Item 1. Financial Statements.
Neurotrope, Inc. and Subsidiary
Condensed Consolidated Balance Sheets
(Unaudited)
ASSETS
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
CURRENT ASSETS
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
21,465,924
|
|
|
$
|
25,773,533
|
|
Prepaid expenses
|
|
|
179,744
|
|
|
|
138,711
|
|
|
|
|
|
|
|
|
|
|
TOTAL CURRENT ASSETS
|
|
|
21,645,668
|
|
|
|
25,912,244
|
|
|
|
|
|
|
|
|
|
|
Fixed assets, net of accumulated depreciation
|
|
|
22,011
|
|
|
|
55,198
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
$
|
21,667,679
|
|
|
$
|
25,967,442
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
2,131,032
|
|
|
$
|
2,167,413
|
|
Accrued expenses
|
|
|
52,961
|
|
|
|
190,744
|
|
Accrued expenses - related party
|
|
|
-
|
|
|
|
4,609
|
|
|
|
|
|
|
|
|
|
|
TOTAL CURRENT LIABILITIES
|
|
|
2,183,993
|
|
|
|
2,362,766
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SHAREHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
Common stock - 150,000,000 shares authorized, $.0001 par value;
|
|
|
|
|
|
|
|
|
7,891,796 shares issued and outstanding at June 30, 2017;
|
|
|
|
|
|
|
|
|
6,754,547 shares issued and outstanding at December 31, 2016
|
|
|
790
|
|
|
|
676
|
|
Additional paid-in capital
|
|
|
75,535,749
|
|
|
|
73,648,737
|
|
Accumulated deficit
|
|
|
(56,052,853
|
)
|
|
|
(50,044,737
|
)
|
|
|
|
|
|
|
|
|
|
TOTAL SHAREHOLDERS' EQUITY
|
|
|
19,483,686
|
|
|
|
23,604,676
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
|
|
$
|
21,667,679
|
|
|
$
|
25,967,442
|
|
See accompanying notes to condensed consolidated
financial statements.
Neurotrope, Inc. and Subsidiary
Condensed Consolidated Statements of Operations
(Unaudited)
|
|
Six Months Ended
|
|
|
Six Months Ended
|
|
|
Three Months Ended
|
|
|
Three Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development - related party
|
|
$
|
89,188
|
|
|
$
|
514,558
|
|
|
$
|
76,733
|
|
|
$
|
264,558
|
|
Research and development
|
|
|
2,917,971
|
|
|
|
1,818,679
|
|
|
|
1,287,957
|
|
|
|
925,942
|
|
General and administrative - related party
|
|
|
14,418
|
|
|
|
54,000
|
|
|
|
12,500
|
|
|
|
27,000
|
|
General and administrative
|
|
|
2,581,000
|
|
|
|
1,523,001
|
|
|
|
1,357,899
|
|
|
|
767,649
|
|
Stock-based compensation - related party
|
|
|
66,803
|
|
|
|
87,635
|
|
|
|
33,586
|
|
|
|
43,818
|
|
Stock-based compensation
|
|
|
384,518
|
|
|
|
327,052
|
|
|
|
195,003
|
|
|
|
165,823
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL OPERATING EXPENSES
|
|
|
6,053,898
|
|
|
|
4,324,925
|
|
|
|
2,963,678
|
|
|
|
2,194,790
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER INCOME (EXPENSE):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on abandonment of fixed assets
|
|
|
(34,274
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Gain on settlement of lease obligation
|
|
|
53,599
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Interest income
|
|
|
26,457
|
|
|
|
3,934
|
|
|
|
17,783
|
|
|
|
1,856
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss before income taxes
|
|
|
(6,008,116
|
)
|
|
|
(4,320,991
|
)
|
|
|
(2,945,895
|
)
|
|
|
(2,192,934
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(6,008,116
|
)
|
|
$
|
(4,320,991
|
)
|
|
$
|
(2,945,895
|
)
|
|
$
|
(2,192,934
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Stock dividends
|
|
|
-
|
|
|
|
(1,024,752
|
)
|
|
|
-
|
|
|
|
(504,712
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to common shareholders
|
|
$
|
(6,008,116
|
)
|
|
$
|
(5,345,743
|
)
|
|
$
|
(2,945,895
|
)
|
|
$
|
(2,697,646
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PER SHARE DATA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted loss per common share
|
|
$
|
(0.79
|
)
|
|
$
|
(3.47
|
)
|
|
$
|
(0.38
|
)
|
|
$
|
(1.75
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted weighted average common shares outstanding
|
|
|
7,562,300
|
|
|
|
1,538,700
|
|
|
|
7,793,700
|
|
|
|
1,542,900
|
|
See accompanying notes to condensed consolidated
financial statements.
