form10-q.htm
UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
Washington,
D.C. 20549
Form
10-Q
|
R
|
QUARTERLY REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For
the quarterly period ended June 30, 2010
OR
|
£
|
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 0-15327
CytRx
Corporation
(Exact
name of Registrant as specified in its charter)
|
Delaware
|
58-1642740
|
|
(State
or other jurisdiction of incorporation or organization)
|
(I.R.S.
Employer Identification No.)
|
|
11726
San Vicente Blvd., Suite 650
Los
Angeles, CA
|
90049
|
|
(Address
of principal executive offices)
|
(Zip
Code)
|
(310)
826-5648
(Registrant’s
telephone number, including area code)
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the
preceding 12 months (or for such shorter period that the registrant was
required to submit and post such files). Yes £ No
£
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 R No
£
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
|
Large
accelerated filer £
|
Accelerated
filer R
|
Non-accelerated
filer £
|
Smaller
reporting company £
|
|
|
(Do
not check if a smaller reporting
company)
|
Indicate
by check mark whether the Registrant is a shell company (as defined in Rule
12(b)-2 of the Exchange Act). Yes £ No
R
Number of
shares of CytRx Corporation common stock, $.001 par value, outstanding as of
August 6, 2010: 109,128,638 million shares exclusive of treasury
shares.
CYTRX
CORPORATION
FORM
10-Q
TABLE
OF CONTENTS
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|
Page
|
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PART
I. — FINANCIAL INFORMATION
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|
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Item
1.Financial Statements
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3
|
|
Item
2.Management’s Discussion and Analysis of Financial Condition and Results
of Operations
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11
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|
Item
3.Quantitative and Qualitative Disclosures About Market
Risk
|
17
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Item
4.Controls and Procedures
|
17
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|
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PART
II. — OTHER INFORMATION
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Item
1A.Risk Factors
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17
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Item
5.Other Information
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18
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Item
6.Exhibits
|
18
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SIGNATURES
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19
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INDEX
TO EXHIBITS
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20
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PART
I — FINANCIAL INFORMATION
Item
1. — Financial Statements
CYTRX
CORPORATION
CONDENSED
BALANCE SHEETS
(Unaudited)
|
|
|
June 30, 2010
|
|
|
December 31, 2009
|
|
|
|
|
|
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|
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ASSETS
|
|
|
|
|
|
|
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Current
assets:
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
12,452,514 |
|
|
$ |
9,893,590 |
|
|
Marketable
Securities
|
|
|
21,023,740 |
|
|
|
22,750,000 |
|
|
Investment
in RXi Pharmaceuticals – at market
|
|
|
8,044,091 |
|
|
|
— |
|
|
Receivable
|
|
|
59,314 |
|
|
|
139,680 |
|
|
Income
taxes recoverable
|
|
|
519,158 |
|
|
|
519,158 |
|
|
Interest
receivable
|
|
|
126,897 |
|
|
|
130,779 |
|
|
Assets
held for sale
|
|
|
33,503 |
|
|
|
73,634 |
|
|
Prepaid
expense and other current assets
|
|
|
679,589 |
|
|
|
1,088,074 |
|
|
Total
current assets
|
|
|
42,938,806 |
|
|
|
34,594,915 |
|
|
Equipment
and furnishings, net
|
|
|
375,228 |
|
|
|
174,959 |
|
|
Goodwill
|
|
|
183,780 |
|
|
|
183,780 |
|
|
Other
assets
|
|
|
318,782 |
|
|
|
323,235 |
|
|
Total
assets
|
|
$ |
43,816,596 |
|
|
$ |
35,276,889 |
|
|
|
|
|
|
|
|
|
|
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|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$ |
588,802 |
|
|
$ |
1,066,055 |
|
|
Accrued
expenses and other current liabilities
|
|
|
3,076,451 |
|
|
|
2,492,450 |
|
|
Warrant
liability
|
|
|
1,959,124 |
|
|
|
3,370,701 |
|
|
Total
current liabilities
|
|
|
5,624,377 |
|
|
|
6,929,206 |
|
|
Commitments
and contingencies
|
|
|
|
|
|
|
|
|
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Stockholders’
equity:
|
|
|
|
|
|
|
|
|
|
Preferred
stock, $.01 par value, 5,000,000 shares authorized, including 15,000
shares of Series A Junior Participating Preferred Stock; no shares issued
and outstanding
|
|
|
— |
|
|
|
— |
|
|
Common
stock, $.001 par value, 175,000,000 shares authorized; 109,762,454 and
109,538,821 shares issued and outstanding at June 30, 2010 and December
31, 2009, respectively.
|
|
|
109,762 |
|
|
|
109,539 |
|
|
Additional
paid-in capital
|
|
|
228,558,452 |
|
|
|
227,441,591 |
|
|
Accumulated
comprehensive income, net of tax
|
|
|
8,044,091 |
|
|
|
— |
|
|
Treasury
stock, at cost (633,816 shares held at June 30, 2010 and December 31,
2009)
|
|
|
(2,279,238 |
) |
|
|
(2,279,238 |
) |
|
Accumulated
deficit
|
|
|
(196,240,848 |
) |
|
|
(196,924,209 |
) |
|
Total
stockholders’ equity
|
|
|
38,192,219 |
|
|
|
28,347,683 |
|
|
Total
liabilities and stockholders’ equity
|
|
$ |
43,816,596 |
|
|
$ |
35,276,889 |
|
The
accompanying notes are an integral part of these condensed financial
statements.
CYTRX
CORPORATION
CONDENSED
STATEMENTS OF OPERATIONS
(Unaudited)
|
|
|
Three
Months Ended
June 30,
|
|
|
Six
Months Ended
June 30,
|
|
|
|
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2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
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Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
revenue
|
|
$ |
— |
|
|
$ |
963,667 |
|
|
$ |
— |
|
|
$ |
2,446,495 |
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
and development
|
|
|
3,073,059 |
|
|
|
1,363,794 |
|
|
|
5,118,868 |
|
|
|
4,412,546 |
|
|
General
and administrative
|
|
|
2,060,266 |
|
|
|
1,928,355 |
|
|
|
4,705,376 |
|
|
|
4,411,126 |
|
|
|
|
|
5,133,325 |
|
|
|
3,292,149 |
|
|
|
9,824,244 |
|
|
|
8,823,672 |
|
|
Loss
before other income
|
|
|
(5,133,325 |
) |
|
|
(2,328,482 |
) |
|
|
(9,824,244 |
) |
|
|
(6,377,177 |
) |
|
Other
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
79,687 |
|
|
|
71,676 |
|
|
|
172,718 |
|
|
|
139,963 |
|
|
Other
income, net
|
|
|
28,530 |
|
|
|
31,279 |
|
|
|
35,696 |
|
|
|
38,360 |
|
|
Gain
on warrant derivative liability
|
|
|
1,278,884 |
|
|
|
— |
|
|
|
1,411,577 |
|
|
|
— |
|
|
Gain
on sale of affiliate’s shares – RXi Pharmaceutical
|
|
|
5,040,114 |
|
|
|
— |
|
|
|
8,887,614 |
|
|
|
— |
|
|
Net
income (loss) before provision for income taxes
|
|
|
1,293,890 |
|
|
|
(2,225,527 |
) |
|
|
683,361 |
|
|
|
(6,198,854 |
) |
|
Provision
for income taxes
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Net
income (loss)
|
|
$ |
1,293,890 |
|
|
$ |
(2,225,527 |
) |
|
$ |
683,361 |
|
|
$ |
(6,198,854 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
comprehensive income (net of tax)
Unrealized
gain on available-for-sale securities
|
|
|
8,044,091 |
|
|
|
— |
|
|
|
8,044,091 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
income
|
|
$ |
9,337,981 |
|
|
$ |
(2,225,527 |
) |
|
$ |
8,727,452 |
|
|
$ |
(6,198,854 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
net income (loss) per share
|
|
$ |
0.01 |
|
|
$ |
(0.02 |
) |
|
$ |
0.01 |
|
|
$ |
(0.07 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
weighted average shares outstanding
|
|
|
109,121,022 |
|
|
|
93,348,189 |
|
|
|
109,016,952 |
|
|
|
93,347,962 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
net income (loss) per share
|
|
$ |
0.01 |
|
|
$ |
(0.02 |
) |
|
$ |
0.01 |
|
|
$ |
(0.07 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
weighted average shares outstanding
|
|
|
111,587,896 |
|
|
|
93,348,189 |
|
|
|
