To compute compensation expense in 2007 and 2006, the Company estimated the fair value of each option award on the date of grant using the Black-Scholes model. The Company based the expected volatility assumption on a volatility index of peer companies as the Company did not have a sufficient number of years of historical volatility of its common stock for the application of Statement 123(R). The expected term of options granted represents the period of time that options are expected to be outstanding. The Company estimated the expected term of stock options by the simplified method as prescribed in The Securities and Exchange Commission’s Staff Accounting Bulletin No. 107. The expected forfeiture rates are based on the historical forfeiture experiences. To determine the risk-free interest rate, the Company utilized the U.S. Treasury yield curve in effect at the time of grant with a term consistent with the expected term of the Company’s awards. The Company has not declared a dividend on its common stock since its inception and has no intentions of declaring a dividend in the foreseeable future and therefore used a dividend yield of zero.
The following table shows the weighted average assumptions the Company used to develop the fair value estimates for the determination of the compensation charges in 2007 and 2006:
A summary of the status of the Company’s outstanding stock options as of June 30, 2007 and changes during the six months then ended is presented below:
As of June 30, 2007, the total compensation cost related to non-vested option awards not yet recognized is $1,419,413. The weighted average period over which it is expected to be recognized is approximately 1.2 years.
The Company often contracts with third parties to facilitate, coordinate and perform agreed-upon research and development of its 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 expensed, or an accrued liability, when the amounts paid are less than the related research and development costs expensed.
Expenses associated with the recently concluded clinical trials of Oleoyl-estrone in common obesity and morbid obesity were recognized on this activity-based basis. At June 30, 2007 we recognized prepaid expense of $9,000 and accrued expenses of $267,000 related to these clinical trials. The remaining financial commitments for these clinical trials are negligible.
On April 3, 2007, the Company entered into a license agreement for “Altoderm” (the “Altoderm Agreement”) with Thornton & Ross LTD (“T&R”). Pursuant to the Altoderm Agreement, the Company acquired an exclusive North American license to certain patent rights and other intellectual property relating to Altoderm, a topical skin lotion product candidate using sodium cromoglicate for the treatment of atopic dermatitis. In accordance with the terms of the Altoderm Agreement, the Company issued 125,000 shares of its common stock, valued at $112,500, and made a cash payment of $475,000 to T&R upon the execution of the agreement. These amounts have been included in research and development as fees associated with the in-licensing agreement. Further, the Company agreed to make future milestone payments to T&R comprised of various combinations of cash and common stock in respective aggregate amounts of $5,675,000 and 875,000 shares of common stock upon the achievement of various clinical and regulatory milestones. The Company also agreed to pay royalties on net sales of products using the licensed patent rights at rates ranging from 10% to 20%, depending on the level of annual net sales, and subject to an annual minimum royalty payment of $1 million in each year following the first commercial sale of Altoderm. The Company may sublicense the patent rights. The Company agreed to pay T&R 30% the royalties received by the Company under such sublicense agreements.
On April 3, 2007, the Company and T&R also entered into a license agreement for “Altolyn” (the “Altolyn Agreement”). Pursuant to the Altolyn Agreement, the Company acquired an exclusive North American license to certain patent rights and other intellectual property relating to Altolyn, an oral formulation product candidate using sodium cromoglicate for the treatment of mastocytosis, food allergies, and inflammatory bowel disorder. In accordance with the terms of the Altolyn Agreement, the Company made a cash payment of $475,000 to T&R upon the execution of the agreement. This amount is included in research and development as a fee associated with the in-licensing agreement. Further, the Company agreed to make future cash milestone payments to T&R in an aggregate amount of $5,675,000 upon the achievement of various clinical and regulatory milestones. The Company also agreed to pay royalties on net sales of products using the licensed patent rights at rates ranging from 10% to 20%, depending on the level of annual net sales, and subject to an annual minimum royalty payment of $1 million in each year following the first commercial sale of Altolyn. The Company may sublicense the patent rights. The Company agreed to pay T&R 30% of the royalties received by the Company under such sublicense agreements.
