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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
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[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR QUARTERLY PERIOD ENDED JUNE 30, 2001
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________ TO __________ .
COMMISSION FILE NUMBER 000-29959
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PAIN THERAPEUTICS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<Table>
DELAWARE 91-1911336
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
</Table>
416 BROWNING WAY, SOUTH SAN FRANCISCO, CA 94080
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(650) 624-8200
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of issuer's classes of
common stock, as of the latest practicable date.
<Table>
<Caption>
COMMON STOCK, $0.001 PAR VALUE 26,804,991 SHARES
------------------------------ -----------------
Class Outstanding at July 31, 2001
</Table>
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PAIN THERAPEUTICS, INC.
TABLE OF CONTENTS
<Table>
<Caption>
PAGE NO.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Condensed Balance Sheets -- December 31, 2000 and June 30,
2001...................................................... 1
Condensed Statements of Operations -- Three and Six Month
Periods Ended June 30, 2000 and 2001 and the Period from
May 4, 1998 (Inception) Through June 30, 2001............. 2
Condensed Statements of Cash Flows -- Six Month Periods
Ended June 30, 2000 and 2001 and the Period from May 4,
1998 (Inception) Through June 30, 2001.................... 3
Notes to Condensed Financial Statements..................... 4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 6
Item 3. Quantitative and Qualitative Disclosures About Market
Risk...................................................... 15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings........................................... 16
Item 2. Change in Securities and Use of Proceeds.................... 16
Item 3. Defaults Upon Senior Securities............................. 16
Item 4. Submission of Matters to a Vote of Security Holders......... 16
Item 5. Other Information........................................... 16
Item 6. Exhibits and Reports on Form 8-K............................ 16
Signatures............................................................. 17
</Table>
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PAIN THERAPEUTICS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED BALANCE SHEETS
(UNAUDITED)
<Table>
<Caption>
DECEMBER 31, JUNE 30,
2000 2001
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents................................. $ 78,926,830 $ 71,642,092
Interest receivable....................................... 445,326 255,406
Prepaid expenses.......................................... 400,667 66,883
------------ ------------
Total current assets.............................. 79,772,823 71,964,381
Property and equipment, net................................. 1,299,223 2,464,711
Other assets................................................ 75,000 75,000
------------ ------------
Total assets...................................... $ 81,147,046 $ 74,504,092
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 2,313,279 $ 1,343,296
Accrued liabilities....................................... 139,099 143,977
------------ ------------
Total liabilities................................. 2,452,378 1,487,273
------------ ------------
Stockholders' equity:
Preferred stock........................................... -- --
Common stock.............................................. 26,739 26,800
Additional paid-in-capital................................ 106,182,319 103,528,961
Deferred compensation..................................... (5,073,091) (2,727,562)
Notes receivable.......................................... (72,917) (165,917)
Deficit accumulated during the development stage.......... (22,368,382) (27,645,463)
------------ ------------
Total stockholders' equity........................ 78,694,668 73,016,819
------------ ------------
Total liabilities and stockholders' equity........ $ 81,147,046 $ 74,504,092
============ ============
</Table>
See accompanying notes to condensed financial statements.
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PAIN THERAPEUTICS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<Table>
<Caption>
MAY 4, 1998
THREE MONTHS ENDED SIX MONTHS ENDED (INCEPTION)
JUNE 30, JUNE 30, THROUGH
------------------------- -------------------------- JUNE 30,
2000 2001 2000 2001 2001
----------- ----------- ------------ ----------- ------------
Operating expenses:
Licensing fees.............. $ -- $ -- $ -- $ -- $ 100,000
Research and development.... 2,311,283 2,688,527 5,577,504 4,762,952 21,526,410
General and
administrative........... 1,435,263 1,230,438 4,222,029 2,444,861 10,967,954
----------- ----------- ------------ ----------- ------------
Total operating
expenses............... 3,746,546 3,918,965 9,799,533 7,207,813 32,594,364
----------- ----------- ------------ ----------- ------------
Operating loss........... (3,746,546) (3,918,965) (9,799,533) (7,207,813) (32,594,364)
Other income:
Interest income............. 233,455 835,113 478,505 1,931,132 4,951,701
----------- ----------- ------------ ----------- ------------
Net loss before income
taxes.................. (3,513,091) (3,083,852) (9,321,028) (5,276,681) (27,642,663)
Income tax expense............ 200 200 400 400 2,800
----------- ----------- ------------ ----------- ------------
Net loss................. (3,513,291) (3,084,052) (9,321,428) (5,277,081) (27,645,463)
Return to series C preferred
shareholders for beneficial
conversion feature.......... -- -- (14,231,595) -- (14,231,595)
----------- ----------- ------------ ----------- ------------
Loss available to common
shareholders................ $(3,513,291) $(3,084,052) $(23,553,023) $(5,277,081) $(41,877,058)
=========== =========== ============ =========== ============
Basic and diluted loss per
share....................... $ (0.62) $ (0.12) $ (4.14) $ (0.21)
=========== =========== ============ ===========
Weighted-average shares used
in computing basic and
diluted loss per share...... 5,654,076 25,029,157 5,684,491 24,718,634
=========== =========== ============ ===========
</Table>
See accompanying notes to condensed financial statements.
