Form 20 - F
[ ] Registration statement pursuant to section 12(b) or (g) of the
Securities Exchange Act of 1934 [Fee required]
or
[X] Annual report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 [Fee required] - For the fiscal year ended
December 31, 2001
or
[ ] Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 [No fee required] - For the transition period
from to
Nymox Pharmaceutical Corporation
(Exact name of registrant as specified in its charter)
Canada
(Jurisdiction of incorporation or organization)
9900 Cavendish Blvd., Suite 306
St. Laurent, Quebec, Canada, H4M 2V2
Securities registered or to be registered pursuant to section 12(b) of the Act.
Title of each class Name of each exchange on which registered
--------------------- -----------------------------------------
None Not Applicable
Securities registered or to be registered pursuant to section 12(g) of the Act
Common Stock
Securities registered or to be registered pursuant to section 15(d) of the Act
None
Indicate the number of outstanding shares of each of the issuer's classes of
capital or common stock as of the close of the period covered by the annual
report: 22,297,525 shares as of December 31, 2001.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such report(s)), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark which financial statement item the registrant has elected
to follow.
Item 17 [X] Item 18 [ ]
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In this annual report, the term "Nymox" refers to both Nymox Pharmaceutical
Corporation and its subsidiaries, Nymox Corporation and Serex Inc., and, where
applicable, a predecessor private corporation, DMS Pharmaceuticals Inc.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
You should be aware that this prospectus contains forward-looking statements
about, among other things, the anticipated operations, product development,
financial condition and operating results of Nymox, proposed clinical trials and
proposed transactions, including collaboration agreements.
By forward-looking statements, we mean any statements that are not statements of
historical fact, including (but are not limited to) statements preceded by or
that include the words, "believes", "expects", "anticipates", "hopes", "targets"
or similar expressions.
In connection with the "safe harbor" provisions in the Private Securities
Litigation Reform Act of 1995, we are including this cautionary statement to
identify some of the important factors that could cause Nymox's actual results
or plans to differ materially from those projected in forward-looking statements
made by, or on behalf of, Nymox. These factors, many of which are beyond the
control of Nymox, include Nymox's ability to:
o identify and capitalize on possible collaboration, strategic
partnering or divestiture opportunities,
o obtain suitable financing to support its operations and clinical
trials,
o manage its growth and the commercialization of its products,
o achieve operating efficiencies as it progresses from a
development-stage to a later-stage biotechnology company,
o successfully compete in its markets,
o realize the results it anticipates from the clinical trials of its
products,
o succeed in finding and retaining joint venture and collaboration
partners to assist it in the successful marketing, distribution
and commercialization of its products,
o achieve regulatory clearances for its products,
o obtain on commercially reasonable terms adequate product liability
insurance for its commercialized products,
o adequately protect its proprietary information and technology from
competitors and avoid infringement of proprietary information and
technology of its competitors,
o assure that its products, if successfully developed and
commercialized following regulatory approval, are not rendered
obsolete by products or technologies of competitors and
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o not encounter problems with third parties, including key
personnel, upon whom it is dependent.
Although Nymox believes that the forward-looking statements contained in this
registration statement are reasonable, it cannot ensure that its expectations
will be met. These statements involve risks and uncertainties. Actual results
may differ materially from those expressed or implied in these statements.
Factors that could cause such differences include, but are not limited to, those
discussed under "Risk Factors."
PART I
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
Not Applicable
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
Not Applicable
ITEM 3 KEY INFORMATION
Selected Financial Data
The following table sets forth selected consolidated financial data for Nymox
for the periods indicated, derived from financial statements prepared in
accordance with generally accepted accounting principles ("GAAP"). We prepare
our basic financial statements in accordance with Canadian GAAP and include, as
a note to the statements, a reconciliation of material differences to United
States GAAP. The financial statements have been audited by KPMG, LLP, Montreal,
Canada as at and for the years ended December 31, 1997, 1998, 1999, 2000 and
2001. The data set forth below should be read in conjunction with the Company's
consolidated financial statements and notes thereto.
NYMOX PHARMACEUTICAL CORPORATION
Selected Consolidated Financial Data
(In U.S. dollars(3))
Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31,
-------- -------- -------- -------- --------
2001 2000 1999 1998 1997
---- ---- ---- ---- ----
CANADIAN GAAP
Current Assets $714,522 $749,510 $776,824 $2,708,543 $1,750,388
Capital Assets 3,371,524 3,412,694 1,168,316 1,279,692 983,484
Total Assets 4,192,241 4,384,716 2,140,491 3,988,235 2,733,872
Total Liabilities 747,493 323,774 833,344 301,004 202,543
Share Capital & Other 25,798,195 23,243,941 16,912,963 15,943,710 9,597,888
Shareholder's Equity 2,644,748 3,260,942 1,307,147 3,687,231 2,531,329
Total Revenues 380,609 225,867 190,203 273,565 70,055
Sales, license fees and 362,691 157,688 153,252 104,804 17,033
research contracts
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Research & Development
Expenditures(1) 1,479,602 2,073,775 1,132,941 2,087,742 1,671,412
Net Loss 3,049,504 4,023,979 3,314,296 4,783,213 3,463,905
Loss per Share $0.14 $0.19 $0.17 $0.25 $0.19
Weighted Avg. No. of Common
Shares 21,873,966 20,890,735 19,886,430 19,304,435 18,370,873
U.S. GAAP(2)
Net Loss 3,095,133 $4,272,308 $3,409,166 $4,979,562 $3,755,409
Loss per Share 0.14 0.20 0.17 0.26 0.20
Shareholder's Equity $2,496,104 $3,102,887 $1,139,731 $3,304,352 $2,428,052
(1) We earn investment tax credits by making qualifying research and development expenditures. These
amounts shown are net of investment tax credits.
(2) Reference is made to Note 10 of Nymox's audited financial statements as at and for the year ended
December 31, 2001 for a reconciliation of differences between Canadian and U.S. GAAP.
(3) Effective January 1, 2000, the Corporation adopted the United States dollar as its measurement currency
as a result of the increasing proportion of operating, financing and investing transactions in the
Canadian operations that are denominated in U.S. dollars. For Canadian GAAP purposes, the financial
information for all periods presented up to December 31, 1999 has been translated into U.S. dollars at
the December 31, 1999 exchange rate, which was 1.4433 Canadian dollars to the U.S. dollar. For U.S.
GAAP purposes, assets and liabilities for all years presented have been translated into U.S. dollars at
the ending exchange rate for the respective year and the statement of earnings at the average rate for
the respective year. Reference is made to notes 2(a) and 10 of the consolidated financial statements.
Share Capital
The following table sets forth our capitalization as of December 31, 2001. This
table should be read in conjunction with the financial statements and related
notes, and the "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included elsewhere in this report.
Long term debt and capital lease obligations $0
----------------
Shareholder's Equity:
Share Capital: $25,376,557
Common stock, par value $1.30; 21,377,621
shares issued and outstanding
actual. Shares authorized for issue:
unlimited
Warrants 421,638
Accumulated deficit ($23,153,447)
----------------
Total shareholder's equity (deficit) $2,644,748
================
Total capitalization $2,644,748
================
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Risk Factors
The following risk factors apply to Nymox and our industry.
An investment in shares of common stock of Nymox involves a high degree of risk.
You should carefully consider each of the risks and uncertainties described
below along with all of the other information in this prospectus before deciding
to invest in these shares.
It is Uncertain When, if Ever, We Will Make a Profit
We first began operations in 1995 and are only in the early stages of commercial
marketing of our products, AlzheimAlert(TM), NicAlert(TM) and Nicometer(TM). We
have never made a profit. We incurred a net loss of $4.8 million in 1998, $3.3
million in 1999, $4.0 million in 2000, and $3.0 million in 2001. As of December
31, 2001, Nymox's accumulated deficit was $23.2 million.
We cannot say when, if ever, Nymox will become profitable. Profitability will
depend on our uncertain ability to generate revenues from the sale of our
products and the licensing of our technology that will offset the significant
expenditures required for us to advance our research, protect and extend our
intellectual property and develop, manufacture, license, market, distribute and
sell our technology and products successfully. Similar types of expenditures in
the past have helped produce the net losses reported above.
We May Not Be Able to Raise Enough Capital to Develop and Market Our Products
Nymox has funded its operations primarily by selling shares of its common stock.
Since late 1998, a small portion of the funds came from sales. However, sales
have not been, and may not be in the foreseeable future, sufficient to meet our
anticipated financial requirements.
We will continue to need to raise substantial amounts of capital for our
business activities including our research and development programs, the conduct
of clinical trials needed to obtain regulatory approvals and the marketing and
sales of our products. We anticipate being able to fund our current total annual
budgeted expenditures of approximately $3 million per year through our current
cash position and additional financing including draw downs through our Common
Stock Purchase Agreement. Clinical trials will substantially increase cash
requirements. We anticipate being able to meet those requirements as they arise.
Any necessary clinical trials for regulatory approval following successful
initial clinical trials will require considerably more capital. We plan to raise
such capital either through a new round of financing and/or through partnering
with a major pharmaceutical company. Additional financing may not be available
when needed, or, if available, may not be available on acceptable terms. If
adequate funds on acceptable terms are not available, we may have to curtail or
eliminate expenditures for research and development, testing, clinical trials,
promotion and marketing for some or all of our products.
We Face Challenges in Developing and Improving Our Products
Our success depends on our ability to develop or acquire rights to new products
or to improve our existing products. We are still developing many of our
products and have not yet brought
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them to market. We cannot assure you that we will be able to develop or acquire
rights to such products and to market them successfully.
Developing a treatment for Alzheimer's disease is particularly challenging. Many
pharmaceutical companies, institutions and researchers are working on many
different approaches and treatments. There is no consensus among researchers
about the cause of this fatal illness and no guarantee that our drug development
programs in this area are targeting significant factors in its cause,
progression or symptoms. It is difficult to design drug candidates that can
cross from the bloodstream into the brain, where the damage from Alzheimer's
disease is occurring. Clinical trials to establish efficacy for drugs that slow
down the progression of Alzheimer's disease over a period of months or years
often require that a large number of subjects be tracked over many months or
years, making them very expensive to conduct. The potentially long period from
discovery and patenting through development and regulatory approval to the
market can significantly reduce the patent life of an Alzheimer's disease
treatment. Any marketed treatment in this area may well eventually face
competition from "me-too" drugs developed by other pharmaceutical companies
based on our research. We will be under constant competitive pressure to improve
our products and to develop new treatments in order to protect our position in
the field.
Developing and improving our diagnostic products is also challenging. The
science and technology of the detection and measurement of very small amounts of
biochemicals in bodily fluids and tissue is evolving rapidly. We may need to
make significant expenditures in research and development costs and licensing
fees in order to take advantage of new technologies. If any major changes to our
testing technologies used in our AlzheimAlert(TM), NicAlert(TM) and
Nicometer(TM) tests are made, further validation studies will be required.
Developing new diagnostic products is more challenging, requiring identification
and validation of the biochemical marker being detected by the new product in
the clinical context and the development and validation of the product designed
to detect the marker.
We Face Significant and Growing Competition
The modern pharmaceutical and biotechnology industries are intensely
competitive, particularly in the field of Alzheimer's disease where there is a
large unmet need for an effective treatment. Currently there are four drugs with
the same mechanism of action approved for sale in the United States (Aricept(R),
Cognex(R), Exelon(R) and Reminyl(R)). These drugs offer some relatively
short-term symptomatic relief, but do not treat the underlying causes of the
illness. Over the past decade, there has been an intense research effort both in
the non-profit sectors such as universities, government agencies and research
institutes and in the pharmaceutical and biotechnology industry to develop new
treatments for Alzheimer's disease. Treatment candidates under development
include:
o vaccines for Alzheimer's disease;
o enzyme-blocking therapies intended to block the production of the
protein found in the senile plaques characteristic of Alzheimer's
disease. A number of pharmaceutical and biotechnology companies
including Amgen and Bristol-Myers Squibb are working on such
therapies and hope to soon be in clinical trials on humans.
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o implantation of genetically modified cells that produce human
nerve growth factor into the brains of people with Alzheimer's
disease. Preliminary human testing began this year at the
University of California at San Diego in conjunction with the Salk
Institute for Biological Studies.
There is also ongoing research into possible methods of preventing Alzheimer's
disease such as taking certain cholesterol-lowering drugs called statins,
estrogen replacement therapies, anti-oxidants such as vitamin E and ginkgo
biloba or anti-inflammatory drugs such as ibuprofen (e.g., Advil or Motrin). The
successful development of a treatment or method of preventing Alzheimer's
disease could significantly impact on our ability to develop or market a
competing treatment for Alzheimer's disease.
The diagnostic testing industry is also highly competitive. In the area of
Alzheimer's disease, Elan PLC is marketing diagnostic tests for different
biochemical indicators found in blood and spinal fluid and for genetic
predispositions for the illness. Other companies are attempting to develop and
market other diagnostic products in this area. The introduction of other
diagnostics products for Alzheimer's disease or tobacco product use that are
cheaper, easier to perform, more accurate or otherwise more attractive to the
physicians, health care payers or other potential customers would have a
significant impact on the sales of our AlzheimAlert(TM), NicAlert(TM) or
Nicometer(TM) products.
We May Not Be Able to Successfully Market Our Products
To increase our marketing, distribution and sales capabilities both in the
United States and around the world, we will need to enter into licensing
arrangements, contract sales agreements and co-marketing deals. We cannot assure
you that we will be able to enter into agreements with other companies on terms
acceptable to us, that any licensing arrangement will generate any revenue for
the company or that the costs of engaging and retaining the services of a
contract sales organization will not exceed the revenues generated.
Our Products and Services May Not Receive Necessary Regulatory Approvals
Our products, AlzheimAlert(TM), NicAlert(TM) and Nicometer(TM), and our products
in development, are subject to a wide range of government regulation governing
laboratory standards, product safety and efficacy. The actual regulatory schemes
in place vary from country to country and regulatory compliance can take several
years and involve substantial expenditures.
We cannot be sure that we can obtain necessary regulatory approvals on a timely
basis, if at all, for our products in development and all of the following could
have a material adverse effect on our business:
o failure to obtain or significant delays in obtaining requisite
approvals;
o loss of or changes to previously obtained approvals; and
o failure to comply with existing or future regulatory requirements.
We currently market AlzheimAlert(TM) as a clinical reference laboratory service
provided by our government-inspected clinical reference laboratory in New
Jersey. Physicians send us urine
7
samples from their patients to our laboratory where the AlzheimAlert(TM) test is
performed and the results reported back to the physicians. A clinical laboratory
test like AlzheimAlert(TM) does not require approval from the United States Food
and Drug Administration (FDA). Our laboratory is regulated by the Centers for
Medicare & Medicaid Services (CMS) under the Clinical Laboratory Improvement
Amendments and is subject to inspection and certification. In addition,
individual states like New York and Florida have their own requirements for
reference laboratories like ours that offer diagnostic services. In addition,
the FDA has its own regulations governing in vitro diagnostic products,
including some of the reagents used in clinical reference laboratories. Any
changes in CMS or state law requirements or in the FDA regulations could have a
detrimental impact on our ability to offer or market any reference laboratory
services and/or on our ability to obtain reimbursement from the Medicare and
Medicaid programs and providers.
We may develop a diagnostic kit based on AlzheimAlert(TM) for sale to third
parties. If so, we will require prior approval from the FDA before we can
market, distribute or sell such a product in the United States. We have not
submitted any such product to the FDA for approval. Similar requirements exist
in many other countries. In general, such approval requires clinical testing as
to the safety and efficacy of the device and preparation of an approval
application with extensive supporting documentation. If approved, the device
would then be subject to postmarketing record and reporting obligations and
manufacturing requirements. Obtaining these approvals and complying with the
subsequent regulatory requirements can be both time-consuming and expensive.
We currently sell NicAlert(TM) and NicoMeter(TM) as tests for tobacco product
use and for research use. In May 2002, we filed a 510(k) application with the
FDA for NicAlert(TM) and have not received any decision on the application.
In the United States, our drugs in development will require FDA approval, which
comes only at the end of a lengthy, expensive and often arduous process. We have
not submitted any drugs for FDA approval. We cannot predict with any certainty
the amount of time the FDA will take to approve one of our drugs or even whether
any such approval will be forthcoming. Similar requirements exist in many other
countries.
Protecting Our Patents and Proprietary Information is Costly and Difficult
We believe that patent and trade secret protection is important to our business,
and that our success will depend, in part, on our ability to obtain strong
patents, to maintain trade secret protection and to operate without infringing
the proprietary rights of others.
Obtaining and maintaining our patent position is costly. We pay for the filing,
prosecution and fees of over 200 patents and patent applications in countries
around the world, including the United States, Europe, Japan, Canada, Australia,
New Zealand and South Korea. In the United States alone, Nymox has ten patents
issued or allowed and at least fifteen patent applications pending relating to
its technology. Its subsidiary, Serex Inc. has eight patents issued or allowed.
Through its licensing agreement with the Massachusetts General Hospital, Nymox
has licensed and paid for the prosecution of four issued patents relating to
neural thread proteins.
8
We believe that we have strong patent protection for the products we sell and
for our product development programs and are in the process of extending that
patent protection to cover more countries or new discoveries or products. We
cannot assure you that additional patents covering new products or improvements
will be issued or that any new or existing patents will be of commercial benefit
or be valid and enforceable if challenged.
We are not currently involved in patent litigation. In the pharmaceutical and
biotechnology industry patent disputes are frequent and can preclude the
commercialization of products. Patent litigation is costly and the outcome often
difficult to predict. It can expose us to significant liabilities to third
parties and may require us to obtain third-party licenses at a material cost or
cease using the technology or product in dispute.
We Face Changing Market Conditions
The healthcare industry is in transition with a number of changes that affect
the market for therapeutic and diagnostic test products. The U.S. Federal and
various state governments have under consideration a number of proposals that
may have the effect of directly or indirectly limiting drug prices in the U.S.
markets. Such changes may adversely affect the prices we may charge for any
therapeutic drug we develop. Funding changes and budgetary considerations can
lead major health care payers and providers to make changes in reimbursement
policies for our AlzheimAlert(TM) product. These changes can seriously impact
the potential for growth for the market for AlzheimAlert(TM), either favorably
when the decision is to offer broad coverage for our test at a reasonable price
or negatively when the decision is to deny coverage altogether. Changes in the
healthcare delivery system have resulted in major consolidation among reference
laboratories and in the formation of multi-hospital alliances, reducing the
number of institutional customers for therapeutic and diagnostic test products.
There can be no assurance that Nymox will be able to enter into and/or sustain
contractual or other marketing or distribution arrangements on a satisfactory
commercial basis with these institutional customers.
Health Care Plans May Not Cover or Adequately Pay for our Products and Services
Throughout the developed world, both public and private health care plans are
under considerable financial and political pressure to contain their costs. The
two principal methods of restricting expenditures on drugs and diagnostic
products and services are to deny coverage or, if coverage is granted, to limit
reimbursement. For single-payer government health care systems, a decision to
deny coverage or to severely restrict reimbursement for one of our products can
have an adverse effect on our business and revenues.
In the United States, where, to a significant degree, the patient population for
our products is elderly, Medicare and Medicaid are sources of reimbursement. In
general, any restriction on reimbursement, coverage or eligibility under either
program could adversely affect reimbursement to Nymox for products and services
provided to beneficiaries of the Medicare and/or Medicaid programs. Many elderly
people are covered by a variety of private health care organizations either
operating private health care plans or Medicare or Medicaid programs subject to
government regulation. These organizations are also under considerable financial
constraints and we may not be able to secure coverage or adequate reimbursement
from these organizations. Without coverage, we will have to look to the patients
themselves who may be
9
unwilling or unable to pay for the product; in turn, doctors may be reluctant to
order or prescribe our products in the absence of coverage of the product for
the patient.
The Future Sale of Eligible Shares may Dilute Nymox's Stock Price
The issuance of further shares and the eligibility of issued shares for sale
will dilute our common stock and may lower its share price. There are 22,567,531
common shares of Nymox currently issued and outstanding as of May 31, 2002,
including the 508,309 shares issued to date under the common stock purchase
agreement covered by this prospectus. All of these shares are eligible for sale
under Rule 144 or are otherwise freely tradable. There are 711,860 warrants
issued, which expire in 1 to 3 years. Finally, 1,638,500 share options are
outstanding, of which 1,373,000 are currently vested. The great majority of
these options expire in 6 to 10 years. These options have been granted to
employees, officers, directors and consultants of the company. Moreover, Nymox
may use its shares as currency in acquisitions.
We Face Potential Losses Due to Foreign Currency Exchange Risks
Nymox incurs certain expenses, principally relating to salaries and operating
expenses at its Canadian head office, in Canadian dollars. All other expenses
are derived in U.S. dollars. As a result, we are exposed to the risk of losses
due to fluctuations in the exchange rates between the U.S. dollar and the
Canadian dollar. We protect ourselves against this risk by maintaining cash
balances in both currencies. We do not currently engage in hedging activities.
We cannot say with any assurance that the Company will not suffer losses as a
result of unfavorable fluctuations in the exchange rates between the United
States dollar and Canadian dollar.
We Have Never Paid a Dividend and are Unlikely to do so in the Foreseeable
Future
Nymox has never paid any dividends and does not expect to do so in the
foreseeable future. We expect to retain any earnings or positive cash flow in
order to finance and develop Nymox's business.
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ITEM 4. INFORMATION ON THE COMPANY
History of the Company
Nymox was incorporated in May, 1995 to acquire all of the common shares of DMS
Pharmaceutical Inc., a private company which had been carrying on research and
development since 1989 on diagnostics and drugs for brain disorders and diseases
of the aged with an emphasis on Alzheimer's disease. Nymox has two subsidiaries:
one wholly owned subsidiary named Nymox Corporation and the other a majority
owned subsidiary named Serex, Inc, purchased in March, 2000. Both subsidiaries
are based in the same building in Maywood, New Jersey, but each have separate
facilities within the building. Nymox Corporation operates our certified
clinical reference laboratory where our AlzheimAlert(TM) test is performed, and
conducts some research and development, while Serex conducts research and
development, and some of the manufacturing for NicAlert(TM) and NicoMeter(TM).
Nymox's principal executive offices are located at:
Nymox Pharmaceutical Corporation
9900 Cavendish Boulevard, Suite 306
St. Laurent, Quebec, Canada, H4M 2V2
Phone: (800) 936-9669
Fax: (514) 332-2227
Nymox's two subsidiaries are located at:
Nymox Corporation
230 West Passaic St.
Maywood, NJ, USA 07607
Serex, Inc.
230 West Passaic St.
Maywood, NJ, USA 07607
We specialize in the research and development of therapeutics and diagnostics
for the aging population with an emphasis on Alzheimer's disease. Alzheimer's
disease is a progressive, terminal brain disease of the elderly marked by an
irreversible decline in mental abilities, including memory and comprehension,
and often accompanied by changes in behavior and personality. It currently
afflicts an estimated four million people in the United States and at least
fifteen million people worldwide. As the baby-boomer generation continues to
age, these figures are expected to rise sharply.
Acquisition of a Majority Interest in Serex, Inc.
On March 2, 2000, we closed our acquisition of a controlling interest in Serex,
Inc., a privately held diagnostic company based in Maywood, New Jersey. We have
subsequently acquired more shares of the common stock of Serex, Inc. from other
shareholders and now own approximately 98% of its common stock.
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Serex's NicAlert(TM) and NicoMeter(TM) strips can reliably detect one of the
metabolic products of nicotine in human urine or saliva (NicAlert(TM) only), in
order to determine whether a person, such as a teenager or insurance applicant,
is using a tobacco product. NicAlert(TM) and NicoMeter(TM) are currently being
distributed in Japan by Mizuho Medy Co. Ltd. of Japan and outside of Japan by
Nymox and Jant Pharmacal Corporation.
Serex developed and patented its particle valence technology, a unique, highly
sensitive, new method to detect very small amounts of biochemical indicators in
body fluids such as blood, urine and saliva. This technology can be adapted to
detect a wide range of biochemical indicators for diseases, conditions and drug
use.
Serex also assisted in the development of our AlzheimAlert(TM) test.
Diagnostic Products for Alzheimer's Disease
Alzheimer's disease is the most common cause of dementia in persons 65 years of
age and older and is the fourth leading cause of death among the elderly.