On June 26, 2007, the Company entered into an exclusive license agreement for “Hedrin” (the “Hedrin Agreement”) with T&R and Kerris, S.A. (“Kerris”). Pursuant to the Hedrin Agreement, the Company has acquired an exclusive North American license to certain patent rights and other intellectual property relating to Hedrin(TM), a non-insecticide product candidate for the treatment of head lice. In addition, on June 26, 2007, the Company entered into a Supply Agreement with T&R pursuant to which T&R will be the Company’s exclusive supplier of Hedrin product.
In consideration for the license, the Company agreed to issue to T&R and Kerris (jointly, the “Licensor”) a combined total of 150,000 shares of its common stock upon the execution of the Hedrin Agreement, which were issued in August 2007. In addition, the Company also agreed to make a cash payment of $600,000 to the Licensor no later than July 3, 2007. These amounts have been accrued and included in research and development as fees associated with the in-licensing agreement. Further, the Company agreed to make future milestone payments to the Licensor in the aggregate amount of $2,500,000 upon the achievement of various clinical, regulatory, and patent issuance milestones, as well as up to $2,500,000 in a one-time success fee based on aggregate sales of the product by the Company and its licensees of at least $50,000,000. The Company also agreed to pay royalties of 8% (or, under certain circumstances, 4%) on net sales of licensed products. On a country-by-country basis, in the event there are no patent issues covering the Hedrin product, the obligation to pay royalties ends 10 years from the date of first commercial sale. The Company’s exclusivity under the License Agreement is subject to an annual minimum royalty payment of $1,000,000 (or, under certain circumstances, $500,000) in each of the third through seventh years following the first commercial sale of Hedrin. The Company may sublicense its rights under the Hedrin Agreement with the consent of Licensor and the proceeds resulting from such sublicenses will be shared with the Licensor.
On March 30, 2007, the Company entered into a series of subscription agreements with various institutional and other accredited investors for the issuance and sale in a private placement of an aggregate of 10,185,502 shares of its common stock for total net proceeds of approximately $7.85 million, after deducting commissions and other costs of the transaction. Of the total amount of shares issued, 10,129,947 were sold at a per share price of $0.84, and an additional 55,555 shares were sold to an entity affiliated with a director of the Company, at a per share price of $0.90, the closing sale price of the common stock on March 29, 2007. Pursuant to the subscription agreements, the Company also issued to the investors 5-year warrants to purchase an aggregate of 3,564,897 shares of common stock at an exercise price of $1.00 per share. The warrants are exercisable during the period commencing September 30, 2007 and ending March 30, 2012.
Pursuant to these subscription agreements the Company filed a registration statement covering the resale of the shares issued in the private placement, including the shares issuable upon exercise of the investor warrants and the placement agent warrants, with the Securities and Exchange Commission on May 9, 2007, which was declared effective by the Securities and Exchange Commission on May 18, 2007.
Item 2. Management’s Discussion and Analysis Financial Condition and Results of Operations
You should read the following discussion of our results of operations and financial condition in conjunction with our Annual Report on Form 10-KSB for the year ended December 31, 2006 (the “Annual Report”) and our financial statements as of and for the three and six month periods ended June 30, 2007 included elsewhere in this report.
We were incorporated in Delaware in 1993 under the name Atlantic Pharmaceuticals, Inc. and, in March 2000, we changed our name to Atlantic Technology Ventures, Inc. In 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.
During 2005 we merged with Tarpan Therapeutics, Inc. (“Tarpan”). Tarpan was a privately held New York based biopharmaceutical company developing dermatological therapeutics. Through the merger, we acquired Tarpan’s primary product candidate, topical PTH (1-34) for the treatment of psoriasis. In consideration for their shares of Tarpan’s capital stock, the stockholders of Tarpan received an aggregate of approximately 10,731,000 shares of our common stock, representing approximately 20% of our then outstanding common shares. This transaction was accounted for as a purchase of Tarpan by the Company.