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PAIN THERAPEUTICS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<Table>
<Caption>
MAY 4, 1998
SIX MONTHS ENDED (INCEPTION)
JUNE 30, THROUGH
-------------------------- JUNE 30,
2000 2001 2001
----------- ----------- ------------
Cash flows from operating activities:
Net loss......................................... $(9,321,428) $(5,277,081) $(27,645,463)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization................. 20,348 71,581 121,276
Amortization of deferred compensation......... 2,716,526 (385,252) 7,262,861
Non-cash expense for options and warrants
issued...................................... 2,646,000 -- 2,767,829
Loss on disposal of property and equipment.... 2,729 49,684 52,413
Changes in operating assets and liabilities:
Interest receivable......................... 9,108 189,920 (255,406)
Prepaid expenses............................ (4,489) 333,784 (66,883)
Other assets................................ -- -- (75,000)
Accounts payable............................ 419,741 (969,983) 1,343,296
Accrued liabilities......................... -- 4,878 143,977
----------- ----------- ------------
Net cash used in operating activities.... (3,511,465) (5,982,469) (16,351,100)
----------- ----------- ------------
Cash flows used in investing activities:
Purchase of property and equipment............... (101,873) (1,286,753) (2,638,400)
----------- ----------- ------------
Cash flows from financing activities:
Proceeds from issuance of series B redeemable
convertible preferred stock, net.............. -- -- 9,703,903
Proceeds from issuance of series C redeemable
convertible preferred stock, net.............. 15,194,835 -- 15,194,835
Payments received (funding of) notes
receivable.................................... 7,500 (93,000) (37,517)
Deferred financing costs......................... (942,184) -- --
Proceeds from issuance of series A convertible
preferred stock, net.......................... -- -- 2,639,999
Proceeds from issuance of common stock........... 34,362 77,484 191,455
Proceeds from initial public offering, net....... -- -- 62,938,917
----------- ----------- ------------
Net cash provided by (used in) financing
activities............................. 14,294,513 (15,516) 90,631,592
----------- ----------- ------------
Net increase (decrease) in cash and cash
equivalents...................................... 10,681,175 (7,284,738) 71,642,092
Cash and cash equivalents at beginning of period... 9,339,669 78,926,830 --
----------- ----------- ------------
Cash and cash equivalents at end of period......... $20,020,844 $71,642,092 $ 71,642,092
=========== =========== ============
</Table>
See accompanying notes to condensed financial statements.
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PAIN THERAPEUTICS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. GENERAL
Pain Therapeutics, Inc. (a development stage enterprise) is a
clinical-stage specialty pharmaceutical company, which was incorporated on May
4, 1998. Since our inception in May 1998, we have licensed proprietary
technology from Albert Einstein College of Medicine and have devoted
substantially all of our resources to the development of a new generation of
opioid painkillers with improved clinical benefits, which are based on the
acquired technology. In the course of our development activities, we have
sustained operating losses and expect such losses to continue through the next
several years.
Our development activities involve inherent risks. These risks include,
among others, dependence on key personnel and determination of patentability of
our products and processes. In addition, we have product candidates, which have
not yet obtained U.S. Food and Drug Administration approval. Successful future
operations depend on our ability to obtain approval for and commercialize these
products.
We have prepared the unaudited financial statements included herein
pursuant to the rules and regulations of the Securities and Exchange Commission.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with accounting principles generally accepted
in the United States of America have been condensed or omitted pursuant to such
rules and regulations. In management's opinion, the accompanying financial
statements have been prepared on a basis consistent with the audited financial
statements and contain adjustments, all of which are of a normal and recurring
nature, necessary to present fairly our financial position and results of
operations. Interim financial results are not necessarily indicative of results
anticipated for the full year. These unaudited financial statements should be
read in conjunction with our audited financial statements and notes thereto
included in our Annual Report on Form 10-K for the year ended December 31, 2000
as filed with the Securities and Exchange Commission. Investors are encouraged
to review the Annual Report on Form 10-K for a broader discussion of the
Company's business and the opportunities and risks inherent in the Company's
business.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires that
management make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amount of expenses
incurred during the reporting period. Actual results could differ from those
estimates.
NOTE 2. LOSS PER SHARE
Basic loss per share is based on the weighted-average number of shares
outstanding for the reporting period, less the weighted-average shares
outstanding which are subject to the Company's right of repurchase. Diluted loss
per share is computed on the basis of the weighted-average number of common
shares plus potential dilutive common shares outstanding using the treasury
stock method. Potential dilutive common shares consist of convertible preferred
stock prior to conversion, common shares issued and outstanding subject to the
Company's repurchase rights, outstanding stock options and outstanding warrants.
For the three and six month periods ending June 30, 2000 and 2001, all potential
dilutive common shares were excluded from the calculation of diluted loss per
share because the representative share increments would be anti-dilutive. Upon
the closing of our initial public offering in July 2000, all of our convertible
preferred stock automatically converted into shares of common stock on a one to
one basis.
NOTE 3. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities ("SFAS 133"),
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PAIN THERAPEUTICS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
which establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. On January 1, 2001, we implemented SFAS 133. We currently
have no derivative instruments or hedging activities to report and the
implementation of SFAS 133 had no material effect on our results of operations
or financial position.
NOTE 4. 1998 STOCK PLAN
In accordance with the provisions of the 1998 Stock Plan, effective January
1, 2001 the number of shares of common stock authorized for issuance under the
1998 Stock Plan was increased from 4,700,000 to 6,000,000 shares.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This discussion and analysis should be read in conjunction with our
condensed financial statements and accompanying notes included in this report
and the audited financial statements and notes thereto included in our Annual
Report on Form 10-K for the year ended December 31, 2000 as filed with the
Securities and Exchange Commission. Operating results are not necessarily
indicative of results that may occur in future periods.