Despite the need for an accurate clinical test, the definitive diagnosis of the
disease is possible only after the death of the patient by expert, pathologic
examination of brain tissue.
The Surgeon General's Report on Mental Health, released on December 13, 1999,
identified the importance and the need for the early detection and diagnosis of
Alzheimer's disease. The report described the current approach to Alzheimer's
disease diagnosis, clinical examination and the exclusion of other common causes
of its symptoms, as time- and labor-intensive, costly and largely dependent on
the expertise of the examiner. As a result, the illness is currently
underrecognized, especially in primary care settings, where most older patients
seek care. The report joined other experts writing in the field in recognizing
the need for a better, more reliable method for diagnosing the disease in living
patients and in particular, the need of a simple, accurate and convenient test
that could detect a biochemical change early in patients with Alzheimer's
disease. We believe our AlzheimAlert(TM) provides such a test.
AlzheimAlert(TM); An Aid to the Diagnosis of Alzheimer's Disease
We market a proprietary diagnostic test for Alzheimer's disease, known as the
AlzheimAlert(TM) Test, through our government-inspected clinical reference
laboratory in Maywood, New Jersey. AlzheimAlert(TM) is an improved version of
our AD7C(TM) test, which has been on the market since 1997. It is a urine test,
where the patient provides a first-morning urine sample for testing. The
patient's doctor then forwards the sample to our laboratory where our technical
staff performs the test. We then report the results to the doctor.
AlzheimAlert(TM) is the latest generation of our NTP testing technology. It
measures the level of a brain protein called neural thread protein (NTP) which
is elevated early in Alzheimer's disease as reported both in the scientific
literature and at scientific conferences. Researchers at the Massachusetts
General Hospital and Brown University led by Doctors Suzanne de la Monte and
Jack Wands first found large amounts of the protein in the brain tissue of
patients known to have died with Alzheimer's disease. Subsequent research led to
the characterization of NTP and the gene that produces it. Nymox succeeded in
developing a highly sensitive test to detect the presence of NTP in the spinal
fluid and, most recently, in the urine of patients with Alzheimer's
12
disease. A recent study (J. Neuropathol Exp Neurol (2001; 60: 195-207)) has
provided further evidence that increased production of NTP leads to a marked
increase in nerve cell death and shown that the cells subjected to NTP died in a
programmed fashion similar to the way the nerve cells in the brains of patients
with Alzheimer's disease die. One of the characteristic signs of Alzheimer's
disease is widespread brain cell loss.
Nymox believes that its AlzheimAlert(TM) test can assist a physician faced with
the task of diagnosing whether a patient has Alzheimer's disease. In company
funded trials of its NTP testing technology to date, involving over 500 clinical
samples, the test results were positive for over 80% of the patients with
verified Alzheimer disease and negative in over 89% of subjects without the
disease (known as a low false positive rate). The low rate of positive results
for patients without the disease is important for doctors investigating patients
with subtle or marginal symptoms of mental, emotional, cognitive, or behavioral
changes. If the doctor can rule out Alzheimer's with more assurance, a great
deal of patient and family anguish and anxiety will be avoided. A low test score
will help the doctor to be more certain that Alzheimer's disease is not the
cause of the patient's symptoms and to target the other, often reversible causes
of the patient's symptoms, such as depression.
Many studies published in scientific publications or presented at scientific
conferences over the past decade have confirmed the accuracy of NTP as a
biochemical marker for Alzheimer's disease. Recent publications in the
peer-reviewed literature include, for example, the Journal of Clinical
Investigation (1997; 100: 3093-3104); Journal of Contemporary Neurology (1998;
art. 4a); Journal of Clinical Laboratory Analysis (1998; 12: 285-288) and (1998;
12: 223-226); Alzheimer's Reports (1999; 2: 327-332), (2000; 3: 177-184) and
(2001; 4: 61-65); Neurology (2000; 54: 1498-1504) and (2000; 55: 1068); Journal
of Alzheimer's Disease (2001; 3: 345-353), and Neurology and Clinical
Neurophysiology (2002; 1: 2-7). Reports about this Nymox technology have also
been featured in prestigious trade and lay publications such as Clinica
(Sept.25, 2000), Genetic Engineering News (Oct.1, 2000), Clinical Laboratory
News (Sept., 1999 and Oct., 2000), Modern Maturity (Dec., 2000), ADVANCE for
Administrators of the Laboratory (June, 2001), ASRT Scanner (August, 2001), RN
magazine (August, 2001), Clinical Geriatrics (Nov., 2000), LabMedica
International (June, 1998), and Clinical Laboratory International (October,
1998).
There can be no assurance that further studies will repeat the same level of
success experienced to date.
The early diagnosis of Alzheimer's disease is important to physicians, patients
and their families and enables them to make informed and early social, legal and
medical decisions about treatment and care. Early diagnosis of Alzheimer's
disease has become increasingly important with new improvements in drug
treatment and care. Even a modest delay in institutionalization can mean
substantial social and financial savings. Conversely, any testing procedure that
could rule out Alzheimer's disease would eliminate the tremendous uncertainty
and anxiety patients and their families otherwise face and would allow
physicians to focus on the other, often reversible, causes of cognitive changes.
Early diagnosis as facilitated by the AlzheimAlert(TM) test represents a
potentially large cost-savings in the form of a reduced number of office visits,
lab tests, scans and other procedures required by the traditional methods of
diagnosis.
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The AlzheimAlert(TM) test is an aid to diagnosis, to be considered together with
patient history, physical examination and other relevant medical data. The test
does not replace a physician's diagnosis.
We intend to develop and sell a diagnostic kit version of the AlzheimAlert(TM)
test. Such a kit would permit the testing of patient samples either in a general
purpose medical laboratory or in a physician's office. The development of such a
kit will be subject to further laboratory and clinical validation and to any
necessary regulatory approvals. AlzheimAlert(TM) offers a more technically
advanced means to detect elevated levels of NTP in urine. It is a completely new
assay in the competitive affinity format and has significant advantages of easy
adaptability to systems and equipment present in all modern clinical
laboratories.
We expect that, if approved, a diagnostic kit version of AlzheimAlert(TM) kit
will increase the availability and acceptance of our test while lowering its
cost to the patient or health care payer.
Other Biochemical Indicators of Alzheimer's Disease
We hold exclusive patent rights to several other biochemical indicators for
Alzheimer's disease, including the brain protein, 35i9, which we believe is also
associated with Alzheimer's disease. We intend to use our extensive scientific,
medical and commercial experience and know-how in the field of Alzheimer's
disease in order to develop new diagnostic tests, methods and treatments for the
disease from these and other indicators.
Development of Therapeutic Products for Alzheimer's Disease
At present, there is no cure for Alzheimer's disease. There are four drugs
approved by the FDA, tacrine (brand-name Cognex(R)), donepezil HCI (brand-name
Aricept(R)), rivastigmine (brand-name Exelon(R)) and galantamine hydrobromide
(brand name Reminyl(R)) for the treatment of Alzheimer's disease. However, at
most these drugs offer symptomatic relief for the loss of mental function
associated with the disease and possibly help to delay the illness- progression.
There is no consensus as to the cause of Alzheimer's disease or even whether it
is one disease or many.
There is an urgent need for an effective treatment for the illness, caused in
part by the rising health care, institutional and social costs for the treatment
and care of Alzheimer's disease sufferers. The Surgeon General's Report on
Mental Health released on December 13, 1999, put the direct health care costs
for the illness in the United States at almost $18 billion for 1996. In a 1998
statement to the House Appropriations Subcommittee, the Director of the National
Institute on Aging, Dr. Richard J. Hodes, estimated that the cost of care to
family, caregivers and society in general was as much as $100 billion per year.
These costs are expected to rise sharply as the baby boom generation ages and
more people become at risk for the disease. According to Dr. Hodes, the number
of Americans aged 65 or over, now some 34 million, is expected to more than
double by year 2030. Within this group, the population of persons over the age
of 85 is the fastest growing segment. As people live longer, they become more at
risk of developing Alzheimer's disease.
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Nymox's research into drug treatments for Alzheimer's disease is aimed at
compounds that could arrest the progression of the disease and therefore are
targeted for long term use.
Drugs Targeting Spherons
We are a leader in research and development into drugs for the treatment of
Alzheimer's disease that target spherons. Nymox researchers believe that
spherons are a cause of senile plaques, the characteristic lesion found
abundantly in the brains of patients with Alzheimer's disease and believed by
many researchers to play a pivotal role in the fatal illness. Spherons are tiny
balls of densely packed protein found in brain cells scattered throughout the
brains of all humans from age one. Nymox researchers have found that as humans
age the spherons grow up to a hundred times larger until they become too large
for the cells that hold them. Once released from the cells, the spherons burst
which the researchers believe creates senile plaques and sets off a cascade of
cellular damage and biochemical changes pivotal to the symptoms and signs of
Alzheimer's disease.
The substantial evidence linking spherons to senile plaques and Alzheimer's
disease has been published in journals such as the Journal of Alzheimer's
Disease, Drug News & Perspectives and Alzheimer Reports. There are 20 important
criteria of validity which have been set forth correlating the disappearance of
spherons in old age with the appearance of senile plaques and implicating
spherons as a major causal in Alzheimer's disease. In 2000, Nymox researchers
published important findings in Alzheimer Reports (2000; 3: 177-184) confirming
that spherons contain key proteins that are also known to be in senile plaques
and showing that, like senile plaques, spherons contain unusually old proteins
in terms of the human body's metabolism, with an average age of 20 to 40 years.
Nymox researchers believe that stopping or inhibiting the transformation of
spherons into senile plaques will help stop or slow the progress of this
illness. You should be aware that there is no consensus among researchers about
the causes or possible treatments of Alzheimer's disease and that not all
researchers share this belief that spherons are a causative factor in
Alzheimer's disease or are a target for the development of treatments for the
disease.
Based on these research findings and this approach to the treatment of the
disease, we developed novel, proprietary drug screening methods based on
spherons and used them to discover, develop and test drug candidates to inhibit
the formation of Alzheimer plaques from spherons. These candidates have the
potential to slow or stop the progression of the disease.
We have two distinct new drug candidates, NXD-3109 and NXD-1191, neither of
which demonstrate significant toxicity and both of which had positive animal
testing results. These candidates are at the stage of pre-clinical testing.
Such drug candidates will require regulatory approval in order to begin clinical
studies for humans. You should be aware there is no guarantee that any of these
drug candidates will ever be approved for marketing as a treatment for
Alzheimer's disease. Drug candidates that look promising in early studies in the
laboratory or with animals often prove on further testing to be unsafe,
ineffective or impractical to use with human patients. The cost of bringing a
drug candidate through the necessary clinical trial and regulatory approvals is
very high and may require us to seek substantial financing through various
sources including the issuing of more
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stock, the borrowing of funds secured by financial instruments such as bonds or
agreements with major pharmaceutical companies. We risk not being able to secure
such funding in the necessary amounts or on sufficiently favorable terms.
Nymox holds global patent rights covering both methods for using spherons as
targets for developing drugs and for the actual drug candidates discovered.
Neural Thread protein Based Drugs
Nymox developed a unique drug screening system, based on the research that led
to its AlzheimAlert(TM) test, to identify other potential drug candidates for
the treatment of Alzheimer's disease. There is a substantial body of evidence
showing that NTP may play a key role in Alzheimer's disease. The published
studies include Journal of the Neurological Sciences (1996; 138: 26-35), Journal
of Neuropathology and Experimental Neurology (1996; 55: 1038-50), Journal of
Clinical Investigation (1997; 100: 3093-3104), Alzheimer's Reports (1999; 2:
327-332), Journal of Alzheimer's Disease (2001; 3: 345-353) and Cellular and
Molecular Life Sciences (2001; 58: 844-849). A recent study published in the
Journal of Neuropathology and Experimental Neurology (2001; 60: 195-207)
reported on how a team of researchers at Brown University led by Dr. Suzanne de
la Monte and Dr. Jack Wands implanted the gene that produces NTP in nerve cells
derived from humans. They then caused the cells to turn on the implanted NTP
gene and to begin to produce NTP in elevated quantities. This caused a marked
increase in nerve cell death. Sophisticated analysis showed that the cells died
in a programmed fashion similar to the way the nerve cells in brains of patients
with Alzheimer's disease die. Extensive loss of brain cells and accompanying
brain shrinkage is a key part of the Alzheimer's disease process.
Nymox screened compounds for their ability to impede this process of premature
cell death and thus potentially help slow or halt the loss of brain cells in the
Alzheimer's disease brain. This screening process identified promising drug
candidates but further pre-clinical studies are necessary before these
candidates can move into formal regulatory studies.
Nymox licensed this technology in 1997 from Harvard University and the
Massachusetts General Hospital as part of a sponsored research and licensing
agreement. Under the terms of this agreement, Nymox sponsored the research of
the principal investigators, Dr. Suzanne de la Monte and Dr. Jack Wands, into
the use of neural thread protein, its antibodies or genes for diagnostic or
therapeutic purposes. Nymox also paid the patent costs for the patent
applications filed arising out of this research. In return, Nymox received an
exclusive worldwide license of the patents to sell products and to use processes
encompassed by them. Nymox is to pay the Massachusetts General Hospital a 4%
royalty of the net sales price of any product developed and sold under the
license. Nymox currently pays this royalty on its sales of AlzheimAlert(TM). The
license and the obligation to pay patent costs and royalties continues for the
life of the patents, which run until November, 2014 at the earliest. The
Massachusetts General Hospital has the right to terminate the license in any
country where, after the first commercial sale of the product in the country,
there is a continuous two year period in which no product is sold in such
country. There are four issued U.S. patents and one outstanding U.S. patent
application under license and a correspondingly larger number of patents and
patent applications in Europe, Japan, Canada, Australia, New Zealand and South
Korea. The sponsored research portion of this agreement was
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transferred to Brown University and the Rhode Island Hospital as of March, 1999,
when Dr. de la Monte and Dr. Wands moved to Brown University.
Nymox also has a similar sponsored research and licensing agreement with Brown
University and the Rhode Island Hospital where Dr. de la Monte and Dr. Wands now
carry out their research into neural thread protein. Under the terms of this
agreement, which became effective March 1, 1999, Nymox sponsors the research of
the principal investigators, Dr. Suzanne de la Monte and Dr. Jack Wands, into
the use of neural thread protein, its antibodies or genes for diagnostic or
therapeutic purposes. Nymox also pays the patent costs for any patent
applications filed arising out of this research. In return, Nymox will receive
an exclusive worldwide license of the patents to sell products and to use
processes encompassed by them. The Rhode Island Hospital has the right to
terminate the license in any country where, after the first commercial sale of
the product in the country, there is a continuous two year period in which no
product is sold in such country. Nymox is to pay the Rhode Island Hospital a 4%
royalty of the net sales price of any product developed and sold under the
license.
New Antibacterial Agents Against Infections and Food Contamination
We are developing new antibacterial agents for the treatment of urinary tract
and other bacterial infections in humans which have proved highly resistant to
conventional antibiotic treatments and for the treatment of E. coli 0157:H7
bacterial contamination in hamburger meat and other food and drink products.
Nymox has developed four new antibacterial agents:
o NXB-4221 for the treatment of difficult chronic and persistent
urinary tract infections;
o NXB-5886 for the treatment of streptococcal infection; and
o NXT-1021 for the treatment of staphylococcal infection; and
o NXC-4720 for the treatment of E. coli contamination of meat and
other food and drink products
In the last ten years there has been a growing recognition of the increasing
problem of antibiotic-resistant infections and the need for truly novel
antibacterial drugs. See, for example, the European Commission report dated May
28, 1999, "Opinion of the Scientific Steering Committee on Antimicrobial
Resistance" and the report from the Interagency Task Force on Antimicrobial
Resistance, co-chaired by the Centers for Disease Control and Prevention, the
U.S. Food and Drug Administration and the National Institutes of Health,
entitled A Public Health Action Plan to Combat Antimicrobial Resistance released
on January 19, 2001.
Urinary tract infections in women caused by bacteria such as E. coli are a
common and significant infection often resistant to conventional antibiotic
treatment. Some varieties of streptococcus and staphylococcus bacteria, a common
source of infection in humans, have acquired a broad immunity to antibiotic
treatments. Infections from these antibiotic resistant bacteria are difficult to
treat and can be life threatening.
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Nymox's three antibacterial agents for the treatment of infectious disease have
all shown the ability to kill their bacterial targets in culture with no signs
of toxicity. Further pre-clinical testing and development is required before we
can apply for regulatory approval to begin initial testing in humans.
E. coli contamination of food and drink is a serious public health problem
worldwide and a major concern for meat processors in particular. E. coli
bacteria occur normally and usually harmlessly in the gastrointestinal tracts of
humans, cows and other animals. However, one mutant variety of the E. coli
bacteria, E. coli 0157:H7, can cause life-threatening illness and has been
implicated in cases of severe diarrhea, intestinal bleeding and kidney failure,
leading, in some cases, to death in children and the elderly. E. coli
contamination in hamburger meat and other food products and in drinking water
affects about 70,000 people in the United States a year. There is a
well-recognized need in the beef industry to address the problem of E. coli
contamination in meat processing and in livestock. E. coli contamination has
triggered massive recalls of ground beef in the U.S.. Cattle are a natural
reservoir for the deadly strain of E. coli. Water contamination from cattle
operations have led to public health tragedies.
Nymox developed a potent new antibacterial agent, NXC-4720. Tests of NXC-4720
show it to be highly effective against all known substrains of E. coli 0157:H7,
the bacteria implicated in these severe cases of food and drink contamination.
Tests of NXC-4720 show that it destroys E. coli 0157 strains, including H7,
efficiently, rapidly and at a very low dose. In 1999, we began further
laboratory trials for this agent as a treatment for food and drink contamination
and are continuing trials with various collaborators, including the Faculty of
Veterinary Medicine at the University of Montreal, the Department of Food
Science at the University of Manitoba and BioPhage Inc.. Further pre-clinical
testing and development is required before we can apply for regulatory approval
for use of this agent on the processing of food and drink for human consumption.
Nymox has patent rights to these and other antibacterial agents.
Development of Therapeutic Products for Enlarged Prostate
We are developing treatments for enlarged prostate (benign prostatic hyperplasia
or BPH), using compounds derived from its Alzheimer's disease research. Nymox is
currently involved in formal preclinical studies of these treatments.
Enlarged prostate or BPH affects more than half of men in their sixties and as
many as 90% of men in their seventies and eighties. Symptoms include more
frequent urination (especially at night), difficulty urinating, incomplete
emptying of the bladder and sometimes complete inability to urinate. More
serious cases may require surgical intervention to reduce the size of the
prostate and to remove it entirely. There is a need for a simple, effective
treatment for BPH, particularly in cases where existing drug treatments have
proven to be ineffective and where more intrusive procedures such as surgical
cutting away of prostate tissue may be undesirable to the patient or bring
unacceptable risks.
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The NicAlert(TM) Test for Tobacco Product Use
We also market NicAlert(TM) and NicoMeter(TM) inexpensive, simple-to-use test
strips that use urine or saliva (NicAlert(TM) only) to determine whether a
person is using tobacco products. Both NicAlert(TM) and NicoMeter(TM) detect
levels of cotinine, a byproduct of the body's breakdown of nicotine and
generally regarded as the best indicator of tobacco exposure for smokers and
nonsmokers.
Smoking and other tobacco product use is a serious public health problem.
Smoking kills. According to the Centers for Disease Control and Prevention,
cigarette smoking is responsible for more than 430,000 deaths per year in the
United States alone. Smoking can cause cancer of the lung, mouth, bladder,
larynx and esophagus among others, heart disease and stroke and chronic lung
disease. Every year, exposure to second-hand smoke (environmental tobacco smoke
or ETS) causes an estimated 3,000 nonsmoking Americans to die of lung cancer and
up to 300,000 American infants and small children to suffer from lower
respiratory tract infections.
NicAlert(TM) and NicoMeter(TM) employ Serex, Inc.'s patented technology and is
manufactured by Serex, Inc. with Mizuho USA which provides final assembly and
packaging services. NicAlert(TM) and NicoMeter(TM) are currently being used in
research programs into tobacco use and exposure and are being marketed in the
United States and Japan as a test to determine whether a person, such as a
teenager, student athlete or insurance applicant, is using a tobacco product.
Property, Plant And Equipment
Nymox and Serex laboratory facilities in Maywood, New Jersey comprise 4,687
square feet of leased space. That lease agreement expires February 28, 2005.
Nymox office and research facilities in St. Laurent, Quebec, Canada comprise
6,923 square feet of leased space. The lease agreement expires on August 31,
2003. Nymox Pharmaceutical Corp. and its two US subsidiaries Nymox Corp. and
Serex, Inc. own a full complement of equipment used in all aspects of their
research and development work and the Nymox reference laboratory. Nymox believes
that its facilities are adequate for its current needs and that additional
space, if required, would be available on commercially reasonable terms.
Governmental Regulation
Our AlzheimAlert(TM) test which we provide as a service through our clinical
reference laboratory in Maywood, New Jersey is subject to extensive government
regulation in the United States. Our clinical reference laboratory and its
performance of the AlzheimAlert(TM) must be certified by the Centers for
Medicare & Medicaid Services (CMS) under the Clinical Laboratory Improvement
Amendments (CLIA), which establishes quality standards for the laboratory tests
being performed to ensure the accuracy, reliability and timeliness of patient
test results. In addition, some individual states such as New York, Florida and
New Jersey have their own requirements for the inspection and certification of
reference laboratories which offer diagnostic services for patients within the
state. Finally, the FDA has its own regulations governing in vitro diagnostic
products, including analyte-specific reagents used in clinical reference
laboratories. Any changes in our current certification status, CMS or state law
requirements or in the FDA regulations could have an impact on our future
ability to offer or market any reference laboratory
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services and/or on our ability to obtain reimbursement from the Medicare and
Medicaid programs and providers.
We intend to develop and sell a diagnostic kit version of the AlzheimAlert(TM)
test. We will need to successfully complete clinical and laboratory validation
studies and obtain FDA approval before we can market or sell such a diagnostic
kit version outside of the clinical reference laboratory setting in the United
States. Such approval for this type of commercial development is necessary for
all in vitro diagnostic kits.
The regulatory process leading to such approval can be time-consuming and
expensive and can result in an outright denial or a very limited approval only.
Our product will be subject to subject to premarketing and postmarketing
requirements applicable to such devices, including those governing:
o clinical testing;
o design control procedures;
o prior FDA approval of a 510(k) application, where the FDA has
determined that our diagnostic device is substantial equivalent to
a marketed device, or a premarket approval application, where the
FDA has been satisfied with clinical studies demonstrating the
safety and efficacy of our device;
o postmarketing record and reporting obligations; and i good
manufacturing practices.
The requirements for a premarket approval application are analogous to those for
the approval of a new drug and include four categories of information:
indications for use, device description and manufacturing methods, alternative
practices and procedures for the diagnosis of the disease and clinical and
nonclinical studies. The requirements for a 510(k) application are generally
less onerous but still include indications for use, safety and effectiveness
data as well as manufacturing and quality assurance data and information. There
can be no assurance that the AlzheimAlert(TM) test or any other medical device
that we may develop in the future will obtain the necessary approvals within a
specified time framework, if ever. In addition, the FDA may impose certain
postmarketing requirements that may significantly increase the regulatory costs
associated with our product. The FDA has recourse to a wide range of
administrative sanctions and civil and criminal penalties in order to enforce
the applicable laws, rules and regulations.
Our therapeutic products under development by Nymox would also have to receive
regulatory approval. This is a costly, lengthy and risky process. In the United
States, in order for a product to be marketed, it must go through four distinct
development and evaluation stages:
Product Evaluation
We must conduct preliminary studies of potential drug candidates using various
screening methods to evaluate them for further testing, development and
marketing.
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Optimization of Product Formulation
The activities in this stage of development involve consultations between us and
investigators and scientific personnel. Preliminary selection of screening
candidates to become product candidates for further development and further
evaluation of drug efficacy is based on a panel of research based biochemical
measurements. Extensive formulation work and in vitro testing are conducted for
each of various selected screening candidates and/or product candidates.