We are a development stage biopharmaceutical company focused on developing and commercializing innovative pharmaceutical therapies for underserved patient populations. We aim to acquire rights to these technologies by licensing or otherwise acquiring an ownership interest, funding their research and development and eventually either bringing the technologies to market or out-licensing. We currently have four product candidates in development:
| | · | Topical PTH (1-34) for the treatment of psoriasis; |
| | · | Altoderm, a proprietary formulation of topical cromolyn sodium for the treatment of atopic dermatitis; |
| | · | Altolyn, a proprietary site specific tablet formulation of oral cromolyn sodium for the treatment of mastocytosis; |
| | · | and Hedrin, a novel, non-insecticide treatment for head lice. |
We have not received regulatory approval for, or generated commercial revenues from marketing or selling any drugs.
We have recently announced that we are discontinuing development of two product candidates, oral OE and Propofol Lingual Spray.
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 Quarterly Report on Form 10-Q. 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. You 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 the Annual Report, and should not unduly rely on these forward looking statements.
RESULTS OF OPERATIONS
SIX-MONTH PERIOD ENDED JUNE 30, 2007 VS 2006
| | | Six month
period ended
June 30, 2007 | | Six month
period ended
June 30, 2006 | | Increase
(decrease) | | % Increase
(decrease) | |
Costs and expenses | | | | | | | | | |
Research and development | | | | | | | | | |
| Stock based compensation | | $ | 224,000 | | $ | 197,000 | | $ | 27,000 | | | 13.7 | % |
| In-license and related fees | | $ | 1,803,000 | | $ | 250,000 | | $ | 1,553,000 | | | 621.2 | % |
| Other research and development expense | | $ | 3,524,000 | | $ | 2,810,000 | | $ | 714,000 | | | 25.4 | % |
| Total research and development expense | | $ | 5,551,000 | | $ | 3,257,000 | | $ | 2,294,000 | | | 70.4 | % |
General and administrative | | | | | | | | | | | | | |
| Stock based compensation | | $ | 482,000 | | $ | 422,000 | | $ | 60,0000 | | | 14.2 | % |
| Other general and administrative expense | | $ | 1,485,000 | | $ | 1,175,000 | | $ | 310,000 | | | 26.4 | % |
| Total general and administrative expense | | $ | 1,967,000 | | $ | 1,597,000 | | $ | 370,000 | | | 23.2 | % |
Other income | | $ | 60,000 | | $ | 185,000 | | $ | (125,000 | ) | | (67.6 | )% |
Net loss | | $ | 7,458,000 | | $ | 4,669,000 | | $ | 2,789,000 | | | 59.7 | % |
During each of the six months ended June 30, 2007 and 2006, we had no revenues, and are considered a development stage company. We do not expect to have revenues relating to our technologies prior to June 30, 2008, if at all.
For the six months ended June 30, 2007 total research and development expense was $5,551,000 as compared to $3,257,000 for the six months ended June 30, 2006. The increase of $2,294,000, or 70.4% is primarily comprised of an increase of $1,553,000 in in-license and associated fees, an increase of $740,000 in clinical activities of Oleoyl-estrone and an increase in development costs for Altoderm, Altolyn and Hedrin of $251,000, partially offset by decreases in development costs for PTH of $253,000 and for Propofol of $25,000 .
For the six months ended June 30, 2007, total general and administrative expense was $1,967,000 as compared to $1,597,000 for the six months ended June 30, 2006. The increase of $370,000, or 23.2%, is primarily due to increases of $60,000 in stock based compensation, of $107,000 in spending on business development activities, of $82,000 in payroll and related costs, of $63,000 in director compensation costs, of $35,000 in insurance costs and of $30,000 in office expenses.
For the six months ended June 30, 2007, other income was $60,000 as compared to $185,000 for the six months ended June 30, 2006. The decrease of $125,000, or 67.6%, is due primarily to a decrease in interest income which resulted from lower average balances in interest bearing cash and short-term investment accounts.