Neurotrope, Inc. and Subsidiary
Condensed Consolidated Statement of Changes
in Shareholders’ Equity
(Unaudited)
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Paid-In
|
|
|
Accumulated
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance January 1, 2017
|
|
|
6,754,547
|
|
|
$
|
676
|
|
|
$
|
73,648,737
|
|
|
$
|
(50,044,737
|
)
|
|
$
|
23,604,676
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock for consulting fees
|
|
|
8,126
|
|
|
|
1
|
|
|
|
104,539
|
|
|
|
-
|
|
|
|
104,540
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of common stock warrants
|
|
|
1,129,092
|
|
|
|
113
|
|
|
|
1,331,152
|
|
|
|
-
|
|
|
|
1,331,265
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock based compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
451,321
|
|
|
|
-
|
|
|
|
451,321
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued for reverse stock split rounding
|
|
|
31
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(6,008,116
|
)
|
|
|
(6,008,116
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance June 30, 2017
|
|
|
7,891,796
|
|
|
$
|
790
|
|
|
$
|
75,535,749
|
|
|
$
|
(56,052,853
|
)
|
|
$
|
19,483,686
|
|
See accompanying notes to condensed
consolidated financial statements.
Neurotrope, Inc. and Subsidiary
Condensed Consolidated Statements of Cash
Flows
(Unaudited)
|
|
Six Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30, 2017
|
|
|
June 30, 2016
|
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(6,008,116
|
)
|
|
$
|
(4,320,991
|
)
|
Adjustments to reconcile net loss to net
|
|
|
|
|
|
|
|
|
cash used by operating activities
|
|
|
|
|
|
|
|
|
Stock based compensation
|
|
|
451,321
|
|
|
|
414,687
|
|
Consulting services paid by issuance of common stock
|
|
|
104,540
|
|
|
|
-
|
|
Depreciation expense
|
|
|
2,498
|
|
|
|
3,451
|
|
Loss on abandonment of fixed assets
|
|
|
34,274
|
|
|
|
|
|
Change in assets and liabilities
|
|
|
|
|
|
|
|
|
(Increase) Decrease in prepaid expenses
|
|
|
(41,033
|
)
|
|
|
1,391,974
|
|
Decrease in subscription receivable
|
|
|
-
|
|
|
|
2,761
|
|
Increase in accrued expenses - related party
|
|
|
(4,609
|
)
|
|
|
(37,714
|
)
|
(Decrease) increase in accounts payable
|
|
|
(36,381
|
)
|
|
|
249,636
|
|
(Decrease) Increase in accrued expenses
|
|
|
(137,783
|
)
|
|
|
36,935
|
|
Total adjustments
|
|
|
372,827
|
|
|
|
2,061,730
|
|
|
|
|
|
|
|
|
|
|
Net Cash Used in Operating Activities
|
|
|
(5,635,289
|
)
|
|
|
(2,259,261
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
|
(3,585
|
)
|
|
|
(2,947
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
Repayments of note payable
|
|
|
-
|
|
|
|
(10,511
|
)
|
Proceeds from exercise of common stock warrants
|
|
|
1,331,265
|
|
|
|
274
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided by (Used in) Financing Activities
|
|
|
1,331,265
|
|
|
|
(10,237
|
)
|
|
|
|
|
|
|
|
|
|
NET DECREASE IN CASH
|
|
|
(4,307,609
|
)
|
|
|
(2,272,445
|
)
|
|
|
|
|
|
|
|
|
|
CASH AT BEGINNING OF PERIOD
|
|
|
25,773,533
|
|
|
|
11,230,637
|
|
|
|
|
|
|
|
|
|
|
CASH AT END OF PERIOD
|
|
$
|
21,465,924
|
|
|
$
|
8,958,192
|
|
|
|
|
|
|
|
|
|
|
DISCLOSURE OF NON-CASH FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Conversion of convertible redeemable preferred stock to common stock
|
|
$
|
-
|
|
|
$
|
193,650
|
|
See accompanying notes to condensed consolidated
financial statements.
