SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934 (Amendment No. )
Filed by the registrant [X]
Filed by party other than the registrant [ ]
Check the appropriate box:
[ ] Preliminary proxy statement
[X] Definitive proxy statement
[ ] Definitive additional materials
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
AXONYX INC.
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(Name of Registrant as Specified in Its Charter)
Michael R. Espey, Vice President & Secretary
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(Name of Person(s) Filing Proxy Statement)
Payment of filing fee (Check the appropriate box):
[x] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11.
(1) Title of each class of securities to which transaction
applies:
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(2) Aggregate number of securities to which transactions
applies:
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(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11:
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(4) Proposed maximum aggregate value of transaction:
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[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
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(2) Form, schedule or registration statement no.:
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(3) Filing party:
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(4) Date filed:
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AXONYX INC.
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NOTICE OF 1999 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON SEPTEMBER 17, 1999
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TO THE HOLDERS OF THE COMMON STOCK:
PLEASE TAKE NOTICE that the 1999 Annual Meeting of Stockholders (the
"Annual Meeting") of Axonyx Inc., a Nevada corporation (the "Company") will
be held at the offices of Gibbons, Del Deo, Dolan, Griffinger & Vecchione
located at One Riverfront Plaza, 16th Floor, Newark, New Jersey 07102-5487 at
10:00 a.m. on September 17, 1999, or at any and all adjournments thereof, for
the following purposes, as more fully described in the attached Proxy
Statement.
1. To elect five directors to our Board of Directors to hold
office until our 2000 Annual Meeting of Stockholders or until
their successors are duly elected and qualified;
2. To ratify the appointment of Richard A. Eisner & Company, LLP
as auditors of our financial statements for the fiscal year
ending December 31, 1999; and
3. To consider and act upon such other matters as may properly
come before the Annual Meeting and any adjournment thereof.
The Board of Directors has fixed the close of business on August 25,
1999 as the record date for determining the stockholders entitled to notice
of, and to vote at, the Annual Meeting or at any adjournment thereof.
Whether or not you expect to be present, please sign, date and
return the enclosed proxy sheet in the enclosed pre-addressed envelope as
soon as possible. No postage is required if the enclosed envelope is used and
mailed in the United States.
By Order of the Board of Directors
/s/ Michael R. Espey
-----------------------------------
Michael R. Espey
Vice President & Secretary
August 27, 1999
THIS IS AN IMPORTANT MEETING AND ALL STOCKHOLDERS ARE INVITED TO ATTEND THE
MEETING IN PERSON. ALL STOCKHOLDERS ARE RESPECTFULLY URGED TO EXECUTE AND
RETURN THE ENCLOSED PROXY SHEET AS PROMPTLY AS POSSIBLE. STOCKHOLDERS WHO
EXECUTE A PROXY SHEET MAY NEVERTHELESS ATTEND THE MEETING, REVOKE THEIR PROXY
AND VOTE THEIR SHARES IN PERSON.
AXONYX INC.
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PROXY STATEMENT FOR ANNUAL MEETING
TO BE HELD SEPTEMBER 17, 1999
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GENERAL INFORMATION
The accompanying proxy is solicited by the Board of Directors of
Axonyx Inc. with its principal executive offices at 750 Lexington Ave., Suite
1400, New York, New York 10022 (the "Company") for use at the annual meeting
of stockholders (the "Annual Meeting") to be held on September 17, 1999, and
any adjournment of the Annual Meeting, and it will be voted by the proxy
holders in accordance with the instructions given in the proxy if it is
returned and received in time for the Annual Meeting, is duly executed and is
not revoked. If no direction is given in the proxy, the votes represented
thereby will be voted "For" (i) the election of the directors nominated by
the Board and (ii) the ratification of the appointment of Richard A. Eisner &
Company, LLP as auditors of our financial statements for the fiscal year
ending December 31, 1999. With respect to any other item of business that may
come before the Annual Meeting, the proxy holders will vote in accordance
with their best judgment. So far as the Company is aware, no matters will be
presented to the Meeting for action on the part of the stockholders other
than business in the foregoing Notice. This Proxy Statement and the
accompanying proxy are being sent to stockholders on or about August 27, 1999.
PROXY REVOCATION PROCEDURE
A proxy may be revoked at any time before it has been exercised by
written notice of revocation given to the Secretary of the Company, by
executing and delivering to the Secretary a proxy dated as of a later date
than the enclosed proxy, or by attending the Annual Meeting and voting in
person. Attendance at the Meeting will not in and of itself revoke a proxy.
ABSTENTIONS, BROKER NON-VOTES
Abstentions will be deemed to be present at the Meeting for purposes
of determining a quorum and will be counted as voting (but not "for" or
"against") with regard to the issue to which the abstention relates. Any
"broker non-vote" also will be deemed to be present for quorum purposes, but
will not be counted as voting with regard to the issue to which it relates.
HOLDERS OF RECORD, QUORUM
Holders of record of Common Stock at the close of business on August
25, 1999 are entitled to vote at the Annual Meeting. There were 12,626,002
shares of Common Stock outstanding as of the record date. The presence, in
person or by proxy, of stockholders entitled to cast at least a majority of
the votes entitled to be cast by all stockholders will constitute a quorum
for the transaction of business at the Annual Meeting. Stockholders are
entitled to cast one vote per share on each matter presented for
consideration by the stockholders.
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PROXY COMMITTEE
Management of the Company has appointed a Proxy Committee consisting
of Michael Strage and Michael Espey in whose names the proxies are solicited
on behalf of the Company and the Board of Directors.
ELECTION OF DIRECTORS
(ITEM 1)
THE BOARD OF DIRECTORS
The Company's business is managed under the direction of its Board
of Directors. The Board of Directors has designated as nominees for election
the five directors currently serving on the Board. See "Nominees for
Director" below for profiles of the nominees. After the election of five
directors at the meeting, the Company will have five directors.
All of the nominees have indicated a willingness to serve as
directors, but if any of them should decline or be unable to act as a
director, the proxy holders will vote for the election of another person or
persons as the Board of Directors recommends. The Company has no reason to
believe that any nominee will be unavailable.
THE BOARD RECOMMENDS A VOTE FOR AND SOLICITS PROXIES IN FAVOR OF THE
NOMINEES LISTED BELOW. The holders of Common Stock of the Company are
entitled to one vote per share equal to the number of shares held by such
person at the close of business on the record date. As there is no cumulative
voting, each stockholder shall cast all of his/her votes for each nominee of
his/her choice or withhold votes from any or all nominees. Except to the
extent that a stockholder withholds votes from any and all nominees, the
persons named in the proxy, in their sole discretion, will vote such proxy
for the election of the nominees listed below. The five nominees who receive
the most votes shall be elected as directors. Directors are to be elected to
hold office until the next annual meeting of stockholders and until their
successors are elected and qualified, or until their earlier resignation or
removal.
NOMINEES FOR DIRECTOR
ALBERT D. ANGEL, age 62, has been the Chairman of the Board of
Directors of the Company since December 1998. Previously he served as the
Chairman of the Board of Directors of the predecessor of the Company (also
named Axonyx Inc.) from March 1997. Albert Angel is President of Angel
Consulting and a partner in Naimark & Associates, both of which provide
management, marketing, planning and public affairs advice to pharmaceutical
and biotechnology companies. He is also vice-chair of the National Board of
Trustees of the National Jewish Medical and Research Center (Denver,
Colorado). He has more than 30 years of experience in the pharmaceutical and
biotechnology fields, primarily at Merck & Co., Inc. After army service, Mr.
Angel was an associate with the firm of Hughes Hubbard Blair & Reed until
1967. Mr. Angel joined Merck in 1967 as Latin American attorney and served
successively as European Counsel and International Counsel until 1977 when he
relocated to London as Vice-President of
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Merck Sharp & Dohme (Europe), Inc. During the next 8 years he served first as
Regional Director responsible for Merck's Scandinavian businesses and then as
Chairman and Managing Director of Merck Sharp & Dohme Limited responsible for
business activities in the United Kingdom, Ireland and Anglophone Africa.
From 1985 to 1993 Mr. Angel served as Vice-President, Public Affairs for
Merck & Co., Inc. Mr. Angel received his law degree from Yale Law School in
1960.
MICHAEL R. ESPEY, age 37, has been a Vice President, Director and
the Secretary of the Company since December 1998. Previously he served as
Vice President, Director and the Secretary of the predecessor of the Company
from September 1998, and served as Vice President, Director and the Treasurer
of the predecessor of the Company from January 1997. Prior to joining the
Company, Michael worked at Espey & Associates, a New York firm where he was
involved in structuring securities placements. Prior to that, Mr. Espey
served as General Counsel for the securities firm of Lee, Van Dyk, Zivarts,
Pingree & Company (later Financial Services International Corporation) in
Seattle. Mr. Espey received his law degree from the University of Washington
in 1989.
MARVIN S. HAUSMAN, M.D., age 57, has been a director and the
President and Chief Executive Officer of the Company since December 1998.
Previously, Dr. Hausman was a director and the President and Chief Executive
Officer of the predecessor of the Company from January 1997. Dr. Hausman was
a founder of Medco Research Inc. a pharmaceutical biotechnology company
specializing in adenosine products. He has thirty years experience in drug
development and clinical care. Dr Hausman did residencies in General Surgery
at Mt. Sinai Hospital in New York, and in Urological Surgery at U.C.L.A.
Medical Center in Los Angeles. He also worked as a Research Associate at the
National Institutes of Health, Bethesda, Maryland. He has been a Lecturer,
Clinical Instructor and Attending Surgeon at the U.C.L.A. Medical Center
Division of Urology and Cedars-Sinai Medical Center, Los Angeles. He has been
a Consultant on Clinical/Pharmaceutical Research to various pharmaceutical
companies, including Bristol-Meyers International, Mead-Johnson
Pharmaceutical Company, Medco Research, Inc., and E.R. Squibb. Dr. Hausman is
currently the President of Northwest Medical Research Partners, Inc., a
medical technology and transfer company and is a member of the Board of
Directors of Regent Assisted Living, Inc. Dr. Hausman received his medical
degree from New York University School of Medicine in 1967.
MICHAEL M. STRAGE, age 40, has been a Vice President, Director and
the Treasurer of the Company since December 1998. Previously he served as
Vice President, Director and the Treasurer of the predecessor of the Company
from September 1998, and served as Vice President, Director and the Secretary
of the predecessor of the Company from January 1997. Prior to joining the
Company, Michael Strage was an associate the Los Angeles law firm of Hancock,
Rothert & Bunschoft, and worked at Espey & Associates. Mr. Strage received
his law degree from the University of Southern California in 1986.
CHRISTOPHER WETHERHILL, age 50, has been a director of the Company
since December 1998. Previously, he served on the Board of Directors of the
predecessor of the Company from August 1997. Mr. Wetherhill is the managing
director of Boundary Bay Investments Limited, a major stockholder of the
Company. Mr. Wetherhill is a chartered accountant and the President
and Chief Executive Officer of MRM Financial Services, Ltd. (the parent
company of Hemisphere Management Limited). From September 1981 to June 1996,
Mr Wetherhill was the President and Chief Executive Officer of Hemisphere
Management Limited of Bermuda, a corporate management company. From 1971
until 1977 he was the manager of the accounting and management services
department at Arthur Young & Co., now Ernst & Young, Bermuda. From 1977 to
1981, he was a director and financial controller of Offshore Contractors
(Bermuda) Limited, a Bermuda company involved in offshore oil platform
construction and shipping. He is a Fellow of the Institute of Chartered
Accountants in England and Wales, a member of the Bermudian and Canadian
Institutes of Chartered Accountants, and a Fellow of the Institute of
Directors and Freeman of the City of London.
COMPENSATION AND COMMITTEES OF THE BOARD OF DIRECTORS
The Company pays its non-employee directors (Mssrs. Angel, and
Wetherhill) $500.00 for each Board Meeting attended in person and $250.00 for
each Board Meeting attended by telephone. Directors are also reimbursed for
their out-of-pocket expenses incurred to attend meetings. Directors were not
compensated in any manner during the last fiscal year. Certain directors
received stock options in January of this year under the Axonyx 1998 Stock
Option Plan.
During the year ended December 31, 1998, the Board of Directors met
on four occasions. Each director attended at least 75% of the meetings of the
Board and those committees on which the director served.
The Board of Directors created the Compensation, Audit and
Nominating Committees at the Board Meeting on January 13, 1999. Prior to that
neither the Company nor its predecessors had any Board Committees.
The Compensation Committee of the Board of Directors, currently
consisting of Messrs. Albert Angel, Marvin Hausman and Christopher
Wetherhill, makes proposals to the full Board for officer compensation
programs, including salaries, option grants and other forms of compensation.
The Audit Committee of the Board of Directors, currently consisting
of Messrs. Christopher Wetherhill and Albert Angel, oversees the Company's
audit activities and certain financial matters to protect against improper
and unsound practices and to furnish adequate protection to all assets and
records.
The Nominating Committee of the Board of Directors, currently
consisting of Messrs. Marvin Hausman and Albert Angel, makes proposals to the
full Board concerning the hiring or engagement of directors, officers and
certain employee positions.
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RATIFICATION OF THE
APPOINTMENT OF INDEPENDENT ACCOUNTANTS
(ITEM 2)
The Board of Directors has, subject to stockholder ratification,
appointed Richard A. Eisner & Company, LLP, independent public accountants,
to audit the accounts of the Company for the 1999 fiscal year. Richard A.
Eisner & Company, LLP has served as the Company's independent accountants
since 1998.
THE BOARD RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE RATIFICATION
OF RICHARD A. EISNER & COMPANY, LLP AS AUDITORS OF THE COMPANY'S FINANCIAL
STATEMENTS FOR THE FISCAL YEAR ENDING DECEMBER 31, 1999. Submission of the
appointment to stockholders is not required. However, the Board of Directors
will reconsider the appointment if it is not approved by stockholders. The
appointment will be deemed ratified if a majority of the shares of Common
Stock present, either in person or by proxy, and voting on the matter, votes
in favor of the proposal. It is not expected that representatives of Richard
A. Eisner & Company LLP will be present at the Annual Meeting.
EXECUTIVE COMPENSATION
EXECUTIVE OFFICERS
The executive officers of the Company are Marvin S. Hausman, M.D.,
President and Chief Executive Officer, Michael R. Espey, Vice President and
Secretary, Michael M. Strage, Vice President and Treasurer.