Net loss for the six months ended June 30, 2007, was $7,458,000 as compared to $4,669,000 for the six months ended June 30, 2006. The increase of $2,789,000, or 59.7%, in net loss is attributable to an increase in research and development expense of $2,294,000, an increase in general and administrative expense of $370,000 and a decrease in other income of $125,000.
THREE-MONTH PERIOD ENDED JUNE 30, 2007 VS 2006
| | | Quarter
ended June
30, 2007 | | Quarter
ended June
30, 2006 | | Increase
(decrease) | | % Increase
(decrease) | |
Costs and expenses | | | | | | | | | |
Research and development | | | | | | | | | |
| Stock based compensation | | $ | 122,000 | | $ | 83,000 | | $ | 39,000 | | | 47.0 | % |
| In-license and related fees | | $ | 1,803,000 | | $ | 250,000 | | $ | 1,553,000 | | | 621.2 | % |
| Other research and development expense | | $ | 1,947,000 | | $ | 1,238,000 | | $ | 709,000 | | | 57.3 | % |
| Total research and development expense | | $ | 3,872,000 | | $ | 1,571,000 | | $ | 2,301,000 | | | 146.5 | % |
General and administrative | | | | | | | | | | | | | |
| Stock based compensation | | $ | 250,000 | | $ | 224,000 | | $ | 26,000 | | | 11.6 | % |
| Other general and administrative expense | | $ | 802,000 | | $ | 562,000 | | $ | 240,000 | | | 42.7 | % |
| Total general and administrative expense | | $ | 1,052,000 | | $ | 786,000 | | $ | 266,000 | | | 33.8 | % |
Other income | | $ | 30,000 | | $ | 86,000 | | $ | (56,000 | ) | | (65.1 | )% |
Net loss | | $ | 4,894,000 | | $ | 2,271,000 | | $ | 2,623,000 | | | 115.5 | % |
During each of the quarters ended June 30, 2007 and 2006, we had no revenues, and are considered a development stage company. We do not expect to have revenues relating to our technologies prior to June 30, 2008, if at all.
For the quarter ended June 30, 2007 total research and development expense was $3,872,000 as compared to $1,571,000 for the quarter ended June 30, 2006. The increase of $2,301,000, or 146.5%, is primarily attributable to a $1,553,000 increase in in-license and associated fees, an increase of $174,000 in clinical activities of Oleoyl-estrone, an increase of $318,000 in development costs for PTH and an increase in development costs for Altoderm, Altolyn and Hedrin of $251,000, partially offset by a decreases in development costs for Propofol of $20,000.
For the three months ended June 30, 2007, total general and administrative expense was $1,052,000 as compared to $786,000 for the three months ended June 30, 2006. The increase of $266,000, or 33.8%, is primarily due to increases of $26,000 in stock based compensation, of $63,000 in spending on business development activities, of $33,000 in payroll and related costs, of $36,000 in director compensation costs, of $26,000 in insurance costs, of $42,000 in professional fees and of $22,000 in investor relations costs.
For the three months ended June 30, 2007, other income was $30,000 as compared to $86,000 for the three months ended June 30, 2006. The decrease of $56,000, or 65.1%, is due primarily to a decrease in interest income which resulted from lower average balances in interest bearing cash and short-term investment accounts.
Net loss for the three months ended June 30, 2007, was $4,894,000 as compared to $2,271,000 for the three months ended June 30, 2006. The increase of $2,623,000, or 115.5%, in net loss is attributable to an increase in research and development expense of $2,301,000, an increase in general and administrative expense of $266,000 and a decrease in other income of $56,000.
