity to cure in the event the other party committed a material
breach or
default. We may also terminate the agreement for any reason upon 90 days’ notice
to NovaDel.
Through
our April 2005 acquisition of Tarpan Therapeutics, Inc., we acquired
a
Sublicense Agreement with IGI, Inc. (the “IGI Agreement”) dated April 14, 2004.
Under the IGI Agreement we received the exclusive, world-wide, royalty
bearing
sublicense to develop and commercialize the licensed technology. Under
the terms
of the IGI Agreement, we are responsible for the cost of the preclinical
and
clinical development of the project, including research and development,
manufacturing, laboratory and clinical testing and trials and marketing
of
licensed products for which we will be responsible.
The
IGI
Agreement requires us to make certain milestone payments as
follows: $300,000 payable upon the commencement of a Phase II clinical
trial; $500,000 upon the commencement of a Phase III clinical trial;
$1,500,000
upon the acceptance of an NDA application by the FDA; $2,400,000 upon
the
approval of an NDA by the FDA; $500,000 upon the commencement of a Phase
III
clinical trial for an indication other than psoriasis; $1,500,000 upon
the
acceptance of and NDA application for an indication other than psoriasis
by the
FDA; and $2,400,000 upon the approval of an NDA for an indication other
than
psoriasis by the FDA.
In
addition, we are obligated to pay IGI, Inc. an annual royalty of 6% annual
net
sales on annual net sales up to $200,000,000. In any calendar year in
which net
sales exceed $200,000,000, we are obligated to pay IGI, Inc. an annual
royalty
of 9% on such excess. Through December 31, 2005, we have not paid any such
milestones or royalties.
IGI,
Inc.
may terminate the agreement (i) upon 60 days’ notice if we fail to make any
required milestone or royalty payments, or (ii) if we become bankrupt
or if a
petition in bankruptcy is filed, or if we are placed in the hands of
a receiver
or trustee for the benefit of creditors. IGI, Inc. may terminate the
agreement
upon 60 days’ written notice and an opportunity to cure in the event we commit a
material breach or default. Eighteen months from the date of the IGI
Agreement,
we may terminate the agreement in whole or as to any portion of the PTH
patent
rights upon 90 days’ notice to IGI, Inc.
Research
and Development Projects
Oleoyl-estrone
In
January 2005, the FDA accepted our filed investigational new drug application,
or “IND” for the human clinical testing of Oleoyl-estrone. We completed Phase
Ia
and Phase Ib clinical trials in May 2005 and July 2005 and released data
on both
trials in October 2005. Both trials were completed in Basel, Switzerland
after
obtaining formal approval from the Swiss medical authority, Swissmedic
however
only the Phase Ia trial was conducted pursuant to the IND accepted by
the FDA.
The objective of both dose-escalation studies was to determine the safety
and
tolerability of defined doses of orally administered Oleoyl-estrone in
obese
adult volunteers as well as the pharmacokinetic profile (i.e. the manner
in
which the drug is absorbed, distributed, metabolized and excreted by
the body)
of Oleoyl-estrone in both men and women.
The
Phase
Ia study involved 36 obese volunteers. Twelve of the 36 patients received
placebo and 24 received a single dose in one of six strengths ranging
from 1 mg
to 150 mg. Oleoyl-estrone was shown to be safe with no serious adverse
events
noted in this study.
The
Phase
Ib study was a seven day repeat dose study involving 24 obese volunteers
in four
cohorts of 6 patients each who received either placebo or Oleoyl-estrone
in
doses ranging from 10 mg to 150 mg once daily for seven consecutive days.
The
results indicated that Oleoyl-estrone was generally well-tolerated at
all doses
and no serious adverse events were reported. There were also no clinically
significant changes in the physical exams, vital signs, ECGs, coagulation
and
liver function tests. The study demonstrated evidence of greater weight
loss
among the treated groups compared with the placebo group as well as evidence
of
reduction in desire to eat, hunger levels, fasting glucose and LDL cholesterol.
Important clinical laboratories findings included reversible, dose-dependent
elevations in estrone and estradiol levels, as well as reductions in
testosterone levels. We will initiate a follow on Phase IIa study using
lower
doses of Oleoyl-estrone in the first half of 2006. In
preparation for beginning the phase IIa clinical trial, the clinical
study
protocol is currently in the regulatory review cycle in Switzerland,
having
received local ethics committee review and approval. The trial will begin
immediately following receipt of final regulatory approval from Swissmedic,
the
Swiss Medical Authority.
To
date,
we have incurred $7,989,816 of project costs related to our development
of
oleoyl-estrone, including milestone payments triggered under our license
agreement for oleoyl-estrone, of which $4,004,322 was incurred in fiscal
2005.
Currently, we anticipate that we will need to expend approximately an
additional
$5,000,000 in development costs in fiscal 2006. Since oleoyl-estrone
is regarded
by the FDA as a new entity, it is not realistic to predict the size and
the
design of futues studies at this time.
Although
we currently have sufficient capital to fund our anticipated 2006 R&D
expenditures relating to oleoyl-estrone, we will need to raise additional
capital in order to complete the anticipated five or six year development
program for the product. If we are unable to raise such additional capital,
we
may have to sublicense our rights to oleoyl-estrone to a third party
as a means
of continuing development, or, although less likely, we may be required
to
abandon further development efforts altogether, either of which would
have a
material adverse effect on the prospects of our business.
In
addition to raising further capital, whether we are successful in developing
oleoyl-estrone is dependent on numerous other factors, including unforeseen
safety issues, lack of effectiveness, significant unforeseen delays in
the
clinical trial and regulatory approval process, both of which could be
extremely
costly, and inability to monitor patients adequately before and after
treatments. See also “Item 1. Description of Business - Risk Factors” in this
Form 10-KSB. The existence of any of these factors could increase our
development costs or make successful completion of development impractical,
which would have a material adverse affect on the prospects of our
business.
PTH
(1-34).
PTH
(1-34), which we acquired as a result of our April 2005 acquisition of
Tarpan
Therapeutics, Inc., is being developed as a topical treatment for psoriasis.
In
August 2003, researchers, led by Michael Holick, MD, Professor of Medicine,
Physiology, and Biophysics at Boston University Medical Center, reported
positive results from a US Phase I and II clinical trial evaluating the
safety
and efficacy of PTH (1-34) as a topical treatment for psoriasis. This
double-blind, controlled trial in 15 patients compared PTH (1-34) formulated
in
the Novasome® Technology versus the Novasome® vehicle alone. Following 8 weeks
of treatment, the topical application of PTH (1-34) resulted in complete
clearing of the treated lesion in 60% of patients and partial clearing
in 85% of
patients. Additionally, there was a statistically significant improvement
in the
global severity score. Ten patients continued into an open label extension
study
in which the Psoriasis Area and Severity Index (PASI) was measured; PASI
improvement across all 10 patients achieved statistically significant
improvement compared to baseline. This study showed PTH (1-34) to be
a safe and
effective treatment for plaque psoriasis with no patients experiencing
any
clinically significant adverse events.
Due
to the high response rate seen in patients in the initial trial with
PTH (1-34)
we believe that it may have an important clinical advantage over current
topical
psoriasis treatments. A
follow
on physician IND Phase IIa trial involving PTH (1-34) was initiated in
December
2005 under the auspices of Boston University. Patient recruitment is
ongoing;
dosing has not yet begun.
To
date,
we have incurred $969,508 of
project costs related to our development of PTH (1-34), which has been
incurred
since April 1, 2005, the date of the Tarpan Therapeutics, Inc. acquisition.
Currently, we anticipate that we will need to expend approximately an
additional
$3,300,000 in development costs in fiscal 2006. A phase IIa clinical
trial
involving PTH (1-34) was initiated in late 2005 under the auspices of
Boston
University. As with the development of our other product candidates,
we believe
we currently have sufficient capital to fund our development activities
of PTH
(1-34) in their entirety during 2006. Since PTH (1-34) is already available
in
the injectable form, we should be able to utilize much of the data that
is
publicly available in planning our future studies. However, since PTH
(1-34)
will be used topically, bridging studies will need to be performed and
we are
not able to realistically predict the size and the design of those studies
at
this time.
Lingual
spray propofol
We
are
developing propofol lingual spray, the right to which we license from
NovaDel
Pharma, Inc., for light to medium sedation on a Section 505b2 bioequivalence
regulatory pathway toward FDA approval. In January 2005, the FDA accepted
our
IND for propofol lingual spray, allowing us to commence clinical trials.
The FDA
has indicated to us in discussions that we may proceed to a pivotal Phase
III
trial of propofol lingual spray following completion of Phase I trials.
We are
actively planning the next steps for the clinical development of this
product
candidate, meeting with our scientific advisors, NovaDel and other formulation
partners regarding formulation, reviewing existing data, developing trial
design
and evaluating plans to re-enter the clinic. See also “Management’s Discussion
and Analysis of Financial Condition and Results of Operations - Liquidity
and
Capital Resources - Research and Development Projects - Lingual Spray
Propofol.
To
date,
we have incurred $2,821,187 of project costs related to our development
of
propofol lingual spray, of which $204,247 was incurred in fiscal 2005.
Currently, we anticipate that we will need to expend approximately an
additional
$100,000 in development costs in fiscal 2006 and at least an aggregate
of
approximately $3,000,000 to $5,000,000 until we receive FDA approval
for
propofol, should we opt to continue development until then, including
anticipated 2006 costs. As with our development of oleoyl-estrone, we
believe we
currently have sufficient capital to fund our development activities
of propofol
lingual spray during 2005 and 2006. Since our business does not generate
any
cash flow, however, we will need to raise additional capital to continue
development of the product beyond 2006. We expect to raise such additional
capital through debt financings or by selling shares of our capital stock.
To
the extent additional capital is not available when we need it, we may
be forced
to sublicense our rights to propofol lingual spray or abandon our development
efforts altogether, either of which would have a material adverse effect
on the
prospects of our business.
Summary
of Contractual Committments
Employment
Agreements
We
have
employment agreements with three employees for the payment of aggregate
base
salary of $775,000 as well as performance based bonuses. Two of these
agreements
have terms ranging from two to three years and have a remaining obligation
of
$825,000 as of December 31, 2005. The third agreement effective February
1, 2006
has a term of three years and a remaining obligation of $875,000.
Leases
Rent
expense for the years ended December 31, 2005 and 2004 was $120,209 and
$112,176, respectively.
Future
minimum rental payments subsequent to December 31, 2005 under an operating
lease
for the Company’s office facility are as follows:
|
Years
Ending December 31,
|
Commitment
|
|||
|
2006
|
$
|
141,600
|
||
|
2007
|
$
|
141,600
|
||
|
2008
|
$
|
100,000
|
||
Off-Balance
Sheet Arrangements
We
have
not entered into any off-balance sheet arrangements.
Critical
Accounting Policies
In
December 2001, the SEC requested that all registrants discuss their most
“critical accounting policies” in management’s discussion and analysis of
financial condition and results of operations. The SEC indicated that
a
“critical accounting policy” is one which is both important to the portrayal of
the company’s financial condition and results and requires management’s most
difficult, subjective or complex judgments, often as a result of the
need to
make estimates about the effect of matters that are inherently
uncertain.
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 certain 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 expenses during
the
reporting period. Actual results could differ from those estimates.
Research
and development expenses
Research
and development expenses are expensed as incurred. In process research
and
development, deemed to have no future use, is expensed as incurred as
well.
Stock-based
Compensation
Options,
warrants and stock awards issued to non-employees and consultants are
recorded
at their fair value as determined in accordance with Statement of Financial
Accounting Standards No. 123, “Accounting for Stock-Based Compensation,” and
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” and
recognized as expense over the service period. The fair value of the
options
issued to consultants or others which require “variable accounting” are
remeasured at each reporting period and the resultant change in fair
value of
the vested options is recorded as a charge or credit in the consolidated
statement of operations.
Recently
Issued Accounting Standards
In
December 2004, the FASB issued SFAS No. 123(R) (revised 2004), “Share-Based
Payment”, which amends SFAS Statement No. 123 and will be effective for our
quarter ending March 31, 2006. The new standard will require us to expense
employee stock options and other share-based payments over the vesting
period.
The new standard may be adopted in one of three ways - the modified prospective
transition method, a variation of the modified prospective transition
method or
the modified retrospective transition method. We are will adopt SFAS
123(R) in
the first quarter of 2006.
| ITEM 7. |
CONSOLIDATED
FINANCIAL STATEMENTS
|
For
a
list of the consolidated financial statements filed as part of this report,
see
the Index to Consolidated Financial Statements beginning at Page F-1
of this
annual report.
| ITEM 8. |
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL
DISCLOSURE
|
None.
| ITEM 8A. |
CONTROLS
AND PROCEDURES
|
Evaluation
of Disclosure Controls and Procedures
As
of
December 31, 2005, we carried out an evaluation, under the supervision
and with
the participation of our Chief Executive Officer and Chief Financial
Officer, of
the effectiveness of the design and operation of our disclosure controls
and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities
Exchange Act of 1934, as amended). Based upon that evaluation, our Chief
Executive Officer and Chief Financial Officer concluded that our disclosure
controls and procedures as of that date are effective to ensure that
information
required to be disclosed in the reports we file under the Securities
and
Exchange Act is recorded, processed, summarized and reported on an accurate
and
timely basis. During
the fourth quarter of 2005, we hired the accounting firm of Amper, Politziner
& Mattia to review and consult on non-routine transactions and our periodic
SEC filings. We expect that this will improve our internal controls over
financial reporting subsequent to such evaluation.
As
a
non-accelerated filer with a fiscal year end of December 31, we must
first begin
to comply with the requirements of Section 404 of the Sarbanes-Oxley
Act of 2002
for the fiscal year ending December 31, 2007. We believe that our present
internal control program has been effective at a reasonable assurance
level to
ensure that our financial reporting has not been materially misstated.
Nonetheless, during the remaining periods through December 31, 2007,
we will
review, and where necessary, enhance our internal control design and
documentation, management review, and ongoing risk assessment as part
of our
internal control program, including implementing the requirements of
Section 404
of the Sarbanes-Oxley Act of 2002.
Changes
in Internal Controls
In
connection with the preparation of our quarterly report on Form 10-QSB
for the
quarter ended September 30, 2005, as part of its review of this report,
our
independent registered public accounting firm identified material weaknesses,
as
of September 30, 2005, in our internal controls over financial reporting
relating to the recording and disclosures of stock options that we
have granted
to non-employee consultants in accordance with Emerging Issues Task
Force
(“EITF”) 96-18 and SFAS 123. Specifically, in accordance with EITF 96-18,
we
should have been accounting for an option issued to a non-employee
consultant
using variable accounting, instead of fixed accounting. In addition,
we
improperly applied SFAS 123 in accounting for a stock option granted
to a
different non-employee consultant. In connection with its review of
such Form
10-QSB, our independent registered accounting firm also identified
certain
errors made in the calculation of our weighted average number of shares
outstanding. Our independent registered public accounting firm advised
management and our Audit Committee that it considered each of these
situations
to be a material weakness in our internal controls. Since such material
weaknesses were identified by our independent registered accounting
firm in
connection with its review of this Form 10-QSB and because they relate
only to
the quarter ended September 30, 2005, the items subject to these issues
are
correctly presented on our historical financial statements, including
the
September 30, 2005 Form 10-QSB, and no restatement of any previously
filed
financial statements was required.
As
a
result of the material weakness discussed above, however, we implemented
a
change in our internal controls over financial reporting during the
fourth
quarter of the year ended December 31, 2005. Specifically, we have
instituted
additional procedures in the review process for the financial statement
recording and disclosures of options in order to remediate this issue.
Additionally, we engaged a public accounting firm separate and unrelated
to our
independent registered public accounting firm, to consult with from
time to time
concerning the appropriate accounting treatment of such stock options,
as well
as other accounting matters. We have also increased our emphasis on
continuing
education for our accounting personnel and increase our emphasis on
reviewing
applicable accounting literature, all relating to the selection and
application
of accounting principles pertaining to stock options. We believe these
enhancements to our system of internal control and our disclosure controls
and
procedures are adequate to provide reasonable assurance that our internal
controls are effective in alerting management on a timely basis to
material
information required to be disclosed in our periodic reports to the
Securities
and Exchange Commission.
| ITEM 8B. |
OTHER
INFORMATION
|
As
discussed above, at our annual stockholder meeting held on November 18,
2005,
our stockholders approved an amendment to our 2003 Stock Option Plan,
increasing
the number of shares of our common stock available for issuance under
such plan
from 5,400,000 to 7,400,000.
| ITEM 9. |
DIRECTORS,
EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION
16(a) OF THE EXCHANGE
ACT
|
Information
Concerning Directors and Executive Officers
|
Name
|
Age
|
Position
|
||
|
Douglas
Abel
|
44
|
President
and Chief Executive Officer and Director
|
||
|
Alan
G. Harris, M.D.
|
55
|
Chief
Medical Officer
|
||
|
Nicholas
J. Rossettos, C.P.A.
|
40
|
Chief
Financial Officer, Chief Operating Officer and
Secretary
|
||
|
Neil
Herskowitz
|
48
|
Director
|
||
|
Malcolm
Hoenlein
|
61
|
Director
|
||
|
Timothy
McInerney
|
44
|
Director
|
||
|
Joan
Pons
|
55
|
Director
|
||
|
Richard
I. Steinhart
|
48
|
Director
|
||
|
Michael
Weiser, M.D., Ph.D.
|
42
|
Director
|
Douglas
Abel has
been
our President and Chief Executive Officer since April 2005, when we completed
our acquisition of Tarpan Therapeutics, where Mr. Abel had been President
and
CEO since November 2004. Prior to joining Tarpan, Mr. Abel served as
Vice
President of the Dermatology Business Unit at Biogen Idec where he worked
from
August 2000 to November 2004. While at Biogen, he led the creation of
the U.S.
dermatology commercial operation, building the team from two to more
than 100
employees to support the launch of AMEVIVE®. Before that, Mr. Abel was at
Allergan Pharmaceuticals from December 1987 to August of 2000, with his
most
recent position being Director of BOTOX® Marketing. Mr. Abel received his A.B.
in chemistry from Lafayette College and an M.B.A. from Temple
University.
