| CORTEX PHARMACEUTICALS INC/DE/ Item 1A Risk Factors In addition to the other matters set forth in this Annual Report on Form 10-K, our continuing operations and the price of our common stock are subject to the following risks: Risks related to our business We have a history of net losses; we expect to continue to incur net losses and we may never achieve or maintain profitability |
| Since our formation on February 10, 1987 through December 31, 2005, we have generated only modest operating revenues and we have incurred net losses approximating dlra63cmam700cmam000 |
| For the years ended December 31, 2005 and 2004, our net losses were approximately dlra11cmam606cmam000 and dlra6cmam234cmam000, respectively |
| For the six months ended December 31, 2004 and 2003 and fiscal years ended June 30, 2004 and 2003, our net losses amounted to approximately dlra4cmam046cmam000, dlra3cmam806cmam000, dlra5cmam994cmam000 and dlra1cmam175cmam000, respectively |
| We have not generated any revenue from product sales to date, and it is possible that we will never generate revenues from product sales in the future |
| Even if we do achieve significant revenues from product sales, we expect to incur significant operating losses over the next several years |
| We will need additional capital in the future and, if it is not available on terms acceptable to us, or at all, we may need to scale back our research and development efforts and may be unable to continue our business operations |
| We will require substantial additional funds to advance our research and development programs and to continue our operations, particularly if we decide to independently conduct later-stage clinical testing and apply for regulatory approval of any of our proposed products, and if we independently undertake marketing and promotion of our products |
| Additionally, we may require additional funds in the event that we decide to pursue strategic acquisitions of or licenses for other products or businesses |
| Based - 18 - ______________________________________________________________________ [46]Table of Contents on our current operating plan, including planned clinical trials and other product research and development costs, we estimate that our existing cash resources, including committed sources of funding from Servier, will be sufficient to meet our requirements into calendar year 2007 |
| However, we believe that we will require additional capital to fund on-going operations beyond that time |
| Additional funds may result from milestone payments related to our agreements with Organon and Servier, although there is no assurance that we will receive milestone payments from Organon or Servier within the desired timeframe, or at all |
| Additional funds also may result from the exercise of warrants to purchase shares of our common stock |
| As of December 31, 2005, warrants to purchase up to approximately 10dtta5 million shares of our common stock were outstanding |
| In February 2006, warrants to purchase approximately 333cmam000 shares of common stock were exercised, resulting in proceeds of approximately dlra850cmam000 |
| If the remaining warrants are fully exercised, of which there can be no assurance, such exercise would provide approximately dlra30cmam000cmam000 of additional capital |
| Our cash requirements in the future may be significantly different from our current estimates and depend on many factors, including: • the results of our clinical trials; • the time and costs involved in obtaining regulatory approvals; • the costs of setting up and operating our own marketing and sales organization; • the ability to obtain funding under contractual and licensing agreements; • the costs involved in obtaining and enforcing patents or any litigation by third parties regarding intellectual property; and • our success in entering into collaborative relationships with other parties |
| To finance our future activities, we may seek funds through additional rounds of financing, including private or public equity or debt offerings and collaborative arrangements with corporate partners |
| We cannot say with any certainty that we will be able to obtain the additional needed funds on reasonable terms, or at all |
| The sale of additional equity or convertible debt securities could result in additional dilution to our stockholders |
| If we issued preferred equity or debt securities, these securities could have rights superior to holders of our common stock, and could contain covenants that will restrict our operations |
| We might have to obtain funds through arrangements with collaborative partners or others that may require us to relinquish rights to our technologies, product candidates or products that we otherwise would not relinquish |
| In addition, we may be unable to meet our research spending obligations under our existing licensing agreements and may be unable to continue our business operations |
| Our products rely on licenses from The Regents of the University of California, and if we lose access to these technologies, our business would be substantially impaired |
| Under our agreements with The Regents of the University of California, we have exclusive rights to AMPAKINE compounds for all applications for which the University has patent rights, other than endocrine modulation |
| Our rights to the AMPAKINE compounds are secured by patents or patent applications owned wholly by the University or by the University as a co-owner with us |
| Our existing agreements with the University require the University to prepare, file, prosecute and maintain patent applications related to our licensed rights at our expense |
| Such agreements also require us to make certain minimum annual payments, meet certain milestones or diligently seek to commercialize the underlying technology |
| - 19 - ______________________________________________________________________ [47]Table of Contents Under our agreements, we are required to make minimum annual royalty payments approximating dlra70cmam000 |
| At the end of May 2006, our spending requirements will decrease to dlra250cmam000 per year, and will continue at that level until we begin marketing an AMPAKINE compound |
| The commercialization efforts in the agreements require us to file for regulatory approval of an AMPAKINE compound before October 2007 |