LIQUIDITY AND CAPITAL RESOURCES
From inception to June 30, 2007, we incurred a deficit during the development stage of $50.4 million primarily as a result of our net losses and preferred stock dividends. We expect to continue to incur additional losses through at least June 30, 2008 and for the foreseeable future thereafter. 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 certain residual royalty rights. During the six months ended June 30, 2007, we had a net increase in cash and cash equivalents of $1.8 million. This increase resulted largely from net proceeds related to the sale of common stock of $7.9 million partially offset by net cash used in operating activities of $6.1 million. Total liquid resources as of June 30, 2007 were $4.8 million compared to $3.0 million at December 31, 2006.
Liquidity
As of June 30, 2007, we had working capital of $2.6 million compared to $1.4 million at December 31, 2006. This $1.2 million increase in working capital is primarily due to net proceeds related to the sale of common stock of approximately $7.9 million offset by net cash used in operating activities of $6.1 million during the six months ended June 30, 2007 and an increase in accounts payable and accrued expenses of $0.6 million.
March 2007 Private Placement
On March 30, 2007, we entered into a series of subscription agreements with various institutional and other accredited investors for the issuance and sale in a private placement of an aggregate of 10,185,502 shares of our common stock for net proceeds of approximately $7.9 million. Of the total amount of shares issued, 10,129,947 were sold at a per share price of $0.84, and an additional 55,555 shares were sold to an entity affiliated with a director of the Company, at a per share price of $0.90, the closing sale price of the common stock on March 29, 2007. Pursuant to the subscription agreements, we also issued to the investors 5-year warrants to purchase an aggregate of 3,564,897 shares of our common stock at an exercise price of $1.00 per share. The warrants are exercisable during the period commencing September 30, 2007 and ending March 30, 2012.
Pursuant to these subscription agreements the Company filed a registration statement covering the resale of the shares issued in the private placement, including the shares issuable upon exercise of the investor warrants and the placement agent warrants, with the Securities and Exchange Commission on May 9, 2007, which was declared effective by the Securities and Exchange Commission on May 18, 2007.
The Company engaged Paramount BioCapital, Inc., a related party, as its placement agent in connection with the private placement. In consideration for its services, we paid aggregate cash commissions of approximately $600,000 and issued to Paramount a 5-year warrant to purchase an aggregate of 509,275 shares at an exercise price of $1.00 per share.
Commitments
We often contract with third parties to facilitate, coordinate and perform agreed upon research and development of our product candidates. To ensure that research and development costs are expensed as incurred, we record 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.
Expenses associated with the recently concluded clinical trials in common obesity and morbid obesity were recognized on this activity based basis. At June 30, 2007 we recognized prepaid expense of $9,000 and accrued expenses of $267,000 related to these clinical trials. The remaining financial commitments for these clinical trials are negligible.
Capital Resources
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 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 June 30, 2007, a significant portion of our financing has been through private placements of common stock, preferred stock and warrants to purchase common stock. Until 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 June 30, 2007, 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 to be able to sustain our operations into 2008 and we will need additional financing thereafter until we can achieve profitability, if ever.
Although we currently have sufficient capital to fund our anticipated 2007 expenditures, we will need to raise additional capital in order to complete the anticipated development programs for each of our research and development projects. If we are unable to raise such additional capital, we may have to sublicense our rights 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 January 2007 we received notice from the staff of the American Stock Exchange, or AMEX, indicating that we were not in compliance with certain continued listing standards set forth in the American Stock Exchange Company Guide. Specifically, the American Stock Exchange notice cited our failure to comply, as of September 30, 2006, with section 1003(a)(ii) of the AMEX Company Guide as we had less than the $4,000,000 of stockholders’ equity and had losses from continuing operations and/or net losses in three of our four most recent fiscal years and with section 1003(a) (iii) which requires us to maintain $6,000,000 of stockholders’ equity if we have experienced losses from continuing operations and /or net losses in its five most recent fiscal years.