NEUROTROPE, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (UNAUDITED)
Note 1 – Organization and Nature
of Planned Business
:
Business
Neurotrope BioScience was incorporated
in Delaware on October 31, 2012. Neurotrope BioScience was formed to advance new therapeutic and diagnostic technologies in the
field of neurodegenerative disease, primarily Alzheimer’s disease (“AD”). Neurotrope BioScience is collaborating
with Cognitive Research Enterprises, Inc. (formerly known as the Blanchette Rockefeller Neurosciences Institute, or BRNI) (“CRE”),
a related party, in this process. The exclusive rights to certain technology were licensed by CRE to the Company on February 28,
2013 (see Note 5).
On August 23, 2013, a wholly-owned
subsidiary of Neurotrope, Inc. (formerly “BlueFlash Communications, Inc.”), Neurotrope Acquisition, Inc., a corporation
formed in the State of Nevada on August 15, 2013, merged with and into Neurotrope BioScience (the “Reverse Merger”).
Neurotrope BioScience was the surviving corporation in the Reverse Merger and became the Company’s wholly-owned subsidiary.
All of the outstanding Neurotrope BioScience common stock was converted into shares of Neurotrope, Inc. common stock, par value
$0.0001 per shares (the “Common Stock”) on a one-for-one basis.
The transaction was accounted for
as a reverse merger and recapitalization with Neurotrope BioScience as the acquirer for financial reporting purposes and Neurotrope,
Inc. as the acquired company. Consequently, the assets and liabilities and the operations that are reflected in the historical
financial statements are those of Neurotrope BioScience and are recorded at the historical cost basis of Neurotrope BioScience,
and the consolidated financial statements after completion of the Reverse Merger include the assets and liabilities of Neurotrope
BioScience and Neurotrope, Inc., and the historical operations of Neurotrope, Inc. and Neurotrope BioScience from the closing date.
As a result of the Reverse Merger,
Neurotrope, Inc. discontinued its pre-Reverse Merger business and acquired the business of Neurotrope BioScience, which it is continuing
to operate through Neurotrope BioScience. The common stock of Neurotrope, Inc. is traded under the ticker symbol “NTRP.”
Liquidity
As of August 4, 2017, the Company
had approximately $21 million in cash and cash equivalents. The Company expects that its existing capital resources will be sufficient
to support its projected operating requirements over the next 18 to 24 months, including the continuing development of bryostatin,
our novel drug targeting the activation of PKC epsilon. Funds are anticipated to be used to complete the analysis of the current
Phase 2 study treating moderate to severe Alzheimer's patients, conduct other non-clinical studies, plus possibly initiate additional
clinical studies in Alzheimer’s disease and Fragile X syndrome. The balance of the funds will be used for general corporate
and working capital purposes.