The following discussion contains forward-looking statements that are based
upon current expectations. Our actual results and the timing of events may
differ significantly from the results discussed in the forward-looking
statements. Examples of such forward-looking statements include, but are not
limited to, statements about future operating losses and anticipated operating
and capital expenditures, statements about future negative operating cash flows,
statements about expenses increasing substantially, statements about expected
future sources of revenues, statements about increases in our research and
development expenses, statements about the timing and progress of our clinical
trials, statements about future non-cash charges related to stock and option
grants to our employees and consultants, statements about the sufficiency of our
current resources to fund our operations for the next twelve months, statements
about increasing cash requirements, statements about anticipated hiring, and
statements about development of our internal systems and infrastructure. Such
forward looking statements involve risks and uncertainties, including, but not
limited to, those risks and uncertainties relating to difficulties or delays in
development, testing, regulatory approval, production and marketing of the
Company's drug candidates, unexpected adverse side effects or inadequate
therapeutic efficacy of the Company's drug candidates that could slow or prevent
product approval (including the risk that current and past results of clinical
trials are not necessarily indicative of future results of clinical trials), the
uncertainty of patent protection for the Company's intellectual property or
trade secrets and the Company's ability to obtain additional financing if
necessary. In addition such statements are subject to the risks and
uncertainties discussed elsewhere in this document and the "Risk Factors"
section of our Annual Report on Form 10-K for the year ended December 31, 2000
as filed with the Securities and Exchange Commission.
OVERVIEW
Pain Therapeutics, Inc. is developing a new generation of opioid
painkillers with improved clinical benefits. We use our technology to
reformulate existing opioid painkillers into new drugs which we believe offer
enhanced pain relief, fewer adverse side effects and reduced tolerance and
addiction compared to existing opioid painkillers. We currently have multiple
opioid painkillers in various stages of Phase II clinical trials.
We have yet to generate any revenues from product sales. We have not been
profitable and, since our inception, we have incurred a cumulative deficit of
$27.6 million through June 30, 2001. These losses have resulted principally from
costs incurred in connection with research and development activities, including
costs of clinical trials and clinical supplies associated with our product
candidates, salaries and other personnel related costs including the
amortization of non-cash deferred compensation associated with options granted
to employees and non-employees, and general corporate expenses.
We expect to incur additional operating losses for the next several years.
We also expect to continue to incur significant operating and capital
expenditures and anticipate that our expenses will increase substantially in the
foreseeable future as we:
- continue to undertake pre-clinical and clinical trials for our product
candidates;
- seek regulatory approvals for our product candidates;
- develop, formulate, manufacture and commercialize our drugs;
- implement additional internal systems and develop new infrastructure;
- acquire and in-license additional products or technologies, or expand the
use of our technology;
- maintain, defend and expand the scope of our intellectual property; and
- hire additional personnel.
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Product revenue will depend on our ability to receive regulatory approvals
for, and successfully market, our product candidates. In the event that our
development efforts result in regulatory approval and successful
commercialization of our product candidates, we will generate revenue from
direct sales of our products and/or, if we license our products to future
collaborators, from the receipt of license fees and royalties from licensed
products.
Sources of revenue for the foreseeable future may also include payments
from potential collaborative arrangements, including license fees, funded
research payments, milestone payments and royalties based on revenues received
from products commercialized under such arrangements.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2001 AND 2000
Research and Development
Research and development expense consists of drug development work
associated with our product candidates, primarily including costs of clinical
trials and clinical supplies, research payments to the Albert Einstein College
of Medicine and other personnel related expenses. Research and development
expenses were $2.7 million for the three months ended June 30, 2001 compared to
$2.3 million for the three months ended June 30, 2000. The increase was
primarily attributable to an increase in clinical development costs for our
product candidates as well as increases in salaries and other personnel related
costs associated with increased staffing in support of these activities,
partially offset by a decrease in amortization of deferred compensation (as
described below). We expect research and development expenses to increase
significantly over the next several years as we increase activity related to
development of our product candidates and enter into further clinical trials.
There will be continued future non-cash charges for the amortization of deferred
compensation related to options granted to employees and consultants.
General and Administrative
General and administrative expense consists primarily of salaries and other
personnel related expenses to support our activities, consulting and
professional services expenses, travel, facilities expenses and other general
corporate expenses. General and administrative expenses were $1.2 million for
the three months ended June 30, 2001 compared to $1.4 million for the three
months ended June 30, 2000. The decrease was primarily due to a decrease in
charges resulting from amortization of deferred compensation (as described
below), partially offset by increases in salaries and other personnel related
costs associated with increased staffing, consulting and professional services,
facilities and other general corporate expenses. There will be future non-cash
charges for the amortization of deferred compensation related to options granted
to employees and consultants.
Deferred Non-Cash Compensation
Deferred stock compensation for options granted to employees represents the
difference between the exercise price of the option and the fair value of our
common stock on the date of grant in accordance with Accounting Principles Board
Opinion No. 25 and its related interpretations. Deferred compensation for non-
employees is recorded at the fair value of the options granted in accordance
with Statement of Financial Accounting Standards No. 123 and is periodically
re-measured based on the Company's current stock price until the underlying
options vest in accordance with Emerging Issues Task Force No. 96-18. Deferred
compensation is amortized over the vesting period of the options granted.
In connection with the grant of stock options to employees as well as the
re-measurement of deferred stock compensation for grants of stock options to
non-employees, we recorded a decrease in deferred stock compensation of $1.1
million for the three month period ended June 30, 2001 compared to an increase
of $51,000 for the three month period ended June 30, 2000. These amounts were
recorded as a component of stockholders' equity and are being amortized as
charges to operations. We recognized non-cash stock compensation amortization
expense (credit) for options granted of ($0.3) million and $0.5 million in
research and development expense for the three months ended June 30, 2001 and
2000, respectively and $0.2 million
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and $1.0 million in general and administrative expense for the three months
ended June 30, 2001 and 2000, respectively.
Interest Income
Interest income increased to $0.8 million for the three months ended June
30, 2001 from $0.2 million for the comparable period ended June 30, 2000. The
increase resulted from higher average balances of cash and cash equivalents
following the completion in July 2000 of our initial public offering, with net
proceeds of $62.9 million.