In order to maintain our AMEX listing, we were required to submit a plan to AMEX advising the exchange of the actions we have taken, or will take, that would bring us into compliance with all the continued listing standards by April 16, 2008. We submitted such a plan in February 2007. AMEX accepted our plan in March 2007, so we are now able to continue our listing during the period ending April 16, 2008, during which time we will be subject to periodic review to determine if we are making progress consistent with the plan. If we are not in compliance with the continued listing standards at the end of the plan period, or if we do not make progress consistent with the plan during the plan period, AMEX staff may initiate delisting proceedings. There can be no assurance that we will be able to make progress consistent with such plan.
If we fail to make sufficient progress under our plan, AMEX may initiate delisting proceedings. If our common stock is delisted from AMEX, trading in our common stock would likely be conducted on the OTC Bulletin Board, a regulated quotation service. If our common stock is delisted from the AMEX, the liquidity of our common stock may be reduced, not only in terms of the number of shares that can be bought and sold at a given price, but also through delays in the timing of transactions and reduction in security analysts’ and the media’s coverage of us. This may result in lower prices for our common stock than might otherwise be obtained and could also result in a larger spread between the bid and asked prices for our common stock. Further, if we are delisted from AMEX, we may find it more difficult to raise additional capital through sales of our common stock or other equity securities.
RESEARCH AND DEVELOPMENT PROJECTS
Our success in developing each of our research and development projects is dependent on numerous factors, including raising further capital, 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. 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)
We are developing PTH (1-34) as a topical treatment for psoriasis. In 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 1 and 2 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 physician sponsored Investigative New Drug application Phase 2a trial involving PTH (1-34) was initiated in December 2005 under the auspices of Boston University. In April 2006, we reported a delay in this planned Phase 2a clinical study of topical PTH (1-34) due to a formulation issue. We believe we have identified and resolved this issue. An improved formulation has been produced and several patent applications are being prepared. We expect to initiate clinical activities during 2007.
To date, we have incurred $3,676,000 of project costs related to our development of PTH (1-34). These project costs have been incurred since April 1, 2005, the date of the Tarpan Therapeutics acquisition, $961,000 of which was incurred in the first six months of 2007.
Altoderm
In April 2007 we entered into a license agreement with Thornton & Ross LTD, or T&R, pursuant to which we acquired exclusive North American rights to a dermatology product candidate called Altoderm™. Altoderm™ is a novel, proprietary formulation of topical cromolyn sodium and is designed to enhance the absorption of cromolyn sodium in order to treat atopic dermatitis, or “eczema.” This product candidate is currently being tested in a Phase 3 clinical trial in the United Kingdom. In a previously completed randomized, double-blind, placebo-controlled, parallel-group, Phase 3 clinical study in the United Kingdom the compound was administered for 12 weeks to 114 child subjects with moderately severe atopic dermatitis. In the study results, published in the British Journal of Dermatology in February 2005, Altoderm demonstrated a statistically significant reduction in symptoms. During the study, subjects were permitted to continue with their existing treatment, in most cases this consisted of emollients and topical steroids. A positive secondary outcome of the study was a reduction in the use of topical steroids for the Altoderm-treated subjects.
To date, we have incurred $681,000 of project costs related to our development of Altoderm, all of which was incurred in the first six months of 2007.
Altolyn
In addition to the Altoderm™ license agreement, we entered into a separate license agreement with T&R pursuant to which we acquired exclusive North American rights to develop and commercialize Altolyn™. Altolyn™ is a proprietary, site specific, tablet formulation of oral cromolyn sodium for the treatment of mastocytosis. This novel formulation is designed to provide optimal availability by preferentially releasing the drug in the upper part of the small intestine, the purported site of action. In addition to mastocytosis early clinical experience in the United Kingdom suggests promising activity in patients with various allergic disorders, including inflammatory bowel conditions. Oral cromolyn sodium is the active ingredient in Gastrocrom® an oral liquid solution that is currently FDA approved for the treatment of mastocytosis.
To date, we have incurred $526,000 of project costs related to our development of Altolyn, all of which was incurred in the first six months of 2007.