Alan
G. Harris
has been
our Chief Medical Officer since February 2006. Prior to joining Manhattan,
from
January 2004, Dr.
Harris was head of the Worldwide Medical Endocrine Care group at Pfizer,
Inc.
(New York, NY), where he was responsible for the clinical development
of the
growth hormone Genotropin®, the growth hormone antagonist Somavert®, and the
leading international medical outcomes database containing information
about
growth hormone treatment in children (KIGS) and adults (KIMS). Prior
to that he
served in a number of capacities at Schering-Plough Corporation (Kenilworth,
NJ)
from 1995 to 2004, most recently as vice president, Global Healthcare
Research
& Outcomes. Dr. Harris received an MD degree cum laude from the Louis
Pasteur Faculty of Medicine, University of Strasbourg, France and a Ph.D.
in
Endocrinology from Erasmus University, Rotterdam, The Netherlands. He
is
currently an adjunct professor of medicine at New York University Medical
School
and visiting professor of medicine in the Department of Endocrinology
at Liege
University Medical School, Belgium and in the department of Pharmacology
and
Clinical Toxicology at the University Hospital of Lausanne, Switzerland.
Dr.
Harris is a Fellow of the American College of Physicians, the Royal College
of
Physicians (UK), and the American College of Clinical Pharmacology.
Nicholas
J. Rossettos
has been
our Chief Financial Officer and Treasurer since April 2000 and our Chief
Operating Officer since February 2003. From February 1999 until joining
our
company, Mr. Rossettos was Manager of Finance for Centerwatch, a
pharmaceutical trade publisher headquartered in Boston, Massachusetts,
that is a
wholly owned subsidiary of Thomson Corporation of Toronto, Canada. Prior
to
that, from 1994, he was Director of Finance and Administration for
EnviroBusiness, Inc., an environmental and technical management-consulting
firm
headquartered in Cambridge, Massachusetts. Mr. Rossettos is a certified
public
accountant and holds an M.S. in Accounting and M.B.A. from Northeastern
University.
Neil
Herskowitz was
appointed to our board of directors in July 2004. Since
1998, Mr. Herskowitz has co-owned the ReGen Group of companies. Currently
he is
a managing member of ReGen Partners I L.P., an investment fund based in
New York
City, and President of Riverside Claims LLC an investment vehicle for ReGen.
Mr.
Herskowitz also serves as a member of the Board of Directors of Chelsea
Therapeutics, Inc. (OTCBB: CHTP) a publicly traded specialty pharmaceutical
development company, and as a director of Starting Point Services for Children,
a not-for-profit corporation. Mr. Herskowitz received a B.B.A. in Finance
from
Bernard M. Baruch College.
Malcolm
Hoenlein
was appointed to our board of directors in July 2004. Since January 2001,
he has
also served as a director of Keryx Biopharmaceuticals, Inc. (Nasdaq:
KERX). Mr.
Hoenlein currently serves as the Executive Vice Chairman of the Conference
of
Presidents of Major American Jewish Organizations, a position he has
held since
1986. He also serves as a director of Bank Leumi. Mr. Hoenlein received
his B.A.
from Temple University and his M.A. from the University of
Pennsylvania.
Timothy
McInerney
has been a director of our company since July 2004. Since 1992, Mr. McInerney
has been a Managing Director of Paramount BioCapital, Inc. where he oversees
the
overall distribution of Paramount's private equity product. Prior to
1992, Mr.
McInerney was a research analyst focusing on the biotechnology industry
at
Ladenburg, Thalman & Co. Prior to that, Mr. McInerney held equity sales
positions at Bear, Stearns & Co. and Shearson Lehman Brothers, Inc. Mr.
McInerney also has worked in sales and marketing for Bristol-Myers Squibb.
He
received his B.S. in pharmacy from St. John's University at New York.
He also
completed a post-graduate residency at the New York University Medical
Center in
drug information systems.
Joan
Pons
has been
a director of our company since February 21, 2003, the date of our merger
with
Manhattan Research Development. Prior to the merger, he served as a director
of
Manhattan Research Development from 2002. Since 2002, Mr. Pons has served
chief
executive officer of Oleoylestrone Development S.L., a spin-off of the
University of Barcelona. Pursuant to a January 2002 license agreement,
we hold
an exclusive worldwide license to several patents and patent applications
relating to oleoyl-estrone, which are owned by Oleoylestrone Developments.
From
1999 until joining Oleoylestrone Developments, Mr. Pons has served as
Director
of Franchising of Pans & Company, a fast-food company. From 1972 until 1999,
Mr. Pons was employed in various finance and sales capacities by Gallina
Blanca
Purina S.A., a joint venture between St. Louis, Missouri based Ralston
Purina
Co. and Spanish based Agrolimen S.A., most recently serving as its National
Sales & Marketing Director.
Richard
I. Steinhart
has been a director of our company since July 2004. Since May 1992, Mr.
Steinhart has been principal of Forest Street Capital, a boutique investment
banking, venture capital, and management consulting firm. Prior to Forest
Street
Capital, from May 1991 to May 1992, he was the Vice President and Chief
Financial Officer of Emisphere Technologies, Inc., a publicly held
biopharmaceutical company that is working to develop and commercialize
a
proprietary oral drug delivery system. Prior to joining Emisphere Technologies,
Mr. Steinhart spent seven years at CW Group, Inc., a venture capital
firm
focused on medical and healthcare investments, where he was a General
Partner
and Chief Financial Officer. Mr. Steinhart has previously served as a
director
of a number of privately-held companies, including ARRIS Pharmaceuticals,
Inc.,
a biotechnology company involved with rational drug design; Membrex,
Inc., a
laboratory equipment manufacturing company; and, Photest, Inc., a diagnostics
company. He began his career working as a certified public accountant
and
continues to be a New York State Certified Public Accountant. Mr. Steinhart
holds a Bachelors of Business Administration and Masters of Business
Administration from Pace University.
Michael
Weiser, M.D., Ph.D.,
has
been a director of our company since the completion of our merger transaction
with Manhattan Research Development, Inc. in February 2003. He served
as a
director of Manhattan Research Development since
December 2001 and as its Chief Medical Officer from its inception until
August
2001. Dr. Weiser is currently also the Director of Research of Paramount
BioCapital Asset Management and he is a director of Hana Biosciences,
Inc.
(AMEX:HBX), a South San Francisco, California-based technology company
focused
on oncology therapeutics, Chelsea Therapeutics International, Ltd. (OTCBB:CHTP)
and VioQuest Pharmaceuticals, Inc. (OTCBB:VQPH). Dr. Weiser is also a
member of Orion Biomedical GP, LLC, and serves on the board of directors
of
several privately held companies. Dr. Weiser received an M.D. from New
York
University School of Medicine and a Ph.D. in Molecular Neurobiology from
Cornell
University Medical College. Dr. Weiser completed a Postdoctoral Fellowship
in
the Department of Physiology and Neuroscience at New York University
School of
Medicine and performed his post-graduate medical training in the Department
of
Obstetrics and Gynecology and Primary Care at New York University Medical
Center.
There
are
no family relationships among our executive officers or directors.
Section
16(a) Beneficial Ownership Reporting Compliance
Section
16(a) of the Securities Exchange Act of 1934, as amended, requires our
officers,
directors and persons who are the beneficial owners of more than 10%
of our
common stock to file with the SEC initial reports of ownership and reports
of
changes in ownership of our common stock. Officers, directors and beneficial
owners of more than 10% of our common stock are required by SEC regulations
to
furnish us with copies of all Section 16(a) forms they file. Based solely
on a
review of the copies of the Forms 3, 4 and 5 and amendments that we received
with respect to transactions during 2005, we believe that all such forms
were
filed on a timely basis, except for those items listed in the table
below:
|
Name
of Filer
|
Description
of Transaction
|
Transaction
Date
|
Filing
Date
|
|||
|
Douglas
Abel
|
Initial
Form 3
|
4/1/05
|
4/25/05
|
|||
|
Neil
Herskowitz
|
Director
Stock Option Grant
|
1/11/05
|
2/22/05
|
|||
|
Malcolm
Hoenlein
|
Director
Stock Option Grant
|
1/11/05
|
4/20/05
|
|||
|
Joshua
A. Kazam
|
Director
Stock Option Grant
|
1/11/05
|
3/29/05
|
|||
|
Timothy
McInerney
|
Director
Stock Option Grant
|
1/11/05
|
4/5/05
|
|||
|
Joan
Pons Gimbert
|
Option
Grant
Director
Stock Option Grant
|
1/24/04
1/11/05
|
4/26/05
4/26/05
|
|||
|
Nicholas
J. Rossettos
|
Grant
of options
|
1/11/05
|
8/19/05
|
|||
|
Richard
I. Steinhart
|
Director
Stock Option Grant
|
1/11/05
|
2/22/05
|
|||
|
David
M. Tanen
|
Director
Stock Option Grant
|
1/11/05
|
3/29/05
|
|||
|
Michael
Weiser
|
Director
Stock Option Grant
|
1/11/05
|
4/5/05
|
Code of Business Conduct and Ethics
Our
Board
of Directors adopted a Code of Business Conduct and Ethics to be applicable
to
all officers, directors and employees. The Code of Business Conduct and
Ethics
is intended to be designed to deter wrong-doing and promote honest and
ethical
behavior, full, fair, timely, accurate and understandable disclosure,
and
compliance with applicable laws. The Board adopted the Code of Business
Conduct
and Ethics in July 2004. A copy of the Code of Business Conduct and Ethics
can
be obtained and will be provided to any person without charge upon written
request to our Secretary at our executive offices, 810 Seventh Avenue,
4th
Floor, New York, New York 10019.
Audit
Committee Financial Expert
We
have
an audit committee comprised of Richard Steinhart, Neil Herskowitz and
Malcolm
Hoenlein. Richard Steinhart satisfies the “audit committee financial expert” as
that term is defined by SEC regulations.
Further,
all of our audit committee members are independent, as defined by the
listing
standards of the American Stock Exchange.
| ITEM 10. |
EXECUTIVE
COMPENSATION
|
The
following table sets forth, for the last three fiscal years, the compensation
earned for services rendered in all capacities by our chief executive
officer
and the other highest-paid executive officers serving as such at the
end of 2005
whose compensation for that fiscal year was in excess of $100,000. The
individuals named in the table will be hereinafter referred to as the
“Named
Officers.” No other executive officer of Manhattan received compensation in
excess of $100,000 during fiscal year 2005.
Summary
Compensation Table
|
Annual
Compensation
|
Long-Term
Compensation Awards
|
All
Other Compensation ($)
|
|||||||||||||||||
|
Name
and Principal Position
|
Year
|
Salary($)
|
Bonus($)
|
Other
Annual Compensation ($)
|
Securities
Underlying Options/SARs(#)
|
||||||||||||||
|
Douglas
Abel (1)
Chief
Executive Officer and
President
|
2005
2004
2003
|
243,750
—
—
|
200,000
—
—
|
57,648(3)
—
—
|
2,923,900
—
—
|
—
—
—
|
|||||||||||||
|
Nicholas
J. Rossettos
|
2005
|
175,000
|
22,500
|
7,170(4
|
)
|
50,000
|
— | ||||||||||||
|
Chief
Operating Officer, Chief Financial Officer,
|
2004
|
150,000
|
22,500
|
7,500(4
|
)
|
150,000
|
—
|
||||||||||||
|
Treasurer
& Secretary
|
2003
|
142,788
|
25,000
|
22,397(2
|
)
|
292,030
|
—
|
||||||||||||
|
(1)
|
Mr.
Abel was appointed our chief executive officer on April 1, 2005
following the merger with Tarpan Therapeutics,
Inc.
|
| (2) |
Represents
salary deferred from the prior fiscal year and prior to February
24,
2003.
|
|
(3)
|
Represents
matching contributions by us pursuant to our company’s 401(k) retirement
plan of $8,400 and reimbursement of certain business related
travel
expenses of $49,248.
|
|
(4)
|
Represents
matching contributions by us pursuant to our company’s 401(k) retirement
plan.
|
Options
and Stock Appreciation Rights
The
following table contains information concerning the grant of stock options
under
our stock option plans and otherwise to the executive officers identified
below
during the 2005 fiscal year. No stock appreciation rights were granted
during
the 2005 fiscal year.
Option
Grants in Last Fiscal Year (Individual Grants)
|
Name
|
Number
of Securities Underlying Options/SARs Granted (#)
|
Percent
of Total Options/SARs Granted to Employees in Fiscal
Year
|
Exercise
or Base Price ($/Share)(1)
|
Expiration
Date
|
|||||||||
|
Mr.
Abel
|
2,923,900(2
|
)
|
80
|
1.50
|
4/1/2015
|
||||||||
|
Mr.
Rossettos
|
50,000(3
|
)
|
1
|
1.00
|
1/11/2015
|
||||||||
|
(1)
|
Exercise
price is based on the closing sale price of our common stock
on the last
trading day preceding the grant
date.
|
|
(2)
|
One-third
of the option vested as of November 2005; the remaining two-thirds
vests
in equal annual amounts in November 2006 and November
2007.
|
|
(3)
|
One-half
of the option vested as of January 2006; the remaining one-half
vests in
January 2007.
|
Option
Exercise and Holdings
The
following table provides information with respect to the executive officers
named below concerning the exercisability of options during the 2005
fiscal year
and unexercisable options held as of the end of the 2005 fiscal year.
No stock
appreciation rights were exercised during the 2005 fiscal year, and no
stock
appreciation rights were outstanding at the end of that fiscal
year.
Aggregated
Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values
|
Shares Acquired |
Value
|
No.
of Securities Underlying Unexercised Options/SARs at FY-End
(#)
|
Value
of Unexercised In-the-Money
Options/SARs at FY-End (Market price of shares at FY-End less
exercise
price) ($)(2)
|
||||||||||||||||
|
Name
|
on
Exercise
|
Realized
(1)
|
Exercisable
|
Unexercisable
|
Exercisable
|
Unexercisable
|
|||||||||||||
|
Mr.
Abel
|
—
|
—
|
974,634
|
1,949,266
|
—
|
—
|
|||||||||||||
|
Mr.
Rossettos
|
—
|
—
|
457,030
|
110,000
|
254,476
|
12,500
|
|||||||||||||
| (1) |
Equal
to the fair market value of the purchased shares at the time
of the option
exercise over the exercise price paid for those
shares.
|
| (2) |
Based
on the fair market value of our common stock on December 30,
2005, the
last trading day of fiscal 2005, of $1.25 per share, the closing
sale
price per share on that date on the American Stock
Exchange.
|
Long
Term Incentive Plan Awards
No
long
term incentive plan awards were made to any of our executive officers
during the
last fiscal year.
Compensation
of Directors
Non-employee
directors are eligible to participate in an automatic stock option grant
program
pursuant to the 2003 stock option plan. Non-employee directors are granted
an
option for 50,000 shares of common stock upon their initial election
or
appointment to the board and an option for 25,000 shares of common stock
annually thereafter. For members of a sub-committee, the annual grant
is an
option for 30,000 shares and for a Chairman of the Board, the annual
grant is an
option for 35,000 shares. During 2005 our board members received an aggregate
of
$11,500 in cash compensation for their services as directors. Directors
are
reimbursed for reasonable expenses incurred in connection with attending
meetings of the board and of committees of the board.
Employment
Contracts and Termination of Employment and Change of Control Arrangements
Douglas
Abel
We
entered into an Employment Agreement with Douglas Abel dated April 1,
2005
whereby Mr. Abel will serve as our President and Chief Executive Officer
for a
period of three years in exchange for (i) an annual base salary of $300,000,
subject to a retroactive increase in the amount of $25,000 in the event
we
complete a financing transaction of at least $5,000,000, (ii) a signing
bonus in
the amount of $200,000 payable in two installments of $100,000 in May
and
November 2005, respectively, (iii) a discretionary performance-based
bonus in an
amount equal to up to 50% of Mr. Abel’s base salary, and (iv) an option to
purchase 2,923,900 shares of our common stock at $1.50 per share with
three-year
annual vesting, purchasable for a 10-year term. As a result of the private
placement that we completed in August 2005, Mr. Abel’s salary was increased
to $325,000 retroactive to April 1, 2005. The employment agreement contains
customary provisions relating to confidentiality, work-product assignment,
non-competition and non-solicitation. In the event Mr. Abel’s employment is
terminated by us (other than for cause) during the term of the agreement,
including a termination upon a change of control (as defined in the agreement),
we are required to pay a severance payment ranging from between 6 and
12 month
of base salary, depending upon the circumstances of such
termination.