SIX MONTHS ENDED JUNE 30, 2001 AND 2000
Research and Development
Research and development expenses were $4.8 million for the six months
ended June 30, 2001 compared to $5.6 million for the six months ended June 30,
2000. The net decrease was primarily due to a decrease in charges resulting from
stock issuance pursuant to restricted stock purchase agreements and the
amortization of deferred compensation (as described below), partially offset by
an overall increase in clinical development costs for our product candidates,
research and development payments to Albert Einstein College of Medicine as well
as increases in salaries and other personnel related costs associated with
increased staffing in support of these activities. We expect research and
development expenses to increase significantly over the next several years as we
increase our development efforts and our product candidates enter advanced
stages of clinical trials. There will be future non-cash charges for the
amortization of deferred compensation related to options granted to employees
and consultants.
General and Administrative
General and administrative expenses were $2.4 million for the six months
ended June 30, 2001 compared to $4.2 million for the six months ended June 30,
2000. The net decrease was primarily attributable to a decrease in charges
resulting from stock issuance pursuant to restricted stock purchase agreements
and the amortization of deferred compensation (as described below), partially
offset by increases in salaries and other personnel related costs associated
with increased staffing, consulting and professional services, facilities
expenses and other general corporate expenses. There will be future non-cash
charges for the amortization of deferred compensation related to options granted
to employees and consultants.
Deferred Non-Cash Compensation
In connection with the grant of stock options to employees as well as the
re-measurement of deferred stock compensation for grants of stock options to
non-employees, we recorded a decrease in deferred stock compensation of $2.7
million for the six months ended June 30, 2001 compared to an increase of $4.7
million for the six months ended June 30, 2000. These amounts were recorded as a
component of stockholders' equity and are being amortized as charges to
operations. We recognized non-cash stock compensation amortization expense
(credit) for options granted of ($0.8) million and $1.3 million in research and
development expense for the six months ended June 30, 2001 and 2000,
respectively and $0.4 million and $1.4 million in general and administrative
expense for the six months ended June 30, 2001 and 2000, respectively.
Interest Income
Interest income increased to $1.9 million for the six months ended June 30,
2001 from $0.5 million for the comparable period ended June 30, 2000. The
increase resulted from higher average balances of cash and cash equivalents
following the sale in February 2000 of our series C redeemable convertible
preferred stock, with net cash proceeds of $15.2 million, and the completion in
July 2000 of our initial public offering, with net proceeds of $62.9 million.
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Return to Series C Preferred Stockholders for Beneficial Conversion Feature
In February 2000 we issued 3,044,018 shares of series C redeemable
convertible preferred stock for $14.2 million, net of issuance costs. We
determined that our series C preferred stock was issued with a beneficial
conversion feature. The beneficial conversion feature has been recognized by
allocating a portion of the preferred stock proceeds equal to the intrinsic
value of that feature, limited to the net proceeds received ($14.2 million), to
additional paid-in capital. The intrinsic value is calculated at the date of
issue as the difference between the conversion price of the preferred stock and
the fair value of our common stock, into which the preferred stock is
convertible, multiplied by the number of common shares into which the preferred
stock is convertible, limited to the net proceeds received. As our series C
preferred stock was convertible into common stock at the option of the holder,
at the issuance date of the preferred stock the entire $14.2 million discount
resulting from the allocation of proceeds to the beneficial conversion feature
has been treated as a dividend and recognized as a return to the preferred
stockholders for purposes of computing basic and diluted loss per share in the
six month period ended June 30, 2000. Upon completion of our initial public
offering in July 2000, all of our convertible preferred and redeemable
convertible preferred stock automatically converted into common stock on a one
to one basis.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 2001, cash and cash equivalents were $71.6 million.
Currently, our cash and cash equivalents are primarily invested in money market
funds.
Net cash used in operating activities was $6.0 million for the six months
ended June 30, 2001 compared to $3.5 million for the six months ended June 30,
2000. Cash used in operating activities includes the funding of net operating
losses as adjusted for non-cash items.
Our investing activities used cash of $1.3 million for the six months ended
June 30, 2001 compared to $0.1 million for the six months ended June 30, 2000.
Investing activities consisted of purchases of property and equipment, including
the funding of tenant improvements in conjunction with the build-out of new
office space in the 2001 period. In April 2001 we completed the build-out of,
and relocated to, this facility. We expect to continue making investments in our
infrastructure to support our operations.
There were no significant financing activities in 2001. Our financing
activities provided cash of $14.3 million for the six months ended June 30,
2000, which included net cash proceeds of $15.2 million from the February 2000
issuance of our series C redeemable convertible preferred stock.
We expect our cash requirements to increase as we continue our development
efforts, implement additional internal systems and infrastructure, hire
additional personnel and expand our facilities. Additionally, as our clinical
development efforts grow we anticipate a significant cash requirement for
working capital growth, capital expenditures and investment in infrastructure.
The amount and timing of cash requirements will depend on regulatory and market
acceptance of our products, if any, and the resources we devote to researching
and developing, formulating, manufacturing, commercializing and supporting our
products. We believe that our current resources should be sufficient to fund our
operations for at least the next twelve months. However, we may require
additional financing within this timeframe and such additional funding, if
needed, may not be available on terms acceptable to us or at all. Further, any
additional equity financing may be dilutive to current shareholders.
RISK FACTORS
You should carefully consider the following risk factors and all other
information contained in this Form 10-Q and our Annual Report on Form 10-K for
the year ended December 31, 2000 as filed with the Securities and Exchange
Commission. Risks and uncertainties, in addition to those we describe below,
that are not presently known to us, or that we currently believe are immaterial
may also impair our business operations. If any of the following risks occur,
our business, operating results and financial condition could be seriously
harmed. In addition, the trading price of our common stock could decline due to
the occurrence of any of these risks.
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OUR BRIEF OPERATING HISTORY MAY MAKE IT DIFFICULT FOR YOU TO EVALUATE THE
SUCCESS OF OUR BUSINESS TO DATE AND TO ASSESS ITS FUTURE VIABILITY.