Clinical Screening and Evaluation
During this phase of development, portions of which may overlap with product
evaluation and optimization of product formulation, initial clinical screening
of product candidates is undertaken and full scale clinical trials commence. The
FDA must approve any clinical testing on healthy subjects (Phase 1) and on
patients (Phase 2 and 3).
Final Product Development
The activities to be undertaken in final product development include performing
final clinical evaluations, conducting large-scale experiments to confirm the
reproducibility of clinical responses, making clinical lots for any additional
extensive clinical testing that may be required, performing any further safety
studies required by the FDA, carrying out process development work to allow
pilot scale production of the product, completing production demonstration runs
for each potential product, filing new drug applications, product license
applications, investigational device exemptions (and any necessary supplements
or amendments) and undergoing comprehensive regulatory approval programs and
processes.
We cannot assure you that we will successfully complete the development and
commercialization of any therapeutic products.
In the United States, obtaining the necessary FDA approval for any drug is a
lengthy, expensive and often arduous process. We cannot predict with any
certainty the amount of time the FDA will take to approve one of our drugs or
even whether any such approval will be forthcoming. Similar requirements exist
in many other countries.
In the United States, the FDA approval procedure is a two-step process. We must
file an investigational new drug application for each product with the FDA
before beginning the initial (Phase I) clinical testing of the new drug in
healthy subjects. If the FDA has not commented on or questioned the application
within 30 days of its filing, initial clinical studies may begin. If, however,
the FDA has comments or questions, the questions must be answered to the
satisfaction of the FDA before initial clinical testing can begin. In some
instances, this process could result in substantial delay and expense. Phase I
studies are intended to demonstrate the functional characteristics and safety of
a product.
After Phase I testing, we must conduct extensive clinical trials with patients
in order to establish the efficacy and safety of our drug. Once we complete the
required clinical testing, we expect to have to file a new drug application for
FDA approval in order to market most, if not all, of our new drugs. The
application is complicated and detailed and must include the results of
extensive clinical and other testing, the cost of which is substantial. The FDA
conducts an extensive and often lengthy review of such applications. The agency
is required to review applications within 180 days of their filing, but, during
the review, frequently requests that additional information be submitted. This
starts the 180-day regulatory review period anew when the requested additional
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information is submitted and, as a result, can significantly extend the review
period. Until the FDA actually approves the new drug application, there can be
no assurance that the agency will consider the information requested and
submitted to justify approval. The packaging and labeling of products are also
subject to FDA regulation. Accordingly, it is impossible to anticipate when the
FDA will approve a new drug application.
We must also obtain approval for our drugs or diagnostic devices from the
comparable regulatory authority in other countries before we can begin marketing
our product in that country. The approval procedure varies from country to
country and can involve additional testing. The time required may differ from
that required for FDA approval. Although there are some procedures for unified
filings for certain European countries, in general each country has its own
procedures and requirements, many of which are time-consuming and expensive.
Thus, there can be substantial delays in obtaining required approvals from both
the FDA and foreign regulatory authorities after the relevant applications are
filed.
After such approvals are obtained, further delays may be encountered before the
products become commercially available. If, subsequent to approval, new
information becomes available concerning the safety or effectiveness of any
approved product, the regulatory authority may require the labeling for the
affected product to be revised or the product to be withdrawn. Our manufacturing
of any approved drug must conform with the FDA's good manufacturing practice
regulations which govern the production of pharmaceutical products and be
subject to inspections and compliance orders.
Government regulation also affects our ability to receive an appropriate level
of reimbursement for our products. Throughout the developed world, both public
and private health care plans are under considerable financial and political
pressure to contain their costs. The two principal methods of restricting
expenditures on drugs and diagnostic products and services are to deny coverage
or, if coverage is granted, to limit reimbursement. For single-payer government
health care systems, a decision to deny coverage or to severely restrict
reimbursement for one of our products can have an adverse effect on our business
and revenues.
In the United States, where, to a significant degree, the patient population for
our products is elderly, Medicare and Medicaid are sources of reimbursement. In
general, any restriction on reimbursement, coverage or eligibility under either
program could adversely affect reimbursement to Nymox for products and services
provided to beneficiaries of the Medicare and/or Medicaid programs. Many elderly
people are covered by a variety of private health care organizations either
operating private health care plans or Medicare or Medicaid programs subject to
government regulation. These organizations are also under considerable financial
constraints and we may not be able to secure coverage or adequate reimbursement
from these organizations. Without coverage, we will have to look to the patients
themselves who may be unwilling or unable to pay for the product; in turn,
doctors may be reluctant to order or prescribe our products in the absence of
coverage of the product for the patient.
In response to rising health care costs, the U.S. Congress implemented sweeping
changes to the U.S. Medicare and Medicaid systems in the Balanced Budget Act of
1997 and is currently considering a number of other proposals that could
significantly impact on the level of funding for Medicare and Medicaid programs.
Under the new Part C: Medicare + Choice programs, beneficiaries can now opt for
a variety of health delivery models, including coordinated care
22
plans, HMOs, preferred provider organizations and provider sponsored
organizations, private fee-for-service plans and medical savings account plans.
In addition, states now have the option to require Medicaid recipients to enroll
with managed health care plans without first obtaining a waiver, making it
substantially easier for the states to meet their Medicaid obligations through
private managed care organizations. All these health care delivery systems,
including the original Medicare and Medicaid systems, are subject to funding
formulas and spending caps and may compensate for these restrictions by limiting
coverage, eligibility and/or payments. The long-term impact of these legislative
changes in terms of their efficiency, effectiveness and financial viability in
delivering health care services to an aging population is uncertain at present.
Any legislative or regulatory actions to reduce or contain federal spending
under either the Medicare or Medicaid programs could adversely affect our
ability to participate in either program as a provider or supplier of services
or products and the amount of reimbursement under these programs potentially
available to us.
Our AlzheimAlert(TM) test, and any of the new diagnostic and therapeutic
products and services that we may develop, will be subject to coverage
determinations by health care providers and payers. Federal and state
regulations and law and internal coverage policies of health care organizations
affect our ability to obtain payments for our products and services. The
Medicare program will not pay for any expenses incurred for items or services
that are not reasonable and necessary for the diagnosis or treatment of illness
or injury or to improve the functioning of a malformed body member.
Historically, CMS interpreted this provision in order to exclude from Medicare
coverage those medical and health care services that are not demonstrated to be
safe and effective by acceptable clinical evidence. CMS recently revised both
its national coverage policies and procedures in general and specifically its
coverage of diagnostic laboratory tests and constituted a Medicare Coverage
Advisory Committee to provide advice on the effectiveness and appropriateness of
medical items and services that are eligible for coverage under Medicare. It is
unknown how these changes will affect our ability to obtain Medicare coverage
for its products and services. However, an adverse national coverage decision
with respect to one of our products or services will make it impossible to
receive reimbursement from Medicare for that product and more difficult to
convince private health care organizations to provide coverage for it. Even if
we receive a favorable coverage decision for one of our products or services,
there is no guarantee that the level of reimbursement for it will be close to
our retail price for it or commensurate with the costs of developing and
marketing it.
Patents And Proprietary Information
We believe that patent and trade secret protection is important to our business,
and that our success will depend, in part, on our ability to obtain strong
patents, to maintain trade secret protection and to operate without infringing
the proprietary rights of others.
The commercial success of products incorporating our technologies may depend, in
part, upon our ability to obtain strong patent protection. We cannot assure you
that additional patents covering new products or improvements will be issued or
that any new or existing patents will be of commercial benefit or be valid and
enforceable if challenged.
We pursue a policy of seeking patent protection for valuable patentable subject
matter of our proprietary technology and require all employees, consultants and
other persons who may have access to its proprietary technology to sign
confidentiality agreements.
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Nymox has patents issued and allowed and patent applications pending in the
United States and selected countries including Canada, most European countries,
Australia and Japan. These patents and patent applications cover much of our
current product development and technologies, including:
o new drug candidates for the treatment of Alzheimer's disease;
o proprietary screening technologies for finding drugs for
Alzheimer's disease. These screening technologies consist of
biological systems and defined conditions used to determine if a
drug candidate possesses a useful action that can predict its
potential for use in humans or animals. For example, Nymox
patented screening methods that show whether a potential drug can
inhibit or arrest some of the pathological changes of Alzheimer's
disease. As a second example, Nymox patented screening methods
that show whether a potential drug can modify in a useful way the
amounts of chemical markers of Alzheimer's disease in a subject.
While no proven drugs for AD have yet been found using these
screening technologies, they are a useful component to our drug
development program.
o unique proteins which are related to Alzheimer's disease and which
may, after further research and clinical trials, prove useful in
either diagnostic or therapeutic applications;
o promising diagnostic markers for Alzheimer's disease;
o new diagnostic assay methods;
o methods of treating meat and other food products for E. coli
contamination; and
o anti-infective agents.
Nymox has ten U.S. patents issued or allowed and at least fifteen U.S. patent
applications pending and a corresponding larger number of patents and patent
applications worldwide relating to the inventions and discoveries in those
patents and patent applications. Nymox has issued patents in the main European
markets, including Great Britain, Germany, France, Italy, The Netherlands,
Sweden and Spain among others and in other countries such as Canada and
Australia. The earliest expiry date for its patents is in March, 2007; the next
is in February, 2009 and the rest range from 2010 through 2017.
Nymox also has an exclusive license to a family of patents from the
Massachusetts General Hospital covering rights to the NTP diagnostic and
therapeutic products, including AlzheimAlert(TM). The license includes four
issued U.S. patents and at least four U.S. patent application pending and a
corresponding larger number of patents and patent applications worldwide. The
earliest of these patents expires in the year 2014. Under this license, the
Massachusetts General Hospital is entitled to royalties of 4% from worldwide
sales of the AlzheimAlert(TM) test. Nymox also has a similar research and
license agreement with Rhode Island Hospital, where the principal researchers,
Dr. Suzanne de la Monte and Dr. Jack Wands, now conduct their research into NTP,
the brain protein detected by our AlzheimAlert(TM) test, covering new
developments and discoveries in this area not otherwise covered by the
Massachusetts General Hospital agreement.
24
Nymox's subsidiary, Serex, also actively pursues a policy of seeking patent
protection for its patentable technologies and discoveries in the United States
and in selected other countries including some European countries, Canada,
Australia and Japan. Its patents issued and allowed and patent applications
pending cover such areas of its technologies and discoveries as:
o its particle valence technology which can detect very small
amounts of biochemical indicators for diseases, conditions and
drug use in body fluids such as blood, urine and saliva;
o a test that can detect biochemical indicators of cholesterol in
human saliva and therefore provide a method of determining and
monitoring cholesterol levels; and
o a unique biochemical indicator for the loss of bone matter, which
is a sign of osteoporosis, a common human bone disorder.
Serex has eight patents issued or allowed and at least two patent applications
pending in the United States and a corresponding larger number of patents and
patent applications worldwide relating to the inventions and discoveries in
those patents and patent applications. The expiry dates for its patents range
from 2012 to 2017.
Many companies have patents covering various drugs, methods and discoveries in
the fields of diagnostics and therapeutics for Alzheimer's disease and related
conditions and of new anti-infective agents. We believe that the patents issued
to date will not preclude Nymox from developing and marketing our products;
however, it is impossible to predict the extent to which licenses from third
parties will be necessary. If Nymox were to need licenses from third parties
there can be no assurance that we could obtain such licenses on commercially
reasonable terms, if at all.
In the fields of diagnostic methods and diagnostic tests for common human
diseases and conditions, where Serex has many of its patents, there are many
patents issued covering many areas of diagnostic methods, tests and
technologies. We believe that these patents issued to date to other companies
will not preclude Serex from developing and marketing its products but you
should be aware that it is often difficult to determine the nature, breadth and
validity of competing patent claims in these fields, that there has been
significant litigation in some of these areas (not involving Serex) and that, if
and when Serex's products become more commercially successful, Serex's products
or patents may become the subject matter of litigation. If Serex were to need
licenses from third parties there can be no assurance that it could obtain such
license on commercially reasonable terms, if at all.
Neither Nymox nor Serex are currently involved in litigation over patent and
other intellectual property rights but significant litigation over these matters
in the pharmaceutical and biotechnology industry is not uncommon. The validity
and extent of patent rights can be very difficult to determine and involve
complex legal, factual and scientific questions. Important legal issues about
patent protection in the field of biotechnology have not been resolved. Patent
litigation is costly and time-consuming and can consume substantial resources.
An adverse decision can preclude the marketing of a product, expose us to
significant liabilities or require us to obtain third party licenses which may
not be available at commercially reasonable prices.
We also rely upon trade secrets, know-how, and continuing technological
advancement to develop and maintain our competitive position. We control the
disclosure and use of our know-
25
how and confidential information through agreements with the parties involved.
In addition, we have confidentiality agreements with our key employees,
consultants, officers and directors. There can be no assurance, however, that
all confidentiality agreements will be honored, that others will not
independently develop equivalent technology, that disputes will not arise as to
the ownership of intellectual property, or that disclosure of our trade secrets
will not occur. Furthermore, there can be no assurance that others have not
obtained or will not obtain patent protection that will exclude us from using
our trade secrets and confidential information. To the extent that consultants
or research collaborators use intellectual property owned by others in their
work with us, disputes may also arise as to the rights to related or resulting
know-how or inventions.
Competition
Rapidly evolving technology and intense competition are the hallmarks of modern
pharmaceutical and biotechnology industries. Our competitors include:
o major pharmaceutical, diagnostic, chemical and biotechnology
companies, many of which have financial, technical and marketing
resources significantly greater than ours;
o biotechnology companies, either alone or in collaborations with
large, established pharmaceutical companies to support research,
development and commercialization of products that may be
competitive with ours; and
o academic institutions, government agencies and other public and
private research organizations which are conducting research into
Alzheimer's disease and which increasingly are patenting,
licensing and commercializing their products either on their own
or through joint ventures.
In the field of Alzheimer's disease diagnosis, our AlzheimAlert(TM) test faces
growing competition which could detrimentally impact on our ability to
successfully market and sell our diagnostic test. Our competitors include:
o Athena Diagnostics, Inc. which is currently marketing three tests
claimed to aid in the diagnosis of Alzheimer's disease: a genetic
test for the rare cases of familial, early-onset Alzheimer's
disease; a genetic test for a relatively common mutation of a gene
said to increase the likelihood of a person with at least one of
the genes contracting the disease; and a test for two proteins in
the spinal fluid of patients.
o Mitokor, Inc. which developed a blood test known as Mito-Load that
looks for certain mutations in mitochondrial DNA said to be
associated with Alzheimer's disease. Mitokor recently entered into
a non-exclusive licensing agreement in Japan for the marketing and
sale of its product there.
o Synapse Technologies, Inc. which developed a blood test known as
p97 Diagnostic that detects a protein said to be diagnostic of
Alzheimer's disease. Synapse Technologies also licensed its
technology for use in Japan.
o NeuroLogic, Inc., which announced in September, 1999 that it
acquired an exclusive world-wide license to a cellular test for
Alzheimer's disease.
26
o Axonyx Inc., which announced in July, 2000 findings that two
enzymes to which it had acquired world-wide exclusive rights,
butrylcholinesterase and acetylcholinesterase, were elevated in
the cerebrospinal fluid of patients with Alzheimer's disease.
There are also a number of other proposed biochemical signs of the disease that
could potentially be developed into a commercial diagnostic test as well as
various scanning and imaging technologies which might compete some day for a
portion of the diagnostic market for Alzheimer's disease.
We also face intense competition for the development of an effective treatment
for Alzheimer's disease. The market conditions for an Alzheimer's disease drug
strongly favor the entry of other corporations into the area. The current market
for therapeutic drugs for Alzheimer's disease is an estimated $2 billion. This
market is expected to grow rapidly as new drugs enter the market and as the baby
boom generation becomes more at risk for developing Alzheimer's disease. As a
result, most of the major pharmaceutical companies and many biotechnology
companies have ongoing research and development programs for drugs and
treatments for Alzheimer's disease. Many of these companies have much greater
scientific, financial and marketing resources than we have and may succeed in
developing and introducing effective treatments for Alzheimer's disease before
we can. At present, three drugs for Alzheimer's disease are being widely
marketed in the United States, Aricept(R) by Pfizer, Exelon(R) by Novartis and
Reminyl(R) by Janssen. These three drugs only treat some of the symptoms of
Alzheimer's disease by enhancing memory and other mental functions and not the
underlying causes of the illness.
A similar competitive reality prevails in the field of novel anti-infectives.
Over the past ten years, there has been an increasing awareness of the medical
need and of emerging market opportunities for new treatments for antibiotic
resistant bacterial infections. Many of the major pharmaceutical companies are
developing anti-infective drugs that either modify their existing drugs or
involve new anti-bacterial properties. Many biotechnology companies are
developing new classes of anti-bacterial drugs. At least three major
pharmaceutical companies have vaccines against bacterial infections in
development. To the extent that these companies are able to develop drugs or
vaccines that offer treatment for some or all of the indications for our
anti-infectives, the market for our products may be adversely affected.
Our treatments under development for enlarged prostate (benign prostatic
hyperplasia or BPH) face significant competition from existing products. There
are five drugs approved for treatment of BPH: finasteride (Proscar(R)),
terazozin (Hytrin(R)), doxazozin (Cardura(R)), tamsulosin (Flomax(R)) and
prazosin (Minipres(R)). There are a number of thermal treatments on the market
designed to shrink the enlarged prostate by heating its tissue with a device
inserted through the urethra (the tube leading from the bladder through the
penis through which men urinate) or through the abdomen. The devices on the
market use microwave energy (Prostatron(R), Targis Therapy(R) or TherMatrx(R)),
low level radiowaves (TUNA System(R)), lasers (Indigo LaserOptic Treatment
System(R)), direct heat or hot water to heat or burn away prostate tissue. A
variety of surgical procedures exist to surgically reduce or remove the prostate
or to widen the urethra. These include procedures to cut away prostate tissue
such as TURP (transurethral resection of the prostate) and using a resectoscope
with an electrical loop inserted through the penis to cut the prostate tissue. A
small device used to widen the constricted urethra called a prostatic stent can
also be inserted.
27
The problem of E. coli 0157:H7 contamination of hamburger meat and other food
products is also well-known and a number of companies and researchers have been
pursuing various potential solutions, including irradiation with x-rays, better
detection of contamination, electronic pasteurization, vaccination and
competitive exclusion of the pathogenic E. coli bacteria by harmless bacteria.
The development of alternative solutions to the problem of E. coli infection may
adversely affect the market for our treatment for E. coli 0157:H7 infection in
cattle and contamination of food products.
Marketing
We currently market our AlzheimAlert(TM) test as a clinical reference laboratory
service primarily in the United States. We are also marketing the Serex
NicAlert(TM) and NicoMeter(TM) tests, which can determine whether a person is
using tobacco products, in the United States through our own marketing arm and
through a distribution agreement with Jant Pharmacal Corporation and in Japan
with Mizuho Medy Co. Ltd. of Japan. We have not started to commercially market
or distribute any of our other products under development and most of them will
require regulatory approval in each country before being marketed there.
At present, we have a network of over 60 independent medical representatives and
do most of our marketing ourselves. We also have a strategic marketing alliance
for AlzheimAlert(TM) with Cybear Inc., a member of Andrx Corporation. To
increase our marketing, distribution and sales capabilities both in the United
States and around the world, we will need to enter into licensing arrangements,
contract sales agreements and co-marketing deals. We cannot assure you that we
will be able to enter into agreements with other companies on terms acceptable
to us, that any licensing arrangement will generate any revenue for the company
or that the costs of engaging and retaining the services of a contract sales
organization will not exceed the revenues generated.
If successfully developed and approved, we plan to market and sell our
therapeutic and diagnostic products directly or through co-promotion
arrangements or other licensing arrangements with third parties. In cases where
we have sole or shared marketing rights, we plan to build a small, focused sales
force if and when such products approach marketing approval in some markets,
including Europe. Implementation of this strategy will depend on many factors,
including the market potential of any products we develop as well as on our
financial resources. To the extent we will enter into co-promotion or other
licensing arrangements, any revenues received by us will be dependent on the
efforts of third parties.
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
General
We are a development stage biopharmaceutical company that specializes in the
research and development of therapeutics and diagnostics for the aging
population with an emphasis on Alzheimer's disease.
We have begun to market the AlzheimAlert(TM) test, which we provide in our
clinical reference laboratory, that is an aid to the diagnosis of Alzheimer's
disease.
28
We also have under development therapeutic agents for the treatment of
Alzheimer's disease and of certain antibiotic-resistant infections as well as
antibacterial agents for E. coli contamination of food and drink products.
We also recently acquired a majority interest in Serex, Inc., a New Jersey
company specializing in diagnostic products.
AlzheimAlert(TM) is an improved version of our AD7C(TM) test, from which we
began generating revenue from sales in 1997.
We have incurred operating losses throughout our history. Management believes
that such operating losses will continue for the next few years. The costs
relating to clinical trials for our potential therapeutic products will increase
expenditures and delay profitability, despite anticipated increases in sales
revenue in the coming years.
All figures are presented in U.S. dollars, unless otherwise stated.
Liquidity And Capital Resources
We fund our operations and projects primarily by selling shares of Nymox's
common stock. However, since 1997, a small portion of our funding came from
sales. This source of funding became more significant in late 1998, following
the launch of our urinary version of the AD7C(TM) test. Since its incorporation
in May, 1995, Nymox raised the capital necessary to fund its on-going research
and development work and its marketing and sales operations primarily through
private placements of its shares.
On December 1, 1997, the shares began trading on the Nasdaq Stock Market.
Nymox's common shares also traded on the Montreal Exchange from December 18,
1995 to November 19,1999.
Private placements completed by Nymox since December, 1995 are as follows:
o December 1995, 1,578,635 common shares at a price of CAN$2.00
(US$1.38) per share for total proceeds of CAN$3,157,270
(US$2,187,536);
o April 1996, 877,300 common shares at a price of CAN$6.00 (US$4.15)
per share for total proceeds of CAN$5,263,800 (US$3,647,059);
o May 1997, 696,491 common shares at a price of CAN$6.50 (US$4.50)
and warrants exercisable at a price of CAN$8.50 (US$5.88) per
share for total proceeds of CAN$4,527,191 (US$3,136,694). In 1998,
all 696,491 of these warrants were exercised for additional
proceeds to Nymox of CAN$5,920,174 (US$4,101,832);
o May 1998, 231,630 common shares at a price of CAN$8.50 (US$5.88)
for total proceeds of CAN$1,968,855 (US$1,364,134). A total of
110,000 warrants were issued as well, exercisable at a price of
CAN$8.50 (US$5.88) per share (50,000) and CAN$10.00 (US$6.93) per
share (60,000). These warrants have since expired;
o December 1998, 135,000 common shares and January 1999, 55,000
common shares at CAN$8.50 (US$5.88) per share, for total proceeds
of CAN$1,615,000 (US$1,118,963). A
29
total of 95,000 warrants were issued as well, exercisable at the
price of CAN$10.00 (US$6.93) per share. These warrants have since
expired;
o September 1999, 122,000 common shares at CAN$5.00 (US$3.46) per
share, for total proceeds of CAN$610,000 (US$422,642).
o March 2000, 821,637 common shares at an average price of $4.87 per
share, for total proceeds of $4,000,000. A total of 93,334
warrants were issued as well, exercisable at a price of $9.375 per
share (66,667) and $7.8125 per share (26,667). These warrants
expire on March 6, 2004.
o March, 2001, 200,000 common shares at $2.06 per share, for total
proceeds of $412,000. A total of 100,000 warrants were issued as
well, exercisable at a price of $2.06. These warrants expire on
March 6, 2003.
o August 3, 2001, 80,000 common shares at $2.50 per share for total
proceeds of $200,000.
o August 22, 2001, 140,000 common shares at $3.75 per share for
total proceeds of $525,000.
o October 3, 2001, 110,000 common shares at $3.75 per share for
total proceeds of $412,500.
o November 14, 2001, 64,100 common shares at $3.90 per share for
total proceeds of $250,000.
o January 24, 2002, 74,074 common shares at $4.05 per share for
total proceeds of $300,000.
o March 18, 2002, 195,000 common shares at $4.20 per share for total
proceeds of $819,000.