111,934,617 |
|
|
|
93,347,962 |
|
The
accompanying notes are an integral part of these condensed financial
statements
CYTRX
CORPORATION
CONDENSED
STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
|
Six Months Ended June 30,
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$ |
683,361 |
|
|
$ |
(6,198,854 |
) |
|
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
58,843 |
|
|
|
376,592 |
|
|
Retirement
of fixed assets
|
|
|
30,171 |
|
|
|
— |
|
|
Gain
on sale of affiliate’s shares
|
|
|
(8,887,614 |
) |
|
|
— |
|
|
Fair
value adjustment of warrant liability
|
|
|
(1,411,577 |
) |
|
|
— |
|
|
Stock
option and warrant expense
|
|
|
1,103,232 |
|
|
|
1,138,640 |
|
|
Net
change in operating assets and liabilities
|
|
|
470,543 |
|
|
|
(2,273,377 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net
cash used in operating activities
|
|
|
(7,953,041 |
) |
|
|
(758,145 |
) |
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
|
Purchase
of marketable securities
|
|
|
(12,023,740 |
) |
|
|
(11,000,000 |
) |
|
Proceeds
from matured marketable securities
|
|
|
13,750,000 |
|
|
|
— |
|
|
Proceeds
from sale of assets held for sale
|
|
|
40,131 |
|
|
|
— |
|
|
Proceeds
from sale of affiliate’s shares
|
|
|
8,887,614 |
|
|
|
— |
|
|
Purchases
of equipment and furnishings
|
|
|
(289,283 |
) |
|
|
(145,373 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by (used in) investing activities
|
|
|
10,364,722 |
|
|
|
(11,145,373 |
) |
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
|
Net
proceeds from exercise of stock options
|
|
|
147,243 |
|
|
|
3,083 |
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by financing activities
|
|
|
147,243 |
|
|
|
3,083 |
|
|
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
2,558,924 |
|
|
|
(18,099,289 |
) |
|
Cash
and cash equivalents at beginning of period
|
|
|
9,893,590 |
|
|
|
25,041,772 |
|
|
Cash
and cash equivalents at end of period
|
|
$ |
12,452,514 |
|
|
$ |
6,942,483 |
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
Cash
received during the period as interest income
|
|
$ |
52,962 |
|
|
$ |
18,802 |
|
The
accompanying notes are an integral part of these condensed financial
statements.
CYTRX
CORPORATION
NOTES
TO CONDENSED FINANCIAL STATEMENTS
June
30, 2010
(Unaudited)
1. Description
of Company and Basis of Presentation
CytRx
Corporation (“CytRx” or the “Company”) is a biopharmaceutical research and
development company engaged in the development of high-value human therapeutics,
specializing in oncology. CytRx’s drug development pipeline includes clinical
development of three product candidates for cancer indications, including a
recently-initiated Phase 2 proof-of-concept clinical trial with bafetinib in
patients with high-risk B-cell chronic lymphocytic leukemia, or B-CLL, two
planned Phase 2 proof-of-concept clinical trial with bafetinib in patients with
glioblastoma multiforme and advanced prostate cancer, three planned Phase 2
clinical trials for INNO-206 as a treatment for pancreatic cancer, gastric
(stomach) cancer and soft tissue sarcomas, and a registration study of
tamibarotene for the treatment of acute promyelocytic leukemia, or APL. In
addition to its core oncology programs, CytRx is developing two drug candidates
based on its molecular chaperone regulation technology, which are designed to
repair or degrade mis-folded proteins associated with disease. Apart from its
drug development programs, CytRx currently maintains a 17% equity interest in
its former subsidiary, RXi Pharmaceuticals Corporation, or RXi. The
Company’s current business strategy is to possibly spin-out its molecular
chaperone regulation technology or seek one or more strategic partnerships to
pursue the development of the technology.
The
accompanying condensed financial statements at June 30, 2010 and for the
three-month and six-month periods ended June 30, 2010 and 2009 are unaudited,
but include all adjustments, consisting of normal recurring entries, that
management believes to be necessary for a fair presentation of the periods
presented. Prior period figures have been reclassified, wherever necessary, to
conform to current presentation. Interim results are not necessarily indicative
of results for a full year. Balance sheet amounts as of December 31, 2009 have
been derived from the Company’s audited financial statements as of that
date.
The
financial statements included herein have been prepared by the Company pursuant
to the rules and regulations of the Securities and Exchange Commission (“SEC”).
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. The financial statements should be read in conjunction
with the Company’s audited financial statements in its Annual Report on Form
10-K for the year ended December 31, 2009. The Company’s operating results will
fluctuate for the foreseeable future. Therefore, period-to-period comparisons
should not be relied upon as predictive of the results in future
periods.
2. Recent
Accounting Pronouncements
In
January, 2010, the FASB issued ASU 2010-06, Improving Disclosures about Fair
Value Measurements. The standard amends ASC Topic 820, Fair Value Measurements
and Disclosures to require additional disclosures related to transfers in and
out of Levels 1 and 2 and for activity in Level 3 and clarifies other existing
disclosures requirements. The Company adopted ASU 2010-06 beginning January 1,
2010. This update had no impact on the Company’s financial
statements.
3. Marketable
Securities
The
Company held $21.0 million of marketable securities at June 30,
2010. The Company has classified these investments as available for
sale. These investments are comprised of federally insured
certificates of deposit in four accounts detailed as follows: $5.0 million with
a maturity date of July 29, 2010; $7.5 million with a maturity date of September
30, 2010; $5.0 million with a maturity date of January 27, 2011; and $3.5
million with a maturity date of March 31, 2011.
4. Investment
in RXi Pharmaceuticals
On June 30, 2010, the
Company sold 2.0 million common shares for $5.0 million, net of costs.
Previously, the Company accounted for its investment in RXi using the equity
method, under which the Company recorded its pro-rata share of the financial
results of RXi against its investment in RXi. The investment balance in RXi
was reduced to zero and the Company stopped recording its share of losses from
RXi. As a consequence of this sale, the Company’s ownership in RXi,
approximately 3.1 million of common stock, was reduced to approximately 17%. The
Company is now required to account for
its investment under the cost method, and this investment is shown on the
Balance Sheet at market value, based on RXi’s closing stock price at June 30,
2010. The Company has classified the
investment as available for sale, and the investment will
be marked to market on a go-forward basis. At June 30, 2010, the
investment had a market value of approximately $8.0 million. The recording of
this marked to market is reflected as other comprehensive income
on the Consolidated Statements of Operations.
5.
Assets Held for Sale
In May
2009, the Company substantially completed the initial phase of the closure of
its drug discovery research at its laboratory facility in San Diego, California.
The Company concluded that it will conduct its research and development
activities through third parties for the foreseeable future. The Company has
sublet the laboratory facility, sold some of the laboratory equipment and is
actively searching for additional buyers. In the third quarter of
2009, the fixed assets related to the San Diego laboratory were re-allocated
from Equipment and Furnishings to Assets Held for Sale and were written down to
their estimated net realizable value as of September 30, 2009, which resulted in
a charge of $1.2 million for that quarter. In November 2009, the Company signed
sublease agreements with two parties to sublet the facility for the remainder of
the term of the lease, which expires in October, 2010. The Company
recognized a lease accrual of $254,000 as of September 2009; at June 30, 2010,
the lease accrual was reduced to $45,000.