REPORT OF THE COMPENSATION COMMITTEE FOR 1998 AND 1999 EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors, a majority of
which is composed of directors who have never been employees of the Company,
is responsible for setting and administering the policies and programs that
govern compensation. The Compensation Committee was formed in January 1999.
Prior to that time no executive compensation, other than limited consultant
fees, was paid. For 1999, the Company's executive compensation consists of
two components: (1) an annual component, i.e., salaries, and the potential
for year end bonuses, and (2) a long-term component, i.e., stock options. The
Compensation Committee seeks to reward the management team if the Company
achieves its corporate objectives, and it also recognizes meaningful
differences in individual performance and offers the opportunity for
executives to earn rewards when merited by individual performance.
ANNUAL COMPONENT. Salaries for executive officers are determined by
the Committee with reference to the job description and a general assessment
of the executive's performance, experience and potential. Year end bonuses
may be granted subject to an assessment of an executive's performance against
established objectives. The Committee establishes these salaries annually or
semi-annually, depending upon the individual.
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LONG-TERM COMPONENT. No stock options were granted to executive
officers prior to January 1999. The Compensation Committee awarded stock
options to certain executive officers in January 1999 based on the Committee
member's assessment of the accomplishment of corporate and individual
objectives. The Committee awards options exercisable for a period of 10 years
(or such shorter period required by the Axonyx Inc. 1998 Stock Option Plan in
particular situations) to buy a number of shares of the Company's Common
Stock at a price equal to the market price of the stock on the date of grant
(or such higher price required by the Stock Option Plan in particular
situations). For 1999 stock option grants, made on January 13, 1999, 25% of
the options awarded vested immediately, 25% vest on and after January 1,
2000, 25% vest on and after January 1, 2001, and the remaining 25% vest on
and after January 1, 2002. The Committee believes that, because these options
gain value only to the extent that the price of the Company's Common Stock
increases above the option exercise price during the term of the option,
management's equity participation offers a significant incentive and helps to
create a long-term partnership between management/owners and other
stockholders.
The Compensation Committee of the Board of Directors:
Albert D. Angel, Chairman
Marvin S. Hausman, M.D.
Christopher Wetherhill
SUMMARY COMPENSATION
Below is the aggregate annual remuneration of each of the highest
paid persons who were officers or directors of Axonyx Inc., the Company's
pre-merger predecessor, during Axonyx Inc.'s last two fiscal years ended
December 31, 1997 and December 31, 1998.
SUMMARY COMPENSATION TABLE
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Annual Compensation Long Term Compensation
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Awards Payouts
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Securities
Other Underly-
Annual Restricted ing Op- All Other
Compen- Stock tions/ LTIP Compen-
Name and Principal Year Salary Bonus sation Awards SARs Payouts sation
Position
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Marvin S. Hausman, CEO 1998 $0 $0 $0 none none none none
1997 $0 $0 $0 none none none none
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1999 EXECUTIVE SALARY COMPENSATION
Marvin S. Hausman, M.D., President & CEO. In January 1999, the Company
came to an oral agreement with Marvin Hausman whereby Dr. Hausman will serve as
President & CEO of the Company and as a Director of the Company for an annual
salary of $125,000.
Michael M. Strage, Vice President & Treasurer. In January 1999, the
Company came to an oral agreement with Michael Strage whereby Mr. Strage will
serve as Vice President & Treasurer of the Company and as a Director of the
Company for an annual salary of $100,000.
Michael R. Espey, Vice President & Secretary. In January 1999, the
Company came to an oral agreement with Michael Espey whereby Mr. Espey will
serve as Vice President & Secretary of the Company and as a Director of the
Company for a monthly salary of $7,000.
STOCK OPTION GRANTS AND EXERCISES IN 1998
The Company did not grant any stock options in the last fiscal year.
The Company's predecessor company, Axonyx Inc., also did not grant any options
to purchase shares during Axonyx Inc.'s last fiscal year ended December 31,
1998.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
(INDIVIDUAL GRANTS)
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Percent of
Number of Total
Securities Options/
Underlying SARs
Options/ Granted To
SARs Employees Exercise or
Granted In Fiscal Base Price Expiration
Name (#) Year ($/Sh) Date
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Marvin S. Hausman. M.D. 0 0 0 n/a
Michael R. Espey 0 0 0 n/a
Michael M. Strage 0 0 0 n/a
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1999 EXECUTIVE OPTION GRANTS
(These numbers have been adjusted to reflect the 2:1 forward stock split
effective February 23, 1999)
On January 13, 1999, the Company granted 200,000 Incentive Stock
Options exercisable at $3.11 per share to Marvin S. Hausman, President & CEO of
the Company, with 50,000 options vesting immediately, 50,000 vesting on January
1, 2000, 50,000 vesting on January 1, 2001, and 50,000 vesting on January 1,
2002.
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On January 13, 1999, the Company granted 40,000 Incentive Stock Options
exercisable at $2.88 per share to Michael M. Strage, Vice President & Treasurer
of the Company, with 10,000 options vesting immediately, 10,000 vesting on
January 1, 2000, 10,000 vesting on January 1, 2001, and 10,000 vesting on
January 1, 2002.
On June 7, 1999, the Company granted 20,000 Incentive Stock Options
exercisable at $8.50 to Michael R. Espey, Vice President & Secretary of the
Company, with 10,000 options vesting immediately, and 10,000 options vesting on
January 1, 2000.
In addition to the foregoing Executive Option Grants, on January 13,
1999 the Company issued to Mr. Angel 300,000 Non-Qualified Stock Options, with
75,000 options vesting immediately, 75,000 vesting on or after January 1, 2000,
75,000 vesting on or after January 1, 2001, and 75,000 vesting on or after
January 1, 2002; and the Company issued to Christopher Wetherhill 40,000
Non-Qualified Stock Options, with 10,000 options vesting immediately, 10,000
vesting on or after January 1, 2000, 10,000 vesting on or after January 1, 2001,
and 10,000 vesting on or after January 1, 2002.
EMPLOYMENT CONTRACTS; TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
Marvin S. Hausman, M.D., President & CEO. In January 1999, the Company
came to an oral agreement with Marvin Hausman whereby Dr. Hausman will serve as
President & CEO of the Company and as a Director of the Company for an annual
salary of $125,000.
Michael M. Strage, Vice President & Treasurer. In January 1999, the
Company came to an oral agreement with Michael Strage whereby Mr. Strage will
serve as Vice President & Treasurer of the Company and as a Director of the
Company for an annual salary of $100,000.
Michael R. Espey, Vice President & Secretary. In January 1999, the
Company came to an oral agreement with Michael Espey whereby Mr. Espey will
serve as Vice President & Secretary of the Company and as a Director of the
Company for a monthly salary of $7,000.
The Company's executive officers are employed pursuant to oral
agreements on an at-will basis. Consequently, the Company does not have a policy
of "discharge without cause."
The Company does not currently have any policy to provide benefits to
the named executive officers in the event of a "change-in-control" of the
Company.
CERTAIN TRANSACTIONS
During 1997 and up to March 1, 1999, Steven Espey provided the Company
with the use of office space in New York. There has been no specific charge for
such use of office space, although issuance of Common Stock to Steven Espey at
the time of the Company's founding was designed, in part, to reflect this
anticipated contribution. The President of the pre-merger
9
company, Ionosphere provided Ionosphere with office space without charge
from August 1997 to December 1998.
Michael R. Espey, Vice President and Secretary and Michael M. Strage,
Vice President and Treasurer, were each paid consultant fees in the amount of
$28,000 by the predecessor of the Company in 1998.
On April 27, 1998, Axonyx Inc. issued a Nine Percent Convertible Note
to Boundary Bay Investments Ltd. (BBI) in the amount of $125,000, evidencing a
loan from BBI in that amount. This loan is convertible at $4.00 per share of
Common Stock (pre-split). The loan bears interest at 9% per annum, with interest
payments due annually. The Note matures May 1, 2000. The Company is current in
its payment of interest on this Note.
On September 1, 1998, Axonyx Inc. issued a Nine Percent Convertible
Note to Boundary Bay Investments Ltd. in the amount of $75,000.00, evidencing a
loan from BBI in that amount. This loan is convertible at $2.00 per share of
Common Stock. The Note bears interest at 9% per annum, with interest payments
due annually. The Note matures September 1, 2000. The Company is current in its
payment of interest on this Note.
On December 9, 1998, eight of the beneficial owners of Boundary Bay
Investments Ltd. ("BBI") requested that shares of common stock of Axonyx be
transferred into their respective and direct ownership positions. Certificates
representing shares of common stock in their respective shareholdings in BBI
were issued to the transferee shareholders of BBI. In addition, on the same date
107,500 shares were transferred to Christopher Wetherhill, the managing director
of BBI, reflecting a portion of his shareholdings in BBI. Other than Christopher
Wetherhill, none of the transferees were affiliates of the Company. 860,000
shares of common stock were retained by BBI. Christopher Wetherhill is the sole
beneficial owner of BBI.
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SECURITY OWNERSHIP OF MANAGEMENT AND OTHERS
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock (the "Shares") as of August 20, 1999 (a)
by each person known to the Company to own beneficially 5% or more of any class
of the Company's securities, including those shares subject to outstanding
options and (b) by each of the Company's officers and directors and (c) by all
officers and directors of the Company as a group. As of August 20, 1999 there
were 12,626,002 shares of Common Stock of the Company issued and outstanding.
NUMBER OF SHARES
NAME OF BENEFICIALLY
BENEFICIAL OWNER (1) OWNED PERCENT OF CLASS
- -------------------- ---------------- ----------------
Marvin S. Hausman, M.D. (2) 2,038,500 16.08%
Christopher Wetherhill (3) 1,077,500 8.46%
Albert D. Angel (4) 500,000 3.96%
Michael M. Strage (5) 260,000 2.06%
Michael R. Espey (6) 260,000 2.06%
--------- ------
All directors and executive
officers (five persons) as a group 4,136,000 32.30%
--------- ------
Steven C. Espey (7) 2,050,000 16.23%
Boundary Bay Investments Ltd. (8) 960,000 7.54%
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(1) Unless otherwise indicated, the address of each of the listed
beneficial owners identified above is 750 Lexington Avenue, Suite 1400,
New York, NY 10022. Unless otherwise noted, the Company believes that
all persons named in the table have sole voting and investment power
with respect to all the Shares beneficially owned by them.
(2) Marvin S. Hausman, M.D. was a founder of the Company and currently
serves as the President and Chief Executive Officer. Includes (i)
1,988,500 shares owned by Dr. Hausman; and (ii) 50,000 vested but
unexercised options exercisable at $3.11 per share granted on January
13, 1999.
(3) Christopher Wetherhill is a Director of the Company. Includes (i)
107,500 shares held in Mr. Wetherhill's name; (ii) 860,000 shares held
by Boundary Bay Investments Ltd. ("BBI"). Mr. Wetherhill holds a
controlling position as the Managing Director of BBI and is the sole
beneficial owner; (iii) 100,000 shares that BBI may acquire upon
conversion of the principal of two Convertible Notes in the aggregate
amount of $200,000 with a conversion price of $2.00 per share; and (iv)
10,000 vested but
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unexercised options exercisable at $2.88 per share granted on January
13, 1999 held in Mr. Wetherhill's name. Mr. Wetherhill's address is
9 Church Street, Hamilton HM 11, Bermuda.
(4) Albert D. Angel is the Chairman of the Board of Directors of the
Company. All shares are owned by Mr. Angel. On January 13, 1999, Albert
Angel transferred 300,000 non-qualified stock options to the Angel
Brothers Partnership, including 75,000 vested but unexercised options
exercisable at $2.88 per share granted to Mr. Angel on January 13,
1999.
(5) Michael M. Strage was a co-founder of the Company and currently serves
as Vice President and Treasurer. Includes (i) 250,000 shares owned by
Mr. Strage; and (ii) 10,000 vested but unexercised options exercisable
at $2.88 per share granted on January 13, 1999.
(6) Michael R. Espey was a co-founder of the Company and currently serves
as Vice President and Secretary. Includes (i) 250,000 shares owned by
Mr. Espey; and (ii) 10,000 vested but unexercised options exercisable
at $8.50 per share granted on June 7, 1999. Michael Espey's address is
1001 4th Avenue Plaza, Suite 3228, Seattle, WA 98154.
(7) Steven C. Espey was a founder of the Company. Steven Espey is Michael
Espey's stepfather and is Michael Strage's father in law. All shares
are owned by Mr. S. Espey. Mr. Espey's address is 358 East 69th Street,
New York, NY 10021.
(8) Boundary Bay Investments Ltd. is a Cayman Islands corporation
beneficially owned by Christopher Wetherhill, a director of the
Company. Includes (i) 860,000 shares issued in the name of BBI; and
(ii) 100,000 shares that BBI may acquire upon conversion of the
principal of two Convertible Notes in the aggregate amount of $200,000
with a conversion price of $2.00 per share. The address of BBI is 3rd
Floor Harbour Centre, George Town, Grand Cayman, Cayman Islands, B.W.I.
COMPLIANCE WITH SECTION 16(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and directors, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission
("SEC"). The Company became a "reporting company" subject to the requirements of
Section 16(a) on August 13, 1999, although it has been complying with the
reporting requirements of Section 16(a) since March 17, 1999. In 1999, officers,
directors and greater than ten percent stockholders were required by SEC
regulation to furnish the Company with copies of all Section 16(a) forms they
file. Based on a review of copies of such forms that have been furnished to the
Company in 1999, the Company has verified compliance with Section 16(a). For the
year ended December 31, 1998, the Company, its officers, directors and greater
than ten percent stockholders were not required to file Section 16(a) reports.
12
PERFORMANCE GRAPH
The Company did not have any securities registered under Section 12 of
the Securities Exchange Act of 1934 during fiscal year 1998 or prior years.
OTHER MATTERS
Management of the Company does not know of any matter to be acted upon
at the Annual Meeting other than the matters described above. If any other
matter properly comes before the Annual Meeting, however, the proxy holders will
vote the proxies thereon in accordance with their best judgment.
