SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 000-25571
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AXONYX INC.
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(Exact name of registrant as specified in its charter)
NEVADA 86-0883978
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(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
750 LEXINGTON AVENUE, SUITE 1400, NEW YORK, NEW YORK 10022
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(Address of principal executive offices) (Zip Code)
(212) 688-4770
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year,
if changed since last report)
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 reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes_____ No X
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APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes_____ No_____
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date: 12,466,002 shares of
Common Stock as of June 30, 1999.
AXONYX INC.
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets - March 31, 1999 (unaudited)
Statements of Operations (unaudited)
Statements of Cash Flows (unaudited)
Notes to Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition
and Plan of Operation
PART II. OTHER INFORMATION
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
AXONYX INC.
(a development stage company)
BALANCE SHEETS
March 31, December 31,
ASSETS 1999 1998
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(unaudited)
Current Assets:
Cash and cash equivalents $ 1,912,000 $ 1,558,000
Stock subscription receivable 50,000 750,000
Other 6,000 4,000
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Total current assets 1,968,000 2,312,000
Equipment, net 9,000 1,000
Other assets 7,000 -
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$ 1,984,000 $ 2,313,000
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LIABILITIES
Current liabilities:
Accrued Expenses $ 95,000 $ 119,000
Convertible notes payable and accrued interest 215,000 210,000
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Total liabilities 310,000 329,000
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STOCKHOLDERS' EQUITY
Preferred stock - $.001 par value, 5,000,000 shares authorized; none issued
Common Stock - $.001 par value, 25,000,000 shares authorized; 12,230,002 12,000 12,000
and 12,210,002 shares issued and outstanding, respectively
Additional paid-in capital 4,044,000 3,363,000
Unearned compensation - stock/options (551,000) (41,000)
Deficit accumulated during development stage (1,831,000) (1,350,000)
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Total stockholders' equity 1,674,000 1,984,000
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$ 1,984,000 $ 2,313,000
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AXONYX INC.
(a development stage company)
STATEMENTS OF OPERATIONS
(unaudited)
January 9,
1997
(inception)
Three months ended through
March 31, March 31,
1999 1998 1999
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Costs and expenses:
Research and development $ 121,000 $ 86,000 $ 956,000
General and administrative 369,000 60,000 874,000
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Loss from operations $ (490,000) $ (146,000) $ (1,830,000)
Interest income/(expense)-net 9,000 - (1,000)
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Net loss $ (481,000) $ (146,000) $ (1,831,000)
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Net loss per common share $ (0.04) $ (0.01)
Weighted average shares-basic and diluted 12,230,002 10,000,000
AXONYX INC.
(a development stage company)
STATEMENTS OF CASH FLOWS
(unaudited)
January 9,
1997
(inception)
Three months ended through
March 31, March 31,
1999 1998 1999
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $ (481,000) $ (146,000) $(1,831,000)
Adjustments to reconcile net loss to cash used in
operating activities:
Amortization 151,000 30,000 357,000
Cost of services paid with common stock 240,000
Depreciation 1,000 - 2,000
Changes in:
other assets (9,000) - (9,000)
accrued expenses and interest (19,000) 27,000 110,000
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Net cash used in operating activities (357,000) (89,000) (1,131,000)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment (9,000) - (11,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from convertible notes payable 5,000 200,000
Net proceeds from issuance of common stock and warrants 720,000 20,000 2,906,000
Cost of merger - - (52,000)
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Net cash provided by financing activities 720,000 25,000 3,054,000
NET INCREASE IN CASH AND CASH EQUIVALENTS 354,000 (64,000) 1,912,000
Cash and cash equivalents at beginning of period 1,558,000 23,000 -
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,912,000 $ (41,000) $ 1,912,000
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AXONYX INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1999
(1) FINANCIAL STATEMENT PRESENTATION
The unaudited financial statements of Axonyx Inc. (the "Company") herein have
been prepared pursuant to the rules and regulations of the Securities and
Exchange Commission (SEC) and, in the opinion of management, reflect all
adjustments (consisting only of normal recurring accruals) necessary to present
fairly the results of operations for the interim periods presented. Certain
information and footnote disclosure normally included in the financial
statements, prepared in accordance with generally accepted accounting
principles, have been condensed or omitted pursuant to such rules and
regulations. However, management believes that the disclosures are adequate to
make the information presented not misleading. These financial statements and
notes thereto should be read in conjunction with the financial statements and
the notes thereto for the year ended December 31, 1998 included in the Company's
Form 10-SB filing. The results for the interim periods are not necessarily
indicative of the results for the full fiscal year.