As of
June 30, 2010, the carrying amount of the assets held for sale approximated fair
value. The costs associated with disposing of these assets held for sale are
minimal.
6.
Basic and Diluted Net Profit (Loss) Per Share
Basic net
income (loss) per common share was computed using the weighted-average number of
common shares outstanding. Diluted net income (loss) per common share was
computed using the weighted-average number of common share and common share
equivalents outstanding. Potentially dilutive stock options and
warrants of 13.3 million shares and 11.3 million shares, respectively, for the
three and six-month periods ended June 30, 2010 and 15.9 million shares and 15.8
million shares, respectively, for the three and six-month periods ended June 30,
2009, were excluded from the computation of diluted loss per share, where the
effect would be anti-dilutive.
7.
Warrant Liabilities
Liabilities
measured at market value on a recurring basis include warrant liabilities
resulting from our recent equity financing. In accordance with ASC 815-40
(formerly EITF (Emerging Issues Task Force) 00-19, Accounting for Derivative Financial
Instruments Indexed to and Potentially Settled in a Company’s Own
Stock, the warrant liabilities are being marked to market each
quarter-end until they are completely settled. The warrants are valued using the
Black-Scholes method. The gain or loss resulting from the marked to market
calculation is shown on the Statements of Operations as Gain on warrant
derivative liability. The Company recognized a gain of $1.3 million
and $1.4 million, respectively, for the three and six-month periods ending June
30, 2010.
8. Stock
Based Compensation
CytRx
Corporation
The
Company has a 2000 Long-Term Incentive Plan under which an aggregate of 10.0
million shares of common stock were originally reserved for
issuance. As of June 30, 2010, there were approximately 7.3 million
shares subject to outstanding stock options and approximately 0.1 million shares
available for future grant under this plan. This plan expired on
August 6, 2010, when no additional shares will be available for grant under this
plan.
The
Company also has a 2008 Stock Incentive Plan under which 10.0 million shares of
common stock were originally reserved for issuance. As of June 30,
2010, there were 1.1 million shares subject to outstanding stock options and 8.9
million shares available for future grant under this plan.
The
Company has adopted the provisions of ASC 718 (previously SFAS No. 123(R), Share-Based Payment (“SFAS
123(R)”)), which requires the measurement and recognition of compensation
expense for all stock-based awards made to employees and
non-employees.
For stock
options and stock warrants paid in consideration of services rendered by
non-employees, the Company recognizes compensation expense in accordance with
the requirements of ASC 718 (previously SFAS No. 123(R)), ASC 505-50 (previously
Emerging Issues Task Force Issue No. 96-18 (“EITF 96-18”)), Accounting for Equity
Instruments that are Issued to other than Employees for Acquiring, or in
Conjunction with Selling Goods or Services and ASC 505 (previously EITF
00-18, Accounting Recognition
for Certain Transactions involving Equity Instruments Granted to Other Than
Employees), as amended.
Non-employee
option grants that do not vest immediately upon grant are recorded as an expense
over the vesting period. At the end of each financial reporting period, the
value of these options, as calculated using the Black-Scholes option-pricing
model, is determined, and compensation expense recognized or recovered during
the period is adjusted accordingly. Since the fair market value of options
granted to non-employees is subject to change in the future, the amount of the
future compensation expense is subject to adjustment until the common stock
options are fully vested.
At the
2009 Annual Meeting of Stockholders held on July 1, 2009, the Company’s
stockholders approved an amendment to the Company’s 2000 Long-Term Incentive
Plan to allow for a one-time stock option re-pricing program for employees and
officers. Pursuant to the re-pricing program, 3,265,500 eligible
stock options held by ten eligible employees and officers were amended to reduce
the exercise prices of the options to $1.15 per share, which was the closing
sale price of the Company’s common stock as reported on the Nasdaq Capital
Market on the July 1, 2009 completion date of the re-pricing program, and
to impose a new option vesting schedule. None of the amended options
vested immediately. To the extent a participating employee’s or
officer’s eligible options were vested on the amendment date, the amended
options vested in full on December 31, 2009, so long as the employee or
officer remained in the Company’s employ through that date. To the extent a
participating employee’s or officer’s eligible options were unvested as of
July 1, 2009, the original scheduled vesting was suspended until
December 31, 2009 and resumed after that date, so long as the employee or
officer remained in the Company’s employ through such date. The incremental cost
of the re-pricing program was approximately $0.4 million.
The
following table sets forth the total stock-based compensation expense resulting
from stock options and warrants included in the Company’s unaudited interim
statements of operations:
|
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
Research
and development — employee
|
|
$ |
45,261 |
|
|
$ |
172,000 |
|
|
$ |
87,895 |
|
|
$ |
368,000 |
|
|
General
and administrative — employee
|
|
|
338,456 |
|
|
|
297,000 |
|
|
|
483,404 |
|
|
|
572,000 |
|
|
Total
employee stock-based compensation
|
|
$ |
383,717 |
|
|
$ |
469,000 |
|
|
$ |
571,299 |
|
|
$ |
940,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
and development — non-employee
|
|
$ |
24,990 |
|
|
$ |
10,000 |
|
|
$ |
53,312 |
|
|
$ |
19,000 |
|
|
General
and administrative — non-employee
|
|
|
— |
|
|
|
— |
|
|
|
478,621 |
|
|
|
— |
|
|
Total
non-employee stock-based compensation
|
|
$ |
24,990 |
|
|
$ |
10,000 |
|
|
$ |
531,933 |
|
|
$ |
19,000 |
|
During
the six-month period ended June 30, 2010, the Company issued stock options to
purchase 645,000 shares of its common stock. The fair value of the stock options
granted in the six-month period listed in the table below was estimated using
the Black-Scholes option-pricing model, based on the following
assumptions:
| |
|
Six Months Ended June 30,
|
|
| |
|
2010
|
|
|
2009
|
|
|
Risk-free
interest rate
|
|
|
2.37%-2.97 |
% |
|
|
1.90%
- 2.37 |
% |
|
Expected
volatility
|
|
|
92.5%
- 99.4 |
% |
|
|
93.9%
- 97.9 |
% |
|
Expected
lives (years)
|
|
|
5 - 10 |
|
|
|
6 |
|
|
Expected
dividend yield
|
|
|
0.00 |
% |
|
|
0.00 |
% |
The
Company’s computation of expected volatility is based on the historical daily
volatility of its publicly traded stock. For option grants issued during the
six-month periods ended June 30, 2010 and 2009, the Company used a calculated
volatility for each grant. The Company uses historical information to compute
expected lives. In the six-month period ended June 30, 2010, the contractual
term of the options granted was five to ten years and the Company used that term
as the expected life. The dividend yield assumption of zero is based upon the
fact the Company has never paid cash dividends and presently has no intention of
paying cash dividends. The risk-free interest rate used for each grant is equal
to the U.S. Treasury rates in effect at the time of the grant for instruments
with a similar expected life. Based on historical experience, for the six-month
periods ended June 30, 2010 and 2009, the Company has estimated an annualized
forfeiture rate of 14% and 10%, respectively, for options granted to its
employees, 2% and 1%, respectively, for options granted to senior management and
0% for each period for options granted to directors and non-employees.
Compensation costs will be adjusted for future changes in estimated forfeitures.
The Company will record additional expense if the actual forfeitures are lower
than estimated and will record a recovery of prior expense if the actual
forfeiture rates are higher than estimated. No amounts relating to employee
stock-based compensation have been capitalized.
