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Facsimile and Edgar Transmission
January
4, 2007
U.S.
Securities and Exchange Commission
Attn:
Jim
B. Rosenberg, Senior Assistant Chief Accountant
100
First
Street, N.E.
Washington,
D.C. 20549
| Re: |
Manhattan
Pharmaceuticals, Inc. (the
“Company”)
|
Form
10-QSB for the Quarter Ended June 30, 2006
File
No.
001-32639
Dear
Mr.
Rosenberg:
We
are in
receipt of your letter dated November 7, 2006 in which you ask us to provide
you
with information so that you may better understand our disclosure with respect
to the clinical study services being provided to us by Swiss Pharma. Further,
during the undersigned’s telephone discussion with Ms. Christine Allen on
December 18, 2006, the Staff further asked that our response to such comment
be
made in the form of a disclosure that would be included in the Company’s
financial statements and other appropriate places in its reports filed with
the
Commission. Accordingly, we hereby respond as follows:
Form
10-QSB for the Quarterly Period Ended June 30, 2006
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
1.
|
Please
provide us information in disclosure type format
describing:
|
|
·
|
Your
accounting policy for recording research and development expenses
for the
clinical study provided by Swiss Pharma in order to clarify what
you mean
by “on an activity basis:”
|
|
·
|
What
the initial payment of 20% upon signing the agreement represents
and your
accounting treatment for this and each other
payment;
|
|
·
|
How
you measure and monitor the services performed by Swiss Pharma; and,
|
|
·
|
The
termination provisions under the
contract.
|
Company
response:
In
response to your comment, the Company intends to include the following
disclosure of its agreement with Swiss Pharma in the appropriate places of
its
reports filed with the Commission, including in its footnote disclosures
accompanying its financial statements:
The
Company often contracts with third parties to facilitate, coordinate and perform
agreed upon research and development of drug product candidates. To ensure
that
research and development costs are expensed as incurred, the Company records
monthly accruals for clinical trials and preclinical testing costs based on
the
work performed under the contracts.
These
contracts typically call for the payment of fees for services at the initiation
of the contract and/or upon the achievement of certain milestones. This method
of payment often does not match the related expense recognition resulting in
either a prepayment, when the amounts paid are greater than the related research
and development costs recognized, or an accrued liability, when the amounts
paid
are less than the related research and development costs
recognized.
Because
expenses associated with the ongoing clinical trials are recognized on this
activity based basis, the Company’s expense recognition differs from the payment
schedules.
On
March
27, 2006, the Company entered into a research and development agreement with
Swiss Pharma Contract Ltd. (“Swiss Pharma”) to perform a Phase IIa study of the
Company’s Oleoyl-estrone product for the treatment of obesity. The terms of the
agreement call for the Company to pay Swiss Pharma up to $2,151,840 for the
completion of the Phase IIa study in accordance with the terms of the contract.
The payment terms are: 20%, or $430,368, upon signing the agreement, 20% after
the first patient has received the initial dose, 20% after half
the
patients have received the initial dose, 20% after all patients have completed
dosing, 10%, on receipt of statistical analyses and 10% on acceptance by the
Company of the Phase IIa study.
The
agreement with Swiss Pharma provides for conducting a Phase IIa study in 100
patients and contains a detailed description of the services to be performed,
as
well as a related list of fees to be charged by Swiss Pharma for the provision
of specific services under the agreement. The maximum fees payable under the
agreement are $2,151,840. In order for Swiss Pharma to earn the maximum amount
of $2,151,840, it must complete the Phase IIa study in 100 patients and perform
all of the ancillary services detailed in the contract. If Swiss Pharma carries
out the Phase IIa study on less than 100 patients or if it does not complete
all
of the ancillary services detailed in the agreement, the Company will be
obligated to pay an amount less than the $2,151,840. Such lesser amount would
be
determined by applying the services performed to the related list of fees to
be
charged as detailed in the agreement.
The
Company recognizes expense under the contract as the specific services are
performed by Swiss Pharma. Swiss Pharma provides the Company with an activity
report on a weekly basis on which the Company bases its activity based expense
recognition. As of September 30, 2006, the Company had paid Swiss Pharma
$860,736, and recognized $243,777 of research and development expense for the
Phase IIa study. The remainder, $616,959, is included in prepaid
expenses.
The
agreement with Swiss Pharma may be terminated by the Company for any reason,
in
which case the Company would be liable to Swiss Pharma for all fees, as
described in the agreement, associated with the services performed as of the
termination date and services performed after the termination date to effect
an
orderly wind-down of the study. The agreement provides that Swiss Pharma shall
return to the Company any funds paid by the Company, but not earned by Swiss
Pharma, upon termination of the contract.
*
* * *
The
Company acknowledges that it is responsible for the adequacy and accuracy of
the
disclosure in the filings, that the staff comments or changes to disclosure
in
response to staff comments do not foreclose the Commission from taking any
action with respect to the filing, and the Company may not assert staff comments
as a defense in any proceeding initiated by the Commission or any other person
under the federal securities laws of the United States.
If
you
have any questions or need additional information please contact me, my direct
phone line is 212-492-8741 and my email address is mgmcguinness@manhattanpharma.com
Sincerely,
Michael
G. McGuinness
Chief
Financial Officer