| Although we currently are in compliance with our obligations under the agreements, including minimum annual payments and diligence milestones, our failure to meet any of these requirements could allow the University to terminate that particular agreement |
| Management believes that it maintains a strong relationship with the University |
| We are at an early stage of development and we may not be able to successfully develop and commercialize our products and technologies |
| The development of AMPAKINE products is subject to the risks of failure commonly experienced in the development of products based upon innovative technologies and the expense and difficulty of obtaining approvals from regulatory agencies |
| Drug discovery and development is time consuming, expensive and unpredictable |
| On average, only one out of many thousands of chemical compounds discovered by researchers proves to be both medically effective and safe enough to become an approved medicine |
| In the fields that we target, approximately one in five compounds placed in clinical trials generally reaches the market |
| All of our proposed products are in the preclinical or early clinical stage of development and will require significant additional funding for research, development and clinical testing before we are able to submit them to any of the regulatory agencies for clearances for commercial use |
| Our trials [that are subject to our collaborative research arrangements] are being funded by third parties and do not involve financial commitments from Cortex |
| The process from discovery to development to regulatory approval can take several years and drug candidates can fail at any stage of the process |
| Historically, in our industry more than half of all compounds in development failed during Phase II trials and 30prca failed during Phase III trials |
| We cannot assure you that we will be able to complete successfully any of our research and development activities |
| Even if we do complete them, we may not be able to market successfully any of the products or be able to obtain the necessary regulatory approvals or assure that healthcare providers and payors will accept our products |
| Due to the extended testing and regulatory review process required before we can obtain marketing clearance, we do not expect to be able to commercialize any therapeutic drug for several years, either directly or through our corporate partners or licensees |
| - 20 - ______________________________________________________________________ [48]Table of Contents We may not be able to enter into the strategic alliances necessary to fully develop and commercialize our products and technologies, and we will be dependent on our corporate partners if we do |
| In addition to our agreements with Organon and Servier, we are seeking other pharmaceutical company partners to develop other major indications for the AMPAKINE compounds |
| These agreements would potentially provide us with additional funds in exchange for exclusive or non-exclusive license or other rights to the technologies and products that we are currently developing |
| Competition between biopharmaceutical companies for these types of arrangements is intense |
| Although we have been engaged in discussions with candidate companies for some time, we cannot give any assurance that these discussions will result in an agreement or agreements in a timely manner, or at all |
| Additionally, we cannot assure you that any resulting agreement will generate sufficient revenues to offset our operating expenses and longer-term funding requirements |
| Lynch’s laboratories at the University of California, Irvine that is part of our product development and corporate partnering profile |
| If our relationship with Dr |
| Lynch commenced in November 1987 and will continue until terminated by either party to the agreement upon at least 60 days’ prior written notice to the other party |
| Our agreements with our other consultants are generally also terminable by the consultant on short notice |
| We maintain a positive relationship with Dr |
| Risks related to our industry If we fail to secure adequate intellectual property protection, it could significantly harm our financial results and ability to compete |
| Our success will depend, in part, on our ability to get patent protection for our products and processes in the US and elsewhere |
| We have filed and intend to continue to file patent applications as we need them |
| If we are unable to obtain sufficient protection of our proprietary rights in our products or processes prior to or after obtaining regulatory clearances, our competitors may be able to obtain regulatory clearance and market competing products by demonstrating the equivalency of their products to our products |
| If they are successful at demonstrating the equivalency between the products, our competitors would not have to conduct the same lengthy clinical tests that we have conducted |
| We also rely on trade secrets and confidential information that we try to protect by entering into confidentiality agreements with other parties |
| Further, our competitors may independently learn our trade secrets or develop similar or superior technologies |
| To the extent that our consultants, key employees or others apply technological information independently developed by them or by others to our projects, disputes may arise regarding the proprietary rights to such information |
| We cannot assure you that such disputes will be resolved in our favor |
| We maintain liability insurance with coverage limits of dlra10 million per occurrence and dlra10 million in the annual aggregate |
| We have never been subject to a product liability claim, and we require each patient in our clinical trials to sign an informed consent agreement that describes the risks related to the trials, but we cannot assure you that the coverage limits of our insurance policies will be adequate or that one or more successful claims brought against us would not have a material adverse effect on our business, financial condition and result of operations |
| Any adverse outcome resulting from a product liability claim could have a material adverse effect on our business, financial condition and results of operations |
| - 22 - ______________________________________________________________________ [50]Table of Contents We face intense competition that could result in products that are superior to the products that we are developing |