At June
30, 2010, there remained approximately $2.4 million of unrecognized compensation
expense related to unvested stock options granted to current and former
employees, directors and consultants, to be recognized as expense over a
weighted-average period of 1.07 years. Presented below is the Company’s stock
option activity:
|
|
|
Six Months Ended June 30,
2010
|
|
|
|
|
Number
of Options (Employees)
|
|
|
Number
of Options (Non-Employees)
|
|
|
Total
Number of Options
|
|
|
Weighted
Average Exercise
Price
|
|
|
Outstanding
at January 1, 2010
|
|
|
8,012,090 |
|
|
|
995,000 |
|
|
|
9,007,090 |
|
|
$ |
1.02 |
|
|
Granted
|
|
|
250,000 |
|
|
|
395,000 |
|
|
|
645,000 |
|
|
$ |
1.05 |
|
|
Exercised
|
|
|
(223,633 |
) |
|
|
— |
|
|
|
(223,633 |
) |
|
$ |
0.66 |
|
|
Forfeited
or expired
|
|
|
(676,367 |
) |
|
|
(395,000 |
) |
|
|
(1,071,367 |
) |
|
$ |
1.07 |
|
|
Outstanding
at June 30, 2010
|
|
|
7,362,090 |
|
|
|
995,000 |
|
|
|
8,357,090 |
|
|
$ |
1.07 |
|
|
Options
exercisable at June 30, 2010
|
|
|
5,021,322 |
|
|
|
595,061 |
|
|
|
5,616,383 |
|
|
$ |
1.12 |
|
A summary
of the activity for unvested stock options as of June 30, 2010, and changes
during the quarter, is presented below:
| |
|
Number
of Options
(Employees)
|
|
|
Number
of Options
(Non-Employees)
|
|
|
Total
Number of Options
|
|
|
Weighted
Average Grant Date Fair Value per
Share
|
|
|
Non-vested
at January 1, 2010
|
|
|
3,013,690 |
|
|
|
449,920 |
|
|
|
3,463,610 |
|
|
$ |
0.81 |
|
|
Granted
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
$ |
— |
|
|
Forfeited
or expired
|
|
|
(51,525 |
) |
|
|
— |
|
|
|
(51,525 |
) |
|
$ |
0.62 |
|
|
Vested
|
|
|
(621,397 |
) |
|
|
(49,981 |
) |
|
|
(671,378 |
) |
|
$ |
0.77 |
|
|
Non-vested
at June 30, 2010
|
|
|
2,340,768 |
|
|
|
399,939 |
|
|
|
2,740,707 |
|
|
$ |
0.94 |
|
The
following table summarizes significant ranges of outstanding stock options under
the Company’s plans at June 30, 2010:
|
Range
of Exercise Prices
|
|
|
Number
of Options
|
|
|
Weighted
Average Remaining Contractual Life
(years)
|
|
|
Weighted
Average Exercise
Price
|
|
|
Number
of Options Exercisable
|
|
|
Weighted
Average Contractual
Life
|
|
|
Weighted
Average Exercise
Price
|
|
| $ |
0.30
- 1.00 |
|
|
|
2,152,607 |
|
|
|
7.72 |
|
|
$ |
0.59 |
|
|
|
1,467,053 |
|
|
|
7.72 |
|
|
$ |
0.63 |
|
| $ |
1.01
–1.50 |
|
|
|
5,676,483 |
|
|
|
6.74 |
|
|
$ |
1.12 |
|
|
|
3,621,330 |
|
|
|
6.74 |
|
|
$ |
1.15 |
|
| $ |
1.51
- 3.33 |
|
|
|
528,000 |
|
|
|
4.05 |
|
|
$ |
2.27 |
|
|
|
528,000 |
|
|
|
4.05 |
|
|
$ |
2.27 |
|
| |
|
|
|
|
8,357,090 |
|
|
|
6.83 |
|
|
$ |
1.06 |
|
|
|
5,616,383 |
|
|
|
6.83 |
|
|
$ |
1.12 |
|
The
aggregate intrinsic value of outstanding options as of June 30, 2010 was $10.3
million, which represents the difference between the fair market value of the
underlying shares based on the closing price of the Company’s common stock on
June 30, 2010 of $0.77 and the aggregate exercise price of the
options.
9.
Fair Value Measurements
Assets
and liabilities recorded at fair value in balance sheets are categorized based
upon the level of judgment associated with the inputs used to measure the fair
value. Level inputs are as follows:
Level 1 –
quoted prices in active markets for identical assets or
liabilities.
Level 2 –
other significant observable inputs for the assets or liabilities through
corroboration with market data at the measurement date.
Level 3 –
significant unobservable inputs that reflect management’s best estimate of what
market participants would use to price the assets or liabilities at the
measurement date.
The
following table summarizes fair value measurements by level at June 30, 2010 for
assets and liabilities measured at fair value on a recurring basis:
|
(In
thousands)
|
|
Level
I
|
|
|
Level
II
|
|
|
Level
III
|
|
|
Total
|
|
|
Cash
and cash equivalents
|
|
$
|
12,453
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
12,453
|
|
|
Marketable
securities
|
|
|
21,024
|
|
|
|
—
|
|
|
|
—
|
|
|
|
21,024
|
|
|
Investment
in RXi Pharmaceutical market
|
|
|
8,044
|
|
|
|
—
|
|
|
|
—
|
|
|
|
8,044
|
|
|
Warrant
liability
|
|
|
—
|
|
|
|
1,959
|
|
|
|
—
|
|
|
|
1,959
|
|
The
following table summarizes fair value measurements by level at December 31, 2009
for assets and liabilities measured at fair value on a recurring
basis:
|
(In
thousands)
|
|
Level
I
|
|
|
Level
II
|
|
|
Level
III
|
|
|
Total
|
|
|
Cash
and cash equivalents
|
|
$
|
9,894
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
9,894
|
|
|
Marketable
securities
|
|
|
22,750
|
|
|
|
—
|
|
|
|
—
|
|
|
|
22,750
|
|
Liabilities
measured at market value on a recurring basis include warrant liabilities
resulting from recent equity financing. In accordance with ASC 815-40 (formerly
EITF 00-19, Accounting for
Derivative Financial Instruments Indexed to, and Potentially Settled in, a
Company’s Own Stock), the warrant liabilities are being marked to market
each quarter-end until they are completely settled. The warrants are valued
using the Black-Scholes method, using assumptions consistent with the Company’s
application of ASC 505-50. See
Warrant Liabilities below.
The
Company considers carrying amounts of accounts receivable, accounts payable and
accrued expenses to approximate fair value due to the short-term nature of these
financial instruments.
The
Company’s non-financial assets are measured at fair value when there is an
indicator of impairment and recorded at fair value only when an impairment
charge is recognized. The Company’s non-financial assets were
not material at June 30, 2010 and June 30, 2009.
10. Liquidity
and Capital Resources
At June
30, 2010, the Company had cash and cash equivalents of approximately $12.5
million, marketable securities of approximately $21.0 million, and held
approximately 3.1 million shares of common stock of RXi Pharmaceuticals
Corporation, or RXi, with a market value of approximately $8.0 million based
upon the closing price of the RXi common stock on that date. On March
26, 2010, the Company raised approximately $3.8 million from the sale of 675,000
RXi shares, and on June 30, 2010, the company sold 2.0 million shares of the RXi
common stock for $5.0 million, net of costs. Management believes that
the Company’s current cash on hand, together with its marketable securities and
proceeds from possible future sales of RXi shares, will be sufficient to fund
its operations for the foreseeable future. The estimate is based, in
part, upon the Company’s currently projected expenditures for the remainder of
2010 and the first six months of 2011 of approximately $17.5 million, which includes approximately
$3.1 million for its clinical programs for INNO-206, approximately $4.9 million
for its clinical programs for bafetinib, approximately $0.3 million for its
clinical program for tamibarotene, approximately $0.2 million for its activities
for arimoclomol, approximately $2.0 million for general operation of its
clinical programs, and approximately $7.0 million for other general and
administrative expenses. These projected expenditures are also based upon
numerous other assumptions and subject to many uncertainties, and actual
expenditures may be significantly different from these
projections. The Company will be required to obtain additional
funding in order to execute its long-term business plan. The fair value of
common stock investment in RXi is subject to market fluctuations that could
impact the amount of cash the Company generates from any future sales of RXi
shares. The Company cannot assure that additional funding will be available on
favorable terms, or at all. If the Company fails to obtain additional funding
when needed, it may not be able to execute its business plans and its business
may suffer, which would have a material adverse effect on its financial position
condition.