We were founded in May 1998 and we are still in the development stage. Our
operations to date have been limited to organizing and staffing our company,
acquiring, developing and securing our technology and undertaking preclinical
studies and clinical trials. We have not yet demonstrated our ability to obtain
regulatory approval, formulate and manufacture product or conduct sales and
marketing activities. Consequently, any predictions you make about our future
success or viability may not be as accurate as they could be if we had a longer
operating history.
WE HAVE A HISTORY OF LOSSES AND EXPECT TO INCUR SUBSTANTIAL LOSSES AND NEGATIVE
OPERATING CASH FLOWS FOR THE FORESEEABLE FUTURE.
Since our inception, we have incurred significant net losses. As a result
of ongoing operating losses, we had an accumulated deficit of $27.6 million as
of June 30, 2001. We are not currently profitable. Even if we succeed in
developing and commercializing one or more of our drugs, we expect to incur
substantial losses for the foreseeable future and may never become profitable.
We also expect to continue to incur significant operating and capital
expenditures and anticipate that our expenses will increase substantially in the
foreseeable future as we:
- continue to undertake preclinical and clinical trials for our product
candidates;
- seek regulatory approvals for our product candidates;
- develop, formulate, manufacture and commercialize our drugs;
- implement additional internal systems and develop new infrastructure;
- acquire and in-license additional products or technologies, or expand the
use of our technology;
- maintain, defend and expand the scope of our intellectual property; and
- hire additional personnel.
We also expect to experience negative cash flow for the foreseeable future
as we fund our operating losses and capital expenditures. As a result, we will
need to generate significant revenues to achieve and maintain profitability. If
we cannot successfully develop and commercialize our products, we will not be
able to generate such revenues or achieve profitability in the future. Our
failure to achieve or maintain profitability could negatively impact the market
price of our common stock.
IF WE CANNOT RAISE ADDITIONAL CAPITAL ON ACCEPTABLE TERMS, WE MAY BE UNABLE TO
COMPLETE PLANNED ADDITIONAL CLINICAL TRIALS OF ANY OR SOME OF OUR PRODUCT
CANDIDATES.
Until we receive regulatory approval and commercialize one or more of our
products, we will have to fund all of our operations and capital expenditures
from the net proceeds of our initial public offering and cash on hand. We expect
that the net proceeds of approximately $62.9 million from the public offering
and cash on hand will be sufficient to meet our working capital and capital
expenditure needs for at least the next twelve months. However, if we experience
unanticipated cash requirements, we may need to raise additional funds much
sooner and additional financing may not be available on favorable terms, if at
all. Even if we succeed in selling additional equity securities to raise funds,
our existing stockholders' ownership percentage would be reduced and new
investors may demand rights, preferences or privileges senior to those of
existing stockholders. If we do not succeed in raising additional funds, we may
be unable to complete planned clinical trials or obtain Food and Drug
Administration, or FDA, approval of our product candidates, and we could be
forced to discontinue product development, reduce sales and marketing efforts
and forego attractive business opportunities.
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IF WE ARE UNABLE TO DESIGN, CONDUCT AND COMPLETE CLINICAL TRIALS SUCCESSFULLY,
WE WILL NOT BE ABLE TO SUBMIT A NEW DRUG APPLICATION TO THE FDA.
In order to obtain FDA approval of any of our product candidates, we must
submit to the FDA a New Drug Application, or NDA, which demonstrates that the
product candidate is safe for humans and effective for its intended use. This
demonstration requires significant research and animal tests, which are referred
to as pre-clinical studies, as well as human tests, which are referred to as
clinical trials. Our leading product candidates are still in the early stages of
clinical trials and we will have to commit substantial time and additional
resources to conducting further pre-clinical and clinical studies addressing
several types of pain before we can submit NDAs with respect to any of these
product candidates. Initial clinical trials for our PTI-555, PTI-501, PTI-601
and PTI-701 product candidates are ongoing or were completed only recently. We
intend to continue to conduct Phase II trials for these and other product
candidates. We will not be able to proceed to Phase III clinical trials for any
product candidate until we determine appropriate dosages, submit such data to
the FDA and obtain FDA approval to begin Phase III studies. We recently filed an
Investigational New Drug application, or IND, for our PTI-801 product candidate
and plan to initiate clinical trials in 2001. Our other product candidates are
at a much earlier stage of development and will require extensive pre-clinical
testing before we can make any decision to proceed to clinical trials.
Human clinical trials are very expensive and difficult to design and
implement, in part because they are subject to rigorous regulatory requirements.
The clinical trial process is also time consuming. We estimate that clinical
trials of our leading product candidates will take several years to complete. If
we or the FDA believe the participating patients are being exposed to
unacceptable health risks, we would have to suspend our clinical trials.
Furthermore, failure can occur at any stage of the trials, and we could
encounter problems that cause us to abandon clinical trials or to repeat
clinical studies.
Even if our clinical trials are completed as planned, their results may not
support our product claims. Success in pre-clinical testing and early clinical
trials does not ensure that later clinical trials will be successful, and the
results of later clinical trials may not replicate the results of prior clinical
trials and pre-clinical testing. The clinical trial process may fail to
demonstrate that our product candidates are safe for humans and effective for
indicated uses. Such failure would cause us to abandon a product candidate and
may delay development of other product candidates.
IF WE FAIL TO OBTAIN THE NECESSARY REGULATORY APPROVALS, WE WILL NOT BE ALLOWED
TO COMMERCIALIZE OUR DRUGS AND WILL NOT GENERATE PRODUCT REVENUES.
Satisfaction of all regulatory requirements typically takes many years, is
dependent upon the type, complexity and novelty of the product candidate and
requires the expenditure of substantial resources for research and development
and testing. Our research and clinical approaches may not lead to drugs that the
FDA considers safe for humans and effective for indicated uses. The FDA may
require us to conduct additional clinical testing or to commit to perform
post-marketing studies, in which cases we would have to expend additional
unanticipated time and resources. The approval process may also be delayed by
changes in government regulation, future legislation or administrative action or
changes in FDA policy that occur prior to or during our regulatory review.