(2) NEW AGREEMENTS:
Effective as of May 17, 1999, Axonyx Inc. entered into a Development Agreement
and Right to License (the "Development Agreement") with Applied Research Systems
ARS Holding N.V., a wholly owned subsidiary of Ares Serono International, S.A
("Ares Serono"). Under the Development Agreement, the Company granted an
exclusive right to license its patent rights and know-how regarding its amyloid
inhibitory peptide (AIP) and prion inhibitory peptide (PIP) technology to Ares
Serono. Ares Serono paid Axonyx a fee for the right to license of $250,000. The
right to license has a one year term, renewable for an additional one year
period upon payment of an additional fee of $500,000. In addition Ares Serono
undertakes to conduct research on the AIP and PIP technology during the term of
the Development Agreement. The parties also agreed to the basic licensing terms
that will form the basis of a license agreement between the parties if Ares
Serono exercises its right to license.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THIS QUARTERLY REPORT ON FORM 10-Q CONTAINS "FORWARD-LOOKING
STATEMENTS" WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS
AMENDED, AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. ALL
STATEMENTS, OTHER THAN STATEMENTS OF HISTORICAL FACTS, INCLUDED IN OR
INCORPORATED BY REFERENCE INTO THIS FORM 10-Q, ARE FORWARD-LOOKING STATEMENTS.
IN ADDITION, WHEN USED IN THIS DOCUMENT, THE WORDS "ANTICIPATE," "ESTIMATE,"
"PROJECT," AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING
STATEMENTS. THESE FORWARD-LOOKING STATEMENTS ARE SUBJECT TO CERTAIN RISKS,
UNCERTAINTIES AND ASSUMPTIONS INCLUDING THOSE RISKS DESCRIBED IN THE COMPANY'S
REPORT ON THIS FORM 10-Q SHOULD ONE OR MORE OF THESE RISKS OR UNCERTAINTIES
MATERIALIZE, OR SHOULD UNDERLYING ASSUMPTIONS PROVE INCORRECT, ACTUAL RESULTS
MAY VARY MATERIALLY FROM THOSE ANTICIPATED, ESTIMATED OR PROJECTED. ALTHOUGH THE
COMPANY BELIEVES THAT THE EXPECTATIONS INCLUDED IN SUCH FORWARD-LOOKING
STATEMENTS ARE REASONABLE, THE COMPANY CANNOT GIVE ANY ASSURANCES THAT THESE
EXPECTATIONS WILL PROVE TO BE CORRECT.
The following discussion and analysis should be read in conjunction
with the financial statements of the Company and the notes thereto appearing in
Part I Item 1.
Axonyx Inc. ("Axonyx" or the "Company") is engaged in the business of
identifying and acquiring novel post-discovery central nervous system (CNS) drug
candidates to advance through clinical development towards regulatory approval.
The Company is engaged in the business of acquiring patent rights and developing
CNS pharmaceutical compounds with significant potential market impact. The
Company has acquired worldwide exclusive patent rights to three main classes of
therapeutic compounds designed for the treatment of Alzheimer's Disease (AD),
Moderate Cognitive Impairment (MCI), and related diseases. The Company licensed
these patent rights from New York University (NYU) and, via a sublicense, from
the National Institutes of Health\National Institute on Aging (NIA) (the
"Licensors") and has an ongoing research and development relationship with both
Licensors.
The Company's current business strategy is to pursue three different
types of products for the treatment of AD and one for prion-related diseases.