If the
Company obtains marketing approval as currently planned and successfully
commercializes its product candidates, the Company anticipates it will take a
minimum of three years, and possibly
longer, for it to generate significant recurring revenue. The Company
will be dependent on future financing and possible asset sales until such time,
if ever, as it can generate significant recurring revenue. The Company has no
commitments from third parties to provide any additional financing, and it may
not be able to obtain future financing on favorable terms, or at all. If the
Company fails to obtain sufficient funding when needed, it may be forced to
delay, scale back or eliminate all or a portion of its development programs or
clinical trials, license to other companies its product candidates or
technologies that it would prefer to develop and commercialize itself, or seek
to sell some or all of its RXi shares or other assets or merge with or be
acquired by another company. For example, the Company intends to assess
periodically the costs and potential commercial value of its molecular chaperone
programs, and depending on these assessments, the Company may determine to spin
out, modify, out-source, partner or suspend those activities.
11. Equity
Transactions
During
the six-month period ended June 30, 2010, 223,633 options to purchase the
Company’s common stock were exercised, and the Company received $147,243 upon
their exercise. No warrant holders exercised their rights to acquire common
shares.
12.
ALSCRT Amendment
In August
2006, the Company received approximately $24.3 million in proceeds from the
privately-funded ALS Charitable Remainder Trust (“ALSCRT”) in exchange for the
commitment to continue research and development of arimoclomol and other
potential treatments for ALS and a one percent royalty in the worldwide sales of
arimoclomol. Under the arrangement, we retain the rights to any products or
intellectual property funded by the arrangement and the proceeds of the
transaction are non-refundable. The ALSCRT has no obligation to provide any
further funding to the Company. The Company concluded that due to the
research and development components of the transaction that it was properly
accounted for under ASC 730-20 (previously Statement of Financial Accounting
Standards No. 68, Research
and Development
Arrangements). Accordingly, the Company recorded the value received under
the arrangement as deferred service revenue and recognized service revenue using
the proportional performance method of revenue recognition, meaning that service
revenue was recognized on a dollar-for-dollar basis for each dollar of expense
incurred for the research and development of arimoclomol and other potential ALS
treatments.
Pursuant
to an amendment signed between the Company and the beneficiary of the ALSCRT on
August 6, 2009, the Company was released from all restrictions on the use of any
proceeds previously paid to the Company in connection with the
arrangement. As a result, the Company recognized $6.7 million as
service revenue in the third quarter of 2009, which represented the remaining
deferred revenue and previously un-recognized portion of the value
received.
13.
Subsequent events
Management
has evaluated subsequent events and the impact on the reported results and
disclosures.
Item
2. — Management’s Discussion and Analysis of Financial Condition And Results of
Operations
Forward
Looking Statements
From time
to time, we make oral and written statements that may constitute
“forward-looking statements” (rather than historical facts) as defined in the
Private Securities Litigation Reform Act of 1995 or by the SEC in its rules,
regulations and releases, including Section 27A of the Securities Act of 1933,
as amended and Section 21E of the Securities Exchange Act of 1934, as amended.
We desire to take advantage of the “safe harbor” provisions in the Private
Securities Litigation Reform Act of 1995 for forward-looking statements made
from time to time, including, but not limited to, the forward-looking statements
made in this Quarterly Report, as well as those made in our other filings with
the SEC.
All
statements in this Quarterly Report, including statements in this section, other
than statements of historical fact are forward-looking statements for purposes
of these provisions, including statements of our current views with respect to
the recent developments regarding our business strategy, business plan and
research and development activities, our future financial results, and other
future events. These statements include forward-looking statements both with
respect to us, specifically, and the biotechnology industry, in general. In some
cases, forward-looking statements can be identified by the use of terminology
such as “may,” “will,” “expects,” “plans,” “anticipates,” “estimates,”
“potential” or “could” or the negative thereof or other comparable terminology.
Although we believe that the expectations reflected in the forward-looking
statements contained herein are reasonable, there can be no assurance that such
expectations or any of the forward-looking statements will prove to be correct,
and actual results could differ materially from those projected or assumed in
the forward-looking statements.
All
forward-looking statements involve inherent risks and uncertainties, and there
are or will be important factors that could cause actual results to differ
materially from those indicated in these statements. We believe that these
factors include, but are not limited to, those factors discussed in this section
and under the caption “Risk Factors,” in our Annual Report on Form 10-K for the
year ended December 31, 2009, all of which should be reviewed carefully. If one
or more of these or other risks or uncertainties materialize, or if our
underlying assumptions prove to be incorrect, actual results may vary materially
from what we anticipate. Please consider our forward-looking statements in light
of those risks as you read this Quarterly Report. We undertake no obligation to
publicly update or review any forward-looking statement, whether as a result of
new information, future developments or otherwise.
Overview
CytRx
Corporation (“CytRx,” the “Company,” “we,” “us” or “our”) is a biopharmaceutical
research and development company engaged in the development of high-value human
therapeutics, specializing in oncology. Our drug development pipeline includes
clinical development of three product candidates for cancer indications,
including a recently-initiated Phase 2 proof-of-concept clinical trial with
bafetinib in patients with high-risk B-cell chronic lymphocytic leukemia, or
B-CLL, two planned Phase 2 proof-of-concept clinical trial with bafetinib in
patients with glioblastoma multiforme and advanced prostate cancer, three
planned Phase 2 clinical trials for INNO-206 as a treatment for pancreatic
cancer, gastric (stomach) cancer and soft tissue sarcomas, and a registration
study of tamibarotene for the treatment of acute promyelocytic leukemia, or APL.
In addition to our core oncology programs, we are developing two drug candidates
based on our molecular chaperone regulation technology, which are designed to
repair or degrade mis-folded proteins associated with disease. Apart from our
drug development programs, we currently maintain a 17% equity interest in our
former subsidiary, RXi Pharmaceuticals Corporation (NASDAQ:
RXII). Our current business strategy is to possibly spin-out our
molecular chaperone regulation technology or seek one or more strategic
partnerships to pursue the development of the technology.
Critical
Accounting Policies and Estimates
Management’s
discussion and analysis of our financial condition and results of operations are
based on our financial statements, which have been prepared in accordance with
accounting principles generally accepted in the United States of America. The
preparation of these financial statements requires management to make estimates
and judgments that affect the reported amounts of assets, liabilities, revenue
and expenses, and related disclosure of contingent assets and liabilities. On an
ongoing basis, management evaluates its estimates, including those related to
revenue recognition, impairment of long-lived assets, including finite lived
intangible assets, research and development expenses and clinical trial expenses
and stock-based compensation expense.
We base
our estimates on historical experience and on various other assumptions that are
believed to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results may differ
materially from these estimates under different assumptions or
conditions.
Our
significant accounting policies are summarized in Note 2 to our financial
statements contained in our Annual Report on Form 10-K for the year ended
December 31, 2009. We believe the following critical accounting policies affect
our more significant judgments and estimates used in the preparation of our
financial statements:
Revenue
Recognition
Revenue
consists of license fees from strategic alliances with pharmaceutical companies
as well as service and grant revenues. Service revenue consists of contract
research and laboratory consulting. Grant revenues consist of government
and private grants.