PROXY SOLICITATION
The Company will pay reasonable expenses incurred in forwarding proxy
material to the beneficial owners of shares and in obtaining the written
instructions of such beneficial owners. This Proxy Statement and the
accompanying materials, in addition to being mailed directly to stockholders,
will be distributed through brokers, custodians, nominees and other like parties
to beneficial owners of shares of Common Stock. The Company will bear the
expenses of calling and holding the annual meeting and the soliciting of proxies
therefore.
STOCKHOLDER PROPOSALS FOR 2000 ANNUAL MEETING
Proposals which are the proper subject for inclusion in the proxy
statement and for consideration at an annual meeting may be presented by
stockholders. In order to be eligible to submit a proposal, a stockholder must
have continuously held at least $2,000 in market value, or 1% of the Company's
securities entitled to be voted on the proposal at the meeting for at least one
year by the date the stockholder submits the proposal. In addition, the
stockholder must continue to hold those securities through the date of the
meeting. Under current SEC rules, to be included in Axonyx's proxy statement and
proxy card, any proposal by a stockholder intended to be presented at the 2000
Annual Meeting of Stockholders must be received by Axonyx, subject to certain
exceptions, no later than November 1, 1999. Any such proposal, including any
accompanying supporting statement, may not exceed 500 words. Such proposal
should be addressed to the Secretary of the Company. Notice of any stockholder
proposal to presented at the 2000 Annual Meeting (whether or not included in the
Company's proxy statement) must be received by the Secretary of Axonyx, Michael
R. Espey, subject to certain exceptions, no later than February 1, 2000.
August 27, 1999
APPENDIX A TO PROXY STATEMENT
ANNUAL REPORT TO STOCKHOLDERS
THIS ANNUAL REPORT TO STOCKHOLDERS 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 ANNUAL REPORT TO STOCKHOLDERS, 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 THIS ANNUAL REPORT TO STOCKHOLDERS. 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.
TABLE OF CONTENTS
PART I DESCRIPTION OF BUSINESS
GLOSSARY
A. THE COMPANY - INTRODUCTION AND EXECUTIVE SUMMARY
B. BUSINESS STRATEGY
C. AXONYX DRUG DISCOVERY PROGRAMS
D. THE INDUSTRY AND MARKET
E. FDA REGULATORY MATTERS
F. STRATEGIC ALLIANCES
G. MANUFACTURING, MARKETING AND SALES
H. PATENTS, TRADEMARKS, AND COPYRIGHTS
I. COMPETITION
J. EMPLOYEES, INDEPENDENT CONTRACTORS, AND CONSULTANTS
K. DESCRIPTION OF PROPERTY
PART II SELECTED FINANCIAL DATA
PART III DIRECTORS AND EXECUTIVE OFFICERS
PART IV MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
PART V MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON
EQUITY AND OTHER STOCKHOLDER MATTERS
PART VI DISCLOSURES ABOUT MARKET RISK
PART VII CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
EXHIBIT A AUDITED FINANCIAL STATEMENTS FOR DECEMBER 31, 1998
EXHIBIT B UNAUDITED FINANCIAL STATEMENTS MARCH 31, 1999
EXHIBIT C UNAUDITED FINANCIAL STATEMENTS JUNE 30, 1999
4
GLOSSARY
ACETYLCHOLINESTERASE - an enzyme that degrades the neurotransmitter
acetylcholine in the brain and other tissues of the body. Acetylcholine is a
chemical substance that sends signals between nerve cells (called
neurotransmission) and is therefore called a neurotransmitter.
Neurotransmitters are secreted by neurons (nerve cells) into the space
between neurons called the synapse. Unless degraded by an enzyme such as
acetylcholinesterase in the synapse, acetylcholine will transmit a nerve
impulse across the synapse to another neuron. Acetylcholine is a primary
neurotransmitter in the brain, and is associated with memory and cognition.
Acetylcholinesterase inhibitors such as Aricept-TM- or Phenserine are
designed to prevent the degradation of acetylcholine in the synapse by
inhibiting the enzyme that performs that function, acetylcholinesterase, and
hence amplifies the natural action of acetylcholine in the brains of AD
patients.
ANALOG - one of a series of chemical substances of similar chemical structure
AMYLOID PLAQUE - amyloid proteins involved in Alzheimer's Disease and other
diseases of amyloidosis aggregate into insoluble fibrils that are deposited
in amyloid plaques in the brains of Alzheimer's patients.
BETA AMYLOID PRECURSOR PROTEIN - this protein (known as beta-APP) is encoded
on chromosome 21 and is found present in the cell wall of numerous cells
within the body including nerve cells of the brain. Beta-amyloid protein is
derived from this larger protein.
BETA-AMYLOID PROTEIN - one of more than a dozen types of amyloid proteins
found in the body, beta amyloid is normally present in the brain of healthy
individuals in small quantities. Beta-amyloid, derived from the beta-amyloid
precursor protein, is over-produced in Alzheimer's Disease and Downs
Syndrome. In Alzheimer's Disease, the beta-amyloid protein undergoes a
chemical change, aggregates and is deposited as insoluble fibrils in amyloid
plaques in the brain.
BETA-SHEET BREAKER PEPTIDE - a molecule composed of naturally occurring amino
acids, the building blocks of proteins, that is designed to bind to and
prevent the conversion of the normal form of protein to the misshapen form
that forms plaques.
BUTYRYLCHOLINESTERASE - an enzyme that is normally found in all tissues of
the body. Its function remains to be fully understood. Amongst other roles,
it degrades acetylcholine, a primary neurotransmitter in the brain.
Butyrylcholinesterase is found in high concentration in the plaques taken
from individuals who have died from Alzheimer's Disease. This enzyme also
functions to degrade a number of drugs and natural products and is involved
in their elimination from the body.
CHOLINERGIC SYSTEM - is also called the parasympathetic nervous system; it is
involved in nerve transmission related to memory and cognition, as well as
the functioning of major organs such as the heart, lungs and gastrointestinal
system.
5
CORTICALLY-PROJECTING NEURONS - these are the nerve cells that connect the
mid-brain to the cortical areas in the front part of the brain where nerve
cells involved in memory and cognition are concentrated. In Alzheimer's
Disease, the loss of these connecting nerve cells result in a reduction in
the amount of the neurotransmitter acetylcholine, and the loss of mental
capacity or cognition.
NEUROBLASTOMA CELL CULTURES - these are a type of cell derived from the brain
that can be grown in containers in the lab (IN VITRO) where they are able to
reproduce and carry out many activities as if they were residing in the
brain, including the synthesis and secretion of proteins such as the
beta-amyloid peptide which, in the human brain, can cause plaques. A
neuroblastoma cell culture is used to study brain cell function in a simple
IN VITRO system, which allows testing of the ability of drug compounds to
prevent the formation of the beta-amyloid precursor protein and peptide
production and secretion.
NEUROTOXIC PEPTIDE - refers to a small protein (called a peptide) that can be
toxic to neurons, and is another name for the beta-amyloid protein.
PERIPHERAL AMYLOIDOSIS - excessive production and deposition of various types
of amyloid protein can occur in other organs outside of the brain and cause
damage by interfering with important bodily functions, sometimes causing
death.
PHYSOSTIGMINE - is a drug that is a classic, potent acetylcholinesterase
inhibitor but which causes unpleasant side effects that have prevented its
development as a treatment for Alzheimer's Disease.
PRESYNAPTIC NEURONS - this is the nerve cell that releases a given
neurotransmitter into the synapse for transmission of a nerve impulse to a
neighboring nerve cell.
PRION - is a contraction of the descriptive term, proteinaceous infectious
proteins. Prions, unlike viruses, bacteria and fungi, have no DNA and consist
only of protein and the infectious form can cause degenerative brain diseases.
PRION-RELATED DISEASES - these are degenerative diseases of the brain that
are thought to be caused by a misshapen infectious protein called a prion.
Such diseases include Creutzfeldt Jakob Disease, new variant (CJDnv) in
humans, Bovine Spongiform Encephalopathy (BSE or Mad Cow Disease) in cows,
and Scrapies disease in sheep.
TRANSDERMAL FORMULATION - a formulation refers to the mixture of chemical
substances used to promote the absorption of a drug. A formulation that
promotes the absorption of a drug from the skin is called a transdermal
formulation (also called a skin patch).
6
A. THE COMPANY - INTRODUCTION AND EXECUTIVE SUMMARY
(Axonyx Inc. undertook a two for one stock split with a record date of
February 23, 1999 and a distribution date of March 5, 1999. All information
on outstanding securities of Axonyx gives effect to this stock split except
where specifically noted.)
GENERAL
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), Mild 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.
Axonyx is developing its compounds under contract in laboratories at
the New York University School of Medicine and, through a research and
development collaboration, with the NIA's laboratories and elsewhere. In May
1999, Axonyx entered into a Development Agreement and Right to License with a
subsidiary of Ares Serono, S.A., a Swiss pharmaceutical company, under which
Ares Serono will undertake research on certain of Axonyx's compounds for a
one year term, renewable for a second year, with a right to sublicense
Axonyx's patent rights to such compounds. Axonyx intends to develop other
corporate partnerships with established and well capitalized pharmaceutical
companies for the clinical development of some of its other compounds and for
their production, commercialization and marketing. The Company itself does
not currently maintain any laboratory or research premises.
Axonyx has licensed a portfolio of CNS drugs that covers three
distinct therapeutic approaches that have all demonstrated activity in
treating the causes of AD in preclinical development. Each class of compounds
has a different target and represents a unique, innovative platform for the
development of pharmaceutical products for the diagnosis and treatment of AD.
The treatment of people with AD is a multi billion-dollar industry
in the United States alone and constitutes an extremely large potential
market with an unmet therapeutic need. Currently there are only two approved
drugs that provide at best marginal symptomatic relief for one aspect of AD.
One of the Axonyx compounds, Phenserine, an acetylcholinesterase inhibitor,
has shown in preclinical studies a potential therapeutic and safety profile
superior to the products currently on the market. Axonyx's two other
therapeutic approaches: its butyrylcholinesterase inhibitors, with the lead
compound Cymserine, and the Amyloid Inhibiting Peptides (AIPs), attack the
disease in other inventive and effective ways, representing potentially new
platform technologies for the treatment of AD. The Development Agreement and
Right to License with Ares Serono includes the AIPs. The Company expects to
derive its revenues from patent sub-
7
licensing fees, royalties from pharmaceutical sales, appropriate milestone
payments, and research and development contracts.
The Company's executive offices are located at 750 Lexington Avenue,
Suite 1400, New York, New York 10022, telephone number (212) 688-4770. It
also maintains offices at 1001 4th Avenue Plaza, Suite 3228, Seattle,
Washington 98154, telephone number (206) 340-0211, and at 4041 State Highway
14, Stevenson, Washington 98648, telephone number (509) 427-5132.
The Company's fiscal year end is December 31.
BACKGROUND
The predecessor of the Company, also named Axonyx Inc., was
incorporated in Delaware on September 16, 1996. Reference to Axonyx Inc.
herein refers to the historical Axonyx Inc., a Delaware company unless the
context otherwise requires. On December 28, 1998 Axonyx Inc. merged with
Ionosphere, Inc. ("Ionosphere"), a Nevada corporation incorporated on July
29, 1997. The management of Axonyx Inc. undertook this merger into
Ionosphere, a company whose shares traded on the Electronic Bulletin Board
and was covered by three market makers, in order to increase the potential
liquidity for its stockholders, to create a benchmark for the pricing of its
common stock, and to advance the Company's goal of listing on the Nasdaq
SmallCap Market.
After the merger (which represented a recapitalization for
accounting purposes), Ionosphere, Inc., the surviving Nevada corporation,
changed its name to Axonyx Inc. In conjunction with the merger, Ionosphere
undertook a 1 for 2 reverse stock split on December 28, 1998. On a post
merger basis, the business of Axonyx Inc. became the business of the Company.
The management and board of directors of Axonyx Inc. became the management
and directors of the consolidated company and stockholders of Axonyx Inc.
held 89.11% of the outstanding shares of Common Stock of the consolidated
company.
B. BUSINESS STRATEGY
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.
The Company's long term goal is to become a partially integrated
pharmaceutical company with capabilities in research, drug development,
clinical investigation, and regulatory affairs. Currently the Company does
not maintain any research or laboratory premises, utilizing instead such
facilities on a contractual or collaborative basis at academic and research
institutions, as well as Contract Research Organizations. Considering the
commercialization infrastructure necessary to effectively market its drug
products, the Company will seek joint ventures or collaborations with other
pharmaceutical companies, both domestically and outside
8
the United States. The Company will seek corporate partners, such as Ares
Serono, who will be responsible for at least part of the clinical
development, regulatory approval, manufacturing and marketing of the drug
product. Under such an arrangement, the Company expects to receive certain
up-front and sub-licensing fees, ongoing research contracts, milestone
payments, and royalties on drug product sales.
C. AXONYX DRUG DISCOVERY PROGRAMS
Axonyx is pursuing three different types of products for the
treatment of AD and one for prion-related diseases. The AD targeted
approaches include: (1) Phenserine, a novel, long-acting and brain directed
analog of the classical drug physostigmine, which is a potent inhibitor of
acetylcholinesterase for which an Investigational New Drug application (IND)
has been filed, (2) a butyrylcholinesterase inhibitor which will be chosen
from a series of novel, selectively acting compounds, the best studied of
which is Cymserine, and (3) compounds named Amyloid Inhibitory Peptides
(AIPs) that may prevent and reverse the formation of amyloid plaques in AD
and in diseases of peripheral amyloidosis. Peripheral amyloidosis are types
of diseases involving excessive production and abnormal deposition of amyloid
proteins in organs outside of the brain, resulting in interference with
important bodily functions in those organs.
In addition to inhibiting key enzymes associated with neural
transmission, Phenserine and Cymserine appear to have the unique ability to
inhibit the formation of the beta-amyloid precursor protein and reduce levels
of the beta-amyloid peptide, the primary deposit in amyloid plaque formation.
In addition they improve cognitive performance. The beta-amyloid protein is
an abnormal form of a protein normally found in the brain that is
over-produced in Alzheimer's Disease.
The Company is also conducting research on the diagnosis and
treatment of prion related diseases such as Bovine Spongiform Encephalopathy
and Creutzfeldt-Jakob Disease, new variant, using a series of Prion
Inhibitory Peptides (PIPs) which prevent and reverse the formation of the
toxic form of prions.