The AD targeted approaches include: (1) Phenserine, an analog of physostigmine
and a potent inhibitor of acetylcholinesterase, (2) a butyrylcholinesterase
inhibitor which will be chosen from a series of selectively acting compounds,
the best studied of which is Cymserine, and (3) compounds called Amyloid
Inhibitory Peptides (AlPs) which may prevent and reverse the formation of
amyloid plaques in AD and in diseases of peripheral amyloidosis. The Company is
also conducting research on compounds called Prion Inhibitory Peptides (PIPs)
designed for the diagnosis and treatment
of prion diseases such as Bovine Spongiform Encephalopathy (also known as "Mad
Cow Disease") and the human form of the disease, Creutzfeldt Jakob Disease, new
variant.
Axonyx's plan is to: (1) identify, acquire and exploit rights to new
technologies and compounds relating to AD and other neurological disorders; (2)
enhance the value of those assets through further research and clinical testing;
(3) perform clinical studies towards regulatory approval and market its drugs
through profitable licensing agreements with major pharmaceutical companies; and
(4) work to develop other promising compounds in-house and in collaboration with
third parties such as its current Licensors at NYU and the NIA, and through
corporate joint ventures. Axonyx intends to develop corporate partnerships with
established and well capitalized pharmaceutical companies for the clinical
development of its compounds and for their production, commercialization and
marketing. The Company expects to derive its revenues from patent sub-licensing
fees, royalties from pharmaceutical sales, appropriate milestone payments, and
research and development contracts.
The Company has recently entered into a Development Agreement and Right
to License with a wholly owned subsidiary of Ares Serono International, S.A., a
Swiss pharmaceutical company, ("Ares Serono"). Under the agreement Ares Serono
will undertake research on the AIPs and PIPs for a one year term, with a right
to sublicense Axonyx's patent rights to the AIPs and the PIPs. In addition to
pursuing significant new research on the AIPs and PIPs, Ares Serono has paid
Axonyx an up front fee for the right to sublicense, and will pay an additional
fee if it exercises its option to extend that right and undertakes an additional
year of research.
RESULTS OF OPERATIONS
Since the commencement of operations of its predecessor in January
1997, the Company's efforts have been principally devoted to research and
development of its licensed pharmaceutical compounds, corporate consolidation,
and raising capital.
For the three months ended March 31, 1999, the Company realized no
revenue.
For the three months ended March 31, 1999 the Company incurred a loss
from operations of $490,000 compared to $146,000 for the three months ended
March 31, 1998. The increase is due to additional research and development
activities and an increase in general and administrative expenses. The Company
expects to incur additional losses for the foreseeable future.
For the three months ended March 31, 1999 the Company incurred research
and development costs of $121,000 compared to $86,000 for the three months ended
March 31, 1998. The increase is due to additional scientist and consultants
being engaged.
For the period ended March 31, 1999 the Company incurred general and
administrative costs of $369,000 compared to $60,000 for the three months ended
March 31, 1998. The increase is due to hiring employees, the recognition of fair
value of options issued to consultants and advisors, and an overall increase in
costs due to the Company's commencement of activities
associated with patent support and marketing the Company's research and
development activities.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1999, the Company had $1,912,000 in cash and cash
equivalents. The Company does not have any available lines of credit. Since
inception the Company financed its operations through loans from a shareholder
and from private placements of equity securities.
The Company estimates that it currently has sufficient capital
resources to meet its budgetary needs for the next twelve months. The Company
expects to raise additional capital through private placements of equity
securities in the next six months.
IMPACT OF THE YEAR 2000 ON COMPANY RESEARCH AND DEVELOPMENT
Computers, software and other equipment utilizing microprocessors that
use only two digits to identify a year in a date field may be unable to process
accurately certain date-based information at or after the year 2000. The Company
recognizes the need to insure that its operations will not be adversely affected
by Year 2000 software failures. Software failures due to processing errors
potentially arising from calculations using the year 2000 date are a recognized
risk, and the Company is addressing this issue on several different fronts. The
Company is in contact with its licensors and collaborating research facilities
to assess their compliance. There can be no assurance that there will not be a
material adverse effect on the Company if third parties do not convert their
systems in a timely manner.