Alan
G. Harris
We
and
Dr. Harris entered into an Employment Agreement dated January 26, 2006
(the
"Agreement") whereby Dr. Harris will serve as our Chief Medical Officer
for a
period of three years commencing on February 1, 2006 and will receive
in
exchange for his services: (i) an annual base salary of $275,000; (ii)
a
guaranteed cash bonus of $50,000; (iii) an annual milestone bonus on
each
anniversary of the Agreement during the term of the Agreement in an
amount up to
30% of Dr. Harris' base salary, at the discretion of the Chief Executive
Officer
and the Board; and (iv) an option to purchase 300,000 shares of our
common stock
at an exercise price equal to the last closing sale price of our common
stock on
February 1, 2006, such options to vest in equal amounts over three
years and be
exercisable for a 10-year term. In the event Dr. Harris' employment
is
terminated upon a change of control and the fair market value of our
common
stock, as determined in the good faith discretion of the Board of Directors
of
the Company, is less than $40,000,000 on the date of the change of
control, Dr.
Harris shall continue to receive his base salary and benefits for a
period of
three months from the date of termination. In the event such termination
is for
a reason other than for cause or pursuant to a change of control, Dr.
Harris
shall be entitled to receive his base salary for a period of six months
from the
date of termination.
Nicholas
J. Rossettos
Mr. Rossettos’
employment with us is pursuant to a January 2005 employment agreement.
This
agreement has a two-year term ending on January 3, 2007, which may be
extended
for additional one (1) year periods thereafter. Under the agreement,
Mr.
Rossettos is entitled to an annual salary of $175,000 in addition to
health,
disability insurance and other benefits. Pursuant to his employment agreement,
on January 3, 2005, Mr. Rossettos was granted an option to purchase an
aggregate
of 50,000 shares of common stock at a price of $1.00 per share. The option
vests
in two equal installments on each of January 3, 2006 and January 3, 2007.
Mr. Rossettos and his dependents are eligible to receive paid medical and
long term disability insurance and such other health benefits as we make
available to other senior officers and directors. In the event Mr. Rossettos’
employment with the Company is terminated other than for “cause” or upon a
“change of control” (as such terms are defined in the employment agreement), he
is entitled to continue receiving his base salary until the end of the
term of
the agreement or 1 year from such termination, whichever occurs first,
and the
portions of his stock options scheduled to vest in the calendar year
of such
termination shall accelerate and be deemed vested as of the date of termination.
If Mr. Rossettos’ employment is terminated upon a change of control, he is
entitled to continue receiving his base salary for a period of 6 months
from
termination and the vesting of all his stock options shall accelerate
and be
deemed vested as of such termination.
| ITEM 11. |
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTER
|
The
following table sets forth certain information regarding beneficial ownership
of
the our common stock as of March 1, 2006, by (i) each person known by
us to be
the beneficial owner of more than 5 percent of the outstanding Common
Stock,
(ii) each director, (iii) each executive officer, and (iv) all executive
officers and directors as a group. The number of shares beneficially
owned is
determined under rules promulgated by the SEC, and the information is
not
necessarily indicative of beneficial ownership for any other purpose.
Under
those rules, beneficial ownership includes any shares as to which the
individual
has sole or shared voting power or investment power and also any shares
which
the individual has the right to acquire within 60 days of the date hereof,
through the exercise or conversion of any stock option, convertible security,
warrant or other right. Inclusion of shares in the table does not, however,
constitute an admission that the named stockholder is a direct or indirect
beneficial owner of those shares. Unless otherwise indicated, each person
or
entity named in the table has sole voting power and investment power
(or shares
that power with that person’s spouse) with respect to all shares of capital
stock listed as owned by that person or entity. Unless otherwise indicated,
the
address of each of the following persons is 810 Seventh Avenue, 4th Floor,
New
York, New York 10019.
|
Name
|
Shares
Beneficially
Owned
|
Percent
of Class
|
|||||
|
Douglas
Abel (1)
|
999,634
|
1.6
|
|||||
| Alan G. Harris | 0 | * | |||||
|
Nicholas
J. Rossettos(2)
|
532,030
|
*
|
|||||
|
Michael
Weiser(3)
|
2,431,092
|
4.0
|
|||||
|
Joan
Pons Gimbert(4)
|
4,048,704
|
6.7
|
|||||
|
Neil
Herskowitz (5)
|
126,541
|
*
|
|||||
|
Malcolm
Hoenlien (6)
|
60,673
|
*
|
|||||
|
Timothy
McInerney (7)
|
811,338
|
1.3
|
|||||
|
Richard
I. Steinhart (6)
|
60,673
|
*
|
|||||
|
All
directors and officers as a group (8)
|
9,070,685
|
14.6
|
|||||
|
Oleoylestrone
Developments, SL(9)
|
3,957,037
|
6.6
|
|||||
|
Josep
Samitier 1-5, Barcelona Science Park
|
|
||||||
|
08028
Barcelona Spain
|
|
|
|||||
|
Lester
E. Lipschutz(10)
|
8,918,354 | 14.8 | |||||
|
1650
Arch Street - 22nd Floor
|
|
|
|||||
|
Philadelphia,
PA 19103
|
|
||||||
|
Lindsay
A. Rosenwald(11)
|
3,444,506
|
6.6 | |||||
|
787
Seventh Avenue, 48th Floor
|
|
|
|||||
|
New
York, NY 10019
|
|
||||||
| * |
Less
than 1.0%
|
| (1) |
Includes
974,634 shares issuable upon exercise of a portion of an option
which
vested November 1, 2005, but does not include the remaining
1,949,266
shares issuable upon the exercise of such option, which remaining
shares
vest in two equal installments of 974,633 shares on each of
November 1,
2006 and November 1, 2007.
|
| (2) |
Includes
532,030 shares issuable upon the exercise of options that are
currently
exercisable or will be exercisable within 60 days.
|
| (3) |
Includes
95,000 shares issuable upon the exercise of an option, and
127,754 shares
issuance upon exercise of warrants.
|
| (4) |
Includes
3,957,037 shares held by Oleoylestrone Developments, SL, of
which Mr. Pons
is chief executive officer, and 91,667 shares issuable upon
the exercise
of options.
|
| (5) |
Includes
60,673 shares issuable upon exercise of options, 21,700 shares
held by
Riverside Contracting, LLC, a limited liability company of
which Mr.
Herskowitz is a member holding 50% ownership and 44,168 shares
held by
Regen Capital II, LLC, a limited liability company of which
Mr. Herskowitz
is a member holding 50% ownership.
|
| (6) |
Represents
shares issuable upon exercise of options.
|
| (7) |
Includes
83,333 shares issuable upon exercise of options; and 115,863
shares
issuable upon exercise of warrants.
|
| (8) |
Includes
2,202,300 shares issuable upon exercise of currently exercisable
options,
or options that will be exercisable within 60 days, and upon
exercise of
warrants.
|
| (9) |
Mr.
Pons Gimbert is the chief executive officer of Oleoylestrone
Developments,
SL.
|
| (10) |
Includes
8,918,354 shares of Common Stock held by separate trusts for
the benefit
of Dr. Rosenwald or his family with respect to which Mr. Lipschutz
is
either trustee or investment manager and in either case has
investment and
voting power. Dr. Rosenwald disclaims beneficial ownership
of these
shares, except to the extent of his pecuniary interest therein,
if
any.
|
| (11) |
Includes
80 shares owned by Dr. Rosenwald’s spouse, 33 shares owned by his
children, 76 shares held by corporations affiliated by Dr.
Rosenwald, and
839,649 shares issuable upon the exercise of warrants. Does
not include
8,918,354 shares held by Lester Lipschutz, as trustee of certain
trusts
established for the benefit of Dr. Rosenwald, as to which Dr.
Rosenwald
disclaims beneficial ownership, except to the extent of his
pecuniary
interest therein, if any.
|
Equity
Compensation Plan Information
The
following table summarizes outstanding options under our 1995 Stock Option
Plan,
as amended and our 2003 Stock Option Plan, as well as outstanding options
that
we have issued to certain officers, directors and employees of our company
outside of any plan.
|
Plan
category
|
Number
of securities to be issued upon exercise of outstanding options,
warrants
and rights
(a)
|
Weighted
average exercise price of outstanding options, warrants and
rights
(b)
|
Number
of securities remaining available for future issuance (excluding
securities reflected in column (a))
(c)
|
|||||||
|
Equity
compensation plans approved by stockholders (1)
|
5,191,514
|
$
|
1.45
|
1,808,486
|
||||||
|
Equity
compensation plans approved by stockholders (2)
|
32,400
|
$
|
8.28
|
--
|
||||||
|
Equity
compensation plans not approved by stockholders (3)
|
1,104,840
|
$
|
0.57
|
--
|
||||||
|
(1)
|
Represent
shares of common stock issuable upon outstanding options issued
to
employees and directors under our 2003 Stock option
Plan.
|
|
(2)
|
Represent
shares of common stock issuable upon outstanding options issued
to
employees and directors under our 1995 Stock Option Plan, as
amended. Our
1995 Stock Option Plan expired on June 30,
2005.
|
|
(3)
|
Represent
shares of common stock issuable upon outstanding options issued
to
employees and directors outside of any stock option
plan.
|
| ITEM 12. |
CERTAIN
RELATIONSHIPS AND RELATED
TRANSACTIONS
|
Oleoylestrone
Developments, SL
Pursuant
to the terms of a license agreement dated February 15, 2002 by and between
Manhattan Research Development, Inc., our wholly owned subsidiary, and
Oleoylestrone Developments, SL (“OED”), we have an exclusive, worldwide license
to U.S. and foreign patents and patent applications relating to certain
technologies. Although we are not obligated to pay royalties to OED,
the license
agreement requires us to make certain performance-based milestone payments.
See
“Item 1 - Intellectual Property.” OED currently owns approximately 16 percent of
our outstanding common stock. Additionally, Mr. Pons, a member of our
board of
directors, is chief executive officer of OED.
In
addition to the license agreement, we entered into a consulting agreement
with
OED. The agreement became effective in February 2002, at a fee of $6,250
per
month, and will terminate when the license agreement terminates. The
fees
associated with the consulting agreement are expensed as incurred. OED
agreed to
serve as a member of our Scientific Advisory Board and to render consultative
and advisory services to us. Such services include research, development
and
clinical testing of our technology as well as the reporting of the findings
of
such tests, assistance in the filing of patent applications and oversight
and
direction of efforts in regards to personnel for clinical development.
For the
periods ended December 31, 2005, 2004 and from inception, fees paid to
OED were
$75,000, $75,000 and $287,500, respectively.
NovaDel
Pharma Inc.
As
discussed above, pursuant to the terms of a license agreement dated April
4,
2003 by and between us and NovaDel Pharma Inc., we have the rights to
develop
NovaDel’s proprietary lingual spray technology to deliver propofol for
preprocedural sedation. The license agreement with NovaDel requires us
to make
certain license and milestone payments, as well as pay royalties. See
“Item 1.
Business - Lingual Spray Propofol.” During 2003, we paid aggregate license fees
of $500,000 to NovaDel under the license agreement, but during 2004 and
2005 did
not make any payments to NovaDel under the agreement. Lindsay A. Rosenwald,
who
beneficially owns more than 5 percent of our common stock, also
beneficially owns in excess of 20 percent of the common stock of
NovaDel.
Paramount
BioCapital, Inc.
Two
members of our board of directors, Timothy McInerney and Michael Weiser,
are
also employees of Paramount BioCapital, Inc. or one of its affiliates.
In
addition, two former members of our board of directors, Joshua Kazam
and David
Tanen were employed by Paramount BioCapital through August 2004 and were
directors of our company until September 2005. The sole shareholder of
Paramount
BioCapital, Inc. is Lindsay A. Rosenwald, M.D. Dr. Rosenwald beneficially
owns
more than 5 percent of our common stock. In January 2004, we paid approximately
$260,000 as commissions earned in consideration for placement agent services
rendered by Paramount BioCapital in connection with a private placement
of our
common stock, which amount represented 7 percent of the shares sold by
Paramount
BioCapital in the private placement. The engagement of Paramount BioCapital
in
connection with the January 2004 private placement was approved by all
of our
disinterested directors. In connection with both private placements and
as a
result of their employment with Paramount BioCapital, Mr. Kazam, Mr.
McInerney
and Dr. Weiser were allocated 5-year placement agent warrants to purchase
60,174, 58,642 and 103,655 shares of our common stock, respectively,
at a price
of $1.10 per share.
Paramount
BioCapital also served as our placement agent in connection with our
August 2005
private placement. As placement agent we paid to Paramount BioCapital
total cash
commissions of $806,741 and issued five-year warrants to purchase an
aggregate
of 462,184 shares of common stock exercisable at a price of $1.44 per
share, and
an additional five-year warrant to purchase 55,000 common shares exercisable
at
a price of $1.49 per share.
Acquisition
of Tarpan Therapeutics, Inc.
On
April
1, 2005, we completed the acquisition of Tarpan Therapeutics, Inc., a
privately-held biotechnology company that owns the rights to develop
PTH (1-34),
in a merger transaction. Several of Tarpan’s former stockholders are directors
or significant stockholders of the Company. Dr. Rosenwald and various
trusts
established for the benefit of Dr. Rosenwald and members of his immediate
family
collectively beneficially owned approximately 46 percent of Tarpan’s common
stock and beneficially owned approximately 26 percent our common stock.
In
addition, Joshua Kazam, David Tanen, Dr. Michael Weiser and Timothy McInerney,
all of whom were members of the Company’s board of directors at the time of such
acquisition (Messrs. Kazam and Tanen have since resigned), collectively
owned
approximately 13.4 percent of Tarpan’s outstanding common stock. Dr. Weiser and
Mr. McInerney are also employed by Paramount BioCapital, Inc., an entity
owned
and controlled by Dr. Rosenwald. As a result of such relationships between
the
Company and Tarpan, the Company’s board of directors established a special
committee to consider and approve the Agreement. The special committee
consisted
of three disinterested directors, none of whom had any prior relationship
with
Tarpan.
We
believe that all the transactions described above were made on terms
no less
favorable to us than could have been obtained from unaffiliated third
parties.
| ITEM 13. |
EXHIBITS
LIST
|
The
following documents are included or referenced in this report.
|
Exhibit
No.
|
Description
|
|
|
2.1
|
Agreement
and Plan of Merger among the Company, Manhattan Pharmaceuticals
Acquisition Corp. and Manhattan Research Development, Inc.
(formerly
Manhattan Pharmaceuticals, Inc.) dated December 17, 2002 (incorporated
by
reference to Exhibit 2.1 from Form 8-K filed March 5,
2003).
|
|
|
2.2
|
Agreement
and Plan of Merger among the Registrant, Tarpan Therapeutics,
Inc. and
Tarpan Acquisition Corp., dated April 1, 2005 (incorporated
by reference
to Exhibit 2.1 of the Registrant’s Form 8-K/A filed June 15,
2005).
|
|
|
3.1
|
Certificate
of incorporation, as amended through September 25, 2003 (incorporated
by
reference to Exhibit 3.1 to the Registrant’s Form 10-QSB for the quarter
ended September 30, 2003).
|
|
|
3.2
|
Bylaws,
as amended to date (incorporated by reference from Registrant’s
registration statement on Form SB-2, as amended (File
No. 33-98478)).
|
|
|
4.1
|
Specimen
common stock certificate (incorporated by reference from Registrant’s
registration statement on Form SB-2, as amended (File
No. 33-98478)).
|
|
|
4.2
|
Warrant
issued to John Prendergast to purchase 37,500 shares of Registrant’s
common stock (incorporated by reference from Exhibit 10.24
to the
Registrant’s Form 10-QSB for the quarter ended March 31,
1997.
|
|
|
4.3
|
Form
of warrant issued by Manhattan Research Development, Inc.,
which
automatically converted into warrants to purchase shares of
the
Registrant’s common stock upon the merger transaction with such company
(incorporated by reference to Exhibit 4.1 to the Registrant’s Form 10-QSB
for the quarter ended March 31, 2003).
|
|
|
4.4
|
Form
of warrant issued to placement agents in connection with the
Registrant’s
November 2003 private placement of Series A Convertible Preferred
Stock
and the Registrant’s January 2004 private placement (incorporated by
reference to Exhibit 4.18 to the Registrant’s Registration Statement on
Form SB-2 filed January 13, 2004 (File No.
333-111897)).
|
|
|
4.5
|
Form
of warrant issued to investors in the Registrant’s August 2005 private
placement (incorporated by reference to Exhibit 4.1 of the
Registrant’s
Form 8-K filed September 1, 2005).
|
|
|
4.6
|
Form
of warrant issued to placement agents in the Registrant’s August 2005
private placement (incorporated by reference to Exhibit 4.2
of the
Registrant’s Form 8-K filed September 1, 2005).
|
|
|
10.1
|
1995
Stock Option Plan, as amended (incorporated by reference to
Exhibit 10.18
to the Registrant’s Form 10-QSB for the quarter ended September 30,
1996).
|
|
|
10.2
|
License
Agreement dated on or about February 28, 2002 between Manhattan
Research
Development, Inc. (f/k/a Manhattan Pharmaceuticals, Inc.) and
Oleoyl-Estrone Developments SL (incorporated by reference to
Exhibit 10.6
to the Registrant’s Amendment No. 2 to Form 10-QSB/A for the quarter ended
March 31, 2003 filed on March 12, 2004).
|
|
|
10.3
|
License
Agreement dated April 4, 2003 between the Registrant and NovaDel
Pharma,
Inc. (incorporated by reference to Exhibit 10.1 to the Registrant’s
Amendment No. 1 to Form 10-QSB/A for the quarter ended June
30, 2003 filed
on March 12, 2004).++
|
|
|
10.4
|
2003
Stock Option Plan (incorporated by reference to Exhibit 4.1
to
Registrant’s Registration Statement on Form S-8 filed February 17,
2004).
|
|
|
10.5
|
Employment
Agreement dated January 2, 2005, between the Registrant and
Nicholas J.