Hedrin
In June 2007, we entered into an exclusive license agreement for Hedrin with T&R and Kerris, S.A. (“Kerris”). We previously entered into exclusive license agreements with T&R with respect to two other products, Altoderm and Altolyn, with respect to rights in North America. We acquired an exclusive North American license to certain patent rights and other intellectual property relating to Hedrin(TM), a non-insecticide product candidate for the treatment of head lice. In addition, and at the same time, we also entered into a Supply Agreement with T&R pursuant to which T&R will be the Company’s exclusive supplier of Hedrin product.
To date, we have incurred $872,000 of project costs related to our development of Hedrin, all of which was incurred in the first six months of 2007.
Oleoyl-estrone
On July 9, 2007 we announced the results of our two Phase 2a clinical trials of oral Oleoyl-estrone. The results of both randomized, double-blind, placebo controlled studies, one in common obesity and the other in morbid obesity, demonstrated no statistically or clinically meaningful placebo adjusted weight loss for any of the treatment arms evaluated. Based on these results, we will discontinue our Oleoyl-estrone programs in both common obesity and morbid obesity.
To date, we have incurred $14,784,000 of project costs related to our development of Oleoyl-estrone, including milestone payments triggered under our license agreement for Oleoyl-estrone, of which $2,499,000 was incurred in the first six months of 2007.
Lingual spray propofol
On July 9, 2007 we announced that we will discontinue development and we intend to pursue appropriate out-licensing opportunities for Propofol Lingual Spray for pre-procedural sedation.
To date, we have incurred $2,966,000 of project costs related to our development of propofol lingual spray, of which $12,000 was incurred in the first six months of 2007.
Off-Balance Sheet Arrangements
We have not entered into any off-balance sheet arrangements.
New Accounting Pronouncements
In March 2007, the FASB issued FASB Staff Position EITF 07-03 (“FSP 07-03”), Accounting for Nonrefundable Advance Payments for Goods or Services to Be Used in Future Research and Development Activities. FSP 07-03 addresses whether nonrefundable advance payments for goods or services that will be used or rendered for research and development activities should be expensed when the advance payment is made or when the research and development activity has been performed. FSP 07-03 will be effective for fiscal years beginning after December 15, 2007, and interim periods within those fiscal years. We currently believe that the adoption of FSP 07-03 will have no material impact on our financial position or results of operations.
Item 3. Quantitative and Qualitative Disclosure About Market Risk
Our exposure to market risk is confined to our cash and cash equivalents. We have attempted to minimize risk by investing in high-quality financial instruments, primarily money market funds with no security having an effective duration longer than 90 days. If the market interest rate decreases by 100 basis points or 1%, the fair value of our cash and cash equivalents portfolio would have minimal to no impact on the carrying value of our portfolio. We did not hold any derivative instruments as of June 30, 2007, and we have never held such instruments in the past.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As of June 30, 2007, 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 were 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.
The Company’s management, including its Chief Executive Officer and its Chief Financial Officer, does not expect that disclosure controls or internal controls over financial reporting will prevent all errors or all instances of fraud, even as the same are improved to address any deficiencies. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected.
Because of the inherent limitation of a cost-effective control system, misstatements due to error or fraud may occur and not be detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls.
Changes in Internal Control
During the quarter ended June 30, 2007, there were no changes in internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
PART II – OTHER INFORMATION
Item 1A. Risk Factors
We have not had material changes to our risk factor disclosure in our Annual Report on Form 10-KSB for the year ended December 31, 2006 under the caption “Risk Factors” following Item 1 of such report.
Item 4. Submission of matters to a vote of security holders.