Delays in obtaining regulatory approvals may:
- delay commercialization of, and product revenues from, our product
candidates;
- impose costly procedures on us; and
- diminish any competitive advantages that we may otherwise enjoy.
Even if we comply with all FDA requests, the FDA may ultimately deny one or
more of our NDAs, and we may never obtain regulatory approval for any of our
product candidates. If we fail to achieve regulatory approval of any of our
leading product candidates we will have fewer saleable products and
corresponding product revenues. Even if we receive regulatory approval of our
products, such approval may involve limitations on the indicated uses or
marketing claims we may make for our products. Further, later discovery of
previously unknown problems could result in additional regulatory restrictions,
including withdrawal of products.
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In foreign jurisdictions, we must receive marketing authorizations from the
appropriate regulatory authorities before we can commercialize our drugs.
Foreign regulatory approval processes generally include all of the requirements
and risks associated with the FDA approval procedures described above.
IF PHYSICIANS AND PATIENTS DO NOT ACCEPT AND USE OUR DRUGS, WE WILL NOT ACHIEVE
SUFFICIENT PRODUCT REVENUES AND OUR BUSINESS WILL SUFFER.
Even if the FDA approves our drugs, physicians and patients may not accept
and use them. Acceptance and use of our drugs will depend on a number of factors
including:
- perceptions by members of the health care community, including
physicians, about the safety and effectiveness of our drugs;
- cost-effectiveness of our drugs relative to competing products;
- availability of reimbursement for our products from government or
healthcare payers; and
- effectiveness of marketing and distribution efforts by us and our
licensees and distributors, if any.
Because we expect to rely on sales generated by our current product
candidates for substantially all of our product revenues for the foreseeable
future, the failure of any of these drugs to find market acceptance would harm
our business and could require us to seek additional financing.
IF OUTSIDE RESEARCHERS FAIL TO DEVOTE SUFFICIENT TIME AND RESOURCES TO OUR DRUG
DEVELOPMENT PROGRAMS, OR IF THEIR PERFORMANCE IS SUBSTANDARD, OUR REGULATORY
SUBMISSIONS AND OUR PRODUCT INTRODUCTIONS MAY BE DELAYED.
We depend on independent investigators and collaborators, such as
universities and medical institutions, to conduct our clinical trials under
agreements with us. These collaborators are not our employees and we do not
control the amount or timing of resources that they devote to our programs.
These investigators may not assign as great a priority to our programs or pursue
them as diligently as we would if we were undertaking such programs ourselves.
If outside collaborators fail to devote sufficient time and resources to our
drug development programs, or if their performance is substandard, the approval
of our regulatory submissions and our introductions of new drugs will be
delayed. These collaborators may also have relationships with other commercial
entities, some of whom may compete with us. If outside collaborators assist our
competitors at our expense, our competitive position could be harmed.
IF THIRD-PARTY MANUFACTURERS OF OUR PRODUCT CANDIDATES FAIL TO DEVOTE SUFFICIENT
TIME AND RESOURCES TO OUR CONCERNS, OR IF THEIR PERFORMANCE IS SUBSTANDARD, OUR
CLINICAL TRIALS AND PRODUCT INTRODUCTIONS MAY BE DELAYED AND OUR COSTS MAY RISE.
We have no manufacturing facilities and have limited experience in drug
product development and commercial manufacturing. We lack the resources and
expertise to formulate, manufacture or to test the technical performance of our
product candidates. We currently rely on a small number of contract
manufacturers and other vendors to formulate, test, supply, store and distribute
drug supplies for our clinical trials. Our reliance on a limited number of
vendors exposes us to the following risks, any of which could delay our clinical
trials, and consequently delay FDA approval of our product candidates and
commercialization of our products, result in higher costs or deprive us of
potential product revenues:
- Contract commercial manufacturers, their sub-contractors or other third
parties we rely on, may encounter difficulties in achieving the volume of
production needed to satisfy clinical needs or commercial demand, may
experience technical issues that impact quality, and may experience
shortages of qualified personnel to adequately staff production
operations. The use of alternate manufacturers may be difficult because
the number of potential manufacturers that have the necessary
governmental licenses to produce narcotic products is limited.
Additionally, the FDA must approve any alternative manufacturer of our
product before we may use the alternative manufacturer to produce our
clinical supplies. It may be difficult or impossible for us to find a
replacement manufacturer on acceptable terms quickly, or at all. Our
contract manufacturers and vendors may not perform as agreed
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or may not remain in the contract manufacturing business for the time
required to successfully produce, store and distribute our products.
- Approved third party commercial drug manufacturers may subsequently be
stopped from producing, storing, shipping or testing our drug products
due to their non-compliance with federal or state regulations. Drug
manufacturers are subject to ongoing periodic unannounced inspection by
the FDA, the Drug Enforcement Agency, or DEA, and corresponding state
agencies to ensure strict compliance with good manufacturing practice and
other government regulations and corresponding foreign standards. We do
not have control over third-party manufacturers' compliance with these
regulations and standards.
- If any third-party manufacturer makes improvements in the manufacturing
process for our products, we may not own, or may have to share, the
intellectual property rights to such innovation.
IF WE ARE UNABLE TO DEVELOP OUR OWN SALES, MARKETING AND DISTRIBUTION
CAPABILITIES, OR IF WE ARE NOT SUCCESSFUL IN CONTRACTING WITH THIRD PARTIES FOR
THESE SERVICES ON FAVORABLE TERMS, OUR PRODUCT REVENUES COULD BE DISAPPOINTING.