| Our competitors include many companies, research institutes and universities that are working in a number of pharmaceutical or biotechnology disciplines to develop therapeutic products similar to those we are currently investigating |
| For example, the Pharmaceutical Research and Manufacturers of America recently estimated that more than 100 pharmaceutical and biotechnology companies are conducting research in the field of neurological disorders, with over 25 drugs under clinical investigation in the US for the treatment of Alzheimer’s disease |
| Virtually all of the major multinational pharmaceutical companies have active projects in these areas |
| Most of these competitors have substantially greater financial, technical, manufacturing, marketing, distribution and/or other resources than we do |
| In addition, many of our competitors have experience in performing human clinical trials of new or improved therapeutic products and obtaining approvals from the FDA and other regulatory agencies |
| We have no experience in conducting and managing later-stage clinical testing or in preparing applications necessary to obtain regulatory approvals |
| Accordingly, it is possible that our competitors may succeed in developing products that are safer or more effective than those that we are developing and may obtain FDA approvals for their products faster than we can |
| We expect that competition in this field will continue to intensify |
| We may be unable to recruit and retain our senior management and other key technical personnel on whom we are dependent |
| We are highly dependent upon key management and technical personnel and currently do not carry any insurance policies on such persons |
| In particular, we are highly dependent on our Chairman, President and Chief Executive Officer, Roger G Stoll, Ph |
| D, all of whom have entered into employment agreements with us |
| Competition for qualified employees among pharmaceutical and biotechnology companies is intense |
| The loss of any of our key management or technical personnel, or our inability to attract, retain and motivate the additional highly-skilled employees and consultants that our business requires, could substantially hurt our business and prospects |
| We cannot assure you that we will be able to retain our existing personnel or attract additional qualified employees when we need them |
| The regulatory approval process is expensive, time consuming, uncertain and may prevent us from obtaining required approvals for the commercialization of some of our products |
| The FDA and other similar agencies in foreign countries have substantial requirements for therapeutic products |
| Such requirements often involve lengthy and detailed laboratory, clinical and post-clinical testing procedures and are expensive to complete |
| It often takes companies many years to satisfy these requirements, depending on the complexity and novelty of the product |
| The review process is also extensive, which may delay the approval process even more |
| According to the Pharmaceutical Research and Manufacturers of America, historically the cost of developing a new pharmaceutical from discovery to approval was approximately dlra800 million, and this amount is expected to increase annually |
| Further, we cannot assure you that the FDA or other regulatory agency will grant us approval for any of our products on a timely basis, if at all |
| Even if regulatory clearances are obtained, a marketed product is subject to continual review, and later discovery of previously unknown problems may result in restrictions on marketing or withdrawal of the product from the market |
| - 23 - ______________________________________________________________________ [51]Table of Contents Other risks Our stock price may be volatile and our common stock could decline in value |
| The market price of securities of life sciences companies in general has been very unpredictable |
| The range of sales prices of our common stock for the fiscal year ended December 31, 2005, the six-month period ended December 31, 2004 and fiscal years ended June 30, 2004 and June 30, 2003, as quoted on The American Stock Exchange, was dlra1dtta96 to dlra3dtta03, dlra1dtta40 to dlra3dtta10, dlra1dtta62 to dlra4dtta99 and dlra0dtta51 to dlra2dtta49, respectively |
| The following factors, in addition to factors that affect that market generally, could significantly impact our business, and the market price of our common stock could decline: • competitors announcing technological innovations or new commercial products; • competitors’ publicity regarding actual or potential products under development; • regulatory developments in the US and foreign countries; • developments concerning proprietary rights, including patent litigation; • public concern over the safety of therapeutic products; and • changes in healthcare reimbursement policies and healthcare regulations |
| There is a large number of shares of common stock that may be sold, which may depress the market price of our stock |
| If all outstanding warrants and options are exercised prior to their expiration, approximately 18 million additional shares of common stock could become freely tradable without restriction |
| Sales of substantial amounts of common stock in the public market could adversely affect the prevailing market price of our common stock |
| Our charter document and shareholder rights plan may prevent or delay an attempt by our stockholders to replace or remove management |
| Certain provisions of our restated certificate of incorporation, as amended, could make it more difficult for a third party to acquire control of our business, even if such change in control would be beneficial to our stockholders |
| Our restated certificate of incorporation, as amended, allows our Board of Directors to issue up to 549cmam500 shares of preferred stock without stockholder approval |
| Pursuant to this authority, in February 2002 our Board of Directors adopted a shareholder rights plan and declared a dividend of a right to purchase one one-thousandth of a share of preferred stock for each outstanding share of our common stock |
| The ability of our Board of Directors to issue additional preferred stock and our shareholder rights plan may have the effect of delaying or preventing an attempt by our stockholders to replace or remove existing directors and management |