Monies
received for license fees are deferred and recognized ratably over the
performance period in accordance with Staff Accounting Bulletin (“SAB”) No. 104,
Revenue Recognition.
Milestone payments will be recognized upon achievement of the milestone as long
as the milestone is deemed substantive and we have no other performance
obligations related to the milestone and collectability is reasonably assured,
which is generally upon receipt, or recognized upon termination of the agreement
and all related obligations. Deferred revenue represents amounts received prior
to revenue recognition.
Revenues
from contract research, government grants, and consulting fees are recognized
over the respective contract periods as the services are performed, provided
there is persuasive evidence or an arrangement, the fee is fixed or determinable
and collection of the related receivable is reasonably assured. Once all
conditions of the grant are met and no contingencies remain outstanding, the
revenue is recognized as grant fee revenue and an earned but unbilled revenue
receivable is recorded.
In August
2006, we received approximately $24.3 million in proceeds from the
privately-funded ALS Charitable Remainder Trust (“ALSCRT”) in exchange for the
commitment to continue research and development of arimoclomol and other
potential treatments for ALS and a one percent royalty in the worldwide sales of
arimoclomol. Under the arrangement, we retained the rights to any products or
intellectual property funded by the arrangement and the proceeds of the
transaction were non-refundable. The ALSCRT has no obligation to provide any
further funding to us. We concluded that due to the research and
development components of the transaction that it is properly accounted for
under ASC 730-20 (previously Statement of Financial Accounting Standards No. 68,
Research and Development Arrangements).
Accordingly, we recorded the value received under the arrangement as deferred
service revenue and recognized service revenue using the proportional
performance method of revenue recognition, meaning that service revenue was
recognized on a dollar-for-dollar basis for each dollar of expense incurred for
the research and development of arimoclomol and other potential ALS treatments.
We believe that this method best approximates the efforts expended related to
the services provided. We adjusted our estimates of expense incurred for this
research and development on a quarterly basis.
The
amount of “deferred revenue, current portion” is the amount of deferred revenue
that is expected to be recognized in the next twelve months and is subject to
fluctuation based upon management’s estimates. Management’s estimates include an
evaluation of what pre-clinical and clinical trials are necessary, the timing of
when trials will be performed and the estimated clinical trial expenses. These
estimates are subject to changes and could have a significant effect on the
amount and timing of when the deferred revenues are recognized.
Pursuant
to an amendment signed between us and the beneficiary of the ALSCRT on August 6,
2009, we were released from all restrictions on the use of any proceeds
previously received by us in connection with the arrangement. As a
result, we recognized $6.7 million as service revenue in the third quarter of
2009, which represented the remaining deferred revenue and previously
un-recognized portion of the value received.
Research
and Development Expenses
Research
and development expenses consist of costs incurred for direct and
overhead-related research expenses and are expensed as incurred. Costs to
acquire technologies, including licenses, that are utilized in research and
development and that have no alternative future use are expensed when incurred.
Technology developed for use in its products is expensed as incurred until
technological feasibility has been established.
Clinical
Trial Expenses
Clinical
trial expenses, which are included in research and development expenses, include
obligations resulting from our contracts with various clinical research
organizations in connection with conducting clinical trials for our product
candidates. We recognize expenses for these activities based on a variety of
factors, including actual and estimated labor hours, clinical site initiation
activities, patient enrollment rates, estimates of external costs and other
activity-based factors. We believe that this method best approximates the
efforts expended on a clinical trial with the expenses we record. We adjust our
rate of clinical expense recognition if actual results differ from our
estimates. If our estimates are incorrect, clinical trial expenses recorded in
any particular period could vary.
Stock-Based
Compensation
Our
stock-based employee compensation plans are described in Note 8 of the Notes to
Condensed Financial Statements included in this Quarterly Report. We have
adopted the provisions of ASC 718 (previously SFAS No. 123(R), Share-Based Payment (“SFAS
123(R)”)), which requires the measurement and recognition of compensation
expense for all stock-based awards made to employees and
non-employees.
For stock
options and stock warrants paid in consideration of services rendered by
non-employees, the Company recognizes compensation expense in accordance with
the requirements of ASC 718 (previously SFAS No. 123(R)), ASC 505-50 (previously
Emerging Issues Task Force Issue No. 96-18 (“EITF 96-18”)), Accounting for Equity
Instruments that are Issued to other than Employees for Acquiring, or in
Conjunction with Selling Goods or Services and ASC 505 (previously EITF
00-18, Accounting Recognition
for Certain Transactions involving Equity Instruments Granted to Other Than
Employees), as amended.
Non-employee
option grants that do not vest immediately upon grant are recorded as an expense
over the vesting period. At the end of each financial reporting period prior to
performance, the value of these options, as calculated using the Black-Scholes
option-pricing model, is determined, and compensation expense recognized or
recovered during the period is adjusted accordingly. Since the fair market value
of options granted to non-employees is subject to change in the future, the
amount of the future compensation expense is subject to adjustment until the
common stock options or warrants are fully vested.
The fair
value of each CytRx common stock option grant is estimated using the
Black-Scholes option-pricing model, which uses certain assumptions related to
risk-free interest rates, expected volatility, expected life of the common stock
options and future dividends. Compensation expense is recorded based upon the
value derived from the Black-Scholes option-pricing model, based on an expected
forfeiture rate that is adjusted for actual experience. If our Black-Scholes
option-pricing model assumptions or our actual or estimated forfeiture rate are
different in the future, that could materially affect compensation expense
recorded in future periods.
Impairment
of Long-Lived Assets
We review
long-lived assets, including finite lived intangible assets, for impairment on
an annual basis, as of December 31, or on an interim basis if an event occurs
that might reduce the fair value of such assets below their carrying values. An
impairment loss would be recognized based on the difference between the carrying
value of the asset and its estimated fair value, which would be determined based
on either discounted future cash flows or other appropriate fair value methods.
If our estimates used in the determination of either discounted future cash
flows or other appropriate fair value methods are not accurate as compared to
actual future results we may be required to record an impairment
charge. The remaining fixed assets from our San Diego laboratory have
been re-allocated from Equipment and Furnishings to Assets Held for Sale and
written down to their estimated net realizable value at June 30,
2010.
Net
Income (Loss) Per Share
Basic net
income (loss) per common share is computed using the weighted-average number of
common shares outstanding. Diluted net income (loss) per common share computed
using the weighted-average number of common share and common share equivalents
outstanding. Potentially dilutive stock options and warrants of 13.3 million
shares and 11.3 million shares, respectively, for the three and six-month
periods ended June 30, 2010 and 15.9 million shares and 15.8 million shares,
respectively, for the three and six-month periods ended June 30, 2009, were
excluded from the computation of diluted loss per share, where the effect would
be anti-dilutive.
Warrant
Liabilities
Liabilities
measured at market value on a recurring basis include warrant liabilities
resulting from our recent equity financing. In accordance with ASC 815-40
(formerly EITF (Emerging Issues Task Force) 00-19, Accounting for Derivative Financial
Instruments Indexed to and Potentially Settled in a Company’s Own Stock,
the warrant liabilities are being marked to market each quarter-end until they
are completely settled. The warrants are valued using the Black-Scholes method,
using assumptions consistent with our application of ASC 718 (formerly SFAS
123R). The gain or loss resulting from the marked to market calculation is shown
on the Statements of Operations as Gain on warrant derivative
liability.
Liquidity
and Capital Resources
We have
relied primarily upon proceeds from sales of our equity securities and the
exercise of options and warrants, and to a much lesser extent upon payments from
our strategic partners and licensees, to generate funds needed to finance our
business and operations.