PROGRAM 1: INHIBITORS OF ACETYLCHOLINESTERASE AND BETA-AMYLOID
PRECURSOR PROTEIN (BETA-APP) FORMATION
Alzheimer's Disease is characterized by cognition impairments and
partial or total loss of memory. These impairments are caused by a loss of
presynaptic neurons of the cholinergic system of the brain and a loss of
cortically-projecting neurons that connect the mid-brain with the cortical
areas in the forebrain, particularly to brain areas associated with memory
and learning. The loss of neurons results in a decreased synthesis and
availability of acetylcholine, the neurotransmitter involved in mediating
these memory and learning functions. The Company's most advanced compound,
Phenserine, is designed to selectively inhibit acetylcholinesterase, the
enzyme primarily responsible for degrading acetylcholine at the synaptic gap
between neurons, thus increasing the availability of this neurotransmitter.
Phenserine has been shown to be a potent and selective inhibitor of this
enzyme in the rat brain and has the ability to increase memory and learning
over a wide therapeutic range in aged rats
9
without causing toxic side effects. The compound readily enters the brain,
has minimal peripheral activity outside the brain, and has a long duration of
action.
Phenserine also has the unusual ability to inhibit the formation of
the beta-amyloid precursor protein (beta-APP), the larger protein that is the
source of the neurotoxic peptide, beta amyloid, which is deposited in the
brain as amyloid plaques that eventually apparently cause neuronal cell
death. These studies were conducted in human neuroblastoma cell cultures and
IN VIVO in rodents. Studies in human neuroblastoma cell lines importantly
show that the compound reduces the formation of beta- amyloid peptide.
Additional animal studies will be conducted to confirm and extend these
findings. These results suggest that Phenserine may have the ability to slow
the progression of AD in addition to providing symptomatic relief for the
cognitive changes.
The Company is assessing the properties of other Phenserine analogs
which are also potent inhibitors of acetylcholinesterase such as Tolserine,
that may ultimately prove to have certain additional advantages for use in
AD, and Thiatolserine, a compound whose characteristics are suitable for
development as a transdermal agent that is absorbed through a patch placed on
the skin.
PROGRAM 2: INHIBITORS OF BUTYRYLCHOLINESTERASE AND BETA-AMYLOID
PRECURSOR PROTEIN (BETA-APP) FORMATION
The function of butyrylcholinesterase, a sister and similar enzyme
to acetylcholinesterase, remains largely unknown. Recent research suggests
that for specific nerve pathways within the human brain butyrylcholinesterase
is present instead of acetylcholinesterase. Butyrylcholinesterase activity is
elevated in the brains of AD patients. Butyrylcholinesterase is additionally
found in all tissues of the body and functions to degrade a number of drugs
such as codeine. This enzyme was identified as a target for inhibition in AD
since it terminates the action of the neurotransmitter acetylcholine in
specific nerve pathways in regions of the brain associated with AD and is
found in high concentration in amyloid plaques taken from the brains of AD
patients.
The Company is currently characterizing a series of novel
butyrylcholinesterase inhibitors to select a drug candidate for development.
The lead candidate, Cymserine, has been studied extensively and has many of
the characteristics desirable for use in AD. Like Phenserine, it has a dual
mechanism of action in that in addition to inhibiting the
butyrylcholinesterase enzyme it also inhibits the formation of beta-APP in
cell culture, and in rats. Additional studies are being conducted to confirm
and extend these important findings. Cymserine readily enters the brain, has
a long duration of action and is highly active in improving memory and
learning in the aged rat. These findings indicate that Cymserine may have an
important role in preventing the formation of amyloid plaques in AD, in
addition to its inhibition of butyrylcholinesterase.
Axonyx appears to be the only company with a patent position and
lead compounds in this area of drug discovery and development. Other
compounds in the Cymserine series that may
10
be pursued include Thiacymserine, an agent that may be suitable for
development in a transdermal (skin patch) formulation.
PROGRAM 3: AMYLOID INHIBITORY PEPTIDES (AIPS)
A key event in Alzheimer's Disease is the conversion of beta-amyloid
protein into beta-sheets that aggregate to form insoluble fibrous masses
(fibrils). These fibrils are deposited as part of the neurotoxic amyloid
plaques that appear to cause neuronal cell death. These changes play an
important role in the pathogenesis of the disease. The Company's AIPs have
been designed to block the aggregation of beta-amyloid in a competitive
manner by binding to the beta-sheet form of the amyloid protein, thus
preventing the formation of amyloid plaques in the brain.
In experiments IN VITRO with one of the AIPs, the peptide inhibited
the formation of fibrils, caused disassembly of preformed fibrils and
prevented neuronal cell death in cell culture. In a rat model of amyloidosis
an AIP reduced beta-amyloid protein deposition and completely blocked the
formation of amyloid fibrils. In addition, one of the AIPs has been shown to
cause a significant reduction of established amyloid deposits in the brains
of rats. These results indicate the potential for an AIP based drug to
prevent the formation of the amyloid plaques, and to treat AD patients with
existing amyloid plaques. Current efforts are focused on identifying a
compound suitable for development for therapeutic use.
PROGRAM 4: PRION INHIBITORY PEPTIDES (PIPS)
There is increasing evidence to conclude that prions (proteinaceous
infectious particles) are the infectious agents that cause Bovine Spongiform
Encephalopathy (BSE), Creutzfeldt-Jakob Disease, new variant (CJDnv) and
possibly other transmissable spongiform encephalopathies. These diseases have
caused grave concern in Europe and the U.S. because of the potential for
their transmission to humans through the meat supply. These are fatal
neurodegenerative disorders that are characterized by spongiform degeneration
of the brain and, in many cases, by deposits of prions into plaques. The
infectivity of prions is believed to be associated with an abnormal folding
of the prion protein. This folding involves a conversion of the alpha-helical
form to the beta-sheet form that can then form plaques in the brain.
The Company is developing a series of Prion Inhibitory Peptides
(PIPs), also referred to as beta-sheet breaker peptides, that interact IN
VITRO with the normal form of the prion to prevent its conversion to the
abnormal form, and to interact with the abnormal form to cause it to revert
to a normal prion. Incubation of the PIPs with toxic prions taken from BSE
and CJDnv infected cows caused a reversion of the toxic prions to the normal
form. Experiments are in progress to determine if the PIPs can eliminate
toxic prions from infected animals. These findings suggest a novel strategy
for designing diagnostics and therapeutic treatments for prion related
diseases.
PROGRAM 5: TREATMENT OF MILD COGNITIVE IMPAIRMENT
The biological and safety profile of Phenserine suggests that this
drug could be considered for treatment of individuals with mild to moderate
cognitive impairment and for age
11
related loss of memory. The Company intends to explore the opportunities for
developing Phenserine for these indications if the human clinical results are
consistent with the preclinical findings.
D. THE INDUSTRY AND MARKET
A number of the major pharmaceutical companies have programs to
develop drugs for the treatment of Alzheimer's Disease. Many of these drugs
are acetylcholinesterase inhibitors. Currently, Warner-Lambert (Tacrine) and
Eisai/Pfizer (Aricept) have marketed compounds of this type and they may soon
be joined by Novartis (Exelon). Two biotechnology companies (Praecis and
Pharmaceutical Peptides, Inc.) appear to be pursuing the amyloid inhibitory
peptide approach similar in scope and direction as that of our Company, but
are not as far advanced in their efforts. Elan Pharmaceuticals, the
California based subsidiary of the Elan Corporation of Dublin, has developed
a vaccine designed to cause the immune system to mount antibodies against the
amyloid proteins that make up amyloid plaques. This vaccine has shown
efficacy in genetically altered mice but has yet to be tested in humans. To
our knowledge at this time, no other company has a program to develop
butyrylcholinesterase inhibitors. In the field of prions, one company,
Prionics, A.G., of Zurich, Switzerland, is focusing on the development of
diagnostic tests for animal use but does not have a program in therapeutics
for prion diseases.
Axonyx believes that its proprietary patent rights provide broad
based protection and cover superior pharmaceutical compounds based on unique
mechanisms.
E. FDA REGULATORY MATTERS
Regulation by governmental authorities in the United States and
foreign countries is an important factor in the development, manufacture and
marketing of the Company's proposed products. It is expected that all of the
Company's products will require regulatory approval by governmental agencies
prior to their commercialization. Human therapeutic products are subject to
rigorous preclinical and clinical testing and other approval procedures by
the Food and Drug Administration ("FDA") and similar regulatory agencies in
foreign countries.
Preclinical testing is generally conducted on animals in the
laboratory to evaluate the potential efficacy and the safety of a
pharmaceutical product. The results of these studies are submitted to the FDA
as a part of an Investigational New Drug (IND) application, which must be
approved before clinical testing in humans can begin. Typically, the clinical
evaluation process involves a three phase process. In Phase I, clinical
trials are conducted with a small number of human subjects to determine the
early safety profile, the pattern of drug distribution and metabolism. In
Phase II, clinical trials are conducted with groups of patients afflicted
with a specific disease to determine preliminary efficacy, the optimal
dosages, and more expansive evidence of safety. In Phase III, large scale,
multi-center, comparative clinical trials are conducted with patients
afflicted with a target disease in order to provide enough data to
demonstrate the efficacy and safety required by the FDA. The results of the
preclinical and clinical testing are submitted to the FDA in the form of a
New Drug Application (NDA) for approval to commence commercial sales. In
responding to an NDA, the FDA may grant marketing approval, request
additional information, or deny the application if the FDA
12
determines that the application does not satisfy its regulatory approval
criteria. There can be no assurance that approvals will be granted on a
timely basis, if at all. Similar regulatory procedures are in place in
countries outside the United States.
The Company will seek to move its lead compounds through the FDA
testing and approval process. Phenserine is ready, upon approval of an
Investigational New Drug application (IND) by the FDA, to be clinically
tested in humans. The IND on Phenserine was filed by Axonyx in 1998. The IND
for Phenserine has been put on clinical hold by the FDA pending the
correction of certain limited deficiencies in the IND application. In
response to the FDA's specifications Axonyx has completed additional
pharmacokinetic studies in animals, stability studies on the drug formulation
to be used in the Phase I clinical studies, and has obtained additional
documentation describing the Good Manufacturing Practices used in drug
formulation. The Company expects to begin Phase I human clinical trials for
Phenserine by the end of 1999. Cymserine is approximately one and a half
years behind Phenserine in preclinical development. The AIPs must undergo
approximately two more years of preclinical development before an IND can be
filed.
F. STRATEGIC ALLIANCES
On April 1, 1997 the Company entered into a Research and License
Agreement with New York University pursuant to which NYU granted the Company
an exclusive worldwide license to certain patent applications covering the
AIPs, PIPs and related technology, and any inventions that arise out of
ongoing research funded by the Company. See "Section H. Patents, Trademarks
and Copyrights". The patent license terminates, on a country-by-country
basis, upon expiration of the last to expire of the licensed patents or eight
years from the date of first commercial sale of a licensed product in such
country, whichever is later. In addition to royalties on future sales of
products developed from the patented technologies, milestone payments and
patent filing and prosecution costs, Axonyx Inc. undertook to fund four years
of research at the NYU School of Medicine at Dr. Frangione's laboratory at a
cost of $300,000 per year. The Company has an exclusive license to all
inventions in the field arising from this research on the AIPs and PIPs.
The Research and License Agreement also contains a provision by
which Axonyx Inc. 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. On August 25, 1998, NYU and Axonyx signed a Capitalization
Amendment by which the deadline for realization of the capitalization
requirement or its alternative was extended to April 1, 1999. On March 19,
1999, Axonyx signed a Second Amendment to the Research and License Agreement
with 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.
On May 19, 1999 Axonyx signed a Development Agreement and Right to
License (the "Development Agreement") between itself and 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
13
to license its patent rights and know-how regarding the the AIPs 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 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.
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
and PIPs, who performed professional services for Axonyx from February 1999
after his departure from New York University School of Medicine in December
1998 until May 1999. Dr. Soto will be continuing his work on development of
the AIP technology at Ares Serono under the Development Agreement.
Research involving the AIPs and PIPs is continuing at NYU School of
Medicine under the direction of Dr. Blas Frangione pursuant to the Company's
research and license agreement with NYU. This sponsored research is directed
towards advancing the preclinical development of the AIPs, PIPs and related
technology.
Research under the Company's licensing agreement with CURE, LLC has
continued at the NIA, furthering the preclinical development of Phenserine,
Cymserine, and related compounds. The Company is currently sponsoring one of
the researchers at the NIA facilities involved in this field of research. See
Section J: Employees, Independent Contractors, and Consultants.
G. MANUFACTURING, MARKETING AND SALES
The Company does not intend to manufacture or market any products it
may develop. The Company intends to license to, or enter into strategic
alliances with, larger pharmaceutical and veterinary companies that are
equipped to manufacture and/or market the Company's products through their
well developed distribution networks. The Company may license some or all of
its worldwide patent rights to more than one company to achieve the fullest
development, marketing and distribution of its products. It is necessary for
the Company to obtain limited quantities of its drug compounds for research
and clinical testing purposes. The raw materials necessary for formulation of
the Company's drug compounds for this purpose are readily available at a
reasonable cost to the Company.
14
H. PATENTS, TRADEMARKS, AND COPYRIGHTS
Patent protection of intellectual property, including pharmaceutical
compounds and their method of use, are extremely important for a company to
compete in the pharmaceutical industry. The Company has obtained exclusive
worldwide licenses to three patents issued by the United States Patent and
Trademark Office, and to two patent applications pending in the United
States. The Company is filing, in conjunction with one of its Licensors, a
patent application covering technology to be owned jointly by both parties.
The Company will continue to seek to obtain additional licenses from
universities and other research institutions.
On February 11, 1997, Axonyx Inc. obtained an exclusive worldwide
license from the NIA's parent agency, the Public Health Service ("PHS"), to
three patents technologies relating to Phenserine, Cymserine, their analogs
and related acetylcholinesterase and butyrylcholinesterase compounds from the
laboratory of Dr. Nigel Grieg and his collaborators via a sublicense with
CURE, LLC. Under the license agreement, Axonyx Inc. agreed to pay royalties
to CURE, LLC on future sales of products developed from the patented
technologies, as well as an up front fee, milestone payments and patent
filing and prosecution costs. All three patents have been issued in the
United States. Certain pass through provisions from the License Agreement
between CURE, LLC and the PHS are contained in the Company's License
Agreement with CURE, LLC. Those provisions cover certain reserved government
rights to the licensed patents, obligations to meet certain benchmarks and
perform a commercial development plan, as well as indemnification,
termination and modification of rights. The license terminates upon the last
to expire of the licensed patents or the term of the agreement between CURE,
LLC and the PHS, whichever occurs first. Patent applications corresponding to
these three patents have been filed in Europe, Japan, Australia, and Canada.