Rossettos (incorporated by reference to Exhibit 10.1 to the
Registrant’s
Form 10-QSB for the quarter ended June 30, 2005).
|
|
|
10.6
|
Employment
Agreement dated April 1, 2005, between the Registrant and Douglas
Abel
(incorporated by reference to Exhibit 10.1 to the Registrant’s Form 8-K/A
filed June 15, 2005).
|
|
|
10.7
|
Sublicense
Agreement dated April 14, 2004 between Tarpan Therapeutics,
Inc., the
Registrant’s wholly-owned subsidiary, and IGI, Inc. (incorporated by
reference to Exhibit 10.109 to IGI Inc.’s Form 10-Q for the quarter ended
March 31, 2004 (File No. 001-08568).
|
|
|
10.8
|
Form
of subscription agreement between the Registrant and the investors
in the
Registrant’s August 2005 private placement (incorporated by reference
as
Exhibit 10.1 to the Registrant’s Form 8-K filed September 1,
2005).
|
|
|
Consent
of J.H. Cohn LLP.
|
||
|
Certification
of Principal Executive Officer.
|
||
|
Certification
of Principal Financial Officer.
|
||
|
Certifications
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
||
|
++
|
Confidential
treatment has been granted as to certain portions of this exhibit
pursuant
to Rule 24b-2 of the Securities Exchange Act of 1934, as
amended.
|
| ITEM 14. |
PRINCIPAL
ACCOUNTANT FEES AND
SERVICES.
|
Fees
Billed to the Company by Its Independent Auditors
The
following is a summary of the fees billed to us by J.H. Cohn LLP, our
independent registered public accounting firm for professional services
rendered
for fiscal years ended December 31, 2005 and 2004:
|
J.H.
Cohn LLP
|
|||||||
|
Fee
Category
|
Fiscal
2005 Fees
|
Fiscal
2004 Fees
|
|||||
|
Audit
Fees
|
$
|
101,911
|
$
|
73,146
|
|||
|
Audit-Related
Fees (1)
|
9,430
|
40,627
|
|||||
|
Tax
Fees (2)
|
18,622
|
17,832
|
|||||
|
All
Other Fees (3)
|
0
|
683
|
|||||
|
Total
Fees
|
$
|
129,963
|
$
|
132,288
|
|||
| (1) |
Audit-Related
Fees consist principally of assurance and related services
that are
reasonably related to the performance of the audit or review
of the
Company’s financial statements but not reported under the caption “Audit
Fees.” These fees include review of registration statements and
participation at board of director and audit committee
meetings.
|
| (2) |
Tax
Fees consist of fees for tax compliance, tax advice and tax
planning.
|
| (3) |
All
Other Fees consist of aggregate fees billed for products and
services
provided by the independent registered public accounting firm,
other than
those disclosed above.
|
Policy
on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services
of
Independent Registered Public Accounting Firm
At
present, our audit committee approves each engagement for audit or non-audit
services before we engage our independent registered public accounting
firm to
provide those services. Our audit committee has not established any pre-approval
policies or procedures that would allow our management to engage our
independent
registered public accounting firm to provide any specified services with
only an
obligation to notify the audit committee of the engagement for those
services.
None of the services provided by our independent registered public accounting
firm for fiscal 2005 was obtained in reliance on the waiver of the pre-approval
requirement afforded in SEC regulations.
SIGNATURES
In
accordance with Section 13 or 15(d) of the Securities Exchange Act, Manhattan
Pharmaceuticals, Inc. has duly caused this report to be signed on its
behalf by
the undersigned, thereunto duly authorized, on March 31, 2006.
| MANHATTAN PHARMACEUTICALS, INC. | ||
| |
|
|
| By: | /s/ DOUGLAS ABEL | |
|
|
||
|
Name:
Douglas Abel
Title:
Chief Executive Officer and President
|
||
In
accordance with the Securities Exchange Act, this report has been signed
below
by the following persons on behalf of Manhattan Pharmaceuticals, Inc.
and in the
capacities and on the dates indicated.
|
Signature
|
Title
|
Date
|
||
|
/s/
Douglas Abel
|
Chief
Executive Officer, President and Director
|
March
31, 2006
|
||
| Douglas Abel | (principal executive officer) | |||
|
/s/
Nicholas J. Rossettos
|
Treasurer,
Secretary, Chief Financial Officer and Chief Operating
Officer
|
March
31, 2006
|
||
| Nicholas J. Rossettos | (principal accounting and financial officer) | |||
|
/s/
Neil Herskowitz
|
Director
|
March
31, 2006
|
||
| Neil Herskowitz | ||||
|
/s/
Malcolm Hoenlein
|
Director
|
March
31, 2006
|
||
| Malcolm Hoenlein | ||||
|
/s/
Timothy McInerney
|
Director
|
March
31, 2006
|
||
| Timothy McInerney | ||||
|
/s/
Joan Pons
|
Director
|
March
31, 2006
|
||
| Joan Pons | ||||
|
/s/
Richard Steinhart
|
Director
|
March
31, 2006
|
||
| Richard Steinhart | ||||
|
/s/
Michael Weiser
|
Director
|
March
31, 2006
|
||
| Michael Weiser |
|
Page
|
|
|
F-2
|
|
|
F-3
|
|
|
F-4
|
|
|
F-5
|
|
|
F-6
|
|
|
F-7
|
The
Board
of Directors and Stockholders
Manhattan
Pharmaceuticals, Inc.
We
have audited the accompanying consolidated balance sheets of Manhattan
Pharmaceuticals, Inc. and Subsidiaries (a development stage company)
as of
December 31, 2005 and 2004, and the related consolidated statements of
operations, stockholders' equity (deficiency) and cash flows for the
years then
ended, and for the period from August 6, 2001 (date of inception) to
December
31, 2005. 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 consolidated financial position
of
Manhattan Pharmaceuticals, Inc. and Subsidiaries as of December 31, 2005
and
2004, and their consolidated results of operations and cash flows for
the years
then ended and for the period from August 6, 2001 (date of inception)
to
December 31, 2005, in conformity with accounting principles generally
accepted
in the United States of America.
The
accompanying consolidated financial statements have been prepared assuming
that
the Company will continue as a going concern. As discussed in Note 2,
the
Company incurred a net loss of $19,140,997and used $6,244,942 of cash
in
operating activities during the year ended December 31, 2005 and, as
of that
date, it had a loss from inception of $32,092,051. These matters raise
substantial doubt about the Company’s ability to continue as a going concern.
Management’s plans concerning these matters are also described in Note 2. The
consolidated financial statements do not include any adjustments that
might
result from the outcome of this uncertainty.
/s/
J.H. Cohn LLP
Roseland,
New Jersey
March
3, 2006
|
MANHATTAN
PHARMACEUTICALS, INC. AND SUBSIDIARIES
|
|||||||||||
|
(A
Development Stage Company)
|
|||||||||||
|
December
31,
|
December
31,
|
||||||
|
Assets
|
2005
|
2004
|
|||||
|
Current
assets:
|
|||||||
|
Cash
and cash equivalents
|
$
|
9,826,336
|
$
|
905,656
|
|||
|
Short-term
investments, available for sale, at market
|
1,007,818
|
4,514,216
|
|||||
|
Prepaid
expenses
|
194,776
|
40,126
|
|||||
|
Total
current assets
|
11,028,930
|
5,459,998
|
|||||
|
Property
and equipment, net
|
106,877
|
119,017
|
|||||
|
Other
assets
|
70,506
|
70,506
|
|||||
|
Total
assets
|
$
|
11,206,313
|
$
|
5,649,521
|
|||
|
Liabilities
and Stockholders’ Equity
|
|||||||
|
Current
liabilities:
|
|||||||
|
Accounts
payable
|
$
|
1,617,489
|
$
|
1,143,603
|
|||
|
Accrued
expenses
|
48,328
|
52,102
|
|||||
|
Total
liabilities
|
1,665,817
|
1,195,705
|
|||||
|
Commitments
and Contingencies
|
|||||||
|
Stockholders’
equity:
|
|||||||
|
Series
A convertible preferred stock, $.001 par value.
|
|||||||
|
Authorized
1,500,000 shares; 0 and 854,373 shares issued and
|
|||||||
|
outstanding
at December 31, 2005 and December 31, 2004, respectively
|
|||||||
|
(liquidation
preference aggregating $0 and $8,973,730 at
|
|||||||
|
December
31, 2005 and December 31, 2004, respectively)
|
—
|
854
|
|||||
|
Common
stock, $.001 par value. Authorized 150,000,000 shares;
|
|||||||
|
60,092,697
and 28,309,187 shares issued and outstanding
|
|||||||
|
at
December 31, 2005 and December 31, 2004, respectively
|
60,093
|
28,309
|
|||||
|
Additional
paid-in capital
|
42,751,111
|
18,083,208
|
|||||
|
Deficit
accumulated during the development stage
|
(33,271,695
|
)
|
(13,955,035
|
)
|
|||
|
Dividends
payable in shares
|
—
|
303,411
|
|||||
|
Accumulated
other comprehensive income
|
987
|
13,237
|
|||||
|
Unearned
consulting services
|
—
|
(20,168
|
)
|
||||
|
Total
stockholders’ equity
|
9,540,496
|
4,453,816
|
|||||
|
Total
liabilities and stockholders' equity
|
$
|
11,206,313
|
$
|
5,649,521
|
|||
See
accompanying notes to consolidated financial statements.
|
MANHATTAN
PHARMACEUTICALS, INC. AND SUBSIDIARIES
|
|||||||||||||
|
(A
Development Stage Company)
|
|||||||||||||
|
Cumulative
|
||||||||||
|
period
from
|
||||||||||
|
August
6, 2001
|
||||||||||
|
(inception)
to
|
||||||||||
|
Years
ended December 31,
|
December
31,
|
|||||||||
|
2005
|
2004
|
2005
|
||||||||
|
Revenue
|
$
|
—
|
$
|
—
|
$
|
—
|
||||
|
Costs
and expenses:
|
||||||||||
|
Research
and development
|
5,178,077
|
4,152,994
|
11,780,511
|
|||||||
|
General
and administrative
|
2,291,121
|
1,989,829
|
6,416,611
|
|||||||
|
In-process
research and development charge
|
11,887,807
|
—
|
11,887,807
|
|||||||
|
Impairment
of intangible assets
|
—
|
—
|
1,248,230
|
|||||||
|
Loss
on disposition of intangible assets
|
—
|
—
|
1,213,878
|
|||||||
|
Total
operating expenses
|
19,357,005
|
6,142,823
|
32,547,037
|
|||||||
|
Operating
loss
|
(19,357,005
|
)
|
(6,142,823
|
)
|
(32,547,037
|
)
|
||||
|
Other
(income) expense:
|
||||||||||
|
Interest
and other income
|
(210,156
|
)
|
(175,610
|
)
|
(401,845
|
)
|
||||
|
Interest
expense
|
—
|
—
|
23,893
|
|||||||
|
Realized
gain on sale of marketable equity securities
|
(5,852
|
)
|
(71,182
|
)
|
(77,034
|
)
|
||||
|
Total
other income
|
(216,008
|
)
|
(246,792
|
)
|
(454,986
|
)
|
||||
|
Net
loss
|
(19,140,997
|
)
|
(5,896,031
|
)
|
(32,092,051
|
)
|
||||
|
Preferred
stock dividends (including imputed amounts)
|
(175,663
|
)
|
(585,799
|
)
|
(1,179,644
|
)
|
||||
|
Net
loss applicable to common shares
|
$
|
(19,316,660
|
)
|
$
|
(6,481,830
|
)
|
$
|
(33,271,695
|
)
|
|
|
Net
loss per common share:
|
||||||||||
|
Basic
and diluted
|
$
|
(0.44
|
)
|
$
|
(0.24
|
)
|
||||
|
Weighted
average shares of common stock outstanding:
|
||||||||||
|
Basic
and diluted
|
43,544,206
|
26,936,658
|
||||||||
|
See
accompanying notes to consolidated financial statements.
|
||||||||||
|
MANHATTAN
PHARMACEUTICALS, INC. AND SUBSIDIARIES
|
||||||||||||||||||||||||||
|
(A
Development Stage Company)
|
||||||||||||||||||||||||||
|
Deficit
|
Dividends
|
Total
|
||||||||||||||||||||||||||||||||
|
Series
A
|
accumulated
|
payable
in
|
Accumulated
|
stock–
|
||||||||||||||||||||||||||||||
|
convertible
|
Additional
|
during
|
Series
A
|
other
|
Unearned
|
holders'
|
||||||||||||||||||||||||||||
|
preferred
stock
|
Common
stock
|
paid-in
|
Subscription
|
development
|
preferred
|
comprehensive
|
consulting
|
equity
|
||||||||||||||||||||||||||
|
Shares
|
Amount
|
Shares
|
Amount
|
capital
|
receivable
|
stage
|
shares
|
income/(loss)
|
services
|
(deficiency)
|
||||||||||||||||||||||||
|
Stock
issued at $0.0004 per
|
||||||||||||||||||||||||||||||||||
|
share
for subscription receivable
|
—
|
$
|
—
|
10,167,741
|
$
|
10,168
|
$
|
(6,168
|
)
|
$
|
(4,000
|
)
|
$
|
—
|
$
|
—
|
$
|
—
|
$
|
—
|
$
|
—
|
||||||||||||
|
Net
loss
|
—
|
—
|
—
|
—
|
—
|
—
|
(56,796
|
)
|
—
|
—
|
—
|
(56,796
|
)
|
|||||||||||||||||||||
|
Balance
at December 31, 2001
|
—
|
—
|
10,167,741
|
10,168
|
(6,168
|
)
|
(4,000
|
)
|
(56,796
|
)
|
—
|
—
|
—
|
(56,796
|
)
|
|||||||||||||||||||
|
Proceeds
from subscription receivable
|
—
|
—
|
—
|
—
|
—
|
4,000
|
—
|
—
|
—
|
—
|
4,000
|
|||||||||||||||||||||||
|
Stock
issued at $0.0004 per share
|
||||||||||||||||||||||||||||||||||
|
for
license rights
|
—
|
—
|
2,541,935
|
2,542
|
(1,542
|
)
|
—
|
—
|
—
|
—
|
—
|
1,000
|
||||||||||||||||||||||
|
Stock
options issued for consulting services
|
—
|
—
|
—
|
—
|
60,589
|
—
|
—
|
—
|
—
|
(60,589
|
)
|
—
|
||||||||||||||||||||||
|
Amortization
of unearned consulting services
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
22,721
|
22,721
|
|||||||||||||||||||||||
|
Sales
of common stock at $0.63 per
|
||||||||||||||||||||||||||||||||||
|
share
through private
|
||||||||||||||||||||||||||||||||||
|
placement,
net of expenses
|
—
|
—
|
3,043,332
|
3,043
|
1,701,275
|
—
|
—
|
—
|
—
|
—
|
1,704,318
|
|||||||||||||||||||||||
|
Net
loss
|
—
|
—
|
—
|
—
|
—
|
(1,037,320
|
)
|
—
|
—
|
—
|
(1,037,320
|
)
|
||||||||||||||||||||||
|
Balance
at December 31, 2002
|
—
|
—
|
15,753,008
|
15,753
|
1,754,154
|
—
|
(1,094,116
|
)
|
—
|
—
|
(37,868
|
)
|
637,923
|
|||||||||||||||||||||
|
Common
stock issued at $0.63 per share, net of
expenses
|
—
|
—
|
1,321,806
|
1,322
|
742,369
|
—
|
—
|
—
|
—
|
—
|
743,691
|
|||||||||||||||||||||||
|
Effect
of reverse acquisition
|
—
|
—
|
6,287,582
|
6,287
|
2,329,954
|
—
|
—
|
—
|
—
|
—
|
2,336,241
|
|||||||||||||||||||||||
|
Amortization
of unearned consulting costs
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
37,868
|
37,868
|
|||||||||||||||||||||||
|
Unrealized
loss on short-term investments
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
(7,760
|
)
|
—
|
(7,760
|
)
|
|||||||||||||||||||||
|
Payment
for fractional shares for stock combination
|
—
|
—
|
—
|
—
|
(300
|
)
|
—
|
—
|
—
|
—
|
—
|
(300
|
)
|
|||||||||||||||||||||
|
Preferred
stock issued at $10 per share, net of
expenses
|
1,000,000
|
1,000
|
—
|
—
|
9,045,176
|
—
|
—
|
—
|
—
|
—
|
9,046,176
|
|||||||||||||||||||||||
|
Imputed
preferred stock dividend
|
418,182
|
—
|
(418,182
|
)
|
—
|
—
|
||||||||||||||||||||||||||||
|
Net
loss
|
—
|
—
|
—
|
—
|
—
|
—
|
(5,960,907
|
)
|
—
|
—
|
—
|
(5,960,907
|
)
|
|||||||||||||||||||||
|
Balance
at December 31, 2003
|
1,000,000
|
1,000
|
23,362,396
|
23,362
|
14,289,535
|
—
|
(7,473,205
|
)
|
—
|
(7,760
|
)
|
—
|
6,832,932
|
|||||||||||||||||||||
|
Exercise
of stock options
|
—
|
—
|
27,600
|
27
|
30,073
|
—
|
—
|
—
|
—
|
—
|
30,100
|
|||||||||||||||||||||||
|
Common
stock issued through private placement at $1.10 per
share,
|
||||||||||||||||||||||||||||||||||
|
net
of expenses
|
—
|
—
|
3,368,952
|
3,369
|
3,358,349
|
—
|
—
|
—
|
—
|
—
|
3,361,718
|
|||||||||||||||||||||||
|
Conversion
of preferred stock to common stock
|
(170,528
|
)
|
(171
|
)
|
1,550,239
|
1,551
|
(1,380
|
)
|
—
|
—
|
—
|
—
|
—
|
—
|
||||||||||||||||||||
|
Preferred
stock dividends paid by issuance of
shares
|
24,901
|
25
|
—
|
—
|
281,073
|
—
|
—
|
(282,388
|
)
|
—
|
—
|
(1,290
|
)
|
|||||||||||||||||||||
|
Preferred
stock dividend accrued
|
—
|
—
|
—
|
—
|
—
|
—
|
(585,799
|
)
|
585,799
|
—
|
—
|
—
|
||||||||||||||||||||||
|
Warrants
issued for consulting services
|
—
|
—
|
—
|
—
|
125,558
|
—
|
—
|
—
|
—
|
(120,968
|
)
|
4,590
|
||||||||||||||||||||||
|
Amortization
of unearned consulting costs
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
100,800
|
100,800
|
|||||||||||||||||||||||
|
Reversal
of unrealized loss on short-term
|
||||||||||||||||||||||||||||||||||
|
investments
and unrealized gain on short-term
investments
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
20,997
|
—
|
20,997
|
|||||||||||||||||||||||
|
Net
loss
|
—
|
—
|
—
|
—
|
—
|
—
|
(5,896,031
|
)
|
—
|
—
|
—
|
(5,896,031
|
)
|
|||||||||||||||||||||
|
Balance
at December 31, 2004
|
854,373
|
854
|
28,309,187
|
28,309
|
18,083,208
|
—
|
(13,955,035
|
)
|
303,411
|
13,237
|
(20,168
|
)
|
4,453,816
|
|||||||||||||||||||||
|
Common
stock issued through private placement at $1.11 and
$1.15
|
||||||||||||||||||||||||||||||||||
|
per
share, net of expenses
|
—
|
—
|
11,917,680
|
11,918
|
12,238,291
|
—
|
—
|
—
|
—
|
—
|
12,250,209
|
|||||||||||||||||||||||
|
Common
stock issued to vendor at $1.11 per
|
||||||||||||||||||||||||||||||||||
|
share
in satisfaction of accounts payable
|
—
|
—
|
675,675
|
676
|
749,324
|
—
|
—
|
—
|
—
|
—
|
750,000
|
|||||||||||||||||||||||
|
Exercise
of stock options
|
—
|
—
|
32,400
|
33
|
32,367
|
—
|
—
|
—
|
—
|
—
|
32,400
|
|||||||||||||||||||||||
|
Exercise
of warrants
|
—
|
—
|
279,845
|
279
|
68,212
|
—
|
—
|
—
|
—
|
—
|
68,491
|
|||||||||||||||||||||||
|
Conversion
of preferred stock to common stock
|
(896,154
|
)
|
(896
|
)
|
8,146,858
|
8,147
|
(7,251
|
)
|
—
|
—
|
—
|
—
|
—
|
—
|
||||||||||||||||||||
|
Preferred
stock dividends paid by issuance of
shares
|
41,781
|
42
|
—
|
—
|
477,736
|
—
|
—
|
(479,074
|
)
|
—
|
—
|
(1,296
|
)
|
|||||||||||||||||||||
|
Preferred
stock dividend accrued
|
—
|
—
|
—
|
—
|
—
|
—
|
(175,663
|
)
|
175,663
|
—
|
—
|
—
|
||||||||||||||||||||||
|
Stock
based compensation
|
—
|
—
|
—
|
—
|
66,971
|
—
|
—
|
—
|
—
|
20,168
|
87,139
|
|||||||||||||||||||||||
|
Reversal
of unrealized gain on short-term
investments
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
(12,250
|
)
|
—
|
(12,250
|
)
|
|||||||||||||||||||||
|
Stock
issued in connection with acquisition of Tarpan Therapeutics,
Inc.