At June
30, 2010, we had cash and cash equivalents of approximately $12.5 million,
marketable securities of approximately $21.0 million, held approximately 3.1
million restricted shares of common stock of RXi with a market value of
approximately $8.0 million based upon the closing price of the RXi common stock
on that date. On March 26, 2010, we raised approximately $3.8 million from the
sale of 675,000 RXi shares and on June 30, 2010, we sold 2.0 million shares of
the RXi common stock for $5.0 million, net of costs. Management believes that
our current cash on hand, together with our marketable securities and proceeds
from possible future sales of RXi common stock, will be sufficient to fund our
operations for the foreseeable future. The estimate is based, in
part, upon our currently projected expenditures for the remainder of 2010 and
the first six months of 2011 of approximately $17.5 million, which includes approximately
$3.1 million for our clinical programs for INNO-206, approximately $4.9 million
for our clinical programs for bafetinib, approximately $0.3 million for our
clinical program for tamibarotene, approximately $0.2 million for our activities
for arimoclomol, approximately $2.0 million for general operation of our
clinical programs, and approximately $7.0 million for other general and
administrative expenses. These projected expenditures are also based upon
numerous other assumptions and subject to many uncertainties, and actual
expenditures may be significantly different from these projections.
If we
obtain marketing approval and successfully commercialize one or more of our
product candidates, we anticipate it will take a minimum of three years and possibly
longer, for us to generate significant recurring revenue. We will be dependent
on future financing and possible asset sales until such time, if ever, as we can
generate significant recurring revenue. We have no commitments from third
parties to provide us with any additional financing, and we may not be able to
obtain future financing on favorable terms, or at all. If we fail to
obtain sufficient funding when needed, we may be forced to delay, scale back or
eliminate all or a portion of our development programs or clinical trials, seek
to license to other companies our product candidates or technologies that we
would prefer to develop and commercialize ourselves, or seek to sell some or all
of our RXi shares or other assets or merge with or be acquired by another
company. For example, we intend to assess periodically the costs and potential
commercial value of our new-drug discovery activities. Depending on these
assessments, we may determine to modify, out-source, partner or suspend these
activities.
We
realized a net income in the quarter ended June 30, 2010 of $1.3 million as
compared to a $2.2 million net loss in the quarter ended June 30, 2009, or a
difference of $3.5 million. We recognized no service revenues in the quarter
ended June 30, 2010 as compared to $1.0 million in the comparative quarter
because all of the related ALSCRT revenue was completely recognized in 2009 as a
result of the amendment of the ALSCRT arrangement discussed previously. Our
research and development expenditures were approximately $1.7 million higher in
the current quarter as compared to the quarter ended June 30, 2009, due to
increased spending related to the ramp up of our oncology clinical
trials. In the quarter ended June 30, 2010, we recognized a gain of
approximately $5.0 million resulting from the sale of 2 million RXi
shares. We also recognized an unrealized gain recorded in other
comprehensive income on our remaining 3.1 million RXi shares. We had no similar
items in the 2009 comparative period.
In the
six-month period ended June 30, 2010, we received $10.4 million of cash from
investing activities, compared to a usage of $11.1 million in the comparable
2009 period. In the current six-month period, we received proceeds from the sale
of 2.675 million RXi shares for a total of $8.9 million. We purchased net
marketable securities of $1.7 million and $11.0 million, respectively, in the
six-month periods ended June 30, 2010 and 2009. We utilized $0.3 million for
capital expenditures in the three-month period ended June 30, 2010 as compared
to $0.1 million in the comparative 2009 period. We do not expect any significant
capital spending during the next 12 months.
In the
six-month period ended June 30, 2010, we received $147,000 from the exercise of
stock options as compared to none in the comparative period. We
continue to evaluate potential future sources of capital, as we do not currently
have commitments from any third parties to provide us with additional capital.
The results of our technology licensing efforts and the actual proceeds of any
fund-raising activities will determine our ongoing ability to operate as a going
concern. Our ability to obtain future financings through joint ventures, product
licensing arrangements, royalty sales, equity financings, sales of RXi shares,
grants or otherwise is subject to market conditions and our ability to identify
parties that are willing and able to enter into such arrangements on terms that
are satisfactory to us. Depending upon the outcome of our fundraising efforts,
the accompanying financial information may not necessarily be indicative of
future operating results or future financial condition.
As a
development company that is primarily engaged in research and development
activities, we expect to incur significant losses and negative cash flow from
operating activities for the foreseeable future. There can be no
assurance that we will be able to generate revenues from our product candidates
and become profitable.
We expect
to incur significant losses for the foreseeable future, and there can be no
assurance that we will become profitable. Even if we become profitable, we may
not be able to sustain that profitability.
Results
of Operations
We
recorded a net income of approximately $1.3 million and $0.7 million for the
three-month and six-month periods ended June 30, 2010, respectively, as compared
to a net loss of $2.2 million and $6.2 million, respectively, for the same
periods in 2009. Our net income during the three-month and six-month periods of
2010 resulted solely from gains on the sale of RXi of $5.0 million and $8.9
million, respectively.
We
recognized no service revenue for the three-month and six-month periods ended
June 30, 2010, as compared to $0.9 million and $2.4 million, respectively, for
the same periods in 2009. The 2009 revenues relate to our $24.3 million sale to
the ALSCRT of a one percent royalty interest in worldwide sales of arimoclomol
in August 2006. Pursuant to an amendment signed between us and the beneficiary
of the ALSCRT on August 6, 2009, we were released from all restrictions on the
use of any proceeds previously paid to us in connection with the
arrangement. As a result, we recognized $6.7 million as service
revenue in the third quarter of 2009, which represented the remaining deferred
revenue and previously un-recognized portion of the value received. All future
licensing fees under our current licensing agreements are dependent upon
successful development milestones being achieved by the licensor. During 2010,
we do not anticipate receiving any significant licensing fees.
Research
and Development
| |
|
Three-Month
Period Ended June 30,
|
|
|
Six-Month
Period Ended June 30,
|
|
| |
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
|
(In
thousands)
|
|
|
(In
thousands)
|
|
|
Research
and development expenses
|
|
$ |
3,002 |
|
|
$ |
1,020 |
|
|
$ |
4,975 |
|
|
$ |
3,695 |
|
|
Non-cash
research and development expenses
|
|
|
25 |
|
|
|
10 |
|
|
|
53 |
|
|
|
19 |
|
|
Employee
stock option expense
|
|
|
45 |
|
|
|
172 |
|
|
|
88 |
|
|
|
368 |
|
|
Depreciation
and amortization
|
|
|
1 |
|
|
|
162 |
|
|
|
3 |
|
|
|
331 |
|
|
|
|
$ |
3,073 |
|
|
$ |
1,364 |
|
|
$ |
5,119 |
|
|
$ |
4,413 |
|
Research
expenses are expenses incurred by us in the discovery of new information that
will assist us in the creation and the development of new drugs or treatments.
Development expenses are expenses incurred by us in our efforts to commercialize
the findings generated through our research efforts. Our research and
development expenses, excluding stock option expense, non-cash expenses and
depreciation expense, were $3.0 million and $5.0 million for the three-month and
six-month periods ended June 30, 2010, respectively, and $1.0 million and $3.7
million, respectively, for the same periods in 2009.
Research
and development expenses incurred during the three-month and six-month periods
ended June 30, 2010 relate to our various development programs. In the
three-month period ended June 30, 2010, the development costs of our program for
INNO-206 were $0.9 million, the costs of our program for bafetinib were $1.2
million, and the costs of our program for tamibarotene were $0.1 million. The
remainder primarily related to research and development support
costs.
As
compensation to our consultants, and in connection with the acquisition of
technology, we sometimes issue shares of common stock, stock options and
warrants to purchase shares of common stock. For financial statement purposes,
we value these shares of common stock, stock options, and warrants at the fair
value of the common stock, stock options or warrants granted, or the services
received, whichever is more reliably measurable. The value of the non-employee
option grants are marked to market using the Black-Scholes option-pricing model
and most of the compensation expense recognized or recovered during the period
is adjusted accordingly. We recorded $45,000 and $88,000 of employee stock
option expense both during the three-month and six-month periods ended June 30,
2010, respectively, and $0.2 million and $0.4 million, respectively, for the
same periods in 2009.