Basis of Presentation
Certain information and footnote
disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the
United States (“GAAP”) have been condensed or omitted. However, the Company believes that the disclosures included
in these financial statements are adequate to make the information presented not misleading. The unaudited condensed consolidated
financial statements included in this document have been prepared on the same basis as the annual consolidated financial statements,
and in our opinion reflect all adjustments, which include normal recurring adjustments necessary for a fair presentation in accordance
with GAAP and SEC regulations for interim financial statements. The results for the six months ended June 30, 2017 are not necessarily
indicative of the results that the Company will have for any subsequent period. These unaudited condensed consolidated financial
statements should be read in conjunction with the audited consolidated financial statements and the notes to those statements for
the year ended December 31, 2016 included in our Annual Report on Form 10-K.
Note 2 – Summary of Significant
Accounting Policies
:
Use of Estimates:
The preparation of financial statements
in conformity with accounting principles generally accepted in the United States requires management to make estimates that affect
the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents:
The Company considers all highly
liquid temporary cash investments with an original maturity of three months or less when purchased to be cash equivalents. At June
30, 2017, the Company’s cash balances exceed the current insured amounts under the Federal Deposit Insurance Corporation.
Property and Equipment:
Property and equipment is capitalized
and depreciated on a straight line basis over the estimated useful life of the asset, which is deemed to be between three and ten
years.
As part of the settlement of obligations
relating to its previous office lease, the Company wrote off approximately $34,274 of personal property, net of accumulated depreciation
which included certain furniture and fixtures. This amount is shown in other income (expense) as “loss on abandonment
of fixed assets.”
Research and Development
Costs:
All research and development costs,
including costs to maintain or expand the Company’s patent portfolio licensed from CRE that do not meet the criteria for
capitalization are expensed when incurred. FASB ASC Topic 730 requires companies involved in research and development activities
to capitalize non-refundable advance payments for such services pursuant to contractual arrangements because the right to receive
those services represents an economic benefit. Such capitalized advances will be expensed when the services occur and the economic
benefit is realized. There were no capitalized research and development services at June 30, 2017 and December 31, 2016.
Earnings (Loss) Per
Share:
Basic earnings (loss) per common
share amounts are based on weighted average number of common shares outstanding. Diluted earnings per share amounts are based on
the weighted average number of common shares outstanding, plus the incremental shares that would have been outstanding upon the
assumed exercise of all potentially dilutive preferred stock, stock options and warrants subject to anti-dilution limitations.
All such potentially dilutive instruments were anti-dilutive as of June 30, 2017 and 2016. At June 30, 2017 and 2016, the numbers
of shares underlying options and warrants that were anti-dilutive were approximately 5.8 million and 4.9 million, respectively.
Income Taxes:
Income taxes are provided for the
tax effects of transactions reported in the financial statements and consist of taxes currently due and deferred taxes. Deferred
taxes are recognized for differences between the basis of assets and liabilities for financial statement and income tax purposes
and the tax effects of net operating loss and other carryforwards. The deferred tax assets and liabilities represent the future
tax consequences of those differences and carryforwards, which will either be taxable or deductible when the related assets, liabilities
or carryforwards are recovered or settled. Deferred tax assets are reduced by a valuation allowance when, based on the weight of
available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized.
The Company applies the provisions
of FASB ASC 740-10,
Accounting for Uncertain Tax Positions
, which clarifies the accounting for uncertainty in income taxes
recognized in an enterprise’s financial statements and prescribes a recognition threshold and measurement process for financial
statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The standard also provides
guidance on de-recognition, classification, interest and penalties, and accounting in interim periods, disclosure and transitions.
The Company has concluded that
there are no significant uncertain tax positions requiring recognition in the accompanying financial statements. The tax period
that is subject to examination by major tax jurisdictions for generally three years from the date of filing.