|
—
|
—
|
10,731,052
|
10,731
|
11,042,253
|
—
|
—
|
—
|
—
|
—
|
11,052,984
|
|||||||||||||||||||||||
|
Net
loss
|
—
|
—
|
—
|
—
|
—
|
—
|
(19,140,997
|
)
|
—
|
—
|
—
|
(19,140,997
|
)
|
|||||||||||||||||||||
|
Balance
at December 31, 2005
|
—
|
$
|
—
|
60,092,697
|
$
|
60,093
|
$
|
42,751,111
|
$
|
—
|
$
|
(33,271,695
|
)
|
$
|
—
|
$
|
987
|
$
|
—
|
$
|
9,540,496
|
|||||||||||||
See
accompanying notes to consolidated financial statements.
|
MANHATTAN
PHARMACEUTICALS, INC. AND SUBSIDIARIES
|
|||||||||||||||
|
(A
Development Stage Company)
|
|||||||||||||||
|
Cumulative
|
||||||||||
|
period
from
|
||||||||||
|
August
6, 2001
|
||||||||||
|
(inception)
to
|
||||||||||
|
Years
ended December 31,
|
December
31,
|
|||||||||
|
2005
|
2004
|
2005
|
||||||||
|
Cash
flows from operating activities:
|
||||||||||
|
Net
loss
|
$
|
(19,140,997
|
)
|
$
|
(5,896,031
|
)
|
$
|
(32,092,051
|
)
|
|
|
Adjustments
to reconcile net loss to
|
||||||||||
|
net
cash used in operating activities:
|
||||||||||
|
Common
stock issued for license rights
|
—
|
—
|
1,000
|
|||||||
|
Stock
based compensation
|
87,139
|
100,800
|
248,528
|
|||||||
|
Warrants
issued for consulting services
|
—
|
4,590
|
4,590
|
|||||||
|
Amortization
of intangible assets
|
—
|
—
|
145,162
|
|||||||
|
Gain
on sale of marketable equity securities
|
(5,852
|
)
|
(71,182
|
)
|
(77,034
|
)
|
||||
|
Depreciation
|
53,734
|
27,344
|
87,294
|
|||||||
|
Non
cash portion of in-process research and development charge
|
11,721,623
|
—
|
11,721,623
|
|||||||
|
Loss
on impairment of intangible assets
|
—
|
—
|
1,248,230
|
|||||||
|
Loss
on disposition of intangible assets
|
—
|
—
|
1,213,878
|
|||||||
|
Changes
in operating assets and liabilities, net of acquisitions:
|
||||||||||
|
Decrease
(increase) in prepaid expenses and other current assets
|
(154,650
|
)
|
(15,145
|
)
|
(136,531
|
)
|
||||
|
Increase
in other assets
|
—
|
(70,506
|
)
|
(70,506
|
)
|
|||||
|
Increase
in accounts payable
|
1,197,835
|
595,008
|
2,017,703
|
|||||||
|
Decrease
in accrued expenses
|
(3,774
|
)
|
(365,323
|
)
|
(491,993
|
)
|
||||
|
Net
cash used in operating activities
|
(6,244,942
|
)
|
(5,690,445
|
)
|
(16,180,107
|
)
|
||||
|
Cash
flows from investing activities:
|
||||||||||
|
Purchase
of property and equipment
|
(39,555
|
)
|
(138,340
|
)
|
(184,449
|
)
|
||||
|
Cash
paid in connection with acquisitions
|
—
|
—
|
(32,808
|
)
|
||||||
|
Purchase
of short-term investments
|
—
|
(5,000,979
|
)
|
(5,000,979
|
)
|
|||||
|
Proceeds
from sale of short-term investments
|
3,499,999
|
931,089
|
4,431,088
|
|||||||
|
Proceeds
from sale of license
|
—
|
—
|
200,001
|
|||||||
|
Cash
acquired in acquisition
|
6,777
|
—
|
6,777
|
|||||||
|
Net
cash provided by (used in) investing activities
|
3,467,221
|
(4,208,230
|
)
|
(580,370
|
)
|
|||||
|
Cash
flows from financing activities:
|
||||||||||
|
Proceeds
from issuances of notes payable to stockholders
|
—
|
—
|
233,500
|
|||||||
|
Repayments
of notes payable to stockholders
|
(651,402
|
)
|
—
|
(884,902
|
)
|
|||||
|
Proceeds
from issuance of note payable to bank
|
—
|
—
|
600,000
|
|||||||
|
Repayment
of note payable to bank
|
—
|
—
|
(600,000
|
)
|
||||||
|
Proceeds
from subscriptions receivable
|
—
|
—
|
4,000
|
|||||||
|
Payment
for fractional shares for Preferred stock dividends
|
(1,296
|
)
|
(1,290
|
)
|
(2,286
|
)
|
||||
|
Proceeds
from sale of common stock, net
|
12,250,209
|
3,361,718
|
18,059,335
|
|||||||
|
Proceeds
from sale of preferred stock, net
|
—
|
—
|
9,046,176
|
|||||||
|
Proceeds
from exercise of stock options
|
32,400
|
30,100
|
62,500
|
|||||||
|
Proceeds
from exercise of warrants
|
68,490
|
—
|
68,490
|
|||||||
|
Net
cash provided by financing activities
|
11,698,401
|
3,390,528
|
26,586,813
|
|||||||
|
Net
increase (decrease) in cash and cash equivalents
|
8,920,680
|
(6,508,147
|
)
|
9,826,336
|
||||||
|
Cash
and cash equivalents at beginning of period
|
905,656
|
7,413,803
|
—
|
|||||||
|
Cash
and cash equivalents at end of period
|
$
|
9,826,336
|
$
|
905,656
|
$
|
9,826,336
|
||||
|
Supplemental
disclosure of cash flow information:
|
||||||||||
|
Interest
paid
|
$
|
—
|
$
|
—
|
$
|
26,934
|
||||
|
Supplemental
disclosure of noncash investing and financing activities:
|
||||||||||
|
Common
stock issued in satisfaction of accounts payable
|
$
|
750,000
|
$
|
—
|
$
|
750,000
|
||||
|
Preferred
stock dividends accrued
|
175,663
|
585,799
|
761,462
|
|||||||
|
Conversion
of preferred stock to common stock
|
896
|
171
|
1,067
|
|||||||
|
Preferred
stock dividends paid by issuance of shares
|
477,736
|
282,388
|
759,134
|
|||||||
|
Issuance
of common stock for acquisitions
|
11,052,984
|
—
|
13,389,226
|
|||||||
|
Marketable
equity securities received in connection with
|
||||||||||
|
sale
of license
|
—
|
—
|
359,907
|
|||||||
|
Net
liabilities assumed over assets acquired in business
combination
|
(675,416
|
)
|
—
|
(675,416
|
)
|
|||||
|
See
accompanying notes to consolidated financial statements.
|
||||||||||
MANHATTAN
PHARMACEUTICALS, INC.
(A
Development Stage Company)
December
31, 2005 and 2004
| (1) |
Merger
and Nature of Operations
|
2003
Reverse Merger
On
February 21, 2003, the Company (formerly known as “Atlantic Technology Ventures,
Inc.”) completed a reverse acquisition of privately held Manhattan Research
Development, Inc. (formerly Manhattan Pharmaceuticals, Inc.), a Delaware
corporation. The merger was effected pursuant to an Agreement and Plan
of Merger
dated December 17, 2002 (the “Merger Agreement”) by and among the Company,
Manhattan Research and Manhattan Pharmaceuticals Acquisition Corp, the
Company’s
wholly owned subsidiary (“MPAC”). In accordance with the terms of the Merger
Agreement, MPAC merged with and into Manhattan Research, with Manhattan
Research
remaining as the surviving corporation and a wholly owned subsidiary
of the
Company. Pursuant to the Merger Agreement, upon the effective time of
the
merger, the outstanding shares of common stock of Manhattan Research
automatically converted into an aggregate of 18,689,917 shares of the
Company’s
common stock, which represented 80 percent of the Company’s outstanding voting
stock after giving effect to the merger. All share and per share amounts
have
been adjusted for a 1-for-5 combination on September 25, 2003 (see Note
5). In
addition, immediately prior to the merger Manhattan Research had outstanding
options and warrants to purchase an aggregate of 172,856 shares of its
common
stock, which, in accordance with the terms of the merger, automatically
converted into options and warrants to purchase an aggregate of 2,196,944
shares
of the Company’s common stock. Since the stockholders of Manhattan Research
received the majority of the voting shares of the Company, the merger
was
accounted for as a reverse acquisition whereby Manhattan Research was
the
accounting acquirer (legal acquiree) and the Company was the accounting
acquiree
(legal acquirer) under the purchase method of accounting. Based on the
five-day
average price of the Company’s common stock of $0.50 per share, the purchase
price approximated $2,336,000 ($3,167,178 including net liabilities assumed)
which represents 20 percent of the market value of the combined Company’s
post-merger total outstanding shares of 23,362,396. In connection with
the
merger, the Company changed its name from “Atlantic Technology Ventures, Inc.”
to “Manhattan Pharmaceuticals, Inc.” Under the purchase method of accounting, at
the time of the merger, Manhattan Research recognized patents and licenses
for
substantially all of the purchase price. A purchase price allocation
was
completed in the third quarter of 2003 and did not result in changes
to the
initial estimate. As a result of acquiring Manhattan Research, the Company
received new technologies. The results of the combined operations have
been
included in the Company’s financial statements since February 2003.
Business
and Operations
As
described above, the Company resulted from the February 21, 2003 reverse
merger
between Atlantic Technology Ventures, Inc., which was incorporated on
May 18,
1993, and privately-held Manhattan Research Development, Inc., incorporated
on
August 6, 2001. The Company was incorporated in the State of Delaware.
In
connection with the merger, the former stockholders of Manhattan Research
received a number of shares of Atlantic's common stock so that following
the
merger they collectively owned 80 percent of the outstanding shares.
Upon
completion of the merger, Atlantic changed its name to Manhattan
Pharmaceuticals, Inc. and thereafter adopted the business of Manhattan
Research
Development.
F-7
MANHATTAN
PHARMACEUTICALS, INC.
(A
Development Stage Company)
Notes
to
Consolidated Financial Statements
December
31, 2005 and 2004
The
Company is a development stage biopharmaceutical company that holds an
exclusive
world-wide, royalty-free license to certain intellectual property related
to
oleoyl-estrone, which is owned by Oleoyl-Estrone Developments, SL (“OED”) of
Barcelona, Spain. Oleoyl-estrone is an orally administered small molecule
that
has been shown to cause significant weight loss in pre-clinical animal
studies
regardless of dietary modifications. In addition, the Company has exclusive,
world-wide proprietary rights to a technology for the clinical uses of
PTH
(1-34) relating to the regulation of cell differentiation and proliferation
for
treatment of skin disorders including psoriasis. The Company also holds
the
worldwide, exclusive rights to proprietary lingual spray technology to
deliver
the drug propofol for preprocedural sedation prior to diagnostic, therapeutic
or
endoscopic procedures.
Acquisition
of Tarpan Therapeutics, Inc.
On
April
1, 2005, the Company entered into an Agreement and Plan of Merger (the
“Agreement”) with Tarpan Therapeutics, Inc., a Delaware corporation (“Tarpan”),
and Tarpan Acquisition Corp., a Delaware corporation and wholly-owned
subsidiary
of the Company (“TAC”). Under the Agreement TAC merged with and into Tarpan,
with Tarpan remaining as the surviving corporation and a wholly-owned
subsidiary
of the Company (the “Merger”). The Merger was completed April 1, 2005. In
consideration for their shares of Tarpan capital stock and in accordance
with
the Agreement, the stockholders of Tarpan received 10,731,052 shares
of the
Company’s common stock such that, upon the effective time of the Merger, the
Tarpan stockholders collectively received approximately 20 percent of the
Company’s then outstanding common stock on a fully-diluted basis. Based on the
five day average price of the Company’s common stock of $1.03 per share, the
value of the shares issued totaled $11,052,984. In addition, there were
$166,184
of acquisition costs. At the time of the Merger, Tarpan had outstanding
indebtedness of $651,000 (inclusive of 5% accrued interest) resulting
from a
series of promissory notes issued to Paramount BioCapital Investments,
LLC and
Horizon BioMedical Ventures, LLC, both of which are owned or controlled
by Dr.
Lindsay Rosenwald. The notes were amended at the time of the Merger to
provide
that one-half of the outstanding indebtedness was payable upon completion
of the
Merger and the remaining one-half was payable at such time as the Company
raised
at least $5 million in new financing and no interest would accrue on
unpaid
principal subsequent to the Merger. The notes were repaid in full by
the Company
in two installments on April 15, 2005 and September 6, 2005.
The
acquisition of Tarpan has been accounted for by the Company under the
purchase
method of accounting in accordance with Statement of Financial Accounting
Standards (“SFAS”) No. 141 “Business Combinations”. Under the purchase method,
assets acquired and liabilities assumed by the Company are recorded at
their
estimated fair values and the results of operations of the acquired company
are
consolidated with those of the Company from the date of acquisition.