General
and Administrative Expenses
| |
|
Three-Month
Period Ended June 30,
|
|
|
Six-Month
Period Ended June 30,
|
|
| |
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
|
(In
thousands)
|
|
|
(In
thousands)
|
|
|
General
and administrative expenses
|
|
$ |
1,689 |
|
|
$ |
1,503 |
|
|
$ |
3,687 |
|
|
$ |
3,614 |
|
|
Non-cash
general and administrative expenses
|
|
|
0 |
|
|
|
106 |
|
|
|
479 |
|
|
|
180 |
|
|
Employee
stock option expense
|
|
|
338 |
|
|
|
297 |
|
|
|
483 |
|
|
|
572 |
|
|
Depreciation
and amortization
|
|
|
33 |
|
|
|
22 |
|
|
|
56 |
|
|
|
45 |
|
|
|
|
$ |
2,060 |
|
|
$ |
1,928 |
|
|
$ |
4,705 |
|
|
$ |
4,411 |
|
General
and administrative expenses include all administrative salaries and general
corporate expenses, including legal expenses associated with the prosecution of
our intellectual property. Our general and administrative expenses, excluding
stock option expense, non-cash expenses and depreciation expense, were $1.7
million and $3.7 million for the three-month and six-month periods ended June
30, 2010, respectively, and $1.5 million and $3.6 million, respectively, for the
same periods in 2009.
Employee
stock option expense relates to options granted to recruit and retain directors,
officers and other employees. We recorded approximately $0.3 million
and $0.5 million of employee stock option expense in the three-month and
six-month periods ended June 30, 2010, as compared to $0.3 million and $0.6
million, respectively, for the same periods in 2009. We recorded $0 and $0.5
million of non-employee stock option expense in the three-month and six-month
periods ended June 30, 2010, as compared to $0.1 million and $0.2 million,
respectively in the prior comparative periods.
Depreciation
and Amortization
Depreciation
expense reflects the depreciation of our equipment and
furnishings. The remaining fixed assets from our San Diego,
California laboratory have been re-allocated from Equipment and Furnishings to
Assets Held for Sale and written down to their estimated net realizable value at
June 30, 2010.
Interest
Income
Interest
income was $80,000 and $0.2 million for each of the three-month and six-month
periods ended June 30, 2010, compared to $72,000 and $0.1 million for the same
periods in 2009.
Item
3. — Quantitative and Qualitative Disclosures About Market Risk
Our
exposure to market risk is limited primarily to interest income sensitivity,
which is affected by changes in the general level of U.S. interest rates,
particularly because a significant portion of our investments are in short-term
debt securities issued by the U.S. government and institutional money market
funds. The primary objective of our investment activities is to preserve
principal. Due to the nature of our short-term investments, we believe that we
are not subject to any material market risk exposure. We do not have any
derivative financial instruments or foreign currency instruments. If interest
rates had varied by 10% in the three-month ended June 30, 2010, it would not
have had a material effect on our results of operations or cash flows for that
period.
Item
4. — Controls and Procedures
Evaluation
of Disclosure Controls and Procedures
Our
management, with the participation of our Chief Executive Officer and Chief
Financial Officer, performed an evaluation of the effectiveness of the design
and operation of our disclosure controls and procedures (as defined in
Securities Exchange Act Rule 13a-15(e)) as of the end of the quarterly period
covered by this Quarterly Report. Based on that evaluation, our Chief Executive
Officer and Chief Financial Officer concluded that our disclosure controls and
procedures were effective to ensure that information required to be disclosed by
us in reports that we file or submit under the Securities Exchange Act of 1934
is recorded, processed, summarized and reported within the time periods
specified in the rules and forms of the SEC.
Changes
in Controls over Financial Reporting
There was
no change in our internal control over financial reporting that occurred during
the quarter ended June 30, 2010 that materially affected, or is reasonably
likely to materially affect, our internal control over financial reporting. We
continually seek to assure that all of our controls and procedures are adequate
and effective. Any failure to implement and maintain improvements in the
controls over our financial reporting could cause us to fail to meet our
reporting obligations under the SEC’s rules and regulations. Any failure to
improve our internal controls to address the weaknesses we have identified could
also cause investors to lose confidence in our reported financial information,
which could have a negative impact on the trading price of our common
stock.
PART
II — OTHER INFORMATION
Item
1A – Risk Factors
We
are subject to a number of risks and uncertainties, including the risks and
uncertainties discussed below, as well as those described in our Annual Report
on Form 10-K for the year ended December 31, 2009 or reflected in any subsequent
filings we make with the SEC. If any of these risks or uncertainties actually
occur, our business, results of operations, financial condition and prospects
could be materially and adversely affected. In that case, the trading price of
our common stock could decline. These risks and uncertainties are not the only
ones facing us. Additional risks and uncertainties not presently known to us, or
that we currently perceive as immaterial, also may adversely affect
us.
Our
common stock may be delisted from The Nasdaq Capital Market if the stock price
does not increase.
We
received notice from The Nasdaq Stock Market on July 14, 2010 that we were not
in compliance with the minimum $1.00 closing bid price required by Nasdaq
Marketplace Rule 4310(c)(4) and, in accordance with Marketplace Rule
4310(c)(8)(D), could regain compliance if, by January 10, 2011, the closing bid
price of our common stock is at or above $1.00 for 10 consecutive business days
and we otherwise meet the Nasdaq's continuing listing
requirements. In its notice to us, Nasdaq also informed us that, if
we did not regain compliance by the stated deadline, we would be granted up to
an additional 180 calendar days to regain full compliance while continuing to
trade during such time if we meet the Nasdaq's initial listing requirements
other than the minimum bid price rule. If we eventually fail to
comply with this condition for continued listing and our common stock is
delisted from The Nasdaq Capital Market, our common stock is expected to be
quoted on the Pink Sheets LLC or the OTC Bulletin Board
markets. However, there is no assurance that our common stock will,
in fact, be quoted on one of these other trading systems or that an
active trading market for our common stock will thereafter exist, which would
materially and adversely impact the market value of our common
stock.
Item
5. Other Information
On June
29, 2010, we held our Annual Meeting of Stockholders. The following are the
results of voting on the proposals submitted to a vote of our
stockholders:
a)
Election of directors:
|
Nominee
|
For
|
Withheld
|
|
Lou
Ignarro, Ph.D.
|
19.7
million
|
5.8
million
|
|
Joseph
Rubinfeld, Ph.D.
|
23.6
million
|
1.9
million
|
b)
Ratification of the selection of BDO Seidman, LLP as our independent
auditors:
|
For
|
81.6 million
|
|
Against
|
1.3 million
|
|
Abstain
|
0.2
million
|
Item
6. — Exhibits
The
exhibits listed in the accompanying Index to Exhibits are filed as part of this
Quarterly Report and incorporated herein by reference.
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.
|
|
CytRx
Corporation
|
|
|
|
|
|
|
|
Date:
August 9, 2010
|
By:
|
/s/ JOHN
Y. CALOZ
|
|
|
|
|
John
Y. Caloz
|
|
|
|
|
Chief
Financial Officer
|
|
|
|
|
|
|
INDEX
TO EXHIBITS
|
Exhibit
Number
|
|
Description
|
|
31.1
|
|
Certification
of Chief Executive Officer Pursuant to 17 CFR
240.13a-14(a)
|
|
31.2
|
|
Certification
of Chief Financial Officer Pursuant to 17 CFR
240.13a-14(a)
|
|
32.1
|
|
Certification
of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
|
|
32.2
|
|
Certification
of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
|