We currently have no sales, marketing or distribution capabilities. In
order to commercialize our products, if any are approved by the FDA, we will
either have to develop such capabilities internally or collaborate with third
parties who can perform these services for us. If we decide to commercialize any
of our drugs ourselves, we may not be able to hire the necessary experienced
personnel and build sales, marketing and distribution operations which are
capable of successfully launching new drugs and generating sufficient product
revenues. In addition, establishing such operations will take time and involve
significant expense. On the other hand, if we decide to enter into co-promotion
or other licensing arrangements with third parties, we may be unable to locate
acceptable collaborators because the significant number of recent business
combinations among pharmaceutical companies has resulted in a reduced number of
potential future collaborators. Even if we are able to identify one or more
acceptable collaborators, we may not be able to enter into any collaborative
arrangements on favorable terms, or at all. In addition, due to the nature of
the market for pain management products, it may be necessary for us to license
all or substantially all of our product candidates to a single collaborator,
thereby eliminating our opportunity to commercialize other pain management
products independently. If we enter into any collaborative arrangements, our
product revenues are likely to be lower than if we marketed and sold our
products ourselves. In addition, any revenues we receive would depend upon the
efforts of our collaborators which may not be adequate due to lack of attention
or resource commitments, management turnover, change of strategic focus, further
business combinations or other factors outside of our control. Depending upon
the terms of our collaboration, the remedies we have against an under-performing
collaborator may be limited. If we were to terminate the relationship, it may be
difficult or impossible to find a replacement collaborator on acceptable terms,
or at all.
IF WE CANNOT COMPETE SUCCESSFULLY FOR MARKET SHARE AGAINST OTHER DRUG COMPANIES,
WE MAY NOT ACHIEVE SUFFICIENT PRODUCT REVENUES AND OUR BUSINESS WILL SUFFER.
The market for our product candidates is characterized by intense
competition and rapid technological advances. If our products receive FDA
approval, they will compete with a number of existing and future drugs and
therapies developed, manufactured and marketed by others. Existing or future
competing products may provide greater therapeutic convenience or clinical or
other benefits for a specific indication than our products, or may offer
comparable performance at a lower cost. If our products are unable to capture
and maintain market share, we may not achieve sufficient product revenues and
our business will suffer.
We will compete for market share against fully integrated pharmaceutical
companies and smaller companies that are collaborating with larger
pharmaceutical companies, academic institutions, government agencies and other
public and private research organizations. Many of these competitors have opioid
painkillers already approved or in development. In addition, many of these
competitors, either alone or
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together with their collaborative partners, operate larger research and
development programs and have substantially greater financial resources than we
do, as well as significantly greater experience in:
- developing drugs;
- undertaking preclinical testing and human clinical trials;
- obtaining FDA and other regulatory approvals of drugs;
- formulating and manufacturing drugs; and
- launching, marketing and selling drugs.
DEVELOPMENTS BY COMPETITORS MAY RENDER OUR PRODUCTS OR TECHNOLOGIES OBSOLETE OR
NON-COMPETITIVE.
Alternative technologies and products are being developed to improve or
replace the use of opioids for pain management, several of which are in clinical
trials or are awaiting approval from the FDA. Such alternatives include Elan's
Ziconotide, as well as combination products from Endo Pharmaceuticals. In
addition, companies that sell generic opioid drugs represent substantial
competition. Many of these organizations competing with us have substantially
greater capital resources, larger research and development staffs and
facilities, greater experience in drug development and in obtaining regulatory
approvals and greater manufacturing and marketing capabilities than we do. These
organizations also compete with us to attract qualified personnel, parties for
acquisitions, joint ventures or other collaborations.
IF WE ARE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY OUR COMPETITORS COULD
DEVELOP AND MARKET PRODUCTS WITH SIMILAR FEATURES THAT MAY REDUCE DEMAND FOR OUR
PRODUCTS.
Our success, competitive position and potential future revenues will depend
in part on our ability to protect our intellectual property. If either we or
Albert Einstein College of Medicine fails to file, prosecute or maintain any of
our existing patents, our competitors could market products that contain
features and clinical benefits similar to those of our products, and demand for
our products could decline as a result. We intend to file additional patent
applications relating to our technology, products and processes. We may direct
Albert Einstein College of Medicine to file additional patent applications
relating to the licensed technology or we may do so ourselves. However, our
competitors may challenge, invalidate or circumvent any of our current or future
patents. These patents may also fail to provide us with meaningful competitive
advantages.
We expect that we will rely upon trade secrets, know-how, continuing
technological innovations and licensing opportunities to develop and maintain
our competitive position. Others may independently develop substantially
equivalent proprietary information or be issued patents that may prevent the
sale of our products or know-how or require us to license such information and
pay significant fees or royalties in order to produce our products. Moreover,
our technology could infringe upon claims of patents owned by others. If we were
found to be infringing on a patent held by another, we might have to seek a
license to use the patented technology. In that case, we might not be able to
obtain such a license on terms acceptable to us, or at all. If a legal action
were to be brought against us or our licensors, we could incur substantial
defense costs, and any such action might not be resolved in our favor. If such a
dispute were to be resolved against us, we could have to pay the other party
large sums of money and our use of our technology and the testing, manufacture,
marketing or sale of one or more of our proposed products could be restricted or
prohibited.
COMPETITION FOR QUALIFIED PERSONNEL IN THE PHARMACEUTICAL INDUSTRY IS INTENSE,
AND IF WE ARE NOT SUCCESSFUL IN ATTRACTING AND RETAINING QUALIFIED PERSONNEL, WE
COULD EXPERIENCE DELAYS IN COMPLETING NECESSARY CLINICAL TRIALS AND THE
REGULATORY APPROVAL PROCESS OR IN FORMULATING, MANUFACTURING, MARKETING AND
SELLING OUR POTENTIAL PRODUCTS.