Several
of Tarpan’s former stockholders are directors or significant stockholders of the
Company. Dr. Rosenwald and various trusts established for the benefit
of Dr.
Rosenwald and members of his immediate family collectively beneficially
owned
approximately 46 percent of Tarpan’s common stock and beneficially owned
approximately 26 percent of the Company’s common stock. In addition, Joshua
Kazam, David Tanen, Dr. Michael Weiser and Timothy McInerney, all of
whom were
members of the Company’s board of directors at the time of the transaction,
collectively owned approximately 13.4 percent of Tarpan’s outstanding common
stock. Dr. Weiser and Mr. McInerney are also employed by Paramount BioCapital,
Inc., an entity owned and controlled by Dr. Rosenwald. As a result of
such
relationships between the Company and Tarpan, the Company’s board of directors
established a special committee to consider and approve the Agreement.
The
members of the special committee did not have any prior relationship
with
Tarpan.
MANHATTAN
PHARMACEUTICALS, INC.
(A
Development Stage Company)
Notes
to
Consolidated Financial Statements
December
31, 2005 and 2004
The
excess purchase price paid by the Company to acquire the net assets of
Tarpan
was allocated to acquired in-process research and development totaling
$11,887,807. As required by Financial Accounting Standards Board (“FASB”)
Interpretation No. 4, “Applicability of FASB Statement No. 2 to Business
combinations Accounted for by the Purchase Method” (“FIN 4”), the Company
recorded a charge in its consolidated statement of operations for the
year ended
December 31, 2005 for the in-process research and development. Tarpan
is a
biopharmaceutical company engaged in the development of the Phase II
pharmaceutical product candidate, PTH (1-34). The acquisition of Tarpan
gives
Manhattan its third product candidate. Results of operations of Tarpan
are
included in the consolidated financials since April 1, 2005.
A
summary
of the allocation of the purchase price is as follows:
|
Assets
purchased:
|
||||
|
Cash
|
$
|
6,777
|
||
|
Property
and equipment
|
2,037
|
|||
|
Acquired
in-process research and development
|
11,887,807
|
|||
|
Total
|
11,896,621
|
|||
|
Liabilities
assumed:
|
||||
|
Accounts
payable
|
26,051
|
|||
|
Notes
payable - related parties
|
651,402
|
|||
|
Total
|
677,453
|
|||
|
Net
purchase price
|
$
|
11,219,168
|
||
The
following unaudited pro forma financial information presents the condensed
consolidated results of operations of the Company and Tarpan, as if the
acquisition had occurred on January 1, 2004 instead of April 1, 2005,
after
giving effect to certain adjustments, including the issuance of the Company’s
common stock as part of the purchase price. The unaudited pro forma information
does not necessarily reflect the results of operations that would have
occurred
had the entities been a single company during these periods.
MANHATTAN
PHARMACEUTICALS, INC.
(A
Development Stage Company)
Notes
to
Consolidated Financial Statements
December
31, 2005 and 2004
|
Twelve
months ended
|
|||||||
|
December
31,
|
|||||||
|
2005
|
2004
|
||||||
|
Net
loss
|
$
|
(19,268,258
|
)
|
$
|
(18,346,169
|
)
|
|
|
Weighted
average number of common shares outstanding
|
46,219,619
|
37,667,710
|
|||||
|
Loss
per common share - basic and fully diluted
|
$
|
(0.42
|
)
|
$
|
(0.49
|
)
|
|
| (2) |
Liquidity
and Basis of Presentation
|
Liquidity
The
Company has reported a net loss of $5,896,031 and negative cash flows
from
operating activities of $5,690,445 for the year ended December 31, 2004
and a
net loss of $19,140,997 and negative cash flows from operating activities
of
$6,244,942 for the year ended December 31, 2005. The net loss from date
of
inception, August 6, 2001 to December 31, 2005 amounts to
$32,092,051.
Management
believes that the Company will continue to incur net losses and negative
cash
flows from operating activities through at least December 31, 2006. Based
on the
resources of the Company available at December 31, 2005, management believes
that the Company will need additional equity or debt financing or will
need to
generate revenues during 2006 through licensing of its products or entering
into
strategic alliances to be able to sustain its operations beyond 2006
and that it
will need additional financing thereafter until it can achieve profitability,
if
ever. These matters raise substantial doubt about the Company’s ability to
continue as a going concern.
The
Company’s continued operations will depend on its ability to raise additional
funds through various potential sources such as equity and debt financing,
collaborative agreements, strategic alliances and its ability to realize
the
full potential of its technology in development. Additional funds may
not become
available on acceptable terms, and there can be no assurance that any
additional
funding that the Company does obtain will be sufficient to meet the Company’s
needs in the long term. Through December 31, 2005, a significant portion
of the
Company’s financing has been through private placements of common and preferred
stock. Until and unless the Company’s operations generate significant revenues
and cash flows from operating activities, the Company will attempt to
continue
to fund operations from cash on hand and through the sources of capital
previously described.
There
can be no assurance, however that management's plans will enable the
Company to
attain profitable operations or generate sufficient cash flows from operations
and financing activities necessary to continue as a going concern. The
accompanying financial statements do not include any adjustments relating
to the
classification of recorded asset amounts or amounts and classification
of
liabilities that might be necessary should the Company be unable to continue
in
existence.
MANHATTAN
PHARMACEUTICALS, INC.
(A
Development Stage Company)
Notes
to
Consolidated Financial Statements
December
31, 2005 and 2004
As
described in Note 5, the Company completed a private placement offering
of units
consisting of shares of its common stock and warrants to purchase additional
shares of common stock. The private placement was completed in two separate
closings held on August 26, 2005 and August 30, 2005, respectively. In
the
August 26 closing, the Company sold a total of 10,808,971 shares of common
stock
and five-year warrants to purchase 2,161,767 shares for total gross proceeds
of
$11,997,954. The warrants issued at the August 26 closing are exercisable
at a
price of $1.44 per share. On August 30, 2005, the Company closed on the
sale of
an additional 1,108,709 shares of common stock and warrants to purchase
221,741
common shares, which resulted in gross proceeds of $1,275,016. The warrants
issued in connection with the August 30 closing are exercisable at a
price of
$1.49 per share. After payment of all related commissions and expenses
totaling
$1,022,761, the Company realized net proceeds of $12,250,209.
| (3) |
Summary
of Significant Accounting
Policies
|
Basis
of Presentation
The
consolidated financial statements have been prepared in accordance with
the
provisions of SFAS No. 7, “Accounting and Reporting by Development
Stage Enterprises.”
Principles
of Consolidation
The
consolidated financial statements include the accounts of the Company
and its
wholly-owned subsidiaries. All intercompany balances and transactions
have been
eliminated in consolidation.
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 certain 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 expenses during
the
reporting period. Actual results could differ from those estimates.
Research
and Development
All
research and development costs are expensed as incurred and include costs
of
consultants who conduct research and development on behalf of the Company
and
its subsidiaries. Costs related to the acquisition of technology rights
and
patents for which development work is still in process are expensed as
incurred
and considered a component of research and development costs.
MANHATTAN
PHARMACEUTICALS, INC.
(A
Development Stage Company)
Notes
to
Consolidated Financial Statements
December
31, 2005 and 2004
Acquired
in-process research and development
Costs
to
acquire in-process research and development projects and technologies
which have
no alternative future use at the date of acquisition are expensed.
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 financial statement carrying
amounts of existing assets and liabilities, and their respective tax
bases and
operating loss and tax credit carryforwards. 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 income in the period that includes the enactment
date. 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.
Computation
of Net Loss per Common Share
Basic
net
loss per common share is calculated by dividing net loss applicable to
common
shares by the weighted-average number of common shares outstanding for
the
period. Diluted net loss per common share is the same as basic net loss
per
common share, since potentially dilutive securities from stock options,
stock
warrants and convertible preferred stock would have an antidilutive effect
because the Company incurred a net loss during each period presented.
The
amounts of potentially dilutive securities excluded from the calculation
were
12,841,159 and 14,871,502 shares at December 31, 2005 and 2004,
respectively.
Stock-Based
Compensation
SFAS
123,
“Accounting for Stock-Based Compensation”, provides for the use of a fair value
based method of accounting for employee stock compensation. However,
SFAS 123
also allows an entity to continue to measure compensation cost for stock
options
granted to employees using the intrinsic value method of accounting prescribed
by Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to
Employees” (“APB 25”), which only requires charges to compensation expense for
the excess, if any, of the fair value of the underlying stock at the
date a
stock option is granted (or at an appropriate subsequent measurement
date) over
the amount the employee must pay to acquire the stock,
if such
amounts differ materially from historical amounts. The Company has elected
to
continue to account for employee stock options using the intrinsic value
method
under APB 25. By making that election, it is required by SFAS 123 and
SFAS 148,
“Accounting for Stock-Based Compensation - Transition and Disclosure” to provide
pro forma disclosures of net income (loss) and earnings (loss) per share
as if a
fair value based method of accounting had been applied for all employee
stock
options.
When
the
exercise price of employee stock options is less than the fair value
of the
underlying stock on the grant date, the Company records deferred compensation
for the difference and amortizes this amount to expense over the vesting
period
of the options. Options or stock awards issued to non-employees and consultants
are recorded at their fair value as determined in accordance with SFAS
123 and
Emerging Issues Task Force (“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, and recognized over the related vesting period.
The
fair value of the options issued to consultants or others which require
“variable accounting” are remeasured at each reporting period and the resultant
change in fair value of the vested options is recorded as a charge or
credit in
the consolidated statement of operations.
MANHATTAN
PHARMACEUTICALS, INC.
(A
Development Stage Company)
Notes
to
Consolidated Financial Statements
December
31, 2005 and 2004
Had
compensation costs been determined in accordance with the fair value
method
prescribed by SFAS 123 for all options issued to employees and amortized
over
the vesting period, the Company’s net loss applicable to common shares and net
loss per common share (basic and diluted) for plan options would have
been
increased to the pro forma amounts indicated below.
|
2005
|
2004
|
||||||
|
Net
loss applicable to common shares, as reported
|
$
|
(19,316,660
|
)
|
$
|
(6,481,830
|
)
|
|
|
Deduct:
Total
stock-based employee
|
|||||||
|
compensation
expense determined
|
|||||||
|
under
fair value method
|
(1,089,814
|
)
|
(1,133,131
|
)
|
|||
|
Net
loss applicable to common shares, pro forma
|
$
|
(20,406,474
|
)
|
$
|
(7,614,961
|
)
|
|
|
Net
loss applicable to common shares – basic
|
|||||||
|
As
reported
|
$
|
(0.44
|
)
|
$
|
(0.24
|
)
|
|
|
Pro
forma
|
(0.47
|
)
|
(0.28
|
)
|
|||
The
fair
value of each option granted is estimated on the date of the grant using
the
Black-Scholes option pricing model with the following assumptions used
for the
grants in 2005 and 2004: dividend yield of 0%; expected volatility of
70% and
72% for 2005 and 73% and 78% for 2004; risk-free interest rates of 3.4%,
3.7%,
4.0% and 4.1% for 2005 and 2.0% for 2004; and expected lives of eight
years for
each year presented.
As
a
result of amendments to SFAS 123, the Company will be required to expense
in its
historical financial statements the fair value of employee stock options
over
the vesting period, beginning January 1, 2006.
Financial
Instruments
At
December 31, 2005 and 2004, the fair values of cash and cash equivalents,
short-term investments and accounts payable approximate their carrying
values
due to the short-term nature of these instruments.
Cash
and Cash Equivalents
Cash
equivalents consist of cash or short term investments with original maturities
at the time of purchase of three months or less.
MANHATTAN
PHARMACEUTICALS, INC.
(A
Development Stage Company)
Notes
to
Consolidated Financial Statements
December
31, 2005 and 2004
Property
and Equipment
Property
and equipment are stated at cost. Depreciation of fixed assets is provided
by
straight-line methods over estimated useful lives. When assets are retired
or
otherwise disposed of, the cost and related accumulated depreciation
are removed
from the accounts, and any resulting gain or loss is recognized in operations
for the period. Amortization of leasehold improvements is calculated
using the
straight-line method over the remaining term of the lease or the life
of the
asset, whichever is shorter. The cost of repairs and maintenance is charged
to
operations as incurred; significant renewals and improvements are
capitalized.
Accounting
for Impairment of Long-Lived Assets
In
accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of
Long-Lived Assets”, long lived assets such as property, plant, and equipment and
intangible assets subject to amortization are reviewed for impairment
whenever
events or changes in circumstances indicate that the carrying amount
of an asset
may not be recoverable. Recoverability of assets to be held and used
is measured
by a comparison of the carrying amount of an asset to estimated undiscounted
future cash flows expected to be generated by the asset. If the carrying
amount
of an asset exceeds its estimated future cash flows, an impairment charge
is
recognized for the amount by which the carrying amount of the asset exceeds
the
fair value of the asset. Assets to be disposed of would be separately
presented
in the consolidated balance sheet and reported at the lower of the carrying
amount or fair value less costs to sell, and would no longer be depreciated.
Short-term
Investments
Short-term
investments are carried at market value since they are marketable and
considered
available-for-sale. The following is a summary of the Company’s short-term
investments:
|
Unrealized
|
||||||||||
|
Cost
|
gain
|
Fair
value
|
||||||||
|
2004
|
||||||||||
|
Eaton
Vance Floating Rate Fund
|
$
|
4,500,979
|
$
|
13,237
|
$
|
4,514,216
|
||||
|
Unrealized
|
||||||||||
|
Cost
|
gain
|
Fair
value
|
||||||||
|
2005
|
||||||||||
|
Eaton
Vance Floating Rate Fund
|
$
|
1,006,831
|
$
|
987
|
$
|
1,007,818
|
||||
MANHATTAN
PHARMACEUTICALS, INC.
(A
Development Stage Company)
Notes
to
Consolidated Financial Statements
December
31, 2005 and 2004
Unrealized
gain (and loss, if any) is excluded from operations and included in accumulated
other comprehensive income (loss). The Company’s comprehensive losses (net
losses adjusted for changes in unrealized gains/losses on short-term
investments) for 2005 and 2004 were $19,153,247 and $5,875,034,
respectively.
| (4) |
Property
and Equipment
|
Property
and equipment consists of the following at December 31:
|
2005
|
2004
|
||||||
|
Property
and equipment
|
$
|
206,988
|
$
|
165,394
|
|||
|
Less
accumulated depreciation
|
(100,111
|
)
|
(46,377
|
)
|
|||
|
Net
property and equipment
|
$
|
106,877
|
$
|
119,017
|
|||
| (5) |
Stockholders’
Equity
|
Common
Stock
The
Company issued 10,167,740 shares of common stock to investors during
December
2001 for subscriptions receivable of $4,000 or $0.0004 per share. During
2002,
the Company received the $4,000 subscription receivable.
In
August
2002, the Company entered into one-year agreements with four consultants
and
issued options to these consultants to purchase 101,678 shares of the
Company's
common stock at an exercise price of $.0039 per share expiring in August
2007.
The Company valued these options at $60,589, fair value, and amortized
the
expense through August 2003. Therefore, the Company expensed $22,721
in 2002 and
$37,868 in 2003. Through December 31, 2005, none of these options were
exercised.
During
2002, the Company commenced a private placement and sold 239,450 shares
of
common stock at $8 ($0.63 post merger) per share and received proceeds
of
$1,704,318, net of expenses of $211,281. These shares converted into
3,043,332
shares of the Company’s common stock when the Company completed the reverse
acquisition of Manhattan Research as discussed in Note 1. In addition,
each
investor received warrants equal to 10% of the number of shares of common
stock
purchased and, accordingly, Manhattan Research issued warrants to purchase
23,945 shares of common stock in 2002 in connection with the private
placement.
Upon the merger, these converted into warrants to purchase approximately
304,000
shares of the Company’s common stock. Each warrant had an exercise price of $8
per share, which post merger converted to approximately $0.63. These
warrants
expire in 2007.
MANHATTAN
PHARMACEUTICALS, INC.
(A
Development Stage Company)
Notes
to
Consolidated Financial Statements
December
31, 2005 and 2004
During
January and February 2003, the Company sold an additional 104,000 shares
of
common stock at $8 ($0.63, post merger) per share and warrants to purchase
10,400 shares of common stock exercisable at $8 ($0.63 post merger) through
the
private placement and received net proceeds of $743,691. These shares
converted
into 1,321,806 shares of the Company’s common stock when the Company completed
its reverse acquisition of Manhattan Research. The warrants to purchase
10,400
shares of common stock converted into warrants to purchase 132,181 common
shares
of the Company.
In
addition, in connection with the private placement, the Company issued
to Joseph
Stevens & Co., Inc., a NASD-member broker-dealer, warrants to purchase
130,511 shares of its common stock that are exercisable at $8 ($0.63
post
merger) per share and expire in 2008. Upon the merger, these warrants
converted
into warrants to purchase 1,658,753 shares of common stock of the
Company.
On
July
25, 2003, the Board of Directors adopted a resolution authorizing an
amendment
to the certificate of incorporation providing for a 1-for-5 combination
of the
Company’s common stock. A resolution approving the 1-for-5 combination was
thereafter consented to in writing by holders of a majority of the Company’s
outstanding common stock. The 1-for-5 combination became effective on
September
25, 2003. Accordingly, all share and per share information in these consolidated
financial statements has been restated to retroactively reflect the 1-for-5
combination.