On March 14, 2000, we became entitled to draw down on the $12 million equity
line of credit with Jaspas Investments Limited, a British Virgin Islands
corporation, through a common stock purchase agreement dated November 1, 1999
for the future issuance and purchase of Nymox's common shares. We expect the
stock purchase agreement with Jaspas to provide significant, long-term financing
that will enable us to advance our research and product development for the next
three years. We plan to seek additional capital within the limits on financing
contained in the common stock purchase agreement in order to accelerate product
development and marketing and obtaining necessary regulatory approvals.
In general, the draw down facility created by the Jaspas agreement operates as
follows: the investor, Jaspas, committed up to $12 million to purchase Nymox's
common shares of Nymox over a thirty month period. Once a month, Nymox may
request a draw of up to $750,000 of that money, subject to a formula based on
average stock price and average trading volume, setting the maximum amount of
any request for any given draw. At the end of a 22 day trading period following
the draw down request, the amount of money that Jaspas will provide to Nymox and
the number of shares Nymox will issue to Jaspas in return for that money is
settled based on the formula in the stock purchase agreement. Jaspas receives a
six (6%) percent discount to the market price for the 22 day period and Nymox
receives the settled amount of the draw down less a 3% placement fee payable to
its placement agents, Ladenburg Thalmann & Co. Inc. and Paul Revere Capital
Corp.
30
The facility is based on a "use-it-or-lose" principle. We are under no
obligation to request a draw for any month. However if we do not request a draw
for a given month, we may never to be able to draw those funds again. We may
make up to a maximum of twenty-four (24) draws.
In lieu of providing Jaspas with a minimum draw down commitment, we agreed to
issue to Jaspas a stock purchase warrant to purchase up to 200,000 shares of our
common stock with an exercise price of 110% of our share price on the closing
date of November 12, 1999 or $4.53. Jaspas may purchase under the warrant up to
100,000 Nymox shares any time between November 30, 1999 and November 30, 2004.
Jaspas may purchase the remaining 100,000 shares if and only if we do not draw
down at least $7 million within 18 months of March 14, 2000.
Since March 14, 2000, the following drawings have been made under this common
stock purchase agreement, for total proceeds of $1,327,273:
o August 16, 2000, 152,616 common shares at a volume weighted
average price of $3.2924 per share;
o October 12, 2000, 137,889 common shares at a volume weighted
average price of $3.6261 per share; and
o February 7, 2001, 161,696 common shares at a volume weighted
average price of $2.0240 per share.
o May 31, 2001, 56,108 common shares at a volume weighted average
price of $1.9466 per share.
Also, the Company has received total proceeds of $669,144 from the exercise of
256,900 options since 1995 as follows:
o $355,536 for 158,900 shares at a per share price of $2.25.
o $258,858 for 83,000 shares at a per share price of $3.12.
o $16,000 for 5,000 shares at a per share price of $3.20.
o $38,750 for 10,000 shares at a per share price of $3.875.
Pursuant to the share purchase agreement entered into to acquire a controlling
interest of Serex, Inc., a total of 256,675 additional shares and 157,952
warrants were issued in exchange for the shares of Serex (see Note 5 "Business
Acquisition" in the financial statements).
In total, Nymox has raised over $25 million, since its incorporation in May
1995.
We have no financial obligations of significance other than long-term lease
commitments for our premises in the United States and Canada of $14,414 per
month in 2002 and ongoing research funding payments to a U.S. medical facility
totaling $292,000 for 2002. Total commitments beyond 2002 are summarized in note
7 to the consolidated financial statements.
31
Results Of Operations
YEAR ENDED DECEMBER 31, 2001 COMPARED TO YEAR ENDED DECEMBER 31, 2000
Overview
Since inception, the Company has focused its activities on developing certain
pharmaceutical technologies and obtaining outside funding to support the
continued development of its technologies. The Company has incurred losses since
inception of operations. Future profitability will depend on the Company's
ability to generate revenues from the sale of products and the licensing of
technology sufficient to offset the expenditures required to further the
Company's research and development program and ongoing operations. See Item 4
for a description of the projects in the Company pipeline.
Effective January 1, 2000, the Company adopted the US dollar as its measurement
currency. See note 2(a) to the consolidated financial statements. All amounts
presented are in US dollars.
In 2000, the Company acquired a majority interest in Serex, Inc. for a
consideration comprising common shares, warrants and options having a value of
approximately $1.3 million. See note 5 to the consolidated financial statements.
Critical Accounting Policies
In December 2001, the Securities and Exchange Commission ("SEC") released
"Cautionary Advice Regarding Disclosure About Critical Accounting Policies".
According to the SEC release, accounting policies are among the "most critical"
if they are, in management's view, most important to the portrayal of the
company's financial condition and most demanding on their calls for judgement.
Our accounting policies are described in note 2 to our consolidated financial
statements. We consider the following policies to be the most critical in
understanding the judgements that are involved in preparing our financial
statements and the matters that could impact our results of operations,
financial condition and cash flows.
Revenue Recognition
The Corporation applies guidance from SAB 101 (Staff Accounting Bulletin 101)
issued by the Securities and Exchange Commission in the recognition of revenue.
The Company derives its revenue from product sales, research contracts, license
fees and interest. Revenue from product sales is recognized when the product or
service has been delivered or obligations as defined in the agreement are
performed. Revenue from research contracts is recognized at the time research
activities are performed under the agreement. Revenue from license fees,
royalties and milestone payments is recognized upon the fulfillment of all
obligations under the terms of the related agreement. These agreements may
include upfront payments to be received by the Corporation. Upfront payments are
recognized as revenue on a systematic basis over the period that the related
services or obligations as defined in the agreement are performed. Interest is
recognized on an accrual basis.
32
Deferred revenue presented in the balance sheet as at December 31, 2001
represents amounts billed to and received from customers in advance of revenue
recognition.
The Company currently markets AlzheimAlert(TM) as a service provided by our CLIA
certified reference laboratory in New Jersey. Physicians send urine samples
taken from their patients to our laboratory where the AlzheimAlert(TM) test is
performed. The results are then reported back to the physicians. We recognize
the revenues when the test has been performed. The Company sometimes enters into
bulk sales of its diagnostic products to customers under which it has a
continuing obligation to perform related testing services at its laboratory.
Although the Company receives non-refundable upfront payments under these
agreements, revenue is recognized in the period that the Company fulfils its
obligation or over the term of the arrangement. For research contracts and
licensing revenues, the Company usually enters into an agreement specifying the
terms and obligations of the parties. Revenues from these sources are only
recognized when there are no longer any obligations to be performed by the
Company under the terms of the agreement.
Valuation of Capital Assets
The Company reviews the unamortized balance of intellectual property rights and
patents on an annual basis and recognizes any impairment in carrying value when
it is identified. Factors we consider important, which could trigger an
impairment review include:
o Significant changes in the manner of our use of the acquired assets or
the strategy for our overall business; and
o Significant negative industry or economic trends.
No impairment losses were recognized for the years ended December 31, 2001, 2000
and 1999.
Valuation of Future Income Tax Assets
Management judgement is required in determining the valuation allowance recorded
against net future tax assets. We have recorded a valuation allowance of $6.4
million as of December 31, 2001, due to uncertainties related to our ability to
utilize some of our future tax assets, primarily consisting of net operating
losses carried forward, before they expire. In assessing the realizability of
future tax assets, management considers whether it is more likely than not that
some portion or all of the future tax assets will not be realized. The ultimate
realization of future tax assets is dependent upon the generation of future
taxable income and tax planning strategies. Since the Company is a development
stage enterprise, the generation of future taxable income is dependent on the
successful commercialization of its products and technologies.
Revenue
Revenue from sales amounted to $235,288 for the year ended December 31, 2001,
compared with $157,688 for the year ended December 31, 2000. The increase is
attributable to higher sales volumes for both AlzheimAlert(TM) ($113,132) and
NicAlert(TM) ($122,156) in 2001 compared to 2000 (AlzheimAlert(TM) $58,540 -
NicAlert(TM) $99,148). The Company also earned revenue from research and
licensing contracts ($127,403). Research contract revenue ($30,000) was funded
by
33
the Foundation for Nutritional Advancement. A director and officer of the
Foundation is also a director of the Company. License fees ($97,403) include the
sale of certain rights to a third party in 2001 for which the Company has no
continuing obligations. Interest revenue was $17,918 in 2001 compared to $68,179
in 2000, due to lower average cash balances. In 2001, one customer accounted for
approximately 26% of revenue and, in total, 5 customers accounted for 54% of
revenue in 2001. In 2000 and 1999, no single customer accounted for more than
10% of revenue.
Expenses
Research and development expenditures were $1,499,654 for the year ended
December 31, 2001, compared with $2,084,232 for the year ended December 31,
2000. Management reduced its salary expenses in R&D by reducing staff, while
advancing its development of the products in the Company's pipeline. In 2001,
research tax credits amounted to $20,052 compared to $10,457 in 2000.
Marketing expenditures remained relatively constant at $343,244 for the year
ended December 31, 2001, in comparison to the expenditures of $363,142 for the
year ended December 31, 2000.
General and administrative expenses amounted to $1,087,326 for the year ended
December 31, 2001, compared with $1,335,500 in the year ended December 31, 2000.
The decrease is principally due to reductions in professional fees.
Foreign Exchange
The Company incurs expenses in the local currency of the countries in which it
operates, which include the United States and Canada. Approximately 75% of 2001
expenses (75% in 2000) were in U.S. dollars. Foreign exchange fluctuations had
no meaningful impact on the Company's results in 2001 or 2000.
Results of Operations
Net losses for the period ended December 31, 2001 were $3,049,504, or $0.14 per
share, compared to $4,023,979, or $0.19 per share, for the same period in 2000.
The weighted, fully diluted, average number of common shares outstanding for the
period ending December 31, 2001 were 21,995,694 compared to 21,130,286 for the
same period in 2000.
Financial Position
Liquidity and Capital Resources
As of December 31, 2001, cash totaled $488,987 and receivables totaled $152,968.
In November 1999, the Company signed a common share purchase agreement whereby
the investor is committed to purchase up to $12 million of the Company's common
shares over a thirty-month period commencing March 2000, when our F-1
registration statement was declared effective. As at December 31, 2001, four
drawings have been made under this share purchase agreement, for total proceeds
of $1,436,364. Specifically, on August 16, 2000, 152,616 common shares were
issued at a volume weighted average price of $3.2924 per share; on October 12,
2000, 137,889 common shares were issued at a volume weighted average price of
$3.6261 per share, on February 7, 2001, 161,696 common shares were issued at a
volume weighted average price of $2.0240 and on May 31, 2001, 56,108 common
shares were issued at a volume weighted average
34
price of $1.9466. The Company intends to access financing under this agreement
when appropriate to fund its research and development.
In 2001, the Company completed private placements for 594,100 common shares and
received aggregate proceeds of $1,799,500. On March 6, 2001, 200,000 shares were
issued at a price of $2.06 in a private placement for total proceeds of
$412,000. The private placement included 100,000 warrants, which expire on March
6, 2003, exercisable at a price of $2.06. On August 3, 2001, 80,000 shares were
issued at a price of $2.50 in a private placement for total proceeds of
$200,000. On August 22, 2001, 140,000 shares were issued at a price of $3.75 in
a private placement for total proceeds of $525,000. On October 3, 2001, 110,000
shares were issued at a price of $3.75 in a private placement for total proceeds
of $412,500. On November 14, 2001, 64,100 shares were issued at a price of $3.90
in a private placement for total proceeds of $250,000. A total of $318,055 was
also raised through stock option exercises at prices ranging from $2.25 to
$3.875. The Company intends to raise additional capital in 2002 in order to
pursue its development. To March 31, 2002, the Company completed two private
placements and issued 269,074 common shares for total proceeds of $1,119,000.
The Company believes that funds from operations as well as from existing equity
facilities will be sufficient to meet the Company's cash requirements for the
next twelve months.
The Company invested $340,411 in additional capital assets in the year ended
December 31, 2001, consisting mostly of patent costs, compared to $381,565 in
the same period in 2000.
The Company intends to raise additional capital in 2002 in order to pursue its
development. However, the Company believes that funds from operations as well as
from existing equity facilities will be sufficient to meet the Company's cash
requirements for the next twelve months.
YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 31, 1999
Revenue
Revenue from sales amounted to $157,688 for the year ended December 31, 2000,
compared with $153,252 for the year ended December 31, 1999. Sales for fiscal
2000 include the revenue from sales of the NicAlert(TM) test of $99,148 and for
the diagnostic test AlzheimAlert(TM) and its predecessor AD7C(TM) of $58,540.
The price for AlzheimAlert(TM) was reduced in 2000, resulting in a drop in
revenue but not in sales volume for this product. Interest revenue was $68,179
in 2000, compared to $36,951 in 1999, derived from interest earned on the
Company's cash balances. The AlzheimAlert(TM) test is an improved version of
this diagnostic product and we anticipate an increase in sales volume and
revenue for this product in the coming years.
Expenses
Research and development expenditures were $2,084,232 for the year ended
December 31, 2000, compared with $1,137,122 for the year ended December 31,
1999, reflecting a net increase in expenditures in the development of the
products in the Company's existing pipeline of $860,380, as well as development
of the potential products acquired with the acquisition of Serex Inc. of
$86,730. In 2000, research tax credits amounted to $10,457 compared to $4,181 in
1999.
35
Management reduced its marketing activities resulting in a decrease in
expenditures to $363,142 for the year ended December 31, 2000 compared to
$942,205 for the year ended December 31, 1999.
General and administrative expenses amounted to $1,335,500 for the year ended
December 31, 2000, compared with $1,229,894 in the year ended December 31, 1999.
The increase was principally due to the acquisition of Serex Inc. in 2000.
Results of Operations
Net losses for the period ended December 31, 2000 were $4,023,979, or $0.19 per
share, compared to $3,314,296, or $0.17 per share, for the same period in 1999.
The weighted average number of common shares outstanding for the period ending
December 31, 2000 were 20,890,735 compared to 19,886,430 for the same period in
1999.
The Company invested $381,565 in additional capital assets in the year ended
December 31, 2000, consisting mostly of patent costs, compared to $164,783 in
the same period in 1999.
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
Revenue
Revenue on sales for the AD7C(TM) test amounted to $153,252 for the year ended
December 31, 1999, compared with $104,804 for the year ended December 31, 1998,
reflecting an increase in sales volume for this test. All of the sales revenue
was derived from our AD7C(TM) urine test service offered in our clinical
reference laboratory. Interest revenue was $36,951 in 1999 compared to $168,761
in 1998, derived from interest earned on the cash and short-term investments
received from the private placements referred to previously.
Expenses
Research and development activities were reorganized resulting in a decrease in
expenditures to $1,137,122 for the year ended December 31, 1999, compared with
$2,091,745 for the year ended December 31, 1998. In 1999, research tax credits
amounted to $4,181 compared to $4,003 in 1997.
Management reduced its marketing activities resulting in a decrease in
expenditures to $942,205 for the year ended December 31, 1999 compared to
$2,245,023 for the year ended December 31, 1998.
General and administrative expenses amounted to $1,229,894 for the year ended
December 31, 1999, compared with $550,269 in the year ended December 31, 1998.
This rise is attributable to net increases in professional fees of $195,242,
shareholder relations of $256,063, and in administrative personnel of $101,943.
Results of Operations
Net losses for the period ended December 31, 1999 were $3,314,296, or $0.17 per
share, compared to $4,783,213, or $0.25 per share, for the same period in 1998.
36
Inflation
We do not believe that inflation has had a significant impact on the results of
our operations.
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
Directors and Senior Management
Dr. Paul Averback, M.D., D.A.B.P., 51, President and Director since September
1995 and Chairman since June of 2001, is the founder of Nymox and the inventor
of much of its initial technology. Prior to founding Nymox, Dr. Averback served
as President of Nymox's predecessor, DMS Pharmaceuticals Inc. He received his
M.D. in 1975 and taught pathology at universities, including Cambridge
University, England (1977-1980), during which time he initiated his research on
Alzheimer's disease. He has practiced medicine in numerous Canadian institutions
as well as in private practice. Dr. Averback has published extensively in the
scientific and medical literature.
Dr. Hans Black, MD, 48, Director since May 13, 1999, has a doctorate in medicine
from McGill University, and has been Chairman and Chief Investment Officer of
Interinvest Consulting Corporation, a Montreal-based global money management
firm with offices in Toronto and Boston and affiliates in Bermuda and Zurich,
for over twenty five years. Dr. Black appears regularly on the PBS network show,
Nightly Business Report, and has been a guest lecturer at Harvard, Temple and
McGill Universities. Dr. Black is a member of the boards of Fonds de Recherche
de l'Institut de Cardiologie de Montreal and L'Opera de Montreal, a member of
the Advisory Council of The Paul H. Nitze School of Advanced International
Studies of Johns Hopkins University, and is a member of the board of the
NASDAQ-listed Nymox Corporation. In addition, Dr. Black serves as chairman of
the board of the Quebec-based food company, Les Aliments SoYummi Inc.
Jack Gemmell, 50, has been a Director since June, 2001 and is Nymox's General
Counsel and Chief Information Officer. He graduated from the Faculty of Law at
the University of Toronto in 1977 and was called to the bar in 1979. He
practiced in private practice primarily in the area of litigation for over 19
years with before joining Nymox in July, 1998.
Michael R. Sonnenreich, 64, Director since April 18, 2000, is a graduate of
Harvard University Law School, and has been Senior Partner of Michael
Sonenreich, since 1973, Chairman and CEO of Kikaku America International for the
past fifteen years, and President and CEO of Glocal Communications Corp. Ltd. of
London for the past five years. He is also Vice Chairman of PharMa International
Corporation of Tokyo, Director of Asset Advisory Services of Zurich, Member of
the Board of Advisors of John Hopkins University School of Advanced
International Studies and Member of the Board of Overseers of Tufts University
Medical School. Mr. Sonnenreich has in the past been a Board Member or a Trustee
of numerous important companies and universities, and has long-term involvements
with many non-profit institutions, and served as President of the National
Coordinating Council on Drug Education.
Professor Walter P. von Wartburg, 63, Director since April 18, 2000, is a
partner in the private law practice of Law & Life Sciences in Basel,
Switzerland, specializing in biotech and drug
37
regulatory affairs. Prior to joining Law & Life Sciences, Professor von Wartburg
spent 32 years in the pharmaceutical industry. Most recently, from 1996 to 1999,
he was Chief Information Officer of Novartis and from 1990-1996, he was Chief of
Staff of Ciba-Geigy (which merged with Sandor in 1996 to form Novartis). From
1980 to 1990, he was a member of the Executive Committee of Ciba-Geigy. He is a
law graduate of the Universities of Basel, Paris, Princeton, Stanford and
Harvard Law School; Member of the Basel Bar Association and Professor on public
health policy at the Saint Gall Graduate School of Economics, Business and
Public Administration. He is author of various books and articles on drug abuse,
pharmaceutical legislation, biotechnology, issues management, communications and
business administration. He is also the Founder-President of the Swiss
Foundation for the Mentally Handicapped "PRO MENTE SANA;" Member of the National
Advisory Board of the Bioethics Institute of the Johns Hopkins University and
past Chairman of the Board of the University Hospital of Basel.
Michael Munzar, M.D., 48, Medical Director since June 1, 1996, received an M.D.
from the Faculty of Medicine, McGill University, in 1979. He practiced medicine
for over 15 years in a variety of institutional and private practice settings.
He has a diverse medical background that includes most aspects of medical care,
including geriatrics and psychiatry. He also has extensive business experience
with the establishment, operation and management of medical facilities.
Mr. Roy M. Wolvin, 47, Secretary-Treasurer and Chief Financial Officer since
September 1995. Prior to September 1995, Mr. Wolvin was Account Manager, private
business, for a Canadian chartered bank. Mr. Wolvin holds a degree in Economics
from the University of Western Ontario.
Compensation
The table below provides compensation information for the fiscal year ended
December 31, 2001 for each executive officer of Nymox and for the directors and
executive officers as a group.
Summary Compensation Table
Fiscal Year ending Fiscal Year ending
Dec. 31, 2001 Dec. 31, 2000
NAME AND OTHER CASH OTHER CASH
PRINCIPAL POSITION SALARY COMPENSATION SALARY COMPENSATION
Dr. Paul Averback CAN$50,000 -- CAN$137,500 --
President and C.E.O. (US$31,391) (US$86,326)
Mr. Roy Wolvin CAN$70,000 -- CAN$84,375 --
Secretary-Treasurer (US$43,948) (US$52,973)
Mr. Jack Gemmell CAN$96,000 -- CAN$118,161 --
General Counsel (US$60,271) (US$74,184)
Dr. Michael Munzar CAN$138,000 -- CAN$171,000 --
Medical Director (US$86,640) (US$107,358)
38
All directors and senior CAN$354,000 -- CAN$511,036 --
management as a group (US$222,250) (US$320,841)
Nymox does not have written employment contracts with any of the senior
management named above.
Directors of Nymox, with the exception of the President and our General Counsel,
are paid a fee of $1,000 for each board meeting attendance and are reimbursed
for expenses incurred in connection with their office.
The Company does not have any pension plans or other type of plans providing
retirement or similar benefits for senior management.
Board Practices
Directors are elected at each annual meeting for a term of office until the next
annual meeting. Executive officers are appointed by the board of directors and
serve at the pleasure of the board. Other than Dr. Averback, no other officer or
director previously was affiliated with DMS Pharmaceuticals Inc.
There are no family relationships between any director or executive officer and
any other director or executive officer.
Nymox does not have written contracts with any of the directors named above. The
Company does not have any pension plans or other type of plans providing
retirement or similar benefits for directors, nor any benefits upon termination
of service as a director.
Nymox's Audit Committee recommends to the Board of Directors the firm to be
appointed each year as independent auditors of the company's financial
statements and to perform services related to the completion of such audit and
the compensation to be paid to the firm. The Audit Committee also has
responsibility for:
o reviewing the scope and results of the audit with the independent
auditors;
o reviewing with management and the independent auditors the
company's interim and year-end financial condition and results of
operations;
o considering the adequacy of the internal accounting, bookkeeping
and control procedures of the company; and
o reviewing any non-audit services and special engagements to be
performed by the independent auditors and considering the effect
of such performance on the auditors' independence.
The Audit Committee also reviews at least once each year the terms of all
material transactions and arrangements between the company and its affiliates.
The Chairman of the Audit Committee is Hans Black, M.D. and the other members
are Michael Sonnenreich and Walter von Wartburg. Nymox's Human Resources and
Compensation Committee establishes and reviews overall policy and structure with
respect to compensation matters, including the determination of compensation
arrangements for directors, executive officers and key employees of the company.
39
The Committee is also responsible for the administration and award of options to
purchase shares pursuant to the company's option and share purchase plans. The
Chairman of the Human Resources and Compensation Committee is Professor Walter
von Wartburg and the other members are Dr. Hans Black, Michael Sonnenreich and
Paul Averback, M.D. (ex officio).
Employees
In addition to the employees in its Maywood and St.-Laurent laboratories and
offices, Nymox carries out its work with the assistance of an extensive group of
research collaborators, out-sourced manufacturing teams, research suppliers,
research institutions, service providers and research consultants. To help
carrying out its marketing, Nymox has over 60 independent medical
representatives detailing its products.
In its Maywood and St.-Laurent laboratories and offices, for the year 2001, the
company employed on the average twenty-one persons with fifteen in research and
development and six in administration and marketing; for the year 2000
twenty-three persons (eighteen in research and development and five in
administration and marketing); and for the year 1999, twenty-nine persons
(sixteen in research and development and thirteen in administration and
marketing).