A pending patent application directed to highly selective
butyrylcholinesterase inhibitors resulting from a collaboration between Dr.
Hausman of Axonyx and Dr. Grieg of the NIA concerning certain therapeutic
uses for Cymserine has also been filed. This patent application is jointly
owned by the Company and the NIA. Additional patent applications concerning
new developments with Cymserine-related compounds and Phenserine-related
compounds are under preparation to be filed.
In April 1997, the Company obtained an exclusive worldwide license
from NYU to two U.S. patent applications and continuations thereof from the
laboratory of Dr. Blas Frangione at the New York University School of
Medicine covering the AIP and PIP technologies. The NYU patent applications
relate to the AIPs and PIPs. A patent application covering the AIPs and PIPs
has been filed in the United States, Europe, Japan, Australia, and Canada. In
addition, the Company has an exclusive license to all inventions in the field
arising from ongoing research.
The Company has not filed for any copyright or trademark protection
to date. The following is a breakdown of the issued and pending patents the
Company has acquired rights to
15
ISSUED PATENTS
U.S. Patent #5,171,750 issued December 15, 1992 for "Substituted Phenserines
as Specific Inhibitors of Acetylcholinesterase". This patent expires December
15, 2009.
U.S. Patent #5,378,723 issued January 3, 1995 for "Carbamate Analogs of
Triophysovemine and Method for Inhibiting Cholinesterases". This patent
expires January 3, 2012.
U.S. Patent #5,409,948 issued April 25, 1995 for "Method for Treating
Cognitive Disorders with Phenserine". This patent expires December 15, 2009.
PATENTS PENDING
Note that there can be no assurance that corresponding patents will
be issued or that the scope of the coverage claimed in the following patent
applications will not be significantly reduced prior to any patent being
issued.
NYU filed a United States patent application entitled "PEPTIDES AND
PHARMACEUTICAL COMPOSITIONS THEREOF FOR TREATMENT OF DISORDERS OR DISEASES
ASSOCIATED WITH ABNORMAL PROTEIN FOLDING INTO AMYLOID OR AMYLOID-LIKE
DEPOSITS." on June 6, 1995. Applicants: Claudio Soto, Marc Baumann, Blas
Frangione.
The NIH/NIA filed U.S. Patent Application Serial No. 08/096,207, on
July 26, 1993, entitled, "Phenylcarbamates of (-)-Eseroline,
(-)-N1-Noreseroline and (-)-N1-Benzylnoreseroline: Selective Inhibitors of
Acetyl and/or Butyrylcholinesterase." Inventors: Brossi et al (NIA and
NIDDK). This patent application is presently pending before the Board of
Appeals of the U.S. Patent Office and contains claims directed to three novel
compounds: (-)-2-methylphenylcarbamoyl, N1-noreseroline, N1 bezylnoreseroline
and their pharmaceutically acceptable salts. Further claims are directed to
pharmaceutical compositions containing at least one of such compounds and
methods of inhibiting acetylcholinesterase or treating cholinergic diseases
using such compounds.
The Company filed in July of 1998 an additional application co-owned
with the NIA entitled "HIGHLY SELECTIVE BUTYRYLCHOLINESTERASE INHIBITORS FOR
ALZHEIMER'S DISEASE." This patent application seeks to protect certain
butyrylcholinesterase inhibitor compounds and important platform technology
for their use in the early diagnosis and treatment of AD and related
conditions.
16
I. COMPETITION
The Company competes with many large pharmaceutical companies that
are developing drug compounds similar to those being developed by the
Company, especially in the area of acetylcholinesterase inhibitors. Many
large pharmaceutical companies and smaller biotechnology companies have well
funded research departments concentrating on therapeutic approaches to AD.
The Company expects to encounter substantial competition for many of the
principal pharmaceutical products it is developing, especially in the area of
acetylcholinesterase inhibitors. However, the Company is not aware of any
other commercial research programs in the area of butyrylcholinesterase
inhibitors, and it believes that its patent protection covering the AIPs, if
approved by the U.S. Patent Office, will offer broad based protection and
will provide the Company with a significant competitive advantage to its
competitors in that area.
In the intense competitive environment that is the pharmaceutical
industry, those companies that complete clinical trials, obtain regulatory
approval and commercialize their drug products first will enjoy competitive
advantages. The Company believes that the compounds covered by its patent
rights have unique characteristics that may enable them, if fully developed,
to have a substantial market impact.
J. EMPLOYEES, INDEPENDENT CONTRACTORS, CONSULTANTS
The Company currently has four full time employees, all of whom are
in administration/management. These employees are Marvin S. Hausman, M.D.,
President & CEO, Michael M. Strage, Vice President and Treasurer, Michael R.
Espey, Vice President and Secretary, and Linda Strascina, Director of
Corporate Communications and Investor Relations. The Company expects to hire
up to two more employees in 1999, in scientific management and support staff.
Dr. Tadanobu Utsuki, a pharmaceutical chemist who is collaborating
with Dr. Nigel Greig at the NIA on research concerning Phenserine and related
compounds, signed a Professional Services Agreement with the Company on
December 10, 1998 under which Dr. Utsuki performed research for the period
from October 1, 1998 to January 1, 1999. Dr. Utsuki continues to do research
for the Company on a month by month basis.
The Company has and will continue to make use of outside consultants
and advisors in the development of its pharmaceutical products. The Company
has entered into arrangements with eight consultants or advisors, five of
whom sit on the Company's Scientific Advisory Board. One of these
consultants, Robert Burford, Ph.D., F.A.C.A., the Company's Assistant Vice
President for Product Development, is directing the Company's cholinesterase
inhibitor drug program, currently aimed at obtaining FDA approval for the
initiation of Phase I clinical trials for Phenserine.
K. DESCRIPTION OF PROPERTY
The Company's operations are conducted from its offices in New York,
New York, Seattle, Washington and Stevenson, Washington. The Stevenson,
Washington facilities are
17
provided to the Company by an officer of the Company on a partial
reimbursement basis. The Company has leased office space in Seattle on a
three month renewable basis. The Company has leased office space in New York
for a one year period, renewable for an additional one year period.
The Company does not currently own and the Company has not made any
investments in real estate, including real estate mortgages, and the Company
does not intend to make such investments in the near future.
PART II
SELECTED FINANCIAL DATA
The financial information set forth below for the period ended
December 31, 1998 should be read in conjunction with the detailed information
in the financial statements and notes thereto appearing in Exhibits A - C.
The financial information set forth below for the period ended
December 31, 1998 and 1997 have been audited by Richard A. Eisner & Company,
LLP, independent certified public accountants.
SUMMARY FINANCIAL INFORMATION
January 9, 1997 January 9, 1997
For the Year (inception) (inception)
Ended through through
Dec. 31, 1998 Dec. 31, 1997 Dec. 31, 1998
------------- ---------------- ----------------
INCOME STATEMENT DATA:
Costs and Expenses:
Research and development $ 353,000 $ 482,000 $ 835,000
General and administrative 289,000 216,000 505,000
----------- ----------- -----------
Loss from operations (642,000) (698,000) (1,340,000)
Interest Expense (10,000) - (10,000)
----------- ----------- -----------
Net Loss $ (652,000) $ (698,000) $(1,350,000)
Net loss per common shares -
basic and diluted $ (0.07) $ (0.08)
Weighted average shares -
basic and diluted 9,886,000 9,230,000
December 31, December 31,
1998 1997
------------ ------------
BALANCE SHEET DATA:
Working capital/(deficiency) $2,193,000 $ 94,000
Total assets 94,000 31,000
Long-term debt 210,000 -
Shareholders equity/(deficit) $1,984,000 $ 32,000
18
PART III
DIRECTORS AND EXECUTIVE OFFICERS
The current executive officers, directors and significant employees of
the Company are as follows:
NAME AGE POSITION
- ---- --- --------
Marvin S. Hausman, M.D. 57 President & Chief Executive
Officer, Director
Albert D. Angel 62 Chairman of the Board
of Directors
Michael M. Strage 40 Vice President, Treasurer,
Director
Michael R. Espey 37 Vice President, Secretary,
Director
Christopher Wetherhill 50 Director
Each director is elected to hold office for a one year term or until
the next annual meeting of stockholders and until his successor is elected
and qualified. The officers of the Company serve at the pleasure of the
Company's Board of Directors (the "Board").
The following sets forth certain biographical information with
respect to the directors and executive officers of the Company.
MARVIN S. HAUSMAN, M.D. Marvin Hausman has served as a Director and President
& CEO of the Company since January 1999, and as a Director and President &
CEO of the predecessor company, Axonyx Inc., from January 1997 to December
1998. Dr. Hausman was a founder of Medco Research Inc., a pharmaceutical
biotechnology company specializing in adenosine products. He has thirty years
experience in drug development and clinical care. Dr. Hausman received his
medical degree from New York University School of Medicine in 1967 and has
done residencies in General Surgery at Mt. Sinai Hospital in New York, and in
Urological Surgery at U.C.L.A. Medical Center in Los Angeles. He also worked
as a Research Associate at the National Institutes of Health, Bethesda,
Maryland. He has been a Lecturer, Clinical Instructor and Attending Surgeon
at the U.C.L.A. Medical Center Division of Urology and Cedars-Sinai Medical
Center, Los Angeles. He has been a Consultant on Clinical/Pharmaceutical
Research to various pharmaceutical companies, including Bristol-Meyers
International, Mead-Johnson Pharmaceutical Company, Medco Research, Inc., and
E.R. Squibb. Since October 1995 Dr. Hausman has been the President of
Northwest Medical Research Partners, Inc., a medical technology and transfer
company. He was a member of the
19
board of directors of Medco Research, Inc. from May 1996 to July 1998. Dr
Hausman has been a member of the board of directors of Regent Assisted
Living, Inc., a company specializing in building assisted living centers
including care of senile dementia residents, since March 1996.
ALBERT D. ANGEL, ESQ. Albert Angel has served as Chairman of the Board of
Directors of the Company since January 1999 and served as Chairman of the
Board of Directors of the predecessor company, Axonyx Inc., from April 1997
to December 1998. Mr. Angel has more than 30 years of experience in the
pharmaceutical and biotechnology fields, primarily at Merck & Co., Inc. Mr.
Angel received his law degree from Yale Law School in 1960 and, after army
service, was with the firm of Hughes Hubbard Blair & Reed until 1967. Mr.
Angel joined Merck in 1967 as Latin American attorney and served successively
as European Counsel and International Counsel until 1977 when he relocated to
London as Vice-President of Merck Sharp & Dohme (Europe), Inc. During the
next 8 years he served first as Regional Director responsible for Merck's
Scandinavian businesses and then as Chairman and Managing Director of Merck
Sharp & Dohme Limited responsible for business activities in the United
Kingdom, Ireland and Anglophone Africa. From 1985 to 1993 Mr. Angel served as
Vice-President, Public Affairs for Merck & Co., Inc. Since 1993 Albert Angel
has been President of Angel Consulting and since November 1994 Mr. Angel has
been a partner in Naimark & Associates, both of which provide management,
marketing, planning and public affairs advice to pharmaceutical and
biotechnology companies. He is also vice-chair of the National Board of
Trustees of the National Jewish Medical and Research Center (Denver,
Colorado).
CHRISTOPHER WETHERHILL Christopher Wetherhill has served as a Director of the
Company since January 1999 and served as a Director of the predecessor
company, Axonyx Inc., from August 1997 to December 1998. From 1971 until 1977
he was the manager of the accounting and management services department at
Arthur Young & Co., now Ernst & Young, Bermuda. From 1977 to 1981, he was a
director and financial controller of Offshore Contractors (Bermuda) Limited,
a Bermuda company involved in offshore oil platform construction and
shipping. He is a Fellow of the Institute of Chartered Accountants in England
and Wales, a member of the Bermudian and Canadian Institutes of Chartered
Accountants, and a Fellow of the Institute of Directors and Freeman of the
City of London. Since September 21, 1994, Mr. Wetherhill has been the
managing director of Boundary Bay Investments Limited, a major shareholder of
the Company. Mr. Wetherhill is a chartered accountant and from September 1981
to June 1996, he WAS the President and Chief Executive Officer of Hemisphere
Management Limited of Bermuda, a corporate management company. From June 1996
to the present Mr. Wetherhill has been President & CEO of MRM Financial
Services Ltd. (the parent company of Hemisphere Management Limited).
MICHAEL M. STRAGE, ESQ. Mr. Strage has been a Director, Vice President and
Treasurer of the Company since January 1999 and was a Director and Vice
President of the predecessor company, Axonyx Inc., from January 1997 to
December 1998. He served as Axonyx Inc.'s Secretary from January 1997 until
September 1998, and as Treasurer until the merger in December 1998. Michael
Strage is an attorney with experience in corporate transactions, commercial
and securities law, and litigation. From August 1986 to March 1991 Mr. Strage
was an assistant district attorney at the Manhattan District Attorney's
office. From April 1991 until March 1996, Mr. Strage was an associate at the
Los Angeles law firm of Hancock, Rothert &
20
Bunschoft. From April 1996 to August 1998 Mr. Strage was an employee at Espey
& Associates, Inc., a New York firm, where he was involved in structuring
several transnational securities placements.
MICHAEL R. ESPEY, ESQ. Mr. Espey has been a Director, Vice President and
Secretary of the Company since January 1999 and was a Director and Vice
President of the predecessor company, Axonyx Inc., since January 1997. He
served as Axonyx Inc.'s Treasurer from January 1997 until September 1998, and
as Secretary until the merger in December 1998. Michael Espey is an attorney
based in Seattle, Washington with extensive experience in securities law and
investment banking. From October 1994 to December 1995 Mr. Espey served as
General Counsel for the securities firm of Lee, Van Dyk, Zivarts, Pingree &
Co. in Seattle. From January 1996 to March 1996 Mr. Espey was a self-employed
attorney practicing corporate and securities law. From April 1996 to August
1998 Mr. Espey worked at Espey & Associates, Inc. a New York firm where he
was involved in structuring several transnational securities placements.