On
January 13, 2004, the Company completed a private placement of 3,368,637
shares
of its common stock at a per share price of $1.10. After deducting commissions
and other expenses relating to the private placement, the Company received
aggregate net proceeds of approximately $3,362,000. In connection with
the
common stock private placement and the Series A Convertible Preferred
private
placement, the Company issued to the placement agents a 5-year warrant
to
purchase 1,235,589 shares of common stock at a price of $1.10 per
share.
The
Company completed a private placement offering of units consisting of
shares of
its common stock and warrants to purchase additional shares of common
stock in
two separate closings held on August 26, 2005 and August 30, 2005, respectively.
In the August 26 closing, the Company sold a total of 10,808,971 shares
at $1.11
per share of common stock and five-year warrants to purchase 2,161,767
shares
for total gross proceeds of $11,997,954. The warrants issued at the August
26
closing are exercisable at a price of $1.44 per share. On August 30,
2005, the
Company closed on the sale of an additional 1,108,709 shares at $1.15
per share
of common stock and warrants to purchase 221,741 common shares, which
resulted
in gross proceeds of $1,275,016. The warrants issued in connection with
the
August 30 closing are exercisable at a price of $1.49 per share. After
the
payment of all related commissions and expenses totaling $1,022,761,
the Company
realized net proceeds of $12,250,209.
The
Company engaged Paramount BioCapital, Inc. (“Paramount”) an affiliate of a
significant stockholder of the Company, as placement agent and paid total
cash
commissions and expenses of $879,418, of which $121,625 was paid to certain
selected dealers engaged by Paramount in connection with the August 26
closing
and issued five-year warrants to purchase an aggregate of 540,449 shares
of
common stock exercisable at a price of $1.44 per share, of which Paramount
received warrants to purchase 462,184 common shares. In connection with
the
August 30 closing, the Company paid cash commissions to Paramount of
$88,550 and
issued an additional five-year warrant to purchase 55,000 common shares
exercisable at a price of $1.49 per share. Timothy McInerney and Dr.
Michael
Weiser, each a director of the Company, are employees of Paramount BioCapital,
Inc.
MANHATTAN
PHARMACEUTICALS, INC.
(A
Development Stage Company)
Notes
to
Consolidated Financial Statements
December
31, 2005 and 2004
The
terms
of the Company’s Series A Preferred Stock, which was originally issued in
November 2003, provided for its automatic conversion upon the Company’s
completion of a financing that resulted in gross proceeds of at least
$10
million and a “pre-money valuation” of the Company of at least $30 million.
Accordingly, as a result of the August 26, 2005 closing of the Company’s private
placement discussed above, all of the remaining outstanding shares of
the
Company’s Series A Preferred Stock automatically converted into shares of the
Company’s common stock. As of such date, there were 729,626 shares of Series
A
Preferred Stock outstanding, which, upon the closing of the private placement,
converted into an aggregate of 6,632,957 shares of common stock (at a
rate of
9.0909 common shares per share of preferred stock). Prior to the forced
conversion of Series A Preferred Stock on August 26, 2005, there had
been
individual conversions throughout the year aggregating to 166,529 shares
of
Series A Preferred Stock which converted into 1,513,901 shares of common
stock.
On
October 21, 2005, the Company issued 675,675 shares of common stock to
Cato
BioVentures, an affiliate of Cato Research, Inc., in exchange for satisfaction
of $750,000 of accounts payable owed by the Company to Cato Research,
Inc. The
transaction was completed on the same terms as the private placement
described
earlier which closed on August 26, 2005. These terms include the issuance
of
warrants equal to 20 percent of the underlying shares, or 135,135 warrants.
Since the value of the shares and warrants issued on October 21, 2005
was
approximately $750,000, there is no impact on the statement of operations
for
this transaction.
Series
A Preferred Stock
On
November 7, 2003, the Company completed a private placement of 1,000,000
shares
of its newly-designated Series A Convertible Preferred Stock at a price
of $10
per share, resulting in gross proceeds to the Company of $10,000,000
(net
proceeds $9,046,176). Each share of Series A Convertible Preferred Stock
was
convertible at the holder’s election into shares of the company’s common stock
at a conversion price of $1.10 per share. The conversion price of the
Series A
Convertible Preferred Stock was less than the market value of the Company’s
common stock on November 7, 2003. Accordingly in the year ended December
31,
2003, the Company recorded a separate charge to deficit accumulated during
development stage for the beneficial conversion feature associated with
the
convertible preferred stock of $418,182. The Series A Convertible Preferred
Stock has a payment-in-kind dividend of 5 percent.
Maxim
Group, LLC of New York, together with Paramount Capital, Inc., a related
party,
acted as the placement agents in connection with the private
placement.
| (6) |
Stock
Options
|
2003
Stock Option Plan
In
December 2003, the Company established the 2003 Stock Option Plan (the
“2003
Plan”), which provided for the granting of up to 5,400,000 options to officers,
directors, employees and consultants for the purchase of stock. In August
2005,
the Company increased the number of shares of common stock reserved for
issuance
under the 2003 Plan by 2,000,000 shares. At December 31, 2005 and 2004,
respectively, 7,400,000 and 5,400,000 shares were authorized for issuance.
The
options have a maximum term of 10 years and vest over a period determined
by the
Company’s Board of Directors (generally 3 years) and are issued at an exercise
price equal to the fair market value of the shares at the date of grant.
The
2003 Plan expires on December 10, 2013 or when all options have been
granted,
whichever is sooner.
MANHATTAN
PHARMACEUTICALS, INC.
(A
Development Stage Company)
Notes
to
Consolidated Financial Statements
December
31, 2005 and 2004
1995
Stock Option Plan
In
July
1995, the Company established the 1995 Stock Option Plan (the “1995 Plan”),
which provided for the granting of up to 130,000 options to officers,
directors,
employees and consultants for the purchase of stock. In July 1996, the
1995 Plan
was amended to increase the total number of shares authorized for issuance
by
60,000 shares to a total of 190,000 shares and beginning with the 1997
calendar
year, by an amount equal to one percent (1%) of the shares of common
stock
outstanding on December 31 of the immediately preceding calendar year.
At
December 31, 2005 and 2004, 0 and 522,381 shares were authorized for
issuance, respectively. The options have a maximum term of 10 years and
vest
over a period determined by the Company’s Board of Directors (generally 4 years)
and are issued at an exercise price equal to the fair market value of
the shares
at the date of grant. The 1995 Plan expired on June 30, 2005 and no further
options are available for issuance under this plan.
A
summary
of the status of the Company’s stock options as of December 31, 2005 and 2004
and changes during the years then ended is presented below:
|
2005
|
2004
|
||||||||||||
|
Shares
|
Weighted
average exercise price
|
Shares
|
Weighted
average exercise price
|
||||||||||
|
Oustanding
at beginning of year
|
2,822,140
|
$
|
1.17
|
1,392,690
|
$
|
1.68
|
|||||||
|
Granted
|
3,641,180
|
1.45
|
1,672,000
|
1.44
|
|||||||||
|
Exercised
|
(32,400
|
)
|
1.00
|
(27,600
|
)
|
1.09
|
|||||||
|
Cancelled
|
(102,166
|
)
|
1.31
|
(214,950
|
)
|
6.57
|
|||||||
|
Outstanding
at end of year
|
6,328,754
|
$
|
1.33
|
2,822,140
|
$
|
1.17
|
|||||||
|
Options
exercisable at year-end
|
3,472,745
|
1,282,292
|
|||||||||||
|
Weighted-average
|
|||||||||||||
|
fair
value of
|
|||||||||||||
|
options
granted
|
|||||||||||||
|
during
the year
|
$
|
0.89
|
$
|
0.91
|
|||||||||
MANHATTAN
PHARMACEUTICALS, INC.
(A
Development Stage Company)
Notes
to
Consolidated Financial Statements
December
31, 2005 and 2004
Included
in the options granted during 2005 are 350,000 shares issued to consultants
which are subject to variable accounting pursuant to EITF 96-18. As a
result,
the Company recorded expense for the increase in the fair value of those
options
of $66,971 for the year ended December 31, 2005.
The
following table summarizes the information about stock options outstanding
at
December 31, 2005:
|
Remaining
|
Number
of
|
|||||||||
|
Exercise
|
Number
|
contractual
|
options
|
|||||||
|
price
|
outstanding
|
life
(years)
|
exercisable
|
|||||||
|
$0.400
|
876,090
|
7.16
|
876,090
|
|||||||
|
0.430
|
400
|
7.15
|
400
|
|||||||
|
0.970
|
490,000
|
8.75
|
276,666
|
|||||||
|
1.000
|
328,614
|
9.04
|
105,760
|
|||||||
|
1.000
|
65,000
|
6.24
|
65,000
|
|||||||
|
1.250
|
12,000
|
6.08
|
12,000
|
|||||||
|
1.250
|
163,750
|
6.14
|
153,750
|
|||||||
|
1.500
|
2,923,900
|
9.26
|
974,634
|
|||||||
|
1.500
|
250,000
|
4.58
|
27,778
|
|||||||
|
1.600
|
100,000
|
9.46
|
16,667
|
|||||||
|
1.650
|
1,099,000
|
8.08
|
944,000
|
|||||||
|
4.375
|
10,000
|
5.14
|
10,000
|
|||||||
|
20.938
|
10,000
|
4.28
|
10,000
|
|||||||
|
6,328,754
|
3,472,745
|
|||||||||
| (7) |
Stock
Warrants
|
As
of
December 31, 2005, the Company had a total of 6,512,405 warrants outstanding.
The exercise prices of these warrants ranges from $0.70 to $26.65. These
warrants expire between 2006 and 2010.
| (8) |
Related-Party
Transactions
|
Oleoylestrone
Developments, SL
Pursuant
to the terms of a license agreement dated February 15, 2002 by and between
Manhattan Research Development, Inc., the Company’s wholly owned subsidiary and
OED, the Company has an exclusive, worldwide license to U.S. and foreign
patents
and patent applications relating to certain technologies. Although the
Company
is not obligated to pay royalties to OED, the license agreement requires
the
Company to make certain performance-based milestone payments. See Note
10. OED
currently owns approximately 7 percent of the Company’s outstanding common
stock. Additionally, Mr. Pons, a member of the Company’s board of directors, is
chief executive officer of OED.
MANHATTAN
PHARMACEUTICALS, INC.
(A
Development Stage Company)
Notes
to
Consolidated Financial Statements
December
31, 2005 and 2004
In
addition to the license agreement, the Company entered into a consulting
agreement with OED. The agreement became effective in February 2002,
at a fee of
$6,250 per month, and will terminate when the license agreement terminates.
The
fees associated with the consulting agreement are expensed as incurred.
OED
agreed to serve as a member of the Company’s Scientific Advisory Board and to
render consultative and advisory services to the Company. Such services
include
research, development and clinical testing of the Company’s technology as well
as the reporting of the findings of such tests, assistance in the filing
of
patent applications and oversight and direction of efforts in regards
to
personnel for clinical development.
Total
milestone payments under the license agreement of $250,000, $0 and $425,000
and
consulting fees of $75,000, $75,000 and $287,500 are included in the
accompanying consolidated statements of operations for the years ended
December
31, 2005 and 2004 and for the cumulative period from August 6, 2001 to
December
31, 2005.
NovaDel
Pharma Inc.
As
discussed in Note 10, pursuant to the terms of a license agreement dated
April
4, 2003 by and between the Company and NovaDel Pharma Inc. (“NovaDel”), the
Company has the rights to develop NovaDel’s proprietary lingual spray technology
to deliver propofol for preprocedural sedation. The license agreement
with
NovaDel requires the Company to make certain license and milestone payments,
as
well as pay royalties. During 2003, the Company paid aggregate license
fees of
$500,000 to NovaDel under the license agreement. In 2004 and 2005, there
were no
similar payments made to NovaDel. Lindsay A. Rosenwald, who beneficially
owns
more than 10 percent of the Company’s common stock, also beneficially owns in
excess of 20 percent of the common stock of NovaDel and may therefore
be deemed
to be an affiliate of that company.
Paramount
BioCapital, Inc.
Two
members of the Company’s board of directors, Timothy McInerney and Michael
Weiser, are also employees of Paramount BioCapital, Inc. or one of its
affiliates. In addition, two former members of the Company’s board of directors,
Joshua Kazam and David Tanen, were employed by Paramount BioCapital through
August 2004 and were directors of the Company until September 2005. The
sole
shareholder of Paramount BioCapital, Inc. (“Paramount BioCapital”) is Lindsay A.
Rosenwald, M.D. Dr. Rosenwald beneficially owns more than 5 percent of
the
Company’s common stock as of December 31, 2005. In November 2003, the Company
paid to Paramount BioCapital approximately $460,000 as commissions earned
in
consideration for placement agent services rendered in connection with
the
private placement of the Company’s Series A Convertible Preferred Stock, which
amount represented 7 percent of the value of the shares sold by Paramount
BioCapital in the offering. In addition, in January 2004, the Company
paid
approximately $260,000 as commissions earned in consideration for placement
agent services rendered by Paramount BioCapital in connection with a
private
placement of the Company’s common stock, which amount represented 7 percent of
the value of the shares sold by Paramount BioCapital in the private placement.
In connection with both private placements and as a result of their employment
with Paramount BioCapital, Mr. Kazam, Mr. McInerney and Dr. Weiser were
allocated 5-year placement agent warrants to purchase 60,174, 58,642
and 103,655
shares of the Company’s common stock, respectively, at a price of $1.10 per
share.
MANHATTAN
PHARMACEUTICALS, INC.
(A
Development Stage Company)
Notes
to
Consolidated Financial Statements
December
31, 2005 and 2004
Paramount
BioCapital also served as the Company’s placement agent in connection with the
August 2005 private placement. As placement agent, the Company paid to
Paramount
BioCapital total cash commissions of $839,816 relating to the August
26, 2005
closing, of which $121,625 was paid to certain selected dealers engaged
by
Paramount in connection with the private placement and issued five-year
warrants
to purchase an aggregate of 540,449 shares of common stock exercisable
at a
price of $1.44 per share, of which Paramount received warrants to purchase
462,184 common shares. In connection with the August 30 closing, the
Company
paid cash commissions to Paramount of $88,550 and issued an additional
five-year
warrant to purchase 55,000 common shares exercisable at a price of $1.49
per
share.
| (9) |
Income
Taxes
|
There
was
no current or deferred tax expense for the years ended December 31, 2005
and 2004 because of the Company’s operating losses.
The
components of deferred tax assets as of December 31, 2005 and 2004 are as
follows:
|
2005
|
2004
|
||||||
|
Deferred
tax assets:
|
|||||||
|
Tax
loss carryforwards
|
$
|
14,860,000
|
$
|
11,884,000
|
|||
|
Research
and development credit
|
1,174,000
|
941,000
|
|||||
|
In-process
research and development charge
|
4,850,000
|
||||||
|
Other
|
(5,000
|
)
|
11,000
|
||||
|
Gross
deferred tax assets
|
20,879,000
|
12,836,000
|
|||||
|
Less
valuation allowance
|
(20,879,000
|
)
|
(12,836,000
|
)
|
|||
|
Net
deferred tax assets
|
$
|
—
|
$
|
—
|
|||
MANHATTAN
PHARMACEUTICALS, INC.
(A
Development Stage Company)
Notes
to
Consolidated Financial Statements
December
31, 2005 and 2004
The
reasons for the difference between actual income tax benefit for the
years ended
December 31, 2005 and 2004 and the amount computed by applying the
statutory federal income tax rate to losses before income tax benefit
are as
follows:
|
2005
|
2004
|
||||||||||||
|
%
of
|
%
of
|
||||||||||||
|
pretax
|
pretax
|
||||||||||||
|
Amount
|
loss
|
Amount
|
loss
|
||||||||||
|
Federal
income tax
|
|||||||||||||
|
benefit
at statutory
|
|||||||||||||
|
rate
|
$
|
(6,508,000
|
)
|
(34.0
|
%)
|
$
|
(2,005,000
|
)
|
(34.0
|
%)
|
|||
|
State
income taxes,
|
|||||||||||||
|
net
of federal
|
|||||||||||||
|
tax
|
(1,302,000
|
)
|
(6.8
|
%)
|
(401,000
|
)
|
(6.8
|
%)
|
|||||
|
Research
and
|
|||||||||||||
|
development
credits
|
(233,000
|
)
|
(1.2
|
%)
|
(175,000
|
)
|
(3.0
|
%)
|
|||||
|
Change
in valuation
|
|||||||||||||
|
allowance
|
8,043,000
|
42.0
|
%
|
2,433,000
|
41.3
|
%
|
|||||||
|
Other,
net
|
—
|
148,000
|
2.5
|
%
|
|||||||||
|
|
— |
—
|
%
|
—
|
—
|
%
|
|||||||
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. The net
change
in the total valuation allowance for the years ended December 31, 2005
and 2004
was an increase of $8,043,000 and $2,433,000, respectively. The tax benefit
assumed using the federal statutory tax rate of 34% has been reduced
to an
actual benefit of zero due principally to the aforementioned valuation
allowance.
At
December 31, 2005, the Company had unused federal and state net operating
loss carryforwards of approximately $38,151,000 and $27,780,000, respectively.
The net operating loss carryforwards expire in various amounts through
2025 for
federal and state income tax purposes. The Tax Reform Act of 1986 contains
provisions which limit the ability to utilize net operating loss carryforwards
in the case of certain events including significant changes in ownership
interests. Accordingly, a substantial portion of the Company’s net operating
loss carryforwards above will be subject to annual limitations (currently
approximately $100,000) in reducing any future year’s taxable income. At
December 31, 2005, the Company also had research and development credit
carryforwards of approximately $1,174,000 for federal income tax purposes
which
expire in various amounts through 2025.