Share Ownership
As of May 31, 2002, the numbers of common shares owned by and options granted to
directors and senior officers of the Corporation were as follows:
Common Options Options Expiry Date
Name Shares Owned Vested Not Vested Exercise Price M/D/Y
Paul Averback, M.D. 12,650,895
Hans Black, M.D. 10,000 25,000 $3.12 05/13/09
(C$4.50)
25,000 $3.875 05/01/10
20,000 30,000 $6.93 05/01/10
(C$10.00)
10,000 $4.70 06/15/10
25,000 50,000 $4.33 11/13/11
Michael Sonnenreich 35,000 100,000 $3.875 05/01/10
25,000 50,000 $4.33 11/13/11
Walter von Wartburg 42,000 100,000 $3.875 05/01/10
25,000 50,000 $4.33 11/13/11
Jack Gemmell 10,525 50,000 $6.93 01/22/09
(C$10.00)
25,000 $3.875 05/01/10
25,000 $1.93 04/22/11
40
Common Options Options Expiry Date
Name Shares Owned Vested Not Vested Exercise Price M/D/Y
Roy Wolvin 5,000 10,000 $2.25 01/17/06
(C$3.25)
10,000 $9.53 01/17/06
(C$13.75)
10,000 $6.79 01/17/06
(C$9.80)
20,000 $6.93 01/17/06
(C$10.00)
20,000 $3.12 05/13/09
(C$4.50)
5,000 $1.93 04/22/11
Michael Munzar 33,925 50,000 $7.97 04/30/06
(C$11.50)
5,000 $6.24 10/31/07
(C$9.00)
30,000 $6.93 10/31/07
(C$10.00)
10,000 $6.93 10/31/07
(C$10.00)
20,000 $3.12 05/13/09
(C$4.50)
50,000 $3.90 08/25/10
35,000 $1.93 04/22/11
Options
Nymox has created a stock option plan for its key employees, its officers and
directors and certain consultants. The board of directors of Nymox administers
the plan. The board may grant options to purchase a specified number of common
shares of Nymox to a designated individual. The total number of common shares to
be optioned to any one individual cannot exceed 5% of the total number of issued
and outstanding shares and the maximum number of common shares which may be
optioned under the plan cannot exceed 2,500,000 shares without shareholder
approval.
The board fixes the option price per share for common shares that are the
subject of any option, when it grants any such option. The option price cannot
involve a discount to the market price when the option is granted. The period
during which an option is exercisable shall not exceed 10 years from the date
when the option is granted. The options may not be assigned, transferred or
pledged and expire within three months of the termination of employment or
office with the Company and six months of the death of an individual.
41
Legal Proceedings
Amro International, S.A., a Panamanian company, served Nymox with a Statement of
Claim filed with the Ontario Superior Court of Justice (Court File No.
00-CV-201587), claiming to be entitled to the issuance of 388,797 shares in
accordance with repricing provisions contained in the March 2000 agreement
between Amro and Nymox and to damages of $4 million for lost opportunity to sell
these shares. Nymox believes that Amro's interpretation of the repricing
provisions in the March 2000 agreement is incorrect and that Amro's damage
claims are without merit. Nymox has filed a Statement of Defense and intends to
defend the action vigorously and to consider its other options with respect to
this matter.
Dr. Fitzpatrick, a former employee, has filed a demand for arbitration with the
American Arbitration Association concerning the termination of her employment
with the company. She is claiming damages of up to $498,000.00 based upon
alleged violations of New Jersey law and breach of an employment agreement, plus
attorneys fees and costs. The company believes these claims are without merit
and intends to defend the matter vigorously.
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
Major Shareholders
The following table sets out as of May 31, 2002 the number of common shares
owned by Dr. Paul Averback, the President and CEO of Nymox and a member of the
Nymox board of directors, and by all directors and officers as a group.
Number of Common Shares owned by Percent of Class of
Name of Shareholder Shareholder Common Shares
- ----------------------------------------- ----------------------------------- -------------------------
Dr. Paul Averback 12,650,895 56.1%
All directors and officers as a group 12,787,345 56.7%
In addition, as of May 31, 2002, Dr. Averback's wife owned 848,172 common shares
(3.8%) and 9022-1433 Canada Inc., a company owned by Dr. Averback and his wife,
owns 500,000 common shares (2.3%).
The above shareholders have the same voting rights as all other shareholders.
There has been no significant change in ownership for any of the persons listed
above over the past three years.
Based on a public filing, Generic Trading of Philadelphia LLC reported that as
of October 15, 2001 it beneficially owned 1,209,590 common shares or
approximately 5.4% of Nymox's shares. Nymox does not know of any other
shareholders who beneficially own more than 5% of its shares.
According to information furnished to Nymox by the transfer agent for the common
shares, as of May 31, 2002, total shares outstanding were 22,567,531. There were
907 holders of record of the common shares and 4,688 beneficial shareholders in
total. Of these, 124 were holders of record
42
of the common shares and 2,613 were beneficial shareholders with addresses in
the United States and such holders owned an aggregate of 3,484,470 shares,
representing 15.6% of the outstanding shares of common stock.
Related Party Transactions
Research contract revenue ($30,000) was funded by the Foundation for Nutritional
Advancement. Michael Sonnenreich, a director and officer of the Foundation is
also a director of the Company.
ITEM 8. FINANCIAL INFORMATION
kpmg
Consolidated Financial Statements of
NYMOX PHARMACEUTICAL
CORPORATION
Years ended December 31, 2001, 2000 and 1999
43
AUDITORS' REPORT TO THE SHAREHOLDERS
We have audited the consolidated balance sheets of Nymox Pharmaceutical
Corporation as at December 31, 2001 and 2000 and the consolidated statements of
operations, deficit and cash flows for the years ended December 31, 2001, 2000
and 1999. These financial statements are the responsibility of the Corporation's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
With respect to the consolidated financial statements for the years ended
December 31, 2001 and 2000, we conducted our audits in accordance with United
States generally accepted auditing standards and Canadian generally accepted
auditing standards. With respect to the consolidated financial statements for
the year ended December 31, 1999, we conducted our audit in accordance with
Canadian generally accepted auditing standards. Those standards require that we
plan and perform an audit to obtain reasonable assurance 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.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Corporation as at December 31,
2001 and 2000 and the results of its operations and its cash flows for the years
ended December 31, 2001, 2000 and 1999 in accordance with Canadian generally
accepted accounting principles.
Chartered Accountants
Montreal, Canada
February 22, 2002 (except as to note 13,
which is as of March 18, 2002)
44
NYMOX PHARMACEUTICAL CORPORATION
Consolidated Financial Statements
Years ended December 31, 2001, 2000 and 1999
Financial Statements
Consolidated Balance Sheets........................................... 46
Consolidated Statements of Operations................................. 47
Consolidated Statements of Deficit.................................... 48
Consolidated Statements of Cash Flows................................. 49
Notes to Consolidated Financial Statements............................ 50
45
NYMOX PHARMACEUTICAL CORPORATION
Consolidated Balance Sheets
December 31, 2001 and 2000
(in US dollars)
- --------------------------------------------------------------------------------
2001 2000
- --------------------------------------------------------------------------------
Assets
Current assets:
Cash $ 488,987 $ 565,711
Accounts and other receivables 122,459 101,517
Research tax credits receivable 30,509 10,457
Inventory 17,567 4,325
Prepaid expenses and deposits 55,000 67,500
- --------------------------------------------------------------------------------
714,522 749,510
Capital assets (note 3):
Property and equipment 217,083 268,679
Patents and intellectual property 3,154,441 3,144,015
- --------------------------------------------------------------------------------
3,371,524 3,412,694
Deferred share issuance costs (note 6 (c)) 106,195 222,512
- --------------------------------------------------------------------------------
$ 4,192,241 $ 4,384,716
- --------------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued liabilities $ 295,393 $ 323,774
Notes payable (note 5) 396,775 -
Deferred revenue 55,325 -
- --------------------------------------------------------------------------------
747,493 323,774
Non-controlling interest (note 4) 800,000 800,000
Shareholders' equity:
Share capital and other (note 6) 25,798,195 23,243,941
Deficit (23,153,447) (19,982,999)
- --------------------------------------------------------------------------------
2,644,748 3,260,942
Commitments and contingency (note 7)
Subsequent events (note 13)
- --------------------------------------------------------------------------------
$ 4,192,241 $ 4,384,716
- --------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
On behalf of the Board:
_______________________ Director
_______________________ Director
46
NYMOX PHARMACEUTICAL CORPORATION
Consolidated Statements of Operations
Years ended December 31, 2001, 2000 and 1999
(in US dollars)
- -------------------------------------------------------------------------------------------------------------------
2001 2000 1999
- -------------------------------------------------------------------------------------------------------------------
Revenues:
Sales $ 235,288 $ 157,688 $ 153,252
License fees 97,403 - -
Research contracts 30,000 - -
Interest 17,918 68,179 36,951
- -------------------------------------------------------------------------------------------------------------------
380,609 225,867 190,203
Expenses:
Research and development 1,499,654 2,084,232 1,137,122
Less research tax credits (20,052) (10,457) (4,181)
- -------------------------------------------------------------------------------------------------------------------
1,479,602 2,073,775 1,132,941
General and administrative 1,087,326 1,335,500 1,229,894
Marketing 343,244 363,142 942,205
Cost of sales 131,904 87,450 103,340
Depreciation and amortization 381,582 375,810 136,947
Interest and bank charges 6,455 14,169 5,856
- -------------------------------------------------------------------------------------------------------------------
3,430,113 4,249,846 3,551,183
Gain on disposal of capital assets - - (46,684)
- -------------------------------------------------------------------------------------------------------------------
3,430,113 4,249,846 3,504,499
- -------------------------------------------------------------------------------------------------------------------
Net loss $ (3,049,504) $ (4,023,979) $ (3,314,296)
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
Basic and diluted loss per share $ (0.14) $ (0.19) $ (0.17)
- -------------------------------------------------------------------------------------------------------------------
Weighted average number of common shares:
Basic 21,873,966 20,890,735 19,886,430
Effect of dilutive options and warrants 121,728 239,551 244,930
- -------------------------------------------------------------------------------------------------------------------
Diluted 21,995,694 21,130,286 20,131,360
- -------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
47
NYMOX PHARMACEUTICAL CORPORATION
Consolidated Statements of Deficit
Years ended December 31, 2001, 2000 and 1999
(in US dollars)
- -------------------------------------------------------------------------------------------------------
2001 2000 1999
- -------------------------------------------------------------------------------------------------------
Deficit, beginning of year $ (19,982,999) $ (15,605,816) $ (12,256,479)
Net loss (3,049,504) (4,023,979) (3,314,296)
Share issue costs (120,944) (353,204) (35,041)
- -------------------------------------------------------------------------------------------------------
Deficit, end of year $ (23,153,447) $ (19,982,999) $ (15,605,816)
- -------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
48
NYMOX PHARMACEUTICAL CORPORATION
Consolidated Statements of Cash Flows
Years ended December 31, 2001, 2000 and 1999
(in US dollars)
- -------------------------------------------------------------------------------------------------------------------
2001 2000 1999
- -------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net loss $ (3,049,504) $ (4,023,979) $ (3,314,296)
Adjustments for:
Depreciation and amortization 381,582 375,810 136,947
Loss (gain) on disposal of capital assets 250 - (46,684)
Foreign exchange - - (13,453)
Write-off of note receivable - 108,280 -
Write-down of deferred share issuance costs 87,263 - -
Changes in operating assets and liabilities:
Accounts and other receivables (20,942) 16,730 36,316
Interest receivable - - 31,928
Receivable from a financial institution - - 441,696
Research tax credits receivable (20,052) (7,277) 824
Inventory (13,242) (4,325) -
Prepaid expenses and deposits 12,500 56,000 (102,945)
Accounts payable and accrued liabilities (28,381) (380,511) 188,872
Deferred revenue 55,325 - -
- -------------------------------------------------------------------------------------------------------------------
(2,595,201) (3,859,272) (2,640,795)
Cash flows from financing activities:
Proceeds from issuance of share capital 2,554,254 5,010,981 969,253
Proceeds from notes payable 396,775 201,993 346,428
Repayment of notes payable - (548,421) -
Share issue costs (91,890) (380,365) (230,392)
- -------------------------------------------------------------------------------------------------------------------
2,859,139 4,284,188 1,085,289
Cash flows from investing activities:
Additions to capital assets (340,662) (381,568) (164,783)
Proceeds from disposal of capital assets - - 185,896
Proceeds from collection of
notes receivable - 73,000 -
Net proceeds on maturity of short-term
investments - - 1,464,635
- -------------------------------------------------------------------------------------------------------------------
(340,662) (308,568) 1,485,748
Effect of foreign exchange rate changes on cash - - 24,215
- -------------------------------------------------------------------------------------------------------------------
Net (decrease) increase in cash (76,724) 116,348 (45,543)
Cash, beginning of year 565,711 449,363 494,906
- -------------------------------------------------------------------------------------------------------------------
Cash, end of year $ 488,987 $ 565,711 $ 449,363
- -------------------------------------------------------------------------------------------------------------------
Supplemental disclosure to statements of cash flows:
(a) Interest paid $ 6,455 $ 14,169 $ 5,856
(b) Non-cash transactions:
Acquisition of Serex Inc. by issuance
of common shares and other securities - 1,319,997 -
Amortization of deferred share
issue costs charged to deficit 29,054 20,220 -
- -------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
49
NYMOX PHARMACEUTICAL CORPORATION
Notes to Consolidated Financial Statements
Years ended December 31, 2001, 2000 and 1999
(in US dollars)
- --------------------------------------------------------------------------------
1. Business activities:
Nymox Pharmaceutical Corporation (the "Corporation"), incorporated under
the Canada Business Corporations Act, including its subsidiaries, Nymox
Corporation, a Delaware Corporation, and Serex Inc. of New Jersey, is a
biopharmaceutical corporation which specializes in the research and
development of products for the diagnosis and treatment of Alzheimer's
disease. The Corporation is currently marketing AlzheimAlertTM, a urinary
test that aids physicians in the diagnosis of Alzheimer's disease. The
Corporation also markets NicAlertTM and NicoMeterTM, tests that use urine
or saliva to detect use of tobacco products. The Corporation is also
developing therapeutics for the treatment of Alzheimer's disease, new
treatments for benign prostate hyperplasia, and new anti-bacterial agents
for the treatment of urinary tract and other bacterial infections in
humans, including a treatment for E-coli 0157:H7 bacterial contamination in
meat and other food and drink products.
Since 1989, the Corporation's activities and resources have been primarily
focused on developing certain pharmaceutical technologies. The Corporation
is subject to a number of risks, including the successful development and
marketing of its technologies. In order to achieve its business plan and
the realization of its assets and liabilities in the normal course of
operations, the Corporation anticipates the need to raise additional
capital and/or achieve sales and other revenue generating activities.
Management believes that funds from operations as well as existing
financing facilities will be sufficient to meet the Corporation's
requirements for the next year.
The Corporation is listed on the NASDAQ Stock Market.
2. Significant accounting policies:
(a) Consolidation and change in measurement currency:
The consolidated financial statements of the Corporation have been
prepared under Canadian generally accepted accounting principles
("GAAP") and include the accounts of its US subsidiaries, Nymox
Corporation and Serex Inc. Intercompany balances and transactions have
been eliminated on consolidation.
Consolidated financial statements prepared under US GAAP would differ
in some respects from those prepared in Canada. A reconciliation of
earnings and shareholders' equity reported in accordance with Canadian
GAAP and with US GAAP is presented in note 10.
50
NYMOX PHARMACEUTICAL CORPORATION
Notes to Consolidated Financial Statements, Continued
Years ended December 31, 2001, 2000 and 1999
(in US dollars)
- --------------------------------------------------------------------------------
2. Significant accounting policies (continued):
(a) Consolidation and change in measurement currency (continued):
Effective January 1, 2000, the Corporation adopted the United States
dollar as its measurement currency as a result of the significance of
business activities conducted in the United States and the increasing
proportion of operating, financing and investing transactions in the
Canadian operations that are denominated in U.S. dollars. In accordance
with Canadian GAAP, the consolidated financial statements for the
figures as at and for the year ended December 31, 1999 have been
presented in US dollars using the convenience translation method
whereby all Canadian dollar amounts were converted into US dollars at
the closing exchange rate at December 31, 1999, which was $1.4433
Canadian dollar per US dollar.
(b) Inventory:
Inventory consists of finished goods and is carried at the lower of
cost and net realizable value. The cost of finished goods is determined
using the full cost accounting method.
(c) Capital assets:
Capital assets are recorded at cost. Depreciation and amortization are
provided using the following method and annual rates:
-----------------------------------------------------------------------
Asset Method Rate
-----------------------------------------------------------------------
Laboratory equipment Straight-line 20%
Computer equipment Straight-line 20%
Office equipment and fixtures Straight-line 20%
Intellectual property rights Straight-line 10%
-----------------------------------------------------------------------
Direct costs incurred in connection with securing the patents are
capitalized. Patents are being amortized using the straight-line method
over their economic useful lives or their legal terms of existence
ranging from 17 to 20 years commencing in the year of commercial
production of the developed products.
Management reviews the unamortized balance of intellectual property
rights and patents on an annual basis and recognizes any impairment in
carrying value when it is identified. An impairment loss would be
recognized when estimates of non-discounted future cash flows expected
to result from the use of an asset and its eventual disposition are
less than the carrying amount. No impairment losses were identified by
the Corporation for the years ended December 31, 2001, 2000 and 1999.
51
NYMOX PHARMACEUTICAL CORPORATION
Notes to Consolidated Financial Statements, Continued
Years ended December 31, 2001, 2000 and 1999
(in US dollars)
- --------------------------------------------------------------------------------
2. Significant accounting policies (continued):
(d) Revenue recognition:
The Corporation applies guidance from SAB 101 (Staff Accounting
Bulletin 101) issued by the Securities and Exchange Commission in the
recognition of revenue.
Revenue from product sales is recognized when the product or service
has been delivered or obligations as defined in the agreement are
performed. Revenue from research contracts is recognized at the time
research activities are performed under the agreement. Revenue from
license fees, royalties and milestone payments is recognized upon the
fulfillment of all obligations under the terms of the related
agreement. These agreements may include upfront payments to be received
by the Corporation. Upfront payments are recognized as revenue on a
systematic basis over the period that the related services or
obligations as defined in the agreement are performed. Interest is
recognized on an accrual basis.
Deferred revenue as at December 31, 2001 represents amounts billed to
and received from customers in advance of revenue recognition.
(e) Research and development expenditures:
Research expenditures, net of research tax credits, are expensed as
incurred. Development expenditures, net of tax credits, are expensed as
incurred, except if they meet the criteria for deferral in accordance
with generally accepted accounting principles.
(f) Foreign exchange:
The Corporation's measurement currency is the United States dollar.
Monetary assets and liabilities of the Canadian and foreign operations
denominated in currencies other than the United States dollar are
translated at the rates of exchange prevailing at the balance sheet
dates. Other assets and liabilities denominated in currencies other
than the United States dollar are translated at the exchange rates
prevailing when the assets were acquired or the liabilities incurred.
Revenues and expenses denominated in currencies other than the United
States dollar are translated at the average exchange rate prevailing
during the year, except for depreciation and amortization which are
translated at the same rates as those used in the translation of the
corresponding assets. Foreign exchange gains and losses resulting from
the translation are included in the determination of net earnings.
(g) Stock-based compensation plan:
No compensation expense is recognized under the Corporation's
stock-based compensation plan when stock options are issued to
employees or non-employees. Any consideration paid on exercise of stock
options is credited to share capital.
52
NYMOX PHARMACEUTICAL CORPORATION
Notes to Consolidated Financial Statements, Continued
Years ended December 31, 2001, 2000 and 1999
(in US dollars)
- --------------------------------------------------------------------------------
2. Significant accounting policies (continued):
(h) Income taxes:
The Corporation accounts for income taxes with the asset and liability
method of accounting for income taxes. Under this method, future income
tax assets and liabilities are determined based on "temporary
differences" (differences between the accounting basis and the tax
basis of the assets and liabilities), and are measured using the
currently enacted, or substantively enacted, tax rates and laws
expected to apply when these differences reverse. A valuation allowance
is recorded against any future income tax asset if it is more likely
than not that the asset will not be realized. Income tax expense or
benefit is the sum of the Company's provision for current income taxes
and the difference between the opening and ending balances of the
future income tax assets and liabilities.
(i) Earnings per share:
Basic earnings per share are determined using the weighted average
number of common shares outstanding during the period.
In 2001, the Company adopted the recommendations of the Canadian
Institute of Chartered Accountants with respect to the calculation of
diluted earnings per share. These new recommendations substantially
eliminate the differences between Canadian and U.S. generally accepted
accounting principles in this area. The standard requires that the
treasury stock method be used for calculating diluted earnings per
share. Diluted earnings per share are computed in a manner consistent
with basic earnings per share except that the weighted average shares
outstanding are increased to include additional shares from the assumed
exercise of options and warrants, if dilutive. The number of additional
shares is calculated by assuming that outstanding options and warrants
were exercised and that the proceeds from such exercises were used to
acquire shares of common stock at the average market price during the
reporting period.
Previously, fully diluted earnings per share were calculated on the
assumption that common stock options and warrants which were dilutive
are exercised at the beginning of the year or the date granted, if
later, and the funds derived therefrom are invested at the Company's
annual after tax cost of short-term financing. Under this method, the
net earnings available to shareholders would be adjusted for this
imputed interest.
The adoption of the new standard did not affect previously reported
earnings per share.
(j) Use of estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting periods. Actual results could differ
from those estimates.
53
NYMOX PHARMACEUTICAL CORPORATION
Notes to Consolidated Financial Statements, Continued
Years ended December 31, 2001, 2000 and 1999
(in US dollars)
- --------------------------------------------------------------------------------
3. Capital assets:
- -------------------------------------------------------------------------------------------------------------------
2001
- -------------------------------------------------------------------------------------------------------------------
Accumulated
depreciation Net book
Cost and amortization value
- -------------------------------------------------------------------------------------------------------------------
Property and equipment:
Laboratory equipment $ 615,656 $ 444,049 $ 171,607
Computer equipment 73,044 41,497 31,547
Office equipment and fixtures 88,949 75,020 13,929
- -------------------------------------------------------------------------------------------------------------------
777,649 560,566 217,083
Intangible assets:
Patents 1,660,475 269,781 1,390,694
Intellectual property rights acquired 2,219,564 455,817 1,763,747
- -------------------------------------------------------------------------------------------------------------------
3,880,039 725,598 3,154,441
- -------------------------------------------------------------------------------------------------------------------
$ 4,657,688 $ 1,286,164 $ 3,371,524
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
2000
- -------------------------------------------------------------------------------------------------------------------
Accumulated
depreciation Net book
Cost and amortization value
- -------------------------------------------------------------------------------------------------------------------
Property and equipment:
Laboratory equipment $ 613,219 $ 401,389 $ 211,830
Computer equipment 73,049 33,611 39,438
Office equipment and fixtures 88,949 71,538 17,411
- -------------------------------------------------------------------------------------------------------------------
775,217 506,538 268,679
Intangible assets:
Patents 1,322,496 162,696 1,159,800
Intellectual property rights acquired 2,219,564 235,349 1,984,215
- -------------------------------------------------------------------------------------------------------------------
3,542,060 398,045 3,144,015
- -------------------------------------------------------------------------------------------------------------------
$ 4,317,277 $ 904,583 $ 3,412,694
- -------------------------------------------------------------------------------------------------------------------
54
NYMOX PHARMACEUTICAL CORPORATION
Notes to Consolidated Financial Statements, Continued
Years ended December 31, 2001, 2000 and 1999
(in US dollars)
- --------------------------------------------------------------------------------
4. Business acquisition:
In 2000, the Corporation entered into a share purchase agreement to acquire
a controlling interest in Serex, Inc. ("Serex"), a privately-held
development stage corporation based in New Jersey. When the agreement
closed on March 2, 2000, the Corporation acquired 72.3% of the issued and
outstanding common stock of Serex in exchange for 187,951 common shares of
the Corporation having a value of approximately $657,825, and a warrant to
purchase 115,662 of the Corporation's common shares at a price of $3.70 per
share exercisable on the following dates: (i) January 8, 2001 - 35,783
shares (ii) January 8, 2002 - 30,000 shares (iii) January 8, 2003 - 30,000
shares, (iv) January 8, 2004 - 19,879 shares. In connection with this
acquisition, the Corporation also issued 40,000 options to the selling
shareholder to purchase the Corporation's shares. The options are
exercisable at a price of $3.70/share over a four-year period.
On August 1, 2000, the Corporation acquired an additional 293,138 shares of
Serex for a consideration consisting of 54,646 common shares of the
Corporation having a value of $191,261 and warrants to purchase 33,627 of
the Corporation's common shares at a price of $3.70 per share. On October
25, 2000, the Corporation acquired an additional 75,520 shares of Serex for
a consideration of 14,078 common shares of the Corporation having a value
of $49,273 and warrants to purchase 8,663 of the Corporation's common
shares at a price of $3.70 per share. After the above transactions, the
Corporation had approximately 98% of the outstanding shares of Serex.