We held our Annual Meeting of Stockholders at the American Stock Exchange, 86 Trinity Place, New York, New York on May 24, 2007. 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 | | | 35,536,892 | | | 65,132 | |
Neil Herskowitz | | | 35,376,093 | | | 225,931 | |
Malcolm Hoenlein | | | 35,518,495 | | | 83,529 | |
Timothy McInerney | | | 35,538,692 | | | 63,332 | |
Joan Pons Gimbert | | | 35,154,378 | | | 447,646 | |
Richard I. Steinhart | | | 35,529,736 | | | 72,288 | |
Michael Weiser | | | 34,493,245 | | | 1,108,779 | |
(ii) The stockholders ratified the amendment to our 2003 Stock Option Plan increasing the number of shares available for issuance thereunder from 7,400,000 to 10,400,000. 34,440,971 votes were cast for the proposal; 1,107,853 votes were cast against the proposal, shares representing 53,200 votes abstained; and there were no broker non-votes.
(iii) The stockholders ratified the appointment of J.H. Cohn LLP as our independent registered public accounting firm for fiscal 2007. 35,519,099 votes were cast for the proposal; 8,205 votes were cast against the proposal, shares representing 74,720 votes abstained; and there were no broker non-votes.
Item 6. Exhibits
| Exhibit No. | | Description |
| | | |
| 4.1 | | Form of warrant issued to investors in March 30, 2007 private placement (incorporated by reference to Exhibit 4.1 of the Company’s Form 8-K filed April 5, 2007). |
| | | |
| 4.2 | | Form of warrant issued to placement agent in connection with the March 30, 2007 private placement (incorporated by reference to Exhibit 4.2 of the Company’s Form 8-K filed April 5, 2007). |
| | | |
| 10.1 | | Summary of terms of non-employee director compensation (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed February 5, 2007). |
| 10.2 | | Form of subscription agreement between the Company and investors in the March 30, 2007 private placement (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed April 5, 2007). |
| | | |
| 10.3 | | Exclusive License Agreement for “Altoderm” between Thornton & Ross Ltd. and Manhattan Pharmaceuticals, Inc. dated April 3, 2007. |
| | | |
| 10.4 | | Exclusive License Agreement for “Altolyn” between Thornton & Ross Ltd. and Manhattan Pharmaceuticals, Inc. dated April 3, 2007. |
| | | |
| 10.5 | | Exclusive License Agreement for “Hedrin” between Thornton & Ross Ltd., Kerris, S.A. and Manhattan Pharmaceuticals, Inc. dated June 26, 2007. |
| | | |
| 10.6 | | Supply Agreement for “Hedrin” between Thornton & Ross Ltd. and Manhattan Pharmaceuticals, Inc. dated June 26, 2007. |
| | | |
| 31.1 | | Certification of Chief Executive Officer |
| | | |
31.2 | | Certification of Chief Financial Officer |
| | | |
32.1 | | Certifications of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
SIGNATURES
In accordance with the requirements of the Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | | |
| | MANHATTAN PHARMACEUTICALS, INC. |
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| Date: August 14, 2007 | By: | /s/ Douglas Abel |
| |
Douglas Abel |
| | President and Chief Executive Officer |
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| Date: August 14, 2007 | By: | /s/ Michael G. McGuinness |
| |
Michael G. McGuinness |
| | Chief Financial Officer |
Index to Exhibits Filed with this Report
| | Description |
| | | |
| 10.3 | | Exclusive License Agreement for “Altoderm” between Thornton & Ross Ltd. and Manhattan Pharmaceuticals, Inc. dated April 3, 2007. |
| | | |
| 10.4 | | Exclusive License Agreement for “Altolyn” between Thornton & Ross Ltd. and Manhattan Pharmaceuticals, Inc. dated April 3, 2007. |
| | | |
| 10.5 | | Exclusive License Agreement for “Hedrin” between Thornton & Ross Ltd., Kerris, S.A. and Manhattan Pharmaceuticals, Inc. dated June 26, 2007. |
| | |
| 10.6 | | Supply Agreement for “Hedrin” between Thornton & Ross Ltd. and Manhattan Pharmaceuticals, Inc. dated June 26, 2007. |
| | | |
| 31.1 | | Certification of Chief Executive Officer |
| | | |
| | Certification of Chief Financial Officer |
| | | |
| 32.1 | | Certifications of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