Under Section 382 of the Internal
Revenue Code of 1986, as amended, changes in the Company's ownership may limit the amount of its net operating loss carryforwards
that could be utilized annually to offset future taxable income, if any. This limitation would generally apply in the event of
a cumulative change in ownership of the Company of more than 50% within a three-year period. The Company has not completed a study
to assess whether an ownership change for purposes of Section 382 has occurred, or whether there have been multiple ownership changes
since the Company's inception, due to the significant costs and complexities associated with such study.
Risks and Uncertainties:
The Company operates in an industry
that is subject to rapid technological change, intense competition and significant government regulation. The Company’s operations
are subject to significant risk and uncertainties including financial, operational, technological, regulatory and other risk. Such
factors include, but are not necessarily limited to, the results of clinical testing and trial activities, the ability to obtain
regulatory approval, the ability to obtain favorable licensing, manufacturing or other agreements for its product candidates and
the ability to raise capital to achieve strategic objectives.
Stock Compensation:
The Company accounts for stock-based
awards to employees in accordance with applicable accounting principles, which requires compensation expense related to share-based
transactions, including employee stock options, to be measured and recognized in the financial statements based on a determination
of the fair value of the stock options. The grant date fair value is determined using the Black-Scholes-Merton (“Black-Scholes”)
pricing model. Employee stock option expense is recognized over the employee’s requisite service period (generally the vesting
period of the equity grant). The Company’s option pricing model requires the input of highly subjective assumptions, including
the expected stock price volatility and expected term. Any changes in these highly subjective assumptions significantly impact
stock-based compensation expense.
Options awarded to purchase shares
of Common Stock issued to non-employees in exchange for services are accounted for as variable awards in accordance with applicable
accounting principles. Such options are valued using the Black-Scholes option pricing model.
Recent Accounting Pronouncements:
In February 2016, the FASB issued
ASU No. 2016-02,
Leases
(Topic 842), which requires lessees to put most leases on their balance sheets by recognizing
a lessee’s rights and obligations, while expenses will continue to be recognized in a similar manner to today’s legacy
lease accounting guidance. This ASU could significantly affect the financial ratios used for external reporting and other purposes,
such as debt covenant compliance. This ASU will be effective for January 1, 2019, with early adoption permitted. The Company
is currently in the process of assessing the impact of this ASU on its consolidated financial statements.
In July 2017, the FASB issued
ASU 2017-11,
Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480), Derivatives and Hedging (Topic
815): I. Accounting for Certain Financial Instruments with Down Round Features and II. Replacement of the Indefinite Deferral for
Mandatorily Redeemable Financial Instruments of Certain Non-public Entities and Certain Mandatorily Redeemable Non-controlling
Interests with a Scope Exception
.
Part I applies to entities that issue financial
instruments such as warrants, convertible debt or convertible preferred stock that contain down round features. Part II simply
replaces the indefinite deferral for certain mandatorily redeemable non-controlling interests and mandatorily redeemable financial
instruments of nonpublic entities contained within Accounting Standards Codification (ASC) Topic 480 with a scope exception and
does not impact the accounting for these mandatorily redeemable instruments. This ASU is effective for public companies for the
annual reporting periods beginning after December 15, 2018, and interim periods within those annual periods. Early adoption is
permitted. The Company is currently evaluating the impact that the adoption of the standard may have on its consolidated financial
statements.
Accounting Pronouncements Adopted
During the Period:
In March 2016, the FASB issued
ASU No. 2016-09,
Stock Compensation
(Topic 718), which includes provisions intended to simplify various aspects related
to how share-based payments are accounted for and presented in the financial statements. The standard is effective for annual periods
beginning after December 15, 2016. During the first two quarters of 2017, the Company adopted this ASU. The key effects of
the adoption on the Company’s financial statements include that the Company will now recognize windfall tax benefits as deferred
tax assets instead of tracking the windfall pool and recording such benefits in equity. Additionally, the Company has elected
to recognize forfeitures as they occur rather than estimating them at the time of grant.
Note 3 – Contractual Commitments
:
On September 4, 2