We will need to hire additional qualified personnel with expertise in
clinical research, preclinical testing, government regulation, formulation and
manufacturing and sales and marketing. We compete for qualified individuals with
numerous biopharmaceutical companies, universities and other research
institutions. Competition for such individuals, particularly in the San
Francisco Bay area, is intense, and our search for such personnel may not be
successful. Attracting and retaining qualified personnel will be critical to our
success.
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THE DEA LIMITS THE AVAILABILITY OF THE ACTIVE INGREDIENTS IN OUR CURRENT PRODUCT
CANDIDATES AND, AS A RESULT, OUR QUOTA MAY NOT BE SUFFICIENT TO COMPLETE
CLINICAL TRIALS OR MEET COMMERCIAL DEMAND.
The DEA regulates chemical compounds as Schedule I, II, III, IV or V
substances, with Schedule I substances considered to present the highest risk of
substance abuse and Schedule V substances the lowest risk. The active
ingredients in our current product candidates, including morphine, hydrocodone
and oxycodone, are listed by the DEA as Schedule II or III substances under the
Controlled Substances Act of 1970. Consequently, their manufacture, shipment,
storage, sale and use are subject to a high degree of regulation. For example,
all Schedule II drug prescriptions must be signed by a physician, physically
presented to a pharmacist and may not be refilled without a new prescription.
Furthermore, the amount of Schedule II substances we can obtain for clinical
trials and commercial distribution is limited by the DEA and our quota may not
be sufficient to complete clinical trials or meet commercial demand. There is a
risk that DEA regulations may interfere with the supply of the drugs used in our
clinical trials, and in the future, our ability to produce and distribute our
products in the volume needed to meet commercial demand.
WE MAY INCUR SUBSTANTIAL LIABILITIES AND MAY BE REQUIRED TO LIMIT TESTING OF OUR
PRODUCTS IN RESPONSE TO PRODUCT LIABILITY LAWSUITS.
The risk of product liability is inherent in the testing of medical
products. If we cannot successfully defend ourselves against product liability
claims, we may incur substantial liabilities or be required to limit or
terminate testing of one or more of our products. Our inability to obtain
sufficient product liability insurance at an acceptable cost to protect against
potential product liability claims could prevent or inhibit the
commercialization of our products. We currently carry clinical trial insurance
but do not carry product liability insurance. We may not be able to obtain
insurance at a reasonable cost, if at all. If our agreements with any future
corporate collaborators entitle us to indemnification against product liability
losses, such indemnification may not be available or adequate should any claim
arise.
OUR ABILITY TO GENERATE PRODUCT REVENUES WILL BE DIMINISHED IF WE FAIL TO OBTAIN
ACCEPTABLE PRICES OR AN ADEQUATE LEVEL OF REIMBURSEMENT FOR OUR PRODUCTS FROM
HEALTHCARE PAYERS.
Our ability to commercialize our drugs, alone or with collaborators, will
depend in part on the extent to which reimbursement will be available from:
- government and health administration authorities;
- private health maintenance organizations and health insurers; and
- other healthcare payers.
Significant uncertainty exists as to the reimbursement status of newly
approved healthcare products. Healthcare payers, including Medicare, are
challenging the prices charged for medical products and services. Government and
other healthcare payers increasingly are attempting to contain healthcare costs
by limiting both coverage and the level of reimbursement for drugs, and by
refusing, in some cases, to provide coverage for uses of approved products for
disease indications for which the FDA has or has not granted labeling approval.
Third-party insurance coverage may not be available to patients for any products
we discover and develop, alone or with collaborators. If government and other
healthcare payers do not provide adequate coverage and reimbursement levels for
our products, market acceptance of them could be limited.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk represents the risk of loss that may impact our financial
position, operating results or cash flows due to changes in interest rates in
the United States. To minimize this risk, we maintain our portfolio of cash
equivalents and short-term investments in a variety of securities including
commercial paper, government and non-government debt securities and/or money
market funds which invest in such securities. From the time of receipt through
June 30, 2001, all of the net proceeds of the initial public offering were
invested primarily in short-term, investment grade, interest bearing, U.S.
Government securities or money market funds. As of June 30, 2001 all of our cash
and cash equivalents were in money market and checking funds.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The annual Meeting of Stockholders was held on May 31, 2001 at the offices
of Wilson Sonsini Goodrich & Rosati, Professional Corporation located at 650
Page Mill Road, Palo Alto, California 94304 at 10:00 a.m. Of the 26,740,316
shares of Pain Therapeutics Common Stock entitled to vote at the meeting,
19,455,831 shares, representing 72% of the votes eligible to be cast, were
represented at the meeting in person or by proxy, constituting a quorum. The
voting results are presented below.
The stockholders elected two directors to serve until our Annual Meeting of
Stockholders held in 2004. The votes regarding the election of directors were as
follows:
<Table>
<Caption>
NAME VOTES FOR DIRECTOR VOTES WITHHELD
---- ------------------ --------------
Michael J. O'Donnell.......................... 19,448,304 7,527
Nadav Friedmann, M.D., Ph.D................... 19,453,220 2,611
</Table>
The Company's other directors with terms of office as directors that
continue after the Annual Meeting of Stockholders are Remi Barbier, Gert
Caspritz and Sanford Robertson.
The stockholders approved the ratification of KPMG LLP as independent
auditors to the Company for the fiscal year ending December 31, 2001. There were
19,362,789 votes cast for the proposal, 91,342 votes cast against, 1,700
abstentions and no broker non-votes.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
None.
(b) Reports on Form 8-K.
The Company did not file any reports on Form 8-K during the six months
ended June 30, 2001.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PAIN THERAPEUTICS , INC.
(Registrant)
/s/ REMI BARBIER
--------------------------------------
Remi Barbier
President, Chief Executive Officer
and Chairman of the Board of Directors
/s/ DAVID L. JOHNSON
--------------------------------------
David L. Johnson
Chief Financial Officer
Date: August 10, 2001
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