MANHATTAN
PHARMACEUTICALS, INC.
(A
Development Stage Company)
Notes
to
Consolidated Financial Statements
December
31, 2005 and 2004
| (10) |
License
and Consulting Agreements
|
On
February 15, 2002, the Company entered into a License Agreement (the
"License
Agreement") with OED. Under the terms of the License Agreement, OED granted
to
the Company a world-wide license to make, use, lease and sell the products
incorporating the licensed technology (see Note 1). OED also granted
to the
Company the right to sublicense to third parties the licensed technology
or
aspects of the licensed technology with the prior written consent of
OED. OED
retains an irrevocable, nonexclusive, royalty-free right to use the licensed
technology solely for its internal, noncommercial use. The License Agreement
shall terminate automatically upon the date of the last to expire patent
contained in the licensed technology or upon the Company's bankruptcy.
OED may
terminate the License Agreement in the event of a material breach by
the Company
that is not cured within the notice period. The Company may terminate
the
License Agreement for any reason upon 60 days notice.
In
addition to the License Agreement, the Company entered into a consulting
agreement with OED. The agreement became effective in February 2002,
at a fee of
$6,250 per month, and will terminate when the License Agreement terminates.
The
fees associated with the consulting agreement are expensed as incurred.
OED
agreed to serve as a member of the Company’s Scientific Advisory Board and to
render consultative and advisory services to the Company. Such services
include
research, development and clinical testing of the Company’s technology as well
as the reporting of the findings of such tests, assistance in the filing
of
patent applications and oversight and direction of efforts in regards
to
personnel for clinical development.
Under
the
License Agreement, the Company agreed to pay to OED certain licensing
fees which
are being expensed as they are incurred. The Company paid $175,000 in
up front
licensing fees which is included in 2002 research and development expense.
In
addition, pursuant to the License Agreement, the Company issued 1,000,000
shares
of its common stock to OED. The Company valued these shares at their
then
estimated fair value of $1,000.
In
connection with the License Agreement, the Company has agreed to milestone
payments to OED as follows:
(i)
$250,000 upon the treatment of the first patient in a Phase I clinical
trial
under a Company-sponsored investigational new drug application ("IND");
(ii)
$250,000 upon the treatment of the first patient in a Phase II clinical
trial
under a Company-sponsored IND; (iii) $750,000 upon the first successful
completion of a Company-sponsored Phase II clinical trial under a
Company-sponsored IND; (iv) $2,000,000 upon the first successful completion
of a
Company-sponsored Phase III clinical trial under a Company sponsored
IND; and
(v) $6,000,000 upon the first final approval of the first new drug application
for the first licensed product by the United States Food and Drug Administration
(“FDA”). Through December 31, 2005, the Company paid $425,000 in licensing
fees.
In
addition to the License Agreement, the Company entered into a consulting
agreement with OED. The agreement became effective in February 2002,
at a fee of
$6,250 per month, and will terminate when the License Agreement terminates.
The
fees associated with the consulting agreement are expensed as incurred.
OED
agreed to serve as a member of the Company's Scientific Advisory Board
and to
render consultative and advisory services to the Company. Such services
include
research, development and clinical testing of the Company's technology
as well
as the reporting of the findings of such tests, assistance in the filing
of
patent applications and oversight and direction of efforts in regards
to
personnel for clinical development.
MANHATTAN
PHARMACEUTICALS, INC.
(A
Development Stage Company)
Notes
to
Consolidated Financial Statements
December
31, 2005 and 2004
In
April
2003, the Company entered into a license and development agreement with
NovaDel
Pharma, Inc. (“NovaDel”), under which the Company received certain worldwide,
exclusive rights to develop and commercialize products related to NovaDel’s
proprietary lingual spray technology for delivering propofol for pre-procedural
sedation. Under the terms of this agreement, the Company agreed to use
its
commercially reasonable efforts to develop and commercialize the licensed
products, to obtain necessary regulatory approvals and to thereafter
exploit the
licensed products. The agreement also provides that NovaDel will undertake
to
perform, at the Company’s expense, a substantial portion of the development
activities, including, without limitation, preparation and filing of
various
applications with applicable regulatory authorities. Holders of a significant
portion of the Company’s common stock own a significant portion of the common
stock of NovaDel. (See Note 8.)
In
consideration for the Company’s rights under the NovaDel license agreement, the
Company paid NovaDel an initial license fee of $500,000 upon the completion
of a
$10 million private placement of Series A Convertible Preferred Stock
in
November 2003. In addition, the license agreement requires the Company
to make
certain milestone payments as follows: $1,000,000 payable following the
date
that the first NDA for lingual spray propofol is accepted for review
by the FDA;
$1,000,000 following the date that the first European Marketing Application
is
accepted for review by any European Union country; $2,000,000 following
the date
when the first filed NDA for lingual spray propofol is approved by the
FDA;
$2,000,000 following the date when the first filed European Marketing
Application for lingual spray propofol is accepted for review; $1,000,000
following the date on which an application for commercial approval of
lingual
spray propofol is approved by the appropriate regulatory authority in
each of
Australia, Canada, Japan and South Africa; and $50,000 following the
date on
which an application for commercial approval for lingual spray propofol
is
approved in any other country (other than the U.S, a member of the European
Union, Australia, Canada, Japan or South Africa).
In
addition, the Company is obligated to pay to NovaDel an annual royalty
based on
a fixed rate of net sales of licensed products, or if greater, the annual
royalty is based on the Company’s net profits from the sale of licensed products
at a rate that is twice the net sales rate. In the event the Company
sublicenses
the licensed product to a third party, the Company is obligated to pay
royalties
based on a fixed rate of fees or royalties received from the sublicensee
until
such time as the Company recovers its out-of-pocket costs, and thereafter
the
royalty rate doubles. Because of the continuing development efforts required
of
NovaDel under the agreement, the royalty rates are substantially higher
than
customary for the industry. The Company is also required to pay an up-front
fee
in installments contingent on whether the Company receives certain amounts
through financings, revenues or otherwise. Through December 31, 2005,
the
Company has paid and expensed $500,000 of such up-front fee.
MANHATTAN
PHARMACEUTICALS, INC.
(A
Development Stage Company)
Notes
to
Consolidated Financial Statements
December
31, 2005 and 2004
NovaDel
may terminate the agreement (i) upon 10 days’ notice if the Company fails to
make any required milestone or royalty payments, or (ii) if the Company
becomes
bankrupt or if a petition in bankruptcy or insolvency is filed and not
dismissed
within 60 days or if the Company becomes subject to a receiver or trustee
for
the benefit of creditors. Each party may terminate the agreement upon
30 days’
written notice and an opportunity to cure in the event the other party
committed
a material breach or default. The Company may also terminate the agreement
for
any reason upon 90 days’ notice to NovaDel.
On
April
1, 2005, as part of the acquisition of Tarpan Therapeutics, Inc., the
Company
acquired a Sublicense Agreement with IGI, Inc. (the “IGI Agreement”) dated April
14, 2004. Under the IGI Agreement the Company received the exclusive,
world-wide, royalty bearing sublicense to develop and commercialize the
licensed
technology (see Note 1). Under the terms of the IGI Agreement, the Company
is
responsible for the cost of the preclinical and clinical development
of the
project, including research and development, manufacturing, laboratory
and
clinical testing and trials and marketing of licensed products for which
the
company will be responsible.
In
consideration for the Company’s rights under the IGI Agreement, a payment of
$300,000 was made upon execution of the agreement, prior to the Company’s
acquisition of Tarpan. In addition the IGI Agreement requires the Company
to
make certain milestone payments as follows: $300,000 payable upon the
commencement of a Phase II clinical trial; $500,000 upon the commencement
of a
Phase III clinical trial; $1,500,000 upon the acceptance of an NDA application
by the FDA; $2,400,000 upon the approval of an NDA by the FDA; $500,000
upon the
commencement of a Phase III clinical trial for an indication other than
psoriasis; $1,500,000 upon the acceptance of and NDA application for
an
indication other than psoriasis by the FDA; and $2,400,000 upon the approval
of
an NDA for an indication other than psoriasis by the FDA.
In
addition, the Company is obligated to pay IGI, Inc. an annual royalty
of 6%
annual net sales on annual net sales up to $200,000,000. In any calendar
year in
which net sales exceed $200,000,000, the Company is obligated to pay
IGI, Inc.
an annual royalty of 9% annual net sales. Through December 31, 2005,
the Company
has not paid any such milestones or royalties.
IGI,
Inc.
may terminate the agreement (i) upon 60 days’ notice if the Company fails to
make any required milestone or royalty payments, or (ii) if the Company
becomes
bankrupt or if a petition in bankruptcy is filed, or if the Company is
placed in
the hands of a receiver or trustee for the benefit of creditors. IGI,
Inc. may
terminate the agreement upon 60 days’ written notice and an opportunity to cure
in the event the Company commits a material breach or default. Eighteen
months
from the date of the IGI Agreement, the Company may terminate the agreement
in
whole or as to any portion of the PTH patent rights upon 90 days’ notice to IGI,
Inc.
| (11) |
Commitments
and Contingencies
|
Legal
Proceedings
The
Company is currently not party to any claims or lawsuits.
MANHATTAN
PHARMACEUTICALS, INC.
(A
Development Stage Company)
Notes
to
Consolidated Financial Statements
December
31, 2005 and 2004
Employment
Agreement
The
Company has employment agreements with three employees for the payment
of
aggregate base salary of $775,000 as well as performance based bonuses.
Two of
these agreements have terms ranging from two to three years and have
a remaining
obligation of $825,000 as of December 31, 2005. The third agreement effective
February 1, 2006 has a term of three years and a remaining obligation
of
$875,000.
Leases
Rent
expense for the years ended December 31, 2005 and 2004 was $120,209 and
$112,176, respectively.
Future
minimum rental payments subsequent to December 31, 2005 under an operating
lease
for the Company’s office facility are as follows:
|
Years
Ending
December
31,
|
Commitment
|
|||
|
2006
|
$
|
141,600
|
||
|
2007
|
$
|
141,600
|
||
|
2008
|
$
|
100,000
|
||
| (12) |
Subsequent
Events
|
Effective
as of February 1, 2006, the Company appointed Alan G. Harris, MD, PhD
as its
Chief Medical Officer. Prior to joining Manhattan Pharmaceuticals, Dr.
Harris
served as Head of the Worldwide Medical Endocrine Care group at Pfizer,
Inc. and
Vice President, Global Healthcare Research & Outcomes at Schering-Plough
Corporation.
The
Company and Dr. Harris entered into an Employment Agreement dated January
26,
2006 (the "Agreement") whereby Dr. Harris will serve as the Company's
Chief
Medical Officer for a period of three years commencing on February 1,
2006 and
will receive in exchange for his services: (i) an annual base salary
of
$275,000; (ii) a guaranteed cash bonus of $50,000; (iii) an annual milestone
bonus on each anniversary of the Agreement during the term of the Agreement
in
an amount up to 30% of Dr. Harris' base salary, at the discretion of
the Chief
Executive Officer and the Board; and (iv) an option to purchase 300,000
shares
of the Company's common stock at an exercise price equal to the last
closing
sale price of the Company's common stock on February 1, 2006, such options
to
vest in equal amounts over three years and be exercisable for a 10-year
term. In
the event Dr. Harris' employment is terminated upon a change of control
of the
Company and the fair market value of the Company's common stock, as determined
in the good faith discretion of the Board of Directors of the Company,
is less
than $40,000,000 on the date of the change of control, Dr. Harris shall
continue
to receive his base salary and benefits for a period of three months
from the
date of termination. In the event such termination is for a reason other
than
for cause or pursuant to a change of control of the Company, Dr. Harris
shall be
entitled to receive his base salary for a period of six months from the
date of
termination.
Index
to Exhibits Filed with this Report
|
Exhibit
No.
|
Description
|
|
EXHIBIT
23.1
CONSENT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Our
report on our audits of the consolidated financial statements of Manhattan
Pharmaceuticals, Inc. and Subsidiaries as of December 31, 2005 and 2004 and
for
the years then ended and on the consolidated statements of operations, changes
in stockholders' equity (deficiency) and cash flows for the period from August
6, 2001 (date of inception) to December 31, 2005, included in this Annual Report
on Form 10-KSB for the year ended December 31, 2005, is dated March 3, 2006.
We
consent to the incorporation by reference of our report, which includes an
explanatory paragraph relating to the Company’s ability
to
continue as a going concern, in the following registration
statements previously filed by the Company with the Securities and Exchange
Commission pursuant to the Securities Act of 1933: the registration statements
on Forms S-3 with SEC File Nos. 333-34379, 333-35079, 333-65393, 333-40916
and
333-49036, and the registration statements on Forms S-8 with SEC file Nos.
333-15807, 333-112888, 333-112889 and 333-48531.
/s/ J.H.
Cohn LLP
Roseland,
New Jersey
March
27, 2006
EXHIBIT
31.1
CERTIFICATION
I,
Douglas Abel, certify that:
| 1. |
I
have reviewed this Annual Report on Form 10-KSB of Manhattan
Pharmaceuticals, Inc. (the “Registrant”);
|
| 2. |
Based
on my knowledge, this report does not contain any untrue statement
of a
material fact or omit to state a material fact necessary to make
the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
|
| 3. |
Based
on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects
the
financial condition, results of operations and cash flows of the
Registrant as of, and for, the periods presented in this report;
|
| 4. |
The
Registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for
the Registrant and have:
|
(a)
Designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that
material information relating to the Registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;
(b)
Evaluated the effectiveness of the Registrant’s disclosure controls and
procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
(c)
Disclosed in this report any change in the Registrant's internal control over
financial reporting that occurred during the Registrant's most recent fiscal
quarter (the Registrant’s fourth fiscal quarter in the case of an annual report)
that has materially affected, or is reasonably likely to materially affect,
the
Registrant’s internal control over financial reporting; and
| 5. |
The
Registrant's other certifying officer(s) and I have disclosed, based
on
our most recent evaluation of internal control over financial reporting,
to the Registrant’s auditors and the audit committee of the Registrant’s
board of directors (or persons performing the equivalent functions):
|
(a)
All
significant deficiencies and material weaknesses in the design or operation
of
internal control over financial reporting which are reasonably likely to
adversely affect the Registrant’s ability to record, process, summarize and
report financial information; and
(b)
Any
fraud, whether or not material, that involves management or other employees
who
have a significant role in the Registrant’s internal control over financial
reporting.
|
Date:
March 31, 2006
|
/s/
Douglas Abel
|
|
|
Douglas
Abel
|
||
|
Chief
Executive Officer
|
||
EXHIBIT
31.2
CERTIFICATION
I,
Nicholas J. Rossettos, certify that:
| 1. |
I
have reviewed this Annual Report on Form 10-KSB of Manhattan
Pharmaceuticals, Inc. (the “Registrant”);
|
| 2. |
Based
on my knowledge, this report does not contain any untrue statement
of a
material fact or omit to state a material fact necessary to make
the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
|
| 3. |
Based
on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects
the
financial condition, results of operations and cash flows of the
Registrant as of, and for, the periods presented in this report;
|
| 4. |
The
Registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Registrant
and have:
|
(a)
Designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that
material information relating to the Registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;
(b)
Evaluated the effectiveness of the Registrant’s disclosure controls and
procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
(c)
Disclosed in this report any change in the Registrant's internal control over
financial reporting that occurred during the Registrant's most recent fiscal
quarter (the Registrant’s fourth fiscal quarter in the case of an annual report)
that has materially affected, or is reasonably likely to materially affect,
the
Registrant’s internal control over financial reporting; and
| 5. |
The
Registrant's other certifying officer(s) and I have disclosed, based
on
our most recent evaluation of internal control over financial reporting,
to the Registrant’s auditors and the audit committee of the Registrant’s
board of directors (or persons performing the equivalent functions):
|
(a)
All
significant deficiencies and material weaknesses in the design or operation
of
internal control over financial reporting which are reasonably likely to
adversely affect the Registrant’s ability to record, process, summarize and
report financial information; and
(b)
Any
fraud, whether or not material, that involves management or other employees
who
have a significant role in the Registrant’s internal control over financial
reporting.
|
Date:
March 31, 2006
|
/s/
Nicholas J. Rossettos
|
|
|
Nicholas
J. Rossettos
|
||
|
Chief
Financial Officer
|
||
EXHIBIT
32.1
CERTIFICATION
Pursuant
to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, the undersigned officers of Manhattan
Pharmaceuticals, Inc. hereby certifies that:
(a) the
Annual
Report on Form 10-KSB of Manhattan Pharmaceuticals, Inc. for the year ended
December 31, 2005 (the “Report”) fully complies with the requirements of Section
13(a) or 15(d) of the Securities Exchange Act of 1934; and
(b) information
contained in the Report fairly presents, in all material respects, the financial
condition and results of operations of Manhattan Pharmaceuticals,
Inc.
|
Dated:
March 31, 2006
|
/s/
Douglas Abel
|
|
|
Douglas
Abel
|
||
|
President
and Chief Executive Officer
|
||
|
Dated:
March 31, 2006
|
/s/
Nicholas J. Rossettos
|
|
|
Nicholas
J. Rossettos
|
||
|
Chief
Financial Officer and Chief Operating Officer
|
||