Michael Strage is married to Michael Espey's sister. There are no
other family relationships between any of the officers and directors.
PART IV
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion and analysis should be read in conjunction
with the financial statements of the Company and the notes thereto appearing
in Exhibits A: Audited Financial Statements for December 31, 1998 and
Exhibits B and C: Unaudited Quarterly Financial Statements for March 31, 1999
and for June 30, 1999.
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, 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
(AIPs) 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 such as Ares Serono; and (4) work to develop other promising
compounds in-house and in collaboration with third parties such as its
current Licensors at New York University and the National Institute of Aging,
and through corporate joint ventures with
21
companies such as Ares Serono International, S.A., a subsidiary of which
signed a Development Agreement and Right to License Agreement with Axonyx in
May 1999. Axonyx intends to develop other 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.
While the Company has generated some revenue from its Development
Agreement with Ares Serono, it does not anticipate additional revenues during
its 1999 fiscal year. There can be no assurance that additional revenues from
patent licensing or research and development contracts will be generated.
A. PLAN OF OPERATION
The Company's predecessor Axonyx Inc. commenced operations in
January 1997. The Company is in the development stage, and its efforts have
been principally devoted to research and development activities and
organizational efforts, including the development of pharmaceutical compounds
and product candidates for the diagnosis and treatment of Alzheimer's
Disease, other forms of dementia, Bovine Spongiform Encephalopathy and
Creutzfeldt Jakob Disease, new variant, recruiting its scientific and
management personnel and advisors and raising capital.
The Company's plan of operation for the next 12 months will consist
of research and development and related activities aimed at:
(1) initiating Phase I clinical trials on its lead acetylcholinesterase
inhibitor, Phenserine. See Part I. Description of Business - Axonyx
Drug Discovery Programs - Program 1: Inhibitors of Acetylcholinesterase
and Beta-Amyloid Precursor Protein (Beta-APP) Formation.
(2) further preclinical development at the NIA of the other
acetylcholinesterase inhibitors, Tolserine and Thiatolserine, and
continued study of the activity of the Phenserine analogues.
(3) further preclinical development at the NIA of the butyrylcholinesterase
inhibitor, Cymserine and active analogues. See Part I. Description of
Business - Axonyx Drug Discovery Programs - Program 2: Inhibitors of
Butyrylcholinesterase and Beta-Amyloid Precursor Protein (Beta-APP)
Formation.
(4) further preclinical development of the Amyloid Inhibiting Peptides at
NYU and at Ares Serono, additional work at other facilities with IN
VIVO studies and development of a peptido-mimetic. See Part I.
Description of Business - Axonyx Drug Discovery Programs - Program 3:
Amyloid Inhibiting Peptides (AIPs).
22
(5) further preclinical development of the Prion Inhibiting Peptides at
NYU. See Part I. Description of Business - Axonyx Drug Discovery
Programs - Program 4: Prion Inhibiting Peptides (PIPs).
(6) hiring a product development director.
(7) seeking to establish additional strategic partnerships for the
development, marketing, sales and manufacturing of the Company's
proposed products. See Part I. Description of Business - Business
Strategy.
The actual research and development and related activities of the
Company may vary significantly from current plans depending on numerous
factors, including changes in the costs of such activities from current
estimates, the results of the Company's research and development programs,
the results of clinical studies, the timing of regulatory submissions,
technological advances, determinations as to commercial viability and the
status of competitive products. The focus and direction of the Company's
operations will also be dependent on the establishment of the Company's
collaborative arrangement with other companies, the availability of financing
and other factors.
B. 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 year ended December 31, 1998, the Company incurred a loss
from operations of $614,000 compared to a loss from operations of $698,000
for the period from January 9, 1997 (inception) through December 31, 1997.
For the year ended December 31, 1998 the Company incurred research
and development costs of $353,000 compared to $482,000 for the period from
inception to December 31, 1997. The higher expenses for 1997 were largely due
to initial expenses associated with the Company's licensing agreements with
NYU and CURE, LLC and the engagement of a consultant in 1997.
For the year ended December 31, 1998 the Company incurred general
and administrative costs of $261,000 compared to $216,000 for the period from
inception to December 31, 1997. The increase was due to an overall increase
in costs due to the Company's activities associated with patent support and
the Company's research and development activities.
For the three months ended June 30, 1999, the Company realized
revenue in the amount of $250,000 in the form of a fee from Ares Serono
pursuant to the Development Agreement and Right to License.
For the three months ended June 30, 1999 the Company incurred a loss
from operations of $411,000 compared to a loss from operations of $145,000
for the three months ended June 30, 1998. The Company incurred a loss from
operations of $901,000 for the six months ended June
23
30, 1999 compared to a loss from operations of $291,000 for the six months
ended June 30, 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 June 30, 1999 the Company incurred
research and development costs of $157,000 compared to $94,000 for the three
months ended June 30, 1998. The Company incurred research and development
costs of $278,000 for the six month period ended June 30, 1999 compared to
$180,000 for the six months ended June 30, 1998. The increase is due to the
engagement of additional consultants and a scientist.
For the period ended June 30, 1999 the Company incurred general and
administrative costs of $504,000 compared to $51,000 for the three months
ended June 30, 1998. The Company incurred general and administrative costs of
$873,000 for the six months ended June 30, 1999 compared to $111,000 for the
six months ended June 30, 1998. The increase is due to hiring employees, the
recognition of fair value of options issued to consultants and advisors, an
overall increase in costs due to the Company's activities associated with
patent support and promotional activities and the Company's activities
associated with research and development.
C. LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1999, the Company had $2,008,000 in cash and cash
equivalents. The Company does not have any available lines of credit. Since
inception the Company has financed its operations through loans from a
shareholder and from private placements of equity securities.
Pursuant to its present cost projections, the Company has determined
that it will require funding in the amount of approximately $2.2 million
through August 31, 2000, however thereafter the Company may need to raise
additional capital. In order to satisfy this funding requirement, during the
period between October 1998 and December 1998, the Company received net
proceeds of approximately $2.5 million from the sale of Units consisting of
1,030,000 shares of Common Stock and Common Stock Purchase Warrants to
purchase 1,030,000 shares of Common Stock at an exercise price of $3.75. In
addition, the Company received $250,000 in June 1999 in the form of a fee
from Ares Serono pursuant to the Development Agreement and Right to License.
The Company believes that it has sufficient capital resources to
finance the Company's plan of operation for at least the next 12 months ending
August 2000. The Company is currently undertaking a $5 million equity
placement of units composed of shares of common stock and common stock
purchase warrants, and is pursuing sub-licensing and other collaborative
arrangements that may generate additional capital for the Company. As of
August 18, 1999, proceeds in the amount of $1,200,000.00 have been received by
the Company in relation to its current equity private placement. However,
there can be no assurance that the Company will generate sufficient additional
revenues, if any, to fund its operations beyond this 12 month period ended
August 31, 2000, that the current equity financing will continue to be
successful, or that other potential financings through bank borrowings, debt
or equity offerings, or otherwise, will be available on acceptable terms or at
all.
24
PART V
MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND OTHER
STOCKHOLDER MATTERS
The Company's Common Stock is traded on the OTC Bulletin Board under
the symbol "AXYX" and commenced its trading under that symbol on January 4,
1999. Prior to the merger the Common Stock was quoted under the symbol "IONO"
with trading commencing beginning July 23, 1998. The following table sets
forth the high and low bid quotations for the Common Stock for the periods
indicated. These quotations reflect prices between dealers, do not include
retail mark-ups, mark-downs, and commissions and may not necessarily
represent actual transactions. These bid quotations have been adjusted
retroactively by the pre-merger company Ionosphere, Inc.'s one for two
reverse stock split in conjunction with the merger on December 28, 1998 and
the Company's two for one forward stock split of February 23, 1999.
Period High Low
- ------ ----- ------
Third Quarter ended 9/30/98 $ 3.00 $0.25
Fourth Quarter ended 12/31/98 $ 5.50 $0.25
First Quarter ended 3/31/99 $ 9.25 $2.50
Second Quarter ended 6/30/99 $11.00 $6.00
July 1, 1999 to August 18, 1999 $ 9.25 $6.75
The transfer agent of the Company is Nevada Agency and Trust
Company, 50 West Liberty Street, Suite 880, Reno, Nevada 89501.
As of August 25, 1999 there were approximately 347 holders of record
of the Company's Common Stock, of which 12,626,002 were issued and
outstanding.
The Company has never paid cash dividends on its Common Stock. The
Company presently intends to retain future earnings, if any, to finance the
expansion of its business and does not anticipate that any cash dividends
will be paid in the foreseeable future. The future dividend policy will
depend on the Company's earnings, capital requirements, expansion plans,
financial condition and other relevant factors.
PART VI
MARKET RISK DISCLOSURES
The pre-merger company, Ionosphere did not hold any market risk
sensitive instruments during the last fiscal year of 1998. Ionosphere did
briefly hold a fixed rate Note Recievable in the amount of $45,000 and a
$260,000 Deed of Trust that bore no interest rate during 1998. Neither
instrument was held by Ionosphere, Inc. at the time of the merger with Axonyx
Inc. on December 28, 1998.
25
The predecessor company, Axonyx Inc. did not hold any market risk
sensitive instruments during the 1998 fiscal year. Axonyx Inc., as of
December 31, 1998 held certificates of deposits at two institutions in the
amount of $900,000. Those certificates of deposit earn fixed rates of
interest between 3.20% and 4.35%. As of June 30, 1999, the Company held
certificates of deposit in four institutions in an aggregate amount of
$1,019,000, each earning fixed rates of interest. In addition, the Company
maintains a money market account which, as of June 30, 1999, held the sum of
$452,000.
PART VII
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
Pursuant to the merger between Ionosphere, Inc. and Axonyx Inc., the
management of the Company decided, on a post merger basis, to retain Richard
A. Eisner & Company, LLC ("RAE") as independent auditors of the Company. RAE
had audited the financial statements of Axonyx Inc. for the fiscal year ended
December 31, 1997. The Board of Directors of Axonyx Inc. appointed RAE as
accountants for the Company on December 1, 1998 to audit the financial
statements of the Company for the year ending December 31, 1998. This
decision was ratified at a Special Meeting of Stockholders of Axonyx Inc. on
December 28, 1998 concurrent with the consummation of the merger.
Barry L. Friedman, CPA of 1582 Tulita Drive, Las Vegas, NV 89123
audited the financial statements of Ionosphere, Inc. for various periods from
July 29, 1997 (inception) to May 21, 1998. During the engagement of Mr.
Friedman as independent auditors of Ionosphere, Inc., there were no
disagreements between the Company and either auditor on any matter accounting
principles or practices, financial statement disclosure or auditing scope or
procedure. Mr. Friedman noted Ionosphere, Inc.'s lack of operations and
revenue and its need for additional capital. These factors raised substantial
doubt about Ionosphere, Inc.'s ability to continue as a going concern. Mr.
Friedman services as Ionosphere, Inc.'s independent auditor was ended on
December 6, 1998 by Board of Directors resolution, the date on which James E.
Slayton, CPA, was appointed as Ionosphere, Inc.'s interim independent
auditor. The change of independent auditors was made on the basis of the
relative fees charged by each individual and the time constraints imposed by
the pending merger.
James E. Slayton, CPA of 3867 West Market St., Suite 208, Akron, OH
44333 audited the balance sheet of Ionosphere, Inc. as of November 30, 1998
and the statements of operations, stockholder's equity and cash flows for the
period January 1, 1998 to November 30, 1998. During the engagement of Mr.
Slayton as the independent auditor of Ionosphere, Inc., there were no
disagreements between the Company and Mr. Slayton on any matter of accounting
principles or practices, financial statement disclosure or auditing scope or
procedure. Mr. Slayton noted Ionosphere, Inc.'s lack of revenue and its need
for additional capital. These factors raised substantial doubt about
Ionosphere, Inc.'s ability to continue as a going concern.
26
ANY SHAREHOLDER THAT WISHES TO RECEIVE A COPY OF THE COMPANY'S AMENDED FORM
10-SB FILING AT NO CHARGE, SHOULD CONTACT MICHAEL R. ESPEY AT (206) 340-0211.
THE AMENDED FORM 10-SB, AS WELL AS ALL OF THE DOCUMENTS FILED BY THE COMPANY
WITH THE SECURITIES AND EXCHANGE COMMISSION, CAN BE VIEWED VIA LINKS IN THE
COMPANY'S WEBSITE AT WWW.AXONYX.COM.
EXHIBIT A
AUDITED FINANCIAL STATEMENTS
DECEMBER 31, 1998
AXONYX INC.
(a development stage company)
CONTENTS
PAGE
----
FINANCIAL STATEMENTS
Independent auditors' report F-2
Balance sheet as of December 31, 1998 F-3
Statements of operations for the year ended December 31, 1998,
and for the periods from January 9, 1997 (commencement of
operations) through December 31, 1997 and through
December 31, 1998 F-4
Statements of changes in stockholders' equity for the year ended
December 31, 1998 and for the periods from January 9, 1997
(commencement of operations) through December 31, 1997 and
through December 31, 1998 F-5
Statements of cash flows for the year ended December 31, 1998,
and for the periods from January 9, 1997 (commencement of
operations) through December 31, 1997 and through
December 31, 1998 F-6
Notes to financial statements F-7
F-1
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Axonyx Inc.
We have audited the accompanying balance sheet of Axonyx Inc. (a development
stage company) as of December 31, 1998 and the related statements of operations,
changes in stockholders' equity and cash flows for the year then ended, for the
periods from January 9, 1997 (commencement of operations) through December 31,
1997 and through December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements enumerated above present fairly, in all
material respects, the financial position of Axonyx Inc. as of December 31,
1998, and the results of its operations and its cash flows for the year then
ended, and for the periods from January 9, 1997 through December 31, 1997 and
through December 31, 1998, in accordance with generally accepted accounting
principles.
New York, New York
February 15, 1999
With respect to Note G[5]
February 23, 1999
F-2
AXONYX INC.