YEAR 2000 IMPACT ON INTERNAL BUSINESS OPERATIONS
The Company uses computer software programs and operating systems in
its internal operations, largely word processing and spreadsheet applications
used in various administrative functions. The Company has verified that these
software programs and operating systems are year 2000 compliant with operating
ranges well beyond that date.
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On December 28, 1998, the Company closed a private placement of 104
units at $25,000 per unit to a limited number of accredited and otherwise
qualified investors based on their financial resources and knowledge of
investments. Each unit ("Unit") consisted of 10,000 shares of Common Stock, par
value $0.001 (the "Shares"), and 10,000 Stock Purchase Warrants (the "Warrants")
at a price of $25,000 per Unit. Each Warrant entitled the holder to purchase one
Share at a price of $3.75 until their expiration on October 1, 2001. The
subscription receivable outstanding as of December 31, 1998 of $750,000 has been
subsequently adjusted to $800,000 for subscriptions made by December 28, 1998,
but not received by the Company until a later date. The Company received gross
cash proceeds of $2,575,000 in the private placement. Through March 31, 1999,
the Company used a portion of the proceeds received from the private placement
for the furtherance of its research and development activities and to fund the
general and administrative expenses of the Company.
ITEM 5. OTHER INFORMATION
On March 19, 1999, Axonyx signed a Second Amendment to the Research and
License Agreement with New York University School of Medicine ("NYU") pursuant
to which NYU, among other provisions, granted Axonyx a release and waiver of the
capitalization requirement under the Research and License Agreement as amended
by the Capitalization Amendment of August 25, 1998. Under the capitalization
requirement Axonyx undertook to use its best efforts to raise an aggregate
amount of $5 million through private placements of equity securities prior to
April 1, 1998 or, as an alternative, Axonyx could satisfy this requirement by
entering into a strategic alliance with a major pharmaceutical company with a
market valuation of $5 billion or more and pay NYU $500,000 and agree to pay
milestone payments upon filing of an Investigational New Drug application and
approval of a New Drug Approval application equal to four times those
contemplated in the Research and License Agreement. On August 25, 1998, NYU and
Axonyx had signed the Capitalization Amendment by which the deadline for
realization of the capitalization requirement or its alternative was extended to
April 1, 1999.
The foregoing summary of the Second Amendment to the Research and
License Agreement is qualified in its entirety by reference to the Second
Amendment to the Research and License Agreement.
On May 19, 1999 Axonyx signed a Development Agreement and Right to
License (the "Development Agreement") with Applied Research Systems ARS Holding
N.V., a wholly owned subsidiary of Ares Serono International S.A., a Swiss
pharmaceutical company ("Ares Serono"). Under the Development Agreement, the
Company granted an exclusive right to license its patent rights and know-how
regarding the AIPs and the PIPs to Ares Serono. Ares Serono paid Axonyx a fee
for the right to license of $250,000. The right to license has a one year term,
renewable for an additional one year period upon payment of a fee of $500,000.
In addition Ares Serono undertakes to conduct research on the AIP and PIP
technology during the term of the Development Agreement. Any patent rights or
know-how developed by Ares Serono
arising out of the conduct of the research shall revert to Axonyx if Ares Serono
elects not to exercise the right to license.
The foregoing summary of the Development Agreement is qualified in its
entirety by reference to the Development Agreement.
In conjunction with the Development Agreement between Axonyx and Ares
Serono, Ares Serono has entered into an employment agreement with Dr. Claudio
Soto, one of the lead scientists involved in the research on the AIPs, who has
been performing professional services for Axonyx since February 1999 after his
departure from New York University School of Medicine in December 1998. Dr. Soto
will be continuing his work on development of the AIP technology at Ares Serono
under the Development Agreement.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits required by Item 601 of Regulation S-K.
Exhibit A: Second Amendment to the Research and License
Agreement dated March 19, 1999, by and between Axonyx and New
York University School of Medicine.
(b) Reports on 8-K
None.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized
AXONYX INC.
By: /s/ Marvin S. Hausman, M.D.
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Marvin S. Hausman, M.D.
President and Chief Executive Officer
By: /s/ Michael M. Strage
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Michael M. Strage
Treasurer and Principal Financial and Accounting
Officer