The acquisition has been accounted for using the purchase method and,
accordingly, these consolidated financial statements include the results of
operations of Serex since the date of acquisition. Details of the
acquisition are as follows:
- -------------------------------------------------------------------------------
Assets acquired:
Current assets $ 98,746
Capital assets 19,056
Current liabilities (217,369)
Non-controlling interest (i) (800,000)
- -------------------------------------------------------------------------------
(899,567)
Patents, technological platform and
know-how acquired ("Intellectual
property rights") 2,219,564
- -------------------------------------------------------------------------------
Value of assets acquired $ 1,319,997
- -------------------------------------------------------------------------------
Consideration:
Common shares $ 898,359
Warrants and options (ii) 421,638
- -------------------------------------------------------------------------------
$ 1,319,997
- -------------------------------------------------------------------------------
55
NYMOX PHARMACEUTICAL CORPORATION
Notes to Consolidated Financial Statements, Continued
Years ended December 31, 2001, 2000 and 1999
(in US dollars)
- --------------------------------------------------------------------------------
4. Business acquisition (continued):
(i) Non-controlling interest includes redeemable, convertible preferred
shares of Serex held by third parties in the amount of $800,000. Up to
50% of preferred shares are redeemable at any time at the option of the
preferred shareholders for their issue price. The preferred shares are
convertible into common shares of Serex at a price of $3.946 per share.
(ii)The Corporation determined that the warrants and options issued in
connection with the acquisition of Serex had a value of $421,638, which
was determined using the methodology described in note 10 (d) (2).
5. Notes payable:
- -------------------------------------------------------------------------------------------------------------------
2001 2000
- -------------------------------------------------------------------------------------------------------------------
Note payable, bearing interest at the prime rate
plus 2%, due May 2002 $ 96,775 $ -
Note payable, bearing interest at the prime rate
plus 2%, due June 2002 300,000 -
- -------------------------------------------------------------------------------------------------------------------
$ 396,775 $ -
- -------------------------------------------------------------------------------------------------------------------
6. Share capital and other:
- -------------------------------------------------------------------------------------------------------------------
2001 2000
- -------------------------------------------------------------------------------------------------------------------
Authorized:
An unlimited number of common shares
Issued and outstanding:
22,297,525 common shares (2000 - 21,377,621) $ 25,376,557 $ 22,822,303
Warrants and options (see note 4 (ii)) 421,638 421,638
- -------------------------------------------------------------------------------------------------------------------
$ 25,798,195 $ 23,243,941
- -------------------------------------------------------------------------------------------------------------------
56
NYMOX PHARMACEUTICAL CORPORATION
Notes to Consolidated Financial Statements, Continued
Years ended December 31, 2001, 2000 and 1999
(in US dollars)
- --------------------------------------------------------------------------------
6. Share capital and other (continued):
(a) Changes in the Corporation's outstanding common shares are presented
below:
- -------------------------------------------------------------------------------------------------------------------
Shares Dollars
- -------------------------------------------------------------------------------------------------------------------
Issued and outstanding, December 31, 1999 20,003,804 $ 16,912,963
Issue of common shares for cash under private
placements and common stock purchase
agreement (b) (c) 1,112,142 5,000,000
Issue of common shares in connection
with Serex acquisition 256,675 898,359
Issue of common shares pursuant to exercise
of stock options (e) 5,000 10,981
- -------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2000 21,377,621 22,822,303
Issue of common shares for cash under private
placements and common stock purchase
agreement (b) (c) 811,904 2,236,199
Issue of common shares pursuant to exercise
of stock options (e) 108,000 318,055
- -------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2001 22,297,525 $ 25,376,557
- -------------------------------------------------------------------------------------------------------------------
(b) Private placements:
In 2001, the Corporation completed private placements for 594,100
common shares and received aggregate proceeds of $1,799,490. In 2000,
the Corporation completed a private placement for 821,637 common shares
for total aggregate proceeds of $4,000,000. The share issue costs
related to these private placements have been charged against the
deficit.
57
NYMOX PHARMACEUTICAL CORPORATION
Notes to Consolidated Financial Statements, Continued
Years ended December 31, 2001, 2000 and 1999
(in US dollars)
- --------------------------------------------------------------------------------
6. Share capital and other (continued):
(c) Common Stock Purchase Agreement:
In November 1999, the Corporation and Jaspas Investments Limited
("Jaspas"), a corporation based in the British Virgin Islands, signed a
common stock purchase agreement (the "Agreement") that establishes the
terms and conditions for the future issuance and purchase of the
Corporation's common shares by Jaspas. In general terms, Jaspas is
committed to purchase up to $12 million of the Corporation's common
shares over a thirty-month period. However, Jaspas may not purchase
more than 19.9% of the Corporation's common shares issued and
outstanding as of November 12, 1999, the closing date under the
Agreement, without obtaining shareholder approval.
The Agreement establishes what is referred to by the parties as an
equity drawdown facility. On a monthly basis, the Corporation may
request a drawdown on the facility subject to a formula, based on the
average stock price and average trading volume, that sets the maximum
amount for any given draw. At the end of a 22-day trading period
following the drawdown request, the amount of money that Jaspas will
provide to the Corporation and the number of shares that the
Corporation will issue is settled based on the formula using the
average daily share price for each of the 22 trading days. Jaspas
receives a 6% discount on the market price determined for the 22-day
trading period, and the Corporation will receive the settled amount
less a 3% placement fee payable to the placement agents.
The Corporation may make up to 24 drawdowns to a maximum of
$750,000/drawdown and $12,000,000 in total. There are certain
conditions that must be satisfied before Jaspas is obligated to
purchase the Corporation's common shares. In 2001, the Corporation
issued 217,804 common shares (290,505 in 2000) and raised $436,709
under this facility (2000 - $1,000,000).
The Corporation has also issued a warrant to Jaspas to purchase 200,000
common shares (see note 6 (d)).
The gross fees related to this transaction amounted to $242,732. These
costs were initially accounted for as deferred share issuance costs to
be amortized over the thirty-month drawdown period. Amortization is
calculated for each drawdown based on the percentage of the actual
drawdown over the total facility. In 2001, the Corporation amortized
$29,054 (2000 - $20,220) of deferred share issuance costs to the
deficit related to drawdowns in the year. In addition, the Corporation
wrote off against earnings deferred share issuance costs in the amount
of $87,263 for the portion of the facility that can no longer be
utilized by the Corporation. The facility expires in September 2002.
58
NYMOX PHARMACEUTICAL CORPORATION
Notes to Consolidated Financial Statements, Continued
Years ended December 31, 2001, 2000 and 1999
(in US dollars)
- --------------------------------------------------------------------------------
6. Share capital and other (continued):
(d) Warrants:
The Corporation has issued the following warrants to purchase common
shares:
- -------------------------------------------------------------------------------------------------------------------
Exercise Outstanding at
price per Exercised December 31,
Warrants share Issued to date Expired 2001 Expiry
- -------------------------------------------------------------------------------------------------------------------
Series E $ 4.53 200,000 (i) - - 200,000 November 30, 2004
Series F $ 4.06 160,000 (ii) - - 160,000 November 30, 2004
Series G $ 3.70 115,662(iii) - - 115,662 January 8, 2005
Series H $ 9.38 66,667 (iv) - - 66,667 March 6, 2004
Series I $ 7.81 26,667 (iv) - - 26,667 March 6, 2004
Series J $ 3.70 42,290(iii) - - 42,290 July 31, 2005
Series K $ 2.06 100,000 (iv) - - 100,000 March 6, 2003
- -------------------------------------------------------------------------------------------------------------------
(i) Warrant issued to Jaspas in connection with the common stock
purchase agreement referred to in note 6 (c). The warrant entitles
Jaspas to purchase 200,000 common shares at an exercise price of
US$4.5315.
(ii) Warrants issued to placement agents in connection with the common
stock purchase agreement. The warrants are exercisable at a price
of US$4.0625.
(iii) Warrants issued in connection with the Serex acquisition (see
note 4).
(iv) Warrants issued in connection with certain private placements (see
note 6 (b)).
(e) Stock options:
The Corporation has established a stock option plan (the "Plan") for
its key employees, its officers and directors, and certain consultants.
The Plan is administered by the Board of Directors of the Corporation.
The Board may from time to time designate individuals to whom options
to purchase common shares of the Corporation may be granted, the number
of shares to be optioned to each, and the option price per share. The
option price per share cannot involve a discount to the market price at
the time the option is granted. The total number of shares to be
optioned to any one individual cannot exceed 5% of the total issued and
outstanding shares and the maximum number of shares which may be
optioned under the Plan cannot exceed 2,500,000 common shares without
shareholder approval.
59
NYMOX PHARMACEUTICAL CORPORATION
Notes to Consolidated Financial Statements, Continued
Years ended December 31, 2001, 2000 and 1999
(in US dollars)
- --------------------------------------------------------------------------------
6. Share capital and other (continued):
(e) Stock options (continued):
Changes in outstanding options were as follows for the last two fiscal
periods:
- -------------------------------------------------------------------------------------------------------------------
Weighted average
Number exercise price
- -------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1998 1,926,000 $ 3.97
Granted 351,500 3.72
Exercised (98,900) 2.25
Expired (55,000) 6.63
Cancelled (993,100) 2.30
- -------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1999 1,130,500 4.76
Granted 549,000 4.06
Exercised (5,000) 2.20
Expired (10,000) 4.26
Cancelled (25,000) 3.12
- -------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2000 1,639,500 4.54
Granted 413,500 3.78
Exercised (108,000) 2.95
Expired (265,000) 4.04
Cancelled (40,000) 3.70
- -------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2001 1,640,000 $ 4.51
- -------------------------------------------------------------------------------------------------------------------
60
NYMOX PHARMACEUTICAL CORPORATION
Notes to Consolidated Financial Statements, Continued
Years ended December 31, 2001, 2000 and 1999
(in US dollars)
- --------------------------------------------------------------------------------
6. Share capital and other (continued):
(e) Stock options (continued):
At December 31, 2001, options outstanding and exercisable were as
follows:
- -------------------------------------------------------------------------------------------------------------------
Options outstanding Options exercisable Exercise price per share Expiry date
- -------------------------------------------------------------------------------------------------------------------
1,500 1,500 $ 1.93 February 6, 2002
20,000 20,000 6.93 September 12, 2002
10,000 10,000 2.25 April 13, 2004
5,000 5,000 9.53 April 13, 2004
5,000 5,000 6.79 April 13, 2004
40,000 35,000 6.93 April 13, 2004
5,000 5,000 6.24 April 13, 2004
210,000 210,000 2.25 January 17, 2006
10,000 10,000 9.53 January 17, 2006
10,000 10,000 6.79 January 17, 2006
20,000 20,000 6.93 January 17, 2006
100,000 100,000 7.97 April 30, 2006
10,000 10,000 11.60 August 13, 2006
10,000 10,000 6.24 August 13, 2006
30,000 30,000 6.93 August 13, 2006
5,000 5,000 6.24 October 31, 2007
40,000 40,000 6.93 October 31, 2007
9,000 9,000 6.41 December 19, 2007
100,000 100,000 4.85 November 9, 2008
50,000 50,000 6.93 January 22, 2009
2,000 2,000 6.41 March 23, 2009
67,000 67,000 3.12 May 13, 2009
75,000 75,000 3.12 June 1, 2009
255,000 255,000 3.88 May 1, 2010
50,000 10,000 6.93 May 1, 2010
10,000 10,000 4.70 June 15, 2010
10,000 10,000 3.50 July 13, 2010
2,000 2,000 4.00 July 13, 2010
11,500 11,500 3.20 August 14, 2010
5,000 5,000 3.15 August 16, 2010
50,000 50,000 3.90 August 25, 2010
10,000 10,000 2.21 January 16, 2011
70,500 70,500 1.93 April 23, 2011
2,000 2,000 3.75 October 1, 2011
100,000 20,000 4.00 November 1, 2011
4,500 4,500 4.20 November 9, 2011
225,000 75,000 4.33 November 13, 2011
- -------------------------------------------------------------------------------------------------------------------
1,640,000 1,365,000 $ 4.51
- -------------------------------------------------------------------------------------------------------------------
61
NYMOX PHARMACEUTICAL CORPORATION
Notes to Consolidated Financial Statements, Continued
Years ended December 31, 2001, 2000 and 1999
(in US dollars)
- --------------------------------------------------------------------------------
7. Commitments and contingency:
(a) Operating leases:
Minimum lease payments under operating leases for the Corporation's
premises for the next four years are as follows:
- -----------------------------------------------------------------------------
2002 $ 172,958
2003 172,958
2004 172,958
2005 67,084
- -----------------------------------------------------------------------------
$ 585,958
- -----------------------------------------------------------------------------
(b) Research funding agreement:
The Corporation is committed to make research grants to an unrelated
medical facility in the U.S. in the aggregate amount of approximately
$770,750 in the next three years as follows:
- -----------------------------------------------------------------------------
2002 $ 292,000
2003 249,000
2004 229,750
- -----------------------------------------------------------------------------
$ 770,750
- -----------------------------------------------------------------------------
Under this agreement, the medical facility benefits from research
funding and collaboration from the Corporation and is entitled to
royalties based on a percentage of sales of any commercialized product
derived from this research.
(c) Contingency:
A shareholder has served the Corporation with a Statement of Claim
filed with the Ontario Superior Court of Justice claiming to be
entitled to the issuance of 388,797 additional shares in accordance
with repricing provisions contained in the March 2000 private placement
agreement referred to in note 6 (b) and to damages of $275,000 for lost
opportunity to sell these shares. The Corporation believes that the
shareholder's interpretation of the repricing provisions in the March
2000 agreement is incorrect and intends to defend the action
vigorously. Accordingly, no provision related to this matter has been
recorded in these financial statements.
62
NYMOX PHARMACEUTICAL CORPORATION
Notes to Consolidated Financial Statements, Continued
Years ended December 31, 2001, 2000 and 1999
(in US dollars)
- --------------------------------------------------------------------------------
8. Income taxes:
Details of the components of income taxes are as follows:
- -------------------------------------------------------------------------------------------------------------------
2001 2000 1999
- -------------------------------------------------------------------------------------------------------------------
Loss before income taxes:
Canadian operations $ (2,257,157) $ (2,558,476) $ (2,631,662)
U.S. operations (792,347) (1,465,503) (682,634)
- -------------------------------------------------------------------------------------------------------------------
(3,049,504) (4,023,979) (3,314,296)
Basic income tax rate 37.0% 38.0% 38.0%
- -------------------------------------------------------------------------------------------------------------------
Income tax recovery at statutory rates 1,128,000 1,529,000 1,260,000
Adjustments in income taxes resulting from:
Non-recognition of losses and other
unclaimed deductions (1,128,000) (1,529,000) (1,260,000)
- -------------------------------------------------------------------------------------------------------------------
Income taxes $ - $ - $ -
- -------------------------------------------------------------------------------------------------------------------
The income tax effect of temporary differences that give rise to the net
future tax asset is presented below:
- -------------------------------------------------------------------------------------------------------------------
2001 2000
- -------------------------------------------------------------------------------------------------------------------
Non-capital losses $ 6,200,000 $ 5,695,000
Scientific research and experimental development
expenditures 600,000 544,000
Investment tax credits 250,000 230,000
Share issue costs 135,000 200,000
Intellectual property rights (500,000) (590,000)
Foreign exchange gains (240,000) (135,000)
Less valuation allowance (6,445,000) (5,944,000)
- -------------------------------------------------------------------------------------------------------------------
Net future tax asset $ - $ -
- -------------------------------------------------------------------------------------------------------------------
63
NYMOX PHARMACEUTICAL CORPORATION
Notes to Consolidated Financial Statements, Continued
Years ended December 31, 2001, 2000 and 1999
(in US dollars)
- --------------------------------------------------------------------------------
8. Income taxes (continued):
In assessing the realizability of future tax assets, management considers
whether it is more likely than not that some portion or all of the future
tax assets will not be realized. The ultimate realization of future tax
assets is dependent upon the generation of future taxable income and tax
planning strategies. Since the Corporation is a development stage
enterprise, the generation of future taxable income is dependent on the
successful commercialization of its products and technologies.
The Corporation has non-capital losses carried forward and accumulated
scientific research and development expenditures which are available to
reduce future years' taxable income. These expire as follows:
- -------------------------------------------------------------------------------------------------------------------
Federal Provincial
- -------------------------------------------------------------------------------------------------------------------
Non-capital losses:
2002 $ 575,000 $ -
2003 1,250,000 800,000
2004 1,375,000 685,000
2005 1,950,000 1,950,000
2006 2,214,000 2,214,000
2007 2,578,000 2,578,000
2008 1,509,000 1,509,000
Scientific research and development expenditures:
(Indefinitely) 1,448,000 2,974,000
- -------------------------------------------------------------------------------------------------------------------
The Corporation also has investment tax credits available in the amount of
approximately $400,000 to reduce future years' federal taxes payable. These
credits expire as follows:
- -------------------------------------------------------------------------------------------------------------------
2005 $ 25,000
2006 184,000
2007 98,000
2008 3,000
2009 8,000
2010 32,000
2011 50,000
- -------------------------------------------------------------------------------------------------------------------
64
NYMOX PHARMACEUTICAL CORPORATION
Notes to Consolidated Financial Statements, Continued
Years ended December 31, 2001, 2000 and 1999
(in US dollars)
- --------------------------------------------------------------------------------
8. Income taxes (continued):
In addition, the Corporation's US subsidiaries have losses carried forward
of approximately $8,013,000 which expire as follows:
- --------------------------------------------------------------------------------
2010 $ 50,000
2011 1,035,000
2012 1,933,000
2018 2,782,000
2019 1,005,000
2020 750,000
2021 458,000
- --------------------------------------------------------------------------------
9. Financial instruments:
(a) Foreign currency risk management:
As indicated in note 2 (a), the Corporation adopted the US dollar as
its measurement currency effective January 1, 2000 because a
substantial portion of revenues, expenses, assets and liabilities of
its Canadian and US operations are denominated in US dollars. The
Canadian operation also has transactions denominated in Canadian
dollars, principally relating to salaries and rent. Fluctuations in the
currency used for the payment of the Corporation's expenses denominated
in currencies other than the US dollar could cause unanticipated
fluctuations in the Corporation's operating results. The Corporation
does not engage in the use of derivative financial instruments to
manage its currency exposures.
(b) Fair value disclosure:
Fair value estimates are made as of a specific point in time using
available information about the financial instrument. These estimates
are subjective in nature and often cannot be determined with precision.
The Corporation has determined that the carrying value of its
short-term financial assets and liabilities approximates fair value due
to the immediate or short-term maturity of these financial instruments.
65
NYMOX PHARMACEUTICAL CORPORATION
Notes to Consolidated Financial Statements, Continued
Years ended December 31, 2001, 2000 and 1999
(in US dollars)
- --------------------------------------------------------------------------------
9. Financial instruments (continued):
(c) Credit risk:
Credit risk results from the possibility that a loss may occur from the
failure of another party to perform according to the terms of the
contract. Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of cash and accounts
receivable. Cash is maintained with a high-credit quality financial
institution. For accounts receivable, the Company performs periodic
credit evaluations and typically does not require collateral.
Allowances are maintained for potential credit losses consistent with
the credit risk, historical trends, general economic conditions and
other information.
(d) Interest rate risk:
The Company's exposure to interest rate risk is as follows:
- --------------------------------------------------------------------------------
Cash Fixed interest rate
Notes payable Floating interest rate
- --------------------------------------------------------------------------------
10. Canadian/U.S. Reporting Differences:
(a) Consolidated statements of earnings:
The reconciliation of earnings reported in accordance with Canadian
GAAP and with U.S. GAAP is as follows:
- -------------------------------------------------------------------------------------------------------------------
2001 2000 1999
- -------------------------------------------------------------------------------------------------------------------
Net loss, Canadian GAAP $ (3,049,504) $ (4,023,979) $ (3,314,296)
Adjustments:
Amortization of patents (i) 9,411 9,361 9,142
Stock-based compensation - options
granted to non-employees (ii) (55,040) (257,690) (198,815)
Change in reporting currency (iii) - - 94,803
- -------------------------------------------------------------------------------------------------------------------
Net loss, U.S. GAAP $ (3,095,133) $ (4,272,308) $ (3,409,166)
- -------------------------------------------------------------------------------------------------------------------
Loss per share, U.S. GAAP $ (0.14) $ (0.20) $ (0.17)
- -------------------------------------------------------------------------------------------------------------------
66
NYMOX PHARMACEUTICAL CORPORATION
Notes to Consolidated Financial Statements, Continued
Years ended December 31, 2001, 2000 and 1999
(in US dollars)
- --------------------------------------------------------------------------------
10. Canadian/U.S. Reporting Differences (continued):
(b) Consolidated shareholders' equity:
The reconciliation of shareholders' equity reported in accordance with
Canadian GAAP and with U.S. GAAP is as follows:
- -------------------------------------------------------------------------------------------------------------------
2001 2000 1999
- -------------------------------------------------------------------------------------------------------------------
Shareholders' equity, Canadian GAAP $ 2,644,748 $ 3,260,942 $ 1,307,147
Adjustments:
Amortization of patents (i) (138,535) (147,946) (157,307)
Stock-based compensation - options
granted to non-employees (ii):
Cumulative compensation expense (1,260,583) (1,205,543) (947,853)
Additional paid-in capital 1,313,146 1,258,106 1,000,416
Change in reporting currency (iii) (62,672) (62,672) (62,672)
- -------------------------------------------------------------------------------------------------------------------
(148,644) (158,055) (167,416)
- -------------------------------------------------------------------------------------------------------------------
Shareholders' equity, U.S. GAAP $ 2,496,104 $ 3,102,887 $ 1,139,731
- -------------------------------------------------------------------------------------------------------------------
(i) In accordance with APB Opinion 17, Intangible Assets, the
patents are amortized using the straight-line method over the
legal life of the patents from the date the patent was secured.
For Canadian GAAP purposes, patents are amortized commencing in
the year of commercial production of the developed products.
(ii) In accordance with FAS 123, Accounting for Stock-Based
Compensation, compensation related to the stock options granted
to non-employees has been recorded in the accounts based on the
fair value of the stock options at the grant date. The fair
value of the stock options was estimated as described in note 10
(d) (2).
(iii) Change in reporting currency:
As explained in note 2 (a), the Company has adopted the US
dollar as its reporting currency effective January 1, 2000. For
Canadian GAAP purposes, the financial information for 1999 has
been translated into US dollars at the December 31, 1999
exchange rate. For United States GAAP reporting purposes, assets
and liabilities for all years presented have been translated
into US dollars at the ending exchange rate for the respective
year and the statement of earnings at the average exchange rate
for the respective year.
67
NYMOX PHARMACEUTICAL CORPORATION
Notes to Consolidated Financial Statements, Continued
Years ended December 31, 2001, 2000 and 1999
(in US dollars)
- --------------------------------------------------------------------------------
10. Canadian/U.S. Reporting Differences (continued):
(c) Consolidated comprehensive income:
- -------------------------------------------------------------------------------------------------------------------
2001 2000 1999
- -------------------------------------------------------------------------------------------------------------------
Net loss, US GAAP $ (3,095,133) $ (4,272,308) $ (3,409,166)
Other comprehensive income (loss):
Foreign currency translation
adjustment - - 111,518
- -------------------------------------------------------------------------------------------------------------------
Comprehensive loss $ (3,095,133) $ (4,272,308) $ (3,297,648)
- -------------------------------------------------------------------------------------------------------------------
FAS 130, Reporting Comprehensive Income, requires the Corporation to
report and display certain information related to comprehensive income
for the Corporation. Comprehensive income includes net earnings and
certain foreign currency translation adjustments.
The accumulated comprehensive loss only comprises foreign currency
translation adjustments and is included in the amount of shareholders'
equity presented for US GAAP purposes in note 10 (b).