(a development stage company)
BALANCE SHEET
DECEMBER 31, 1998
ASSETS
Current assets:
Cash and cash equivalents $ 1,558,000
Stock subscriptions receivable 750,000
Other assets 4,000
------------
Total current assets 2,312,000
Equipment, net 1,000
------------
$ 2,313,000
------------
------------
LIABILITIES
Current liabilities:
Accrued expenses $ 119,000
Convertible notes payable and accrued interest 210,000
------------
Total liabilities 329,000
------------
Commitments
STOCKHOLDERS' EQUITY (Note A)
Preferred stock - $.001 par value, 5,000,000 shares authorized; none issued
Common stock - $.001 par value, 25,000,000 shares authorized; 12,220,002 shares issued
and outstanding 12,000
Additional paid-in capital 3,363,000
Unearned compensation - stock/options (41,000)
Deficit accumulated during the development stage (1,350,000)
------------
Total stockholders' equity 1,984,000
------------
$ 2,313,000
------------
------------
SEE NOTES TO FINANCIAL STATEMENTS
F-3
AXONYX INC.
(a development stage company)
STATEMENTS OF OPERATIONS
JANUARY 9, 1997
(COMMENCEMENT OF
OPERATIONS) THROUGH
YEAR ENDED DECEMBER 31,
DECEMBER 31, -----------------------------
1998 1997 1998
------------ ------------ ------------
Costs and expenses:
Research and development $ 353,000 $ 482,000 $ 835,000
General and administrative 289,000 216,000 505,000
------------ ------------ ------------
Loss from operations (642,000) (698,000) (1,340,000)
Interest expense (10,000) 0 (10,000)
------------ ------------ ------------
NET LOSS/COMPREHENSIVE LOSS $ (652,000) $ (698,000) $ (1,350,000)
------------ ------------ ------------
------------ ------------ ------------
NET LOSS PER COMMON SHARE-BASIC AND DILUTED $ (.07) $ (.08)
------------ ------------
------------ ------------
WEIGHTED AVERAGE SHARES-BASIC AND DILUTED 9,886,000 $ 9,230,000
------------ ------------
------------ ------------
SEE NOTES TO FINANCIAL STATEMENTS
F-4
AXONYX INC.
(a development stage company)
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Note A)
COMMON STOCK DEFICIT
------------------------ UNEARNED ACCUMULATED
NUMBER ADDITIONAL COMPENSATION - DURING THE TOTAL
OF PAID-IN STOCK/ DEVELOPMENT STOCKHOLDERS'
SHARES AMOUNT CAPITAL OPTIONS STAGE EQUITY
------------ --------- ------------ --------------- ------------- -------------
Issuance of founders'
common stock at $.001
per share 7,900,000 $ 8,000 $ (6,000) $ 2,000
Issuance of common
stock - March 5, 1997
at $.40 per share 1,000,000 1,000 399,000 400,000
Issuance of common
stock to New York
University and scientists
at $.40 per share for
services - April 1, 1997 600,000 1,000 239,000 240,000
Common stock issued to
officer - August 27, 1997 500,000 190,000 $ (190,000) 0
Stock options granted 57,000 (57,000) 0
Amortization 88,000 88,000
Net loss $ (698,000) (698,000)
------------ --------- ------------ --------------- ------------- -------------
BALANCE - DECEMBER 31,
1997 10,000,000 10,000 879,000 (159,000) (698,000) 32,000
Issuance of common stock
and warrants (net of
expenses of $16,000)
October 9, 1998 to
December 31, 1998 at
$25,000 per unit 1,020,000 1,000 2,533,000 2,534,000
Shares deemed issued to
stockholders (net
of costs of $52,000) -
December 28, 1998 1,200,002 1,000 (49,000) (48,000)
Amortization 118,000 118,000
Net loss (652,000) (652,000)
------------ --------- ------------ --------------- ------------- -------------
BALANCE - DECEMBER 31,
1998 12,220,002 $ 12,000 $ 3,363,000 $ (41,000) $ (1,350,000) $ 1,984,000
------------ --------- ------------ --------------- ------------- -------------
------------ --------- ------------ --------------- ------------- -------------
SEE NOTES TO FINANCIAL STATEMENTS
F-5
AXONYX INC.
(a development stage company)
STATEMENTS OF CASH FLOWS
JANUARY 9, 1997
(COMMENCEMENT OF
OPERATIONS) THROUGH
YEAR ENDED DECEMBER 31,
DECEMBER 31, ---------------------------
1998 1997 1998
------------- ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (652,000) $ (698,000) $ (1,350,000)
Adjustments to reconcile net loss to net cash used in
operating activities:
Amortization 118,000 88,000 206,000
Cost of services paid with common stock 240,000 240,000
Depreciation 1,000 1,000
Changes in:
Accrued expenses and interest 67,000 62,000 129,000
------------- ------------ ------------
Net cash used in operating activities (467,000) (307,000) (774,000)
------------- ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment (2,000) (2,000)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from convertible notes payable 200,000 200,000
Net proceeds from issuance of common stock and warrants 1,854,000 332,000 2,186,000
Cost of merger (52,000) (52,000)
------------- ------------ ------------
Net cash provided by financing activities 2,002,000 332,000 2,334,000
------------- ------------ ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 1,535,000 23,000 1,558,000
Cash and cash equivalents at beginning of period 23,000 0 0
------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,558,000 $ 23,000 $ 1,558,000
------------- ------------ ------------
------------- ------------ ------------
SEE NOTES TO FINANCIAL STATEMENTS
F-6
AXONYX INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE A - THE COMPANY
lonosphere, Inc. ("lonosphere"), an inactive corporation, was incorporated in
the State of Nevada on July 29, 1997. Effective December 28, 1998, Axonyx Inc.
("Axonyx" or the "Company"), a Delaware corporation (formed September 1996),
merged into Ionosphere, an inactive corporation. The merger was consummated
through an exchange of shares that resulted in the former Axonyx stockholders
receiving control of Ionosphere (see below for further discussion). The merger
has been treated as a capital transaction for accounting purposes. In connection
therewith, Axonyx's historic capital accounts were retroactively adjusted to
reflect the equivalent number of shares issued by Ionosphere in the transaction
while Axonyx's historical accumulated deficit was carried forward. The
operations reflect those of Axonyx from the commencement of its operations
(January 9, 1997). On December 28, 1998, Ionosphere changed its name to Axonyx
Inc. Through December 31, 1998, the Company has been in the development stage
and has conducted no revenue producing activities. The Company's efforts are
devoted to the discovery, development and acquisition of proprietary
pharmaceutical compounds and new technologies useful for the treatment of
cognitive disorders including Alzheimer's Disease. In September 1996, the
Company obtained an assignment of an option to negotiate a research and license
agreement with New York University. The agreement covers the exclusive worldwide
rights to a research project entitled "A New Therapeutic Approach for
Alzheimer's Disease: Design of Anti-Amyloid Inhibitors of Amyloidogenesis" (see
Note C). In addition, the assignment included the rights to acquire a license to
certain proprietary bio-medical technology, patents and related intellectual
property concerning an early stage compound known as "Phenserine" (see Note D).
3,300,000 shares of common stock were issued in exchange for these assignments
of option rights.
As discussed above, the merger between Axonyx and Ionosphere is accounted for as
a recapitalization. In accordance with the merger, Ionosphere issued 11,020,000
shares of its capital stock and 1,020,000 stock purchase warrants to the
stockholders of Axonyx in exchange for the outstanding common shares and
warrants of Axonyx.
The Company is subject to those risks associated with development stage
companies. The Company has sustained recurring losses since inception and
additional financing will be required by the Company to fund its research and
development activities and to support operations. However, there is no assurance
that the Food and Drug Administration will grant approval to the Company's
products or that profitable operations can be attained.
NOTE B - SIGNIFICANT ACCOUNTING POLICIES
[1] CASH EQUIVALENTS:
The Company considers all short-term investments with a maturity of three
months or less to be cash equivalents.
[2] EQUIPMENT:
Equipment is carried at cost less an allowance for depreciation.
Depreciation is recorded using the straight-line method over its
estimated useful life of five years.
[3] RESEARCH, DEVELOPMENT AND PATENT:
Research and development costs including certain costs related to patent
applications are charged to operations as incurred.
F-7
AXONYX INC.
(a development stage company)
NOTE B - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
[4] USE OF ESTIMATES:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that effect 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 reported period. Actual results could differ from those
estimates.
[5] STOCK-BASED COMPENSATION:
The Company accounts for its employee stock-based compensation plans
using the intrinsic value method prescribed by Accounting Principles
Board Opinion No. 25 ("APB 25"), "Accounting for Stock Issued to
Employees" and discloses the pro forma effects on net loss had the fair
value of options been expensed. Under the provisions of APB 25,
compensation cost for stock options is measured as the excess, if any, of
the fair value of the Company's common stock at the date of the grant
over the amount an employee must pay to acquire the stock.
[6] FAIR VALUE OF FINANCIAL INSTRUMENTS:
The carrying value of cash and accrued expenses approximates their fair
value due to the short period to maturity of these instruments. The fair
value of the convertible notes payable are not readily determinable due
to the related party nature of those instruments.
[7] NET LOSS PER COMMON SHARE:
Statement of Financial Accounting Standards No.128, "Earnings Per Share"
("SFAS 128") requires the reporting of basic and diluted earnings/loss
per share. Basic loss per share is calculated by dividing net loss by the
weighted average number of outstanding common shares during the year. As
all potential common shares are anti-dilutive, the effects of options,
warrants and convertible securities are not included in the calculation
of diluted loss per share.
[8] RECENT PRONOUNCEMENTS:
The Financial Accounting Standards Board has recently issued Statements
of Financial Accounting Standards No. 129, "Disclosure of Information
about Capital Structure," No. 130, "Reporting Comprehensive Income" and
No. 131, "Disclosures about Segments of an Enterprise and Related
Information." The Company believes that the above pronouncements will not
have a significant effect on the information presented in the financial
statements.
NOTE C - AGREEMENT WITH NEW YORK UNIVERSITY ("NYU")
In April 1997, the Company entered into a research and license agreement with
NYU, as amended to provide funding and sponsor the research relating to the
diagnosis and treatment of Alzheimer's Disease and other amyloidosis disorders,
in exchange for a payment of $25,000 upon signing of the agreement, sixteen
consecutive quarterly payments of $75,000 beginning on April 1, 1997, and
600,000 shares of common stock with a fair value of $240,000 (issued to NYU and
its scientists, collectively "NYU stockholders"). The agreement also provides
for
F-8
AXONYX INC.
(a development stage company)
NOTE C - AGREEMENT WITH NEW YORK UNIVERSITY ("NYU") (CONTINUED)
payments to NYU aggregating $175,000 upon achieving certain clinical and
regulatory milestones. In addition, the Company has agreed to pay NYU
royalties of up to 4% of net product sales under the agreement with minimum
royalty payments of $150,000 beginning January 1, 2003 through the expiration
or termination of the agreement, as defined. Further, the Company is required
to use its best efforts to raise an aggregate of $5,000,000 through one or
more private placements of equity securities prior to April 1999, (excluding
grace period) under the terms of its amended agreement with NYU. As of
December 31, 1998, the Company has raised approximately $2,950,000 in equity
financing.
Since entering into the agreement, the Company has paid $550,000 to NYU.
NOTE D - AGREEMENT WITH CURE, L.L.C. ("CURE")
On February 27, 1997, the Company entered into a sub-license agreement ("CURE
Agreement") with CURE where the Company would receive the rights covering the
patents that CURE obtained through the "PHS Patent License Agreement-Exclusive"
it entered into with the Public Health Service. The CURE Agreement provided for
a payment of $15,000 upon signing of the agreement and a payment of $10,000 six
months after the signing of the agreement. The CURE Agreement also provides for
payments to CURE aggregating $600,000 when certain clinical and regulatory
milestones are achieved. In addition, the Company has agreed to pay CURE
royalties of up to 3% of net product sales and sub-license royalties as defined
under the agreement, with minimum annual royalty payments of $10,000 beginning
on January 31, 2000 increasing to $25,000 per annum on commencement of sales of
the product until the expiration or termination of the agreement. Any royalty
payments made to CURE shall be credited against the minimum payments.
Since entering into the agreement, the Company has paid $25,000 to CURE.
NOTE E - INCOME TAXES
At December 31, 1998, the Company has available for federal income tax purposes
a net operating loss carryforward of approximately $427,000, expiring through
2012, that may be used to offset future taxable income. Approximately $46,000 of
such net operating loss carryforward is subject to an annual limitation as a
result of merger referred to in Note A.
The deferred tax consequences of temporary differences in reporting items for
tax and financial accounting purposes at December 31, 1998 result primarily
from certain expenses, aggregating $727,000 relating to research and
development which is not currently deductible. At December 31, 1998 and 1997,
the Company has deferred tax assets of approximately $466,000 and $222,000.
The Company has not recorded a benefit from its net operating loss
carryforward or expenses not currently deductible because realization of the
benefit is uncertain and, therefore, a valuation allowance of $466,000 has
been provided for the deferred tax asset.
NOTE F - RELATED PARTY TRANSACTIONS
During 1998 and 1997, a stockholder provided the Company the use of facilities.
There was no charge for such utilization of space. In addition, other
stockholders provided administrative support services to the Company without
remuneration. Such transactions were not material for the year ended December
31, 1998 and for the period from January 9, 1997 to December 31, 1997.
F-9
AXONYX INC.
(a development stage company)
NOTE F - RELATED PARTY TRANSACTIONS (CONTINUED)
In April and September of 1998, the Company issued convertible notes for an
aggregate of $200,000 to a stockholder of the Company. The notes of $125,000 and
$75,000 are due May 1, 2000 and September 1, 2000, respectively and bear
interest at 9%. The Company may prepay the notes prior to maturity without
penalty provided written notice is given 30 days prior to prepayment. The notes
are convertible into common stock at $2 per share.
In September 1998, the Company entered into agreements with two executive
officers/stockholders for consulting services to be rendered to the Company.
Such arrangement provides for a base compensation of $7,000 per month through
December 31, 1998.
NOTE G - STOCKHOLDERS' EQUITY
[1] STOCKHOLDERS AGREEMENT:
Pursuant to a stockholders' agreement between NYU stockholders and
certain founding stockholders ("Founders"), such Founders may not
transfer any shares without written notice to NYU. In addition, Founders
shall not be granted registration rights unless NYU stockholders are
granted such rights on the same terms and conditions. Such agreement
terminates on an initial public offering.
[2] PRIVATE PLACEMENT:
During 1998, the Company sold 102 units in a private placement yielding
net proceeds of $2,534,000. Each unit consisted of 10,000 shares of
common stock and 10,000 warrants to purchase common stock (see Note
G[3]).