68
NYMOX PHARMACEUTICAL CORPORATION
Notes to Consolidated Financial Statements, Continued
Years ended December 31, 2001, 2000 and 1999
(in US dollars)
- --------------------------------------------------------------------------------
10. Canadian/U.S. Reporting Differences (continued):
(d) Other disclosures required by United States GAAP:
(1) Development stage company:
The Corporation is in the process of developing unique patented
products which are subject to approval by the regulatory
authorities. It has had limited revenues to date on the sale of
its products under development. Accordingly, the Corporation is a
development stage company as defined in Statement of Financial
Accounting Standards No. 7 and the following additional
disclosures are provided:
- -----------------------------------------------------------------------------------------------------------
Cumulative Cumulative
since the date of since the date of
inception of inception of
the Corporation the Corporation
to December 31, to December 31,
2001 2000
- -----------------------------------------------------------------------------------------------------------
Revenues:
Interest revenue $ 502,068 $ 484,150
Sales 668,064 432,776
License revenue 97,403 -
Research contract 30,000 -
Expenses:
Gross research and development expenditures 11,044,704 9,545,050
Other expenses 13,395,963 11,445,452
Cash inflows (outflows):
Operating activities (21,588,838) (18,918,110)
Investing activities (778,198) (513,063)
Financing activities 24,296,442 21,437,303
- -----------------------------------------------------------------------------------------------------------
69
NYMOX PHARMACEUTICAL CORPORATION
Notes to Consolidated Financial Statements, Continued
Years ended December 31, 2001, 2000 and 1999
(in US dollars)
- --------------------------------------------------------------------------------
10. Canadian/U.S. Reporting Differences (continued):
(d) Other disclosures required by United States GAAP (continued):
(1) Development stage company (continued):
The statement of shareholders' equity since date of inception is
presented below:
- -------------------------------------------------------------------------------------------------------------------
Additional
Number of Consi- paid-in Accumulated
shares deration capital deficit Total
- -------------------------------------------------------------------------------------------------------------------
Year ended July 31, 1990:
Common shares issued 2,500,000 $ 172,414 $ -- $ -- $ 172,414
Net loss -- -- -- (109,241) (109,241)
- -------------------------------------------------------------------------------------------------------------------
Balance, July 31, 1990 2,500,000 172,414 -- (109,241) 63,173
Year ended July 31, 1991:
Net loss -- -- -- (21,588) (21,588)
Cumulative translation adjustment -- 1,499 -- (950) 549
- -------------------------------------------------------------------------------------------------------------------
Balance, July 31, 1991 2,500,000 173,913 -- (131,779) 42,134
Year ended July 31, 1992:
Common shares issued 9,375 31,468 -- -- 31,468
Net loss -- -- -- (45,555) (45,555)
Cumulative translation adjustment -- (6,086) -- 5,598 (488)
- -------------------------------------------------------------------------------------------------------------------
Balance, July 31, 1992 2,509,375 199,295 -- (171,736) 27,559
Year ended July 31, 1993:
Common shares issued 201,250 159,944 -- -- 159,944
Common shares cancelled (500,000) -- -- -- --
Net loss -- -- -- (38,894) (38,894)
Cumulative translation adjustment -- (13,994) -- 12,830 (1,164)
- -------------------------------------------------------------------------------------------------------------------
Balance, July 31, 1993 2,210,625 345,245 -- (197,800) 147,445
Year ended July 31, 1994:
Common shares issued 2,500 7,233 -- -- 7,233
Net loss -- -- -- (53,225) (53,225)
Cumulative translation adjustment -- (25,173) -- 15,808 (9,365)
- -------------------------------------------------------------------------------------------------------------------
Balance, July 31, 1994 2,213,125 327,305 -- (235,217) 92,088
Year ended July 31, 1995:
Common shares issued 78,078 303,380 -- -- 303,380
Net loss -- -- -- (285,910) (285,910)
Cumulative translation adjustment -- 5,196 -- (7,221) (2,025)
- -------------------------------------------------------------------------------------------------------------------
Balance, July 31, 1995 2,291,203 635,881 -- (528,348) 107,533
Period ended December 31, 1995:
Adjustment necessary to
increase the number of
common shares 12,708,797 -- -- -- --
- -------------------------------------------------------------------------------------------------------------------
Adjusted number of
common shares 15,000,000 635,881 -- (528,348) 107,533
Common shares issued 2,047,082 2,997,284 -- -- 2,997,284
Net loss -- -- -- (1,194,226) (1,194,226)
Share issue costs -- (153,810) -- -- (153,810)
Cumulative translation adjustment -- 2,858 -- (6,328) (3,470)
- -------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1995
carried forward 17,047,082 3,482,213 -- (1,728,902) 1,753,311
70
NYMOX PHARMACEUTICAL CORPORATION
Notes to Consolidated Financial Statements, Continued
Years ended December 31, 2001, 2000 and 1999
(in US dollars)
- --------------------------------------------------------------------------------
10. Canadian/U.S. Reporting Differences (continued):
(d) Other disclosures required by United States GAAP (continued):
(1) Development stage company (continued):
The statement of shareholders' equity since date of inception is
presented below (continued):
- -------------------------------------------------------------------------------------------------------------------
Additional
Number of Consi- paid-in Accumulated
shares deration capital deficit Total
- -------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1995
brought forward 17,047,082 $ 3,482,213 $ -- $ (1,728,902) $ 1,753,311
Year ended December 31, 1996:
Common shares issued 882,300 3,852,364 -- -- 3,852,364
Net loss -- -- -- (3,175,587) (3,175,587)
Share issue costs -- (170,699) -- -- (170,699)
Stock-based compensation -- -- 434,145 -- 434,145
Cumulative translation adjustment -- (16,769) (2,217) 24,544 5,558
- --------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1996 17,929,382 7,147,109 431,928 (4,879,945) 2,699,092
Year ended December 31, 1997:
Common shares issued 703,491 3,180,666 -- -- 3,180,666
Net loss -- -- (3,755,409) (3,755,409)
Share issue costs -- (161,482) -- -- (161,482)
Capital stock subscription -- 352,324 -- -- 352,324
Stock-based compensation -- -- 108,350 -- 108,350
Cumulative translation adjustment -- (299,275) (21,578) 325,364 4,511
- --------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997 18,632,873 10,219,342 518,700 (8,309,990) 2,428,052
Year ended December 31, 1998:
Common shares issued 1,095,031 5,644,638 -- -- 5,644,638
Net loss -- -- -- (4,979,562) (4,979,562)
Share issue costs -- (54,131) -- -- (54,131)
Stock-based compensation -- -- 274,088 -- 274,088
Cumulative translation adjustment -- (685,156) (43,750) 720,173 (8,733)
- --------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1998 19,727,904 15,124,693 749,038 (12,569,379) 3,304,352
Year ended December 31, 1999:
Common shares issued 275,900 969,253 -- -- 969,253
Net loss -- -- -- (3,409,166) (3,409,166)
Share issue costs -- (35,041) -- -- (35,041)
Stock-based compensation -- -- 198,815 -- 198,815
Cumulative translation adjustment -- 943,133 52,563 (884,178) 111,518
- --------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1999 20,003,804 17,002,038 1,000,416 (16,862,723) 1,139,731
Year ended December 31, 2000:
Common shares issued 1,373,817 5,909,340 -- -- 5,909,340
Warrants and options -- 421,638 -- -- 421,638
Net loss -- -- -- (4,272,308) (4,272,308)
Share issue costs -- (353,204) -- -- (353,204)
Stock-based compensation -- -- 257,690 -- 257,690
- --------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2000
carried forward 21,377,621 22,979,812 1,258,106 (21,135,031) 3,102,887
71
NYMOX PHARMACEUTICAL CORPORATION
Notes to Consolidated Financial Statements, Continued
Years ended December 31, 2001, 2000 and 1999
(in US dollars)
- --------------------------------------------------------------------------------
10. Canadian/U.S. Reporting Differences (continued):
(d) Other disclosures required by United States GAAP (continued):
(1) Development stage company (continued):
The statement of shareholders' equity since date of inception is
presented below (continued):
- ----------------------------------------------------------------------------------------------------------
Additional
Number of Consi- paid-in Accumulated
shares deration capital deficit Total
- ----------------------------------------------------------------------------------------------------------
Balance, December 31, 2000
brought forward 21,377,621 $ 22,979,812 $ 1,258,106 $(21,135,031) $ 3,102,887
Year ended December 31, 2001:
Common shares 919,904 2,554,254 -- -- 2,554,254
Net loss -- -- -- (3,095,133) (3,095,133)
Share issue costs -- (120,944) -- -- (120,944)
Stock-based compensation -- -- 55,040 -- 55,040
- -----------------------------------------------------------------------------------------------------------
Balance, December 22,297,525 $ 25,413,122 $ 1,313,146 $(24,230,164) $ 2,496,104
- -----------------------------------------------------------------------------------------------------------
(2) Stock-based compensation:
For US GAAP purposes, the Corporation applies APB Opinion 25,
Accounting for Stock Issued to Employees, in accounting for its
stock option plan, and, accordingly, no compensation cost has been
recognized for stock options granted to employees in these
financial statements. As explained in note 10 (b), compensation
cost has been recognized for stock options granted to
non-employees. Had compensation cost been determined for stock
options granted to employees based on the fair value at the grant
dates for awards under the plan consistent with the method of FASB
Statement 123, Accounting for Stock-Based Compensation, the
Corporation's net earnings and loss per share would have been
adjusted to the pro-forma amounts indicated below for US GAAP:
- -----------------------------------------------------------------------------------------------------
2001 2000 1999
- -----------------------------------------------------------------------------------------------------
Net loss As reported (US GAAP) $ (3,095,133) $ (4,272,308) $ (3,409,166)
Pro-forma (3,347,102) (5,884,919) (3,990,187)
Loss per share As reported (US GAAP) (0.14) (0.20) (0.17)
Pro-forma (0.15) (0.28) (0.20)
- -----------------------------------------------------------------------------------------------------
72
NYMOX PHARMACEUTICAL CORPORATION
Notes to Consolidated Financial Statements, Continued
Years ended December 31, 2001, 2000 and 1999
(in US dollars)
- --------------------------------------------------------------------------------
10. Canadian/U.S. Reporting Differences (continued):
(d) Other disclosures required by United States GAAP (continued):
(2) Stock-based compensation (continued):
The fair value of each option grant was estimated on the date of
grant using the Black-Scholes option-pricing model with the
following weighted average assumptions: risk-free interest rate of
2.20% (2000 - 5.49%; 1999 - 5.50%), dividend yield of 0%, expected
volatility of 59% (2000 - 163%; 1999 - 80%), and expected life of
5 years.
(e) Recent accounting pronouncements:
In July 2001, FASB issued SFAS 141, "Business Combinations" and SFAS
142 "Goodwill and Other Intangible Assets". SFAS 141, which replaces
APB Opinion No. 16, revises the accounting standards for business
combinations and is effective for acquisitions initiated after June 30,
2001. SFAS 142, which replaces APB Opinion No. 17, revises the
standards in accounting for goodwill and other intangibles and is
effective for fiscal years beginning after December 15, 2001. Similar
standards have been adopted by the Canadian Institute of Chartered
Accountants. Effective for the Company's fiscal year beginning January
1, 2002, the statement changes the accounting for goodwill from an
amortization method to an impairment-only approach. In addition, this
statement requires acquired intangible assets to be separately
recognized if the benefit of the intangible assets is obtained through
contractual or other legal right, or if the intangible assets can be
sold, transferred, licensed, rented or exchanged. The Company does not
expect SFAS No. 142 to have a material impact on its financial
statements.
In August 2001, FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations". SFAS No. 143 requires the Company to record
the fair value of an asset retirement obligation as a liability in the
period in which it incurs a legal obligation associated with the
retirement of tangible long-lived assets. This statement is effective
for the Company's fiscal year beginning January 1, 2003. The Company
does not expect SFAS No. 143 to have a material impact on its financial
statements.
In October 2001, FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-lived Assets". SFAS No. 144 provides
accounting guidance for long-lived assets to be disposed of other than
by sale, and to be disposed of by sale. This statement is effective for
the Company's fiscal year beginning January 1, 2002. The Company does
not expect SFAS No. 144 to have an initial material impact on its
financial statements upon adoption.
73
NYMOX PHARMACEUTICAL CORPORATION
Notes to Consolidated Financial Statements, Continued
Years ended December 31, 2001, 2000 and 1999
(in US dollars)
- --------------------------------------------------------------------------------
11. Segment disclosures:
The Corporation operates in one reporting segment - the research and
development of products for the treatment of Alzheimer's and other
diseases. Geographic segment information is as follows:
- --------------------------------------------------------------------------------
United
Canada States
- --------------------------------------------------------------------------------
Revenues:
2001 $ 145,501 $ 235,108
2000 68,179 157,688
1999 40,963 149,240
Net loss:
2001 (2,257,157) (792,347)
2000 (2,558,476) (1,465,503)
1999 (2,631,662) (682,634)
Capital assets:
2001 3,086,869 284,655
2000 3,191,042 221,652
Total assets:
2001 3,629,455 562,786
2000 4,110,466 408,172
- --------------------------------------------------------------------------------
In 2001, one customer accounted for approximately 26% of revenues and, in
total, 5 customers accounted for 54% of revenues in 2001. In 2000 and 1999,
no single customer accounted for more than 10% of revenues.
12. Comparative figures:
Certain of the comparative figures have been reclassified to conform to the
presentation adopted in the current year.
13. Subsequent events:
(a) Private placements:
In February 2002, the Corporation completed a private placement and
issued 74,074 common shares for gross proceeds of $300,000. On March
18, 2002, the Corporation completed a private placement and issued
195,000 common shares for gross proceeds of $819,000.
74
NYMOX PHARMACEUTICAL CORPORATION
Notes to Consolidated Financial Statements, Continued
Years ended December 31, 2001, 2000 and 1999
(in US dollars)
- --------------------------------------------------------------------------------
13. Subsequent events (continued):
(b) Demand for arbitration:
In March 2002, a former employee filed a demand for arbitration with
the American Arbitration Association concerning the termination of her
employment with the Corporation. The employee is claiming damages of up
to $498,000 plus attorney's fees and costs, based upon alleged
violations of New Jersey law and breach of an employment agreement. The
Corporation believes these claims are without merit and intends to
defend the matter vigorously.
75
ITEM 9. OFFER AND LISTING DETAILS
Nymox's common shares trade on the Nasdaq Stock Market. Nymox's common shares
traded on the Nasdaq National Market from December 1, 1997 until September 16,
1999 when they began trading on the Nasdaq SmallCap Market. Nymox's common
shares also traded on the Montreal Exchange from December 18, 1995 until
November 19, 1999.
The following tables set out the high and low reported trading prices of the
common shares on the Nasdaq Stock Market during the periods indicated.
Annual High and Low Market Prices - Past Five Years
YEAR ANNUAL HIGH ANNUAL LOW
- ---- ----------- ----------
1997 $10.750 $6.250
1998 $13.625 $2.500
1999 $5.875 $2.500
2000 $10.563 $1.063
2001 $4.910 $1.750
2002 $5.000 $2.810
Quarterly High and Low Market Prices - Past Two Years
YEAR QUARTERLY PERIOD HIGH SALES PRICE LOW SALES PRICE
- ---- ---------------- ---------------- ---------------
2000 1st Quarter $10.563 $2.625
2nd Quarter $5.875 $2.625
3rd Quarter $6.063 $2.906
4th Quarter $3.875 $1.063
2001 1st Quarter $3.000 $1.750
2nd Quarter $3.100 $1.760
3rd Quarter $4.910 $2.310
4th Quarter $5.000 $3.650
2002 1st Quarter $4.410 $3.500
2nd Quarter $4.120 $2.810
76
Monthly High and Low Market Prices - Most Recent Six Months
DATE MONTHLY HIGH MONTHLY LOW
- ---- ------------ -----------
December, 2001 $4.380 $3.760
January, 2002 $4.220 $3.560
February, 2002 $4.110 $3.500
March, 2002 $4.410 $3.740
April, 2002 $4.040 $2.810
May, 2002 $4.120 $3.540
ITEM 10. ADDITIONAL INFORMATION
Warrants Outstanding
Description Warrants Issued Exercise Price Expiry Date
- ----------- --------------- -------------- -----------
Series K 100,000 $2.06 Mar. 6, 2003
Series H 66,667 $9.375 Mar. 6, 2004
Series I 26,667 $7.8125 Mar. 6, 2004
Series E 200,000 $4.5315 Nov. 30, 2004
Series F 160,000 $4.0625 Nov. 30, 2004
Series G 109,879 $3.70 Jan. 8, 2005
Series G 5,783 $3.70 Jan. 8, 2005
Series J 42,864 $3.70 Jul. 31, 2005
The total number of shares subject to options at May 31, 2002 is 1,638,500, of
which options representing 1,373,000 are currently exercisable. Of those, the
total number of shares subject to options held by directors and officers of
Nymox is 910,000 of which options representing 720,000 shares are currently
exercisable.
There are no rights, warrants or options presently outstanding under which Nymox
could issue additional common shares, with the exception of options enabling
certain directors, employees and consultants of Nymox to acquire common shares
under Nymox's stock option plan and of warrants entitling the holders to acquire
up to 711,860 common shares of Nymox as outlined in the above table.
Memorandum and Articles of Association
Bylaws And Articles Of Incorporation
The company's Articles of Incorporation as amended, which we refer to as our
articles of incorporation, are on file with the Corporations Directorate of
Industry Canada under Corporation Number 315235-9. Our articles of incorporation
do not include a stated purpose and do not place any restrictions on the
business that the company may carry on.
77
Directors
A director of our company need not be a shareholder. In accordance with our
bylaws and the Canada Business Corporations Act, at least 25% of our directors
must be residents of Canada. In order to serve as a director, a person must be a
natural person at least 18 years of age, of sound mind and not bankrupt. Neither
our articles of incorporation or by-laws, nor the Canada Business Corporations
Act, impose any mandatory retirement requirements for directors.
A director who is a party to, or who is a director or officer of or has a
material interest in any person who is a party to, a material contract or
transaction or proposed material contract or transaction with our company must
disclose to the company the nature and extent of his or her interest at the time
and in the manner provided by the Canada Business Corporations Act. The Canada
Business Corporations Act prohibits such a director from voting on any
resolution to approve the contract or transaction unless the contract or
transaction:
o Is an arrangement by way of security for money lent to or
obligations undertaken by the director for the benefit of the
company or an affiliate;
o relates primarily to his or her remuneration as a director,
officer, employee or agent of the company or an affiliate;
o is for indemnity or insurance for director's liability as
permitted by the Act; or
o is with an affiliate.
Our board of directors may, on behalf of the company and without authorization
of our shareholders:
o borrow money upon the credit of the company;
o issue, reissue, sell or pledge debt obligations of the company;
o give a guarantee on behalf of the company to secure performance of
an obligation of any person; and
o mortgage, hypothecate, pledge or otherwise create a security
interest in all or any property of the company, owned or
subsequently acquired, to secure any obligation of the company.
The Canada Business Corporations Act prohibits the giving of a guarantee to any
shareholder, director, officer or employee of the company or of an affiliated
corporation or to an associate of any such person for any purpose or to any
person for the purpose of or in connection with a purchase of a share issued or
to be issued by the company or its affiliates, where there are reasonable
grounds for believing that the company is or, after giving the guarantee, would
be unable to pay its liabilities as they become due, or the realizable value of
the company's assets in the form of assets pledged or encumbered to secure a
guarantee, after giving the guarantee, would be less than the aggregate of the
company's liabilities and stated capital of all classes.
These borrowing powers may be varied by the company's bylaws or its articles of
incorporation. However, our bylaws and articles of incorporation do not contain
any restrictions on or variations of these borrowing powers.
78
Common Shares
Our articles of incorporation authorize the issuance of an unlimited number of
common shares. They do not authorize the issuance of any other class of shares.
The holders of the common shares of our Company are entitled to receive notice
of and to attend all meetings of the shareholders of our Company and have one
vote for each common share held at all meetings of the shareholders of our
Company. Our directors are elected at each annual meeting of shareholders and do
not stand for reelection at staggered intervals.
The holders of common shares are entitled to receive dividends and our company
will pay dividends, as and when declared by our board of directors, out of
moneys properly applicable to the payment of dividends, in such amount and in
such form as our board of directors may from time to time determine, and all
dividends which our board of directors may declare on the common shares shall be
declared and paid in equal amounts per share on all common shares at the time
outstanding.
In the event of the dissolution, liquidation or winding-up of the company,
whether voluntary or involuntary, or any other distribution of assets of the
company among its shareholders for the purpose of winding up its affairs, the
holders of the common shares will be entitled to receive the remaining property
and assets of the company.
Action Necessary To Change Rights Of Shareholders
In order to change the rights of our shareholders, we would need to amend our
articles of incorporation to effect the change. Such an amendment would require
the approval of holders of two-thirds of the shares cast at a duly called
special meeting. For certain amendments such as those creating of a class of
preferred shares, a shareholder is entitled to dissent in respect of such a
resolution amending our articles and, if the resolution is adopted and the
company implements such changes, demand payment of the fair value of its shares.
Meetings Of Shareholders
An annual meeting of shareholders is held each year for the purpose of
considering the financial statements and reports, electing directors, appointing
auditors and for the transaction of other business as may be brought before the
meeting. The board of directors has the power to call a special meeting of
shareholders at any time.
Notice of the time and place of each meeting of shareholders must be given not
less than 21 days, nor more than 50 days, before the date of each meeting to
each director, to the auditor and to each shareholder who at the close of
business on the record date for notice is entered in the securities register as
the holder of one or more shares carrying the right to vote at the meeting.
Notice of meeting of shareholders called for any other purpose other than
consideration of the minutes of an earlier meeting, financial statements and
auditor's report, election of directors and reappointment of the incumbent
auditor, must state the nature of the business in sufficient detail to permit
the shareholder to form a reasoned judgment on and must state the text of any
special resolution or by-law to be submitted to the meeting.
79
The only persons entitled to be present at a meeting of shareholders are those
entitled to vote, the directors of the company and the auditor of the company.
Any other person may be admitted only on the invitation of the chairman of the
meeting or with the consent of the meeting. In circumstances where a court
orders a meeting of shareholders, the court may direct how the meeting may be
held, including who may attend the meeting.
Limitations On Right To Own Securities
Neither Canadian law nor our articles or by-laws limit the right of a
nonresident to hold or vote our shares, other than as provided in the Investment
Canada Act (the "Investment Act"), as amended by the World Trade Organization
Agreement Implementation Act. The Investment Act generally prohibits
implementation of a direct reviewable investment by an individual, government or
agency thereof, corporation, partnership, trust or joint venture that is not a
"Canadian," as defined in the Investment Act (a "non-Canadian"), unless, after
review, the minister responsible for the Investment Act is satisfied that the
investment is likely to be of net benefit to Canada. An investment in our shares
by a non-Canadian (other than a "WTO Investor," as defined below) would be
reviewable under the Investment Act if it were an investment to acquire direct
control of our company, and the value of the assets of our company were CDN$5.0
million or more (provided that immediately prior to the implementation of the
investment our company was not controlled by WTO Investors). An investment in
our shares by a WTO Investor (or by a non-Canadian other than a WTO Investor if,
immediately prior to the implementation of the investment our company was
controlled by WTO Investors) would be reviewable under the Investment Act if it
were an investment to acquire direct control of our company (in 2001) and the
value of the assets of our company equaled or exceeded CDN$209.0 million. A
non-Canadian, whether a WTO Investor or otherwise, would be deemed to acquire
control of our company for purposes of the Investment Act if he or she acquired
a majority of the our shares. The acquisition of less than a majority, but at
least one-third of our shares, would be presumed to be an acquisition of control
of our company, unless it could be established that we were not controlled in
fact by the acquirer through the ownership of our shares. In general, an
individual is a WTO Investor if he or she is a "national" of a country (other
than Canada) that is a member of the World Trade Organization ("WTO Member") or
has a right of permanent residence in a WTO Member. A corporation or other
entity will be a "WTO Investor" if it is a "WTO investor-controlled entity,"
pursuant to detailed rules set out in the Investment Act. The United States is a
WTO Member. Certain transactions involving our shares would be exempt from the
Investment Act, including:
(a) an acquisition of our shares if the acquisition were made in the ordinary
course of that person's business as a trader or dealer in securities;
(b) an acquisition of control of our company in connection with the of a
security interest granted for a loan or other assistance and not for any
purpose related to the provisions the Investment Act; and
(c) an acquisition of control of our company by reason of an amalgamation, ,
consolidation or corporate reorganization, following which the direct or
indirect control in fact of our company, through ownership of voting
interests, remains unchanged.
80
Change Of Control
There are no provisions of our bylaws or articles of incorporation that would
have an effect of delaying, deferring or preventing a change in control of the
company and that would operate only with respect to a merger, acquisition or
corporate restructuring involving the company. Our bylaws do not contain a
provision governing the ownership threshold above which shareholder ownership
must be disclosed.
Material Contracts
The following is a summary of our company's material contracts, entered into
since January 1, 1999.
1. The Common Stock Purchase Agreement and Registration Rights Agreement
between Nymox Pharmaceutical Corporation and Jaspas Investments Limited
November 1, 1999. (incorporated by reference to Exhibit 2.0 to the form
F-1 registration statement filed with the Commission on February 29,
2000.) These agreements established a $12 million equity line of credit
which, on March 14, 2000, we became entitled to draw down on. The and
conditions of the equity line of credit are further described in
"Liquidity and Capital Resources" section in Item 5 above and in our F-1
Registration Statement filed with the SEC on November 9, and declared
effective on December 4, 2001.
2. The Research and License Agreement between Rhode Island Hospital and
Nymox Corporation dated May 20, 1999. Under this agreement, sponsors the
research of two principal investigators, Dr. Suzanne de Monte and Dr.
Jack Wands, pertaining to the use of neural thread protein diagnostic or
therapeutic purposes in return for licensing rights to and patents
arising out of this research. The sponsorship agreement was recently
extended to March 1, 2005.
3. The Share Purchase Agreement between Nymox Pharmaceutical Corporation
and. Judith Fitzpatrick dated January 8, 2000. Under this agreement which
on March 2, 2000, we acquired 1,008,250 shares of the common stock Serex,
Inc. which represented a majority interest of that company in for the
issuance of 187,951 of our shares and warrants (Series G) to 115,662 of
our shares at a strike price of $3.70.
4. The Common Stock and Warrants Purchase Agreement dated March 6, 2000
Nymox Pharmaceutical Corporation and Amro International, S.A. Amro").
Under this Agreement, Amro purchased 666,667 shares of Nymox and to
purchase up to 66,667 shares of Nymox at a strike price of 9.375 for $4
million. The Agreement provided Amro with two opportunities reprice a
portion of the 666,667 shares it initially purchased. Pursuant these two
repricing obligations, Nymox issued Amro a further 154,970.
81
Exchange Controls
Canada has no system of exchange controls. There are no exchange restrictions on
borrowing from foreign countries or on the remittance of dividends, interest,
royalties and similar payments, management fees, loan repayments, settlement of
trade debts or the repatriation of capital.
There are no limitations on the rights of non-Canadians to exercise voting
rights on their shares of Nymox.
TAXATION
U.S. Federal Income Tax Considerations for U.S. Persons
This section contains a summary of certain U.S. federal income tax
considerations for U.S. Persons (as defined below) who hold common shares of
Nymox. This summary is based upon the Internal Revenue Code of 1986, as amended
(the "Code"), Treasury regulations, rulings of the Internal Revenue Service (the
"IRS"), and judicial decisions in existence on the date hereof, all of which are
subject to change. Any such change could apply retroactively and could have
adverse consequences to Nymox and its shareholders. This summary is necessarily
general and does not attempt to summarize all aspects of the federal tax laws
(and does not attempt to summarize any state or local laws) that may affect an
investor's acquisition of an interest in Nymox. No ruling from the IRS will be
requested and no assurance can be given that the IRS will agree with the tax
consequences described in this summary.
For purposes of this discussion, the term "U.S. Person" means (a) an individual
who is a citizen of the United States or who is resident in the United States
for United States federal income tax purposes, (b) a corporation or a
partnership that is organized under the laws of the United States or any state
thereof, (c) an estate the income of which is subject to United States federal
income taxation regardless of its source, or (d) a trust (i) that is subject to
the supervision of a court within the United States and is subject to the
control of one or more United States persons as described in section 7701(a)(30)
of the Code, or (ii) that has a valid election in effect under applicable
Treasury regulations to be treated as a United States person. The term "U.S.
Holder" means a shareholder of Nymox who is a U.S. Person. The term "foreign
corporation" means an entity that is classified as a corporation for U.S.
federal income tax purposes and that is not organized under the laws of the
United States or any state thereof.
This summary does not discuss all United States federal income tax
considerations that may be relevant to U.S. Holders in light of their particular
circumstances or to certain holders that may be subject to special treatment
under United States federal income tax law (for example, insurance companies,
tax-exempt organizations, financial institutions, dealers in securities, persons
who hold shares as part of a straddle, hedging, constructive sale, or conversion
transaction, U.S. Holders whose functional currency is not the U.S. dollar, and
U.S. Holders who acquired shares through exercise of employee stock options or
otherwise as compensation for services). Furthermore, this summary does not
address any aspects of state or local taxation.
The tax consequences of an investment in Nymox are complex and based on tax
provisions that are subject to change. Prospective investors are urged to
consult with, and must depend upon, their own tax advisors with specific
reference to their own tax situations as to the income and other tax
consequences of an investment in Nymox.
82
Dividends and gains on sale. Except as described below with respect to the
"passive foreign investment company" rules, distributions by Nymox to a U.S.
Holder will be treated as ordinary dividend income to the extent of Nymox's
current and accumulated earnings and profits. Such dividends will not be
eligible for the dividend-received deduction generally allowed under the Code to
dividend recipients that are U.S. corporations. The amount of any distribution
in excess of Nymox's current and accumulated earnings and profits will first be
applied to reduce the U.S. Holder's tax basis in its Nymox common shares, and
any amount in excess of tax basis will be treated as gain from the sale or
exchange of the common shares. Except as described below with respect to the
"passive foreign investment company" rules, any gain recognized by a U.S. Holder
on a sale or exchange of Nymox common shares (or on a distribution treated as a
sale or exchange) generally will be treated as capital gain. Capital gains of
corporations are taxable at the same rate as ordinary income. With respect to
non-corporate taxpayers, the excess of net long-term capital gain over net short
term capital loss may be taxed at a substantially lower rate than is ordinary
income. A capital gain or loss is long-term if the asset has been held for more
than one year and short-term if held for one year or less. In addition, the
distinction between capital gain or loss and ordinary income or loss is relevant
for purposes of limitations on the deductibility of capital losses.
A U.S. Holder generally may claim a credit against its U.S. federal income tax
liability for Canadian income tax withheld from dividends received on Nymox
common shares. The amount of this credit is subject to several limitations under
the Code.
Controlled foreign corporation rules. A foreign corporation generally is
classified as a "controlled foreign corporation" (a "CFC") if more than 50% of
the corporation's shares (by vote or value) are owned, directly or indirectly,
by "10% U.S. Shareholders". For this purpose, a "10% U.S. Shareholder" is a U.S.
Person that owns, directly or indirectly, shares possessing 10% or more of the
voting power in the foreign corporation. Nymox believes that it is not a CFC at
the present time. If Nymox were a CFC, each 10% U.S. Shareholder that owns,
directly or indirectly through foreign entities, an interest in Nymox generally
would be required to include in its gross income for U.S. federal income tax
purposes a pro-rata share of any "Subpart F" income earned by Nymox, whether or
not such income is distributed by Nymox. Subpart F income generally includes
interest, dividends, royalties, and gain on the sale of stock or securities.
Foreign personal holding company rules. In general, a foreign corporation is a
"foreign personal holding company" (a "FPHC") during a taxable year if (i) at
any time during the taxable year, more than 50% of the shares (by vote or value)
of the corporation are owned, directly or indirectly, by five or fewer
individuals who are U.S. Persons, and (ii) at least 50% of the gross income of
the corporation for the taxable year consists of "foreign personal holding
company income" (such as dividends, interest, royalties, and gains on the sale
of stock or securities). Nymox believes that it is not a FPHC at the present
time. If Nymox were a FPHC, each U.S. Person that owns, directly or indirectly
through foreign entities, an interest in Nymox generally would be required to
recognize, as a dividend, the U.S. Person's share of the undistributed annual
income of Nymox.
Passive foreign investment company rules. In general, a foreign corporation is a
"passive foreign investment company" (a "PFIC") during a taxable year if 75% or
more of its gross income for
83
the taxable year constitutes "passive income" or if 50% or more of its assets
(by average fair market value) held during the taxable year produce, or are held
for the production of, passive income. In general, any U.S. Person that owns,
directly or indirectly, an interest in a foreign corporation will be subject to
an interest charge (in addition to regular U.S. federal income tax) upon the
disposition by the U.S. Person of, or receipt by the U.S. Person of "excess
distributions" with respect to, any shares of the foreign corporation if: (i)
the foreign corporation is a PFIC during the taxable year in which such income
is realized by the U.S. Person; or (ii) the foreign corporation was a PFIC
during any prior taxable year that is included in whole or in part in the U.S.
Person's "holding period" (within the meaning of Section 1223 of the Code) with
respect to its interest in the shares of the foreign corporation. Furthermore,
the U.S. Person's share of such gain or "excess distribution" will be taxable as
ordinary income. There exist several other adverse tax consequences that may
apply to any U.S. Person that owns, directly or indirectly, an interest in a
PFIC.
A U.S. Person that owns, directly or indirectly, an interest in a PFIC can elect
to treat such PFIC as a "qualified electing fund" (a "QEF") with respect to the
U.S. Person. In general, the effect of a QEF election with respect to a PFIC is
that, beginning with the first taxable year to which the election applies and in
all succeeding taxable years during which the foreign corporation is a PFIC, the
U.S. Person is required to include in its income its share of the ordinary
earnings and net capital gains of the PFIC. The U.S. Person is not taxable with
respect to any distribution by the PFIC from earnings that have been included
previously in the U.S. Person's income under the QEF provisions. If the QEF
election is made with respect to the first taxable year in which a U.S. Person
owns, directly or indirectly, an interest in the particular PFIC, the adverse
tax consequences described in the immediately preceding paragraph (including the
interest charge and the treatment of gains as ordinary income) would not apply
to the U.S. Person's interest in that PFIC. In order to make a QEF election, a
U.S. Person is required to provide to the IRS certain information furnished by
the PFIC.
Nymox believes that it has not been a PFIC during any taxable year ending on or
before December 31, 2001. It is not possible to express an opinion as to whether
or not Nymox is or will be a PFIC during its current taxable year or future
taxable years. Nymox intends to notify its U.S. Holders within 45 days after the
end of the taxable year for which Nymox believes it might be a PFIC. Nymox has
further undertaken (i) to provide its U.S. Holders with timely and accurate
information as to its status as a PFIC and the manner in which the QEF election
can be made and (ii) to comply with all record-keeping, reporting and other
requirements so that the U.S. Holders, at their option, may make a QEF election.
Each U.S. Person who owns, directly or indirectly, common shares of Nymox is
urged to consult its own tax advisor with respect to the advantages and
disadvantages of making a QEF election with respect to Nymox.
Backup withholding. Information reporting to the IRS may be required with
respect to payments of dividends on the Nymox common shares to U.S. Holders, and
with respect to proceeds received by U.S. Holders on the sale of Nymox common
shares. A U.S. Holder may be subject to backup withholding at a 30% rate with
respect to dividends received with respect to Nymox common shares, or proceeds
received on the sale of Nymox common shares through a broker, unless the U.S.
Holder (i) demonstrates that it qualifies for an applicable exemption (such as
the exemption for holders that are corporations), or (ii) provides a taxpayer
identification number
84
and complies with certain other requirements. Any amount withheld from payment
to a U.S. Holder under the backup withholding rules generally will be allowed as
credit against the U.S. Holder's U.S. federal income tax liability, if any, and
may entitle the U.S. Holder to a refund, provided that the required information
is furnished to the IRS.
Canadian Federal Income Taxation
The following is, as of the date of this prospectus, a summary of the principal
Canadian federal income tax considerations generally applicable to shareholders
who receive a dividend from Nymox and who, at all relevant times, for purposes
of the Income Tax Act (Canada) the ("Tax Act"), hold and will hold Nymox common
shares as capital property and deal with Nymox at arm's length.
Nymox's common shares will generally constitute capital property to a holder
unless the holder holds such shares in the course of carrying on a business or
the holder has acquired such shares in a transaction or transactions considered
to be an adventure in the nature of trade. This summary is based on the current
provisions of the Tax Act, the regulations under that act, counsel's
understanding of current administrative and assessing policies of the Canada
Customs and Revenue Agency and all specific proposals to amend the Tax Act
publicly announced or released by or on behalf of the Minister of Finance
(Canada) before the date of this prospectus ("Tax Proposals").
The Tax Act contains certain provisions relating to securities held by certain
financial institutions (the "Mark-to-Market Rules"). This summary does not take
into account these Mark-to-Market Rules or any amendments to them contained in
the Tax Proposals and taxpayers that are "financial institutions" for purposes
of those rules should consult their own tax advisors.
This summary is not exhaustive of all possible Canadian federal income tax
considerations and, except for the Tax Proposals, does not take into account or
anticipate any changes in law, whether by legislative, governmental or judicial
action, nor does it take into account tax legislation of any province, territory
or foreign jurisdiction. This summary is of a general nature only and is not
intended to be, nor should it be construed as, legal or tax advice to any
particular holder of Nymox common shares.
Canadian Residents
The following summary is relevant to a holder of Nymox common shares who, for
purposes of the Tax Act and any applicable tax treaty or convention, is resident
in Canada at all relevant times.
Tax Treatment of Capital Gains and Capital Losses for Canadian Residents
On a disposition or deemed disposition of a Nymox common share, the holder will
realize a capital gain (or capital loss) equal to the amount by which the
proceeds of disposition for the Nymox common share exceed (or are less than) the
aggregate of any costs of disposition and the adjusted cost base to the holder
of the Nymox common share immediately before the disposition.
Pursuant to the Tax Proposals and subject to certain transitional rules which
apply in certain circumstances, a holder of Nymox common shares will be required
to include in income one-half of the amount of any capital gain (a "Taxable
capital gain") and may deduct one-half of the
85
amount of any capital loss (an "Allowable capital loss") against Taxable capital
gains realized by the holder in the year of the disposition. Allowable capital
losses in excess of Taxable capital gains may be carried back and deducted in
any of the three preceding years or carried forward and deducted in any
following year against taxable capital gains realized in such years to the
extent and under the circumstances described in the Tax Act and the Tax
Proposals.
A Canadian-controlled private corporation will also be subject to a refundable
tax of 6 2/3% on certain investment income, including taxable capital gains
realized on the disposition of Nymox common shares, that will be refunded when
the corporation pays taxable dividends (at a rate of $1.00 for every $3.00 of
taxable dividend paid).
A capital loss realized by a holder of Nymox common shares that is a
corporation, a partnership of which a corporation is a member or a trust of
which a corporation is a beneficiary may be reduced by the amount of dividends
received in certain circumstances. Capital gains realized by an individual may
give rise to a liability for alternative minimum tax.
Tax Treatment of Dividends Received by Canadian Residents
In the case of a holder of Nymox common shares who is an individual, any
dividends received on the common shares will be included in computing his income
and will be subject to the gross-up and dividend tax credit rules normally
applicable to taxable dividends paid by taxable Canadian corporations. A holder
that is a corporation may be liable to pay refundable tax under Part IV of the
Tax Act. However, a public corporation which is not controlled, whether because
of a beneficial interest in one or more trusts or otherwise, by or for the
benefit of an individual (other than a trust) or a related group of individuals
(other than trusts) will not be liable to pay refundable tax under Part IV of
the Tax Act.
In the case of a holder of Nymox common shares that is a corporation, the amount
of any capital loss otherwise determined resulting from the disposition of a
Nymox common share may be reduced by the amount of dividends previously received
or deemed to have been received thereon. Any such restriction will not occur
where the corporate holder owned the Nymox common share for 365 days or longer
and such holder (together with any persons with whom it did not deal at arm's
length) did not own more than 5% of the shares of any class or series of Nymox
at the time the relevant dividends were received or deemed to have been
received. Analogous rules apply where a corporation is a member of a partnership
or a beneficiary of a trust, which owns Nymox common shares.
Shareholders Who Are Not Residents Of Canada
The following summary is relevant to a holder of Nymox common shares, who, at
all relevant times, for purposes of the Tax Act and any applicable tax treaty or
convention, is a non-resident or is deemed to be a non-resident of Canada and
does not use and is not deemed to use or hold Nymox common shares in the course
of carrying on a business in Canada. Special rules, which are not discussed
below, may apply to a non-resident that is an insurer which carries on business
in Canada and elsewhere.
Dividends Paid To Non-Residents of Canada
Under the Tax Act, dividends paid or credited to a non-resident are subject to
withholding tax at the rate of 25% of the gross amount of the dividends. This
withholding tax may be reduced or
86
eliminated pursuant to the terms of an applicable tax treaty between Canada and
the country of residence of the non-resident. For example, for persons who are
resident in the United States for purposes of the Canada-United States Income
Tax Convention, (the "Convention") the rate of withholding tax on dividends is
reduced to 15% generally and 5% when the United States resident is a company
that beneficially owns at least 10% of the voting stock of the company paying
the dividends.
Under the Convention, dividends paid to certain religious, scientific,
charitable and other similar tax-exempt organizations and certain organizations
that are resident in, and exempt from tax in, the United States are exempt from
Canadian non-resident withholding tax. Provided that certain administrative
procedures designed to establish with the Canadian tax authorities the right of
such entities to benefit from this withholding tax exemption are complied with
by the tax-exempt entities prior to the Distribution, Nymox would not be
required to withhold such tax on such payment. Alternatively, the
above-described tax-exempt entities may claim a refund of Canadian withholding
tax otherwise withheld by Nymox on the distribution of dividends.
Tax Treatment of Capital Gains of Non-Residents of Canada
On a disposition or deemed disposition of a Nymox common share, a non-resident
holder will realize a capital gain (or capital loss) equal to the amount by
which the proceeds of disposition for the Nymox common share exceed (or are less
than) the aggregate of any costs of disposition and the adjusted cost base to
the non-resident holder of the Nymox common share immediately before the
disposition.
A non-resident of Canada is liable for Canadian income tax on a capital gain
realized on the disposition of property only where that property constitutes
"taxable Canadian property". Pursuant to the Tax Proposals and subject to
certain transitional rules which apply in certain circumstances, one-half of any
capital gain from the disposition of taxable Canadian property is subject to
Canadian tax.
Under the Tax Act, shares of Nymox will not constitute taxable Canadian property
unless, at any time, in the five years immediately preceding the disposition,
the non-resident holder, persons with whom the non-resident holder did not deal
at arms length, or the non-resident holder together with all such persons owned
(or had a right to acquire) 25% or more of the shares of any class of Nymox.
Even in circumstances where shares of Nymox are taxable Canadian property to a
non-resident holder, the non-resident holder may be entitled to relief from
Canadian tax on any capital gain realized on the disposition thereof pursuant to
the terms of an applicable tax treaty between Canada and the country of
residence of the non-resident. For example, the Convention provides that gains
realized by a resident of the United States on the disposition or deemed
disposition of shares of a company will generally not be subject to tax under
the Tax Act, provided that the value of the shares is not derived principally
from real property situated in Canada. Nymox believes that the value of its
shares is not currently derived principally from real property situated in
Canada and it does not expect this to change in the foreseeable future.
Provided that the Nymox common shares remain listed on a prescribed stock
exchange, which includes the Nasdaq SmallCap Market System, a non-resident
holder who disposes of Nymox common shares will not be required to comply with
the Canadian notification procedures generally applicable to dispositions of
taxable Canadian property.
87
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
Not applicable
Part II
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
Not applicable
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
PROCEEDS
Not applicable
Part III
ITEM 17. FINANCIAL STATEMENTS
The financial statements listed in item 19 are incorporated by reference in this
item.
ITEM 18. FINANCIAL STATEMENTS
Not applicable
ITEM 19. FINANCIAL STATEMENTS AND EXHIBITS a) Financial statements (which appear
in Item 8):
At and for the year ended December 31, 2001:
Consolidated Balance Sheet
Consolidated Statement of Operations and Deficit
Consolidated Statements of Cash Flows
Notes
At and for the year ended December 31, 2000:
Consolidated Balance Sheet
Consolidated Statement of Operations and Deficit
Consolidated Statements of Cash Flows
Notes
At and for the year ended December 31, 1999:
Consolidated Statement of Operations and Deficit
Consolidated Statements of Cash Flows
Notes
88
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the registrant certifies that it meets all of the requirements for filing
on Form 20 - F and has duly caused this registration statement to be signed on
its behalf by the undersigned, thereunto duly authorized.
NYMOX PHARMACEUTICAL CORPORATION
(Registrant)
/S/ Paul Averback
--------------------------
Paul Averback
Title: President
Date: June 28, 2001
89
EXHIBIT INDEX
NYMOX PHARMACEUTICAL CORPORATION
Form 20-F Annual Report
- -------------- --------------------------------------------------- -------------
Exhibit No. Description Page No.
- -------------- --------------------------------------------------- -------------
1(a) Articles of Incorporation, as amended. N\A
(incorporated by reference to Exhibit
3.1 to the Company's 20-F filed with
the Commission December 9, 1996.)
- -------------- --------------------------------------------------- -------------
1(b) Bylaws of the Company (incorporated by N\A
reference to Exhibit 3.2 to the Company's
20-F filed with the Commission December
9, 1996.)
- -------------- --------------------------------------------------- -------------
4(a) Memorandum of Agreement between Paul N\A
Averback and the Company (incorporated
by reference to Exhibit 10.1 to the
Company's 20-F filed with the Commission
December 9, 1996.)
- -------------- --------------------------------------------------- -------------
4(b) Share Option Plan of the Company N\A
(incorporated by reference to
Exhibit 10.2 to the Company's 20F
filed with the Commission December
9, 1996.)
- -------------- --------------------------------------------------- -------------
4(c) Research and License Agreement between N\A
the Massachusetts General Hospital
Corporation and the Company
(incorporated by reference to
Exhibit 10.3 to the Company's 20-F
filed with the Commission December
9, 1996.)
- -------------- --------------------------------------------------- -------------
4(d) Research and License Amendment between N\A
the Massachusetts General Hospital
Corporation and the Company
(incorporated by reference to
Exhibit 10.5 to the Company's 20-F
filed with the Commission December
9, 1996.)
- -------------- --------------------------------------------------- -------------
4(e) Common Stock Purchase Agreement between N\A
Nymox Pharmaceutical Corporation and
Jaspas Investments Limited dated
November 1, 1999 (incorporated by
reference to Exhibit 2.0 to the
Company's form F-1 registration
statement filed with the Commission
February 29, 2000.)
- -------------- --------------------------------------------------- -------------
4(f) Registration Rights Agreement between N\A
Nymox Pharmaceutical Corporation and
Jaspas Investments Limited dated
November 1, 1999 (incorporated by
reference to Exhibit 2.1 to the
Company's form F-1 registration
statement filed with the Commission
February 29, 2000.)
- -------------- --------------------------------------------------- -------------
4(g) Escrow Agreement among Nymox N\A
Pharmaceutical Corporation, Jaspas
Investments Limited and Epstein,
Becker & Green, P.C. dated
November 1, 1999 (incorporated by
reference to Exhibit 2.2 to the
Company's form F-1 registration
statement filed with the Commission
February 29, 2000.)
- -------------- --------------------------------------------------- -------------
4(h) Stock Purchase Warrant to purchase common N\A
shares issued to Jaspas Investments
Limited dated November 1, 1999 (incorporated
by reference to Exhibit 2.3 to the Company's
form F-1 registration statement filed with
the Commission February 29, 2000.)
- -------------- --------------------------------------------------- -------------
4(i) Research and License Agreement between the N\A
Rhode Island Hospital Corporation and the
Company dated May 14, 1999 (incorporated by
reference to Exhibit 10.10 to the Company's
20F filed with the Commission May 15, 2000).
- -------------- --------------------------------------------------- -------------
4(j) Research and License Amendment between the Exhibit 1
Rhode Island Hospital Corporation and the
Company dated November 19, 2001.
- -------------- --------------------------------------------------- -------------