[3] WARRANTS:
At December 31, 1998 the Company has outstanding 1,020,000 warrants to
purchase common stock at $3.75 per share. Each warrant is exercisable
through October 1, 2001. The warrants are subject to call by the Company
if the average closing bid price of the Company's common stock is equal
to or greater than $7.50 per share for any consecutive thirty days.
[4] COMMON STOCK:
In August 1997, the Company granted an officer 500,000 shares of common
stock of which 250,000 shares vest through March 1, 1998 and thereafter
on a monthly basis through March 1, 1999. The Company valued these shares
at $190,000 which is being amortized over the vesting period. At December
31, 1998 437,446 shares were vested.
[5] STOCK SPLIT:
Effective February 23, 1999, the Company approved a 2 for 1 stock split
of its common stock. All share amounts in the accompanying financial
statements have been retroactively adjusted to reflect the stock split.
F-10
AXONYX INC.
(a development stage company)
NOTE G - STOCKHOLDERS' EQUITY (CONTINUED)
[6] STOCK OPTIONS:
The Company applies APB 25 and related interpretations in accounting for
its employee stock options. Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123") requires
the Company to elect either fair-value expense recognition or the
disclosure-only alternative for stock-based employee compensation. The
expense recognition provision encouraged by SFAS 123 would require
fair-value based financial accounting to recognize compensation expense
for the employee stock compensation plans. The Company has elected the
disclosure-only alternative.
During 1998, the Board of Directors and the stockholders of the Company
approved a Stock Option Plan ("1998 Plan") which provides for the
granting of options to purchase up to 2,000,000 shares of common stock,
pursuant to which officers, directors, advisors and consultants are
eligible to receive incentive and/or nonstatutory stock options. Options
granted under the 1998 Plan are exercisable for a period of up to 10
years from date of grant at an exercise price which is not less than the
fair value on date of grant, except that the exercise period of options
granted to a stockholder owning more than 10% of the outstanding capital
stock may not exceed five years and their exercise price shall be granted
at an option price not less than 110% of the fair value of the common
stock at date of grant. Vesting of 1998 Plan options varies from fully
vested at the date of grant to multiple year apportionment of vesting as
determined by the Board of Directors.
During the period ended December 31, 1997, Axonyx issued 150,000 options
at an exercise price below the fair value of the stock to a consultant.
Axonyx valued each of these options at $.38 representing the difference
between the fair value of the common stock and the option exercise price,
which will be amortized over the life of the respective agreements. In
connection with the merger, these options were exchanged for options
under the 1998 Plan with the same terms.
Disclosures required under SFAS 123 for employee stock options granted as
of December 31, 1998 and 1997 using the Black-Scholes option pricing
model prescribed by SFAS 123 are provided below.
The assumptions used and the weighted average information for the period
ended December 31, 1997 is as follows:
Risk-free interest rate 5.76 - 5.81
Expected dividend yield 0%
Expected live 10 years
Expected volatility 30%
Weighted average grant-date fair value of options
granted during the period $.38
Management has determined that accounting for stock-based compensation
under SFAS 123 would not have a significant effect on pro forma net loss
for the year ended December 31, 1998 and for the period ended December
31, 1997 as the actual charge based on the intrinsic value approximates
the fair value of the stock options.
F-11
AXONYX INC.
(a development stage company)
NOTE G - STOCKHOLDERS' EQUITY (CONTINUED)
[6] STOCK OPTIONS: (CONTINUED)
Stock option activity under the 1998 Plan is summarized as follows:
WEIGHTED
AVERAGE
EXERCISE
SHARES PRICE
--------- ----------
Options issued in exchange 150,000 $ .02
-------
-------
Options at end of year 150,000 .02
-------
-------
Options exercisable at end of year 105,000 .02
-------
-------
Weighted average remaining contractual life
(in years) at end of year 1.92
----
----
As of December 31, 1998, 1,850,000 options are available for future grant
under the 1998 Plan.
On January 13, 1999, the Company granted 580,600 options to employees and
consultants at exercise prices ranging from $2.88 to $3.11 per share under
the 1998 Plan.
In connection with the merger transaction (see Note A) the Company granted
a consultant 30,000 stock options outside the 1998 Plan. The options are
exercisable at $1.25 per share through January 5, 2001. In addition, the
options have certain piggyback registration rights.
In connection with the agreements entered into with NYU and its scientists
the Company granted certain options to purchase additional shares up to a
maximum of 6% of the outstanding shares of the Company at a purchase price
of $.001 per share. The option agreements provide for the purchase of
additional shares based on a formula when the Company's paid-in capital
reaches $5,000,000 and $10,000,000. The Company may be required to record
a charge to operations representing the fair value of the options when the
paid-in capital milestones are reached. For the period ended December 31,
1998 the options were not exercisable.
NOTE H - COMMITMENTS
In January 1998, the Company entered into a consulting agreement which required
a $5,000 payment upon signing and $5,000 plus the issuance of up to 2,000 shares
of common stock upon the achievement of certain milestones relating to
Phenserine. During 1998, $10,000 was paid to this consultant.
In February 1998, the Company contracted with an institution to provide certain
pharmaceutical services at a cost of $13,500. During 1998 the Company paid
$7,000 to this institution.
NOTE I - SUBSEQUENT EVENT
In January and February 1999, the Company collected the balance due on the
common stock subscription receivable.
F-12
EXHIBIT B
UNAUDITED FINANCIAL STATEMENTS
MARCH 31, 1999
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
AXONYX INC.
(a development stage company)
BALANCE SHEETS
March 31, December 31,
ASSETS 1999 1998
---------- ------------
(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
----------- -----------
Total current assets 1,968,000 2,312,000
Equipment, net 9,000 1,000
Other assets 7,000 -
----------- -----------
$ 1,984,000 $ 2,313,000
----------- -----------
----------- -----------
LIABILITIES
Current liabilities:
Accrued Expenses $ 95,000 $ 119,000
Convertible notes payable and accrued interest 215,000 210,000
----------- -----------
Total liabilities 310,000 329,000
----------- -----------
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)
----------- -----------
Total stockholders' equity 1,674,000 1,984,000
----------- -----------
$ 1,984,000 $ 2,313,000
----------- -----------
----------- -----------
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
----------- ------------ -------------
Costs and expenses:
Research and development $ 121,000 $ 86,000 $ 956,000
General and administrative 369,000 60,000 874,000
------------ ------------ ------------
Loss from operations $ (490,000) $ (146,000) $ (1,830,000)
Interest income/(expense)-net 9,000 - (1,000)
------------ ------------ ------------
Net loss $ (481,000) $ (146,000) $ (1,831,000)
------------ ------------ ------------
------------ ------------ ------------
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
----------- ----------- -----------
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
---------- ----------- -----------
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)
---------- ----------- -----------
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 -
---------- ----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,912,000 $ (41,000) $ 1,912,000
---------- ----------- -----------
---------- ----------- -----------
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.
EXHIBIT C
UNAUDITED FINANCIAL STATEMENTS
JUNE 30, 1999
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
AXONYX INC.
(a development stage company)
BALANCE SHEETS
June 30, December 31,
1999 1998
----------- ------------
(unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $2,008,000 $1,558,000
Stock subscription receivable -- 750,000
Other 20,000 4,000
----------- -----------
Total current assets 2,028,000 2,312,000
Equipment, net 9,000 1,000
Other assets 7,000 --
----------- -----------
$2,044,000 $2,313,000
----------- -----------
----------- -----------
LIABILITIES
Current liabilities:
Accounts payable and accrued expenses $121,000 $119,000
Convertible notes payable and accrued interest 219,000 210,000
----------- -----------
Total liabilities 340,000 329,000
----------- -----------
----------- -----------
STOCKHOLDERS' EQUITY
Preferred stock - $.001 par value, 5,000,000 shares authorized; none issued
Common Stock - $.001 par value, 25,000,000 shares authorized; 12,366,002 12,000 12,000
and 12,210,002 shares issued and outstanding, respectively.
Additional paid-in capital 4,750,000 3,363,000
Unearned compensation - stock/options (381,000) (41,000)
Deficit accumulated during development stage (2,677,000) (1,350,000)
----------- -----------
Total stockholders' equity 1,704,000 1,984,000
----------- -----------
$2,044,000 $2,313,000
----------- -----------
----------- -----------
See notes to the financial statements
AXONYX INC.
(a development stage company)
STATEMENTS OF OPERATIONS
(unaudited)
January 9,
1997
(inception)
Three Months ended Six months ended through
June 30, 1999 June 30, 1999 June 30,
1999 1998 1999 1998 1999
------------ ------------ ------------ ------------ ------------
Revenue $ 250,000 $ 250,000 $ 250,000
Costs and expenses:
Research and development 157,000 $ 94,000 278,000 $ 180,000 1,113,000
General and administrative 504,000 51,000 873,000 111,000 1,378,000
------------ ------------ ------------ ------------ ------------
661,000 145,000 1,151,000 291,000 2,491,000
------------ ------------ ------------ ------------ ------------
Loss from operations (411,000) (145,000) (901,000) (291,000) (2,241,000)
Interest income/(expense)-net 9,000 -- 18,000 -- 8,000
------------ ------------ ------------ ------------ ------------
Net loss $ (402,000) $ (145,000) $ (883,000) $ (291,000) $(2,233,000)
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Net loss per common share $ (0.03) $ (0.01) $ (0.07) $ (0.03)
Weighted average shares
basic and diluted 12,252,135 10,000,000 12,241,069 10,000,000
See notes to the financial statements
AXONYX INC.
(a development stage company)
STATEMENTS OF CASH FLOWS
(unaudited)
January 9,
1997
(inception)
Six months ended through
June 30, June 30,
1999 1998 1999
------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $ (883,000) $(291,000) $(2,233,000)
Adjustments to reconcile net loss to cash used in
operating activities:
Amortization 376,000 59,000 582,000
Cost of services paid with common stock 19,000 259,000
Depreciation 1,000 -- 2,000
Changes in:
other assets (23,000) (3,000) (23,000)
accrued expenses and interest 11,000 48,000 140,000
------------ ------------ ------------
Net cash used in operating activities (499,000) (187,000) (1,273,000)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment (9,000) -- (11,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from convertible notes payable 125,000 200,000
Net proceeds from issuance of common stock and warrants 958,000 70,000 3,144,000
Cost of merger -- -- (52,000)
------------ ------------ ------------
Net cash provided by financing activities 958,000 195,000 3,292,000
NET INCREASE IN CASH AND CASH EQUIVALENTS 450,000 8,000 2,008,000
Cash and cash equivalents at beginning of period 1,558,000 23,000 --
------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $2,008,000 $ 31,000 $ 2,008,000
------------ ------------ ------------
------------ ------------ ------------
See notes to the financial statements
AXONYX INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 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, SA
("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 nonrefundable fee for the right to license of
$250,000. The right to license has a one year term, renewable for an additional
one-year term upon payment of an additional $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 for the license agreement between the parties if Ares
Serono exercises its right to license.
On June 18, 1999 the Company issued 200,000 shares of restricted common stock to
Infusion Capital Investment Corporation ("ICIC") pursuant to a Consulting
Agreement under which ICIC and its affiliates undertook to perform certain
investor relations and corporate development services on behalf of the Company.
100,000 shares out of the 200,000 shares of common stock issued to ICIC were
placed in an escrow account pursuant to an Escrow Agreement dated June 11, 1999
by an between the Company, ICIC and Atlas, Pearlman, Trop & Borkson, the escrow
agent. The 100,000 shares of restricted common stock held in the escrow account
will be released to ICIC on December 11, 1999 unless the Company decides not to
extend ICIC's retention under the Consulting Agreement for an additional six
months. The shares issued to ICIC were valued at fair value.
(3) PRIVATE PLACEMENT:
In May 1999 the Company commenced a private placement of up to 200 units for
$25,000 per unit. Each unit consists of 4,000 shares of common stock an d 2,000
common stock purchase warrants to purchase one share of common stock at a price
of $11.00. The warrants expire August 1, 2004. Through June 30, 1999, the
Company had sold 8 units. Between June 30 and August 11, the Company sold an
additional 25 units.
PROXY
FOR THE 1999 ANNUAL MEETING
OF STOCKHOLDERS OF
AXONYX INC.
KNOW ALL MEN BY THESE PRESENTS: That the undersigned hereby
constitutes and appoints Michael Strage and Michael Espey with the power of
substitution, attorneys and proxies to appear and vote at an Annual Meeting
of Stockholders of Axonyx, Inc. to be held on September 17, 1999, at 10:00
a.m., at One Riverfront Plaza, 16th Floor, Newark, New Jersey 07102-5487, and
at any adjournments thereof, with all the powers the undersigned would
possess if personally present, including authority to vote on the matters
shown below in the manner directed and upon any other matter which may
properly come before the meeting.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
AXONYX INC. Except as specified to the contrary below, the shares represented
by this proxy will be voted FOR Proposals 1 and 2. The undersigned hereby
revokes any proxy previously given to vote such shares at the meeting or at
any adjournment.
Please return promptly in the enclosed envelope.
PLEASE MARK THE FOLLOWING WITH AN "X."
1. Directors recommend: a vote for each of the following nominee
directors #1 Albert D. Angel, #2 Marvin S. Hausman. M.D., #3 Michael
M. Strage, #4 Michael R. Espey, #5 Christopher Wetherhill
FOR ALL NOMINEES [ ]
WITHHOLD ALL NOMINEES [ ]
WITHHOLD AUTHORITY TO VOTE
FOR ANY INDIVIDUAL NOMINEE.
WRITE NUMBER(S) OF NOMINEE(S) BELOW.
-----------------------------------------------------
2. Ratification of the appointment of Richard A. Eisner & Co., LLP as
auditors of Axonyx Inc.'s financial statements for the fiscal year
ending December 31, 1999.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
PLEASE VOTE, DATE AND SIGN YOUR NAME(S) EXACTLY AS PRINTED ON THIS
PROXY, INDICATING WHERE APPLICABLE, OFFICIAL POSITION OR REPRESENTATIVE
CAPACITY.
---------------------------------------
Print Name
---------------------------------------
Signature
---------------------------------------
(Additional signature, if held jointly)
DATE: _______________________________________
PLEASE RETURN THIS PROXY IN THE POSTAGE PAID,
PRE-ADDRESSED ENVELOPE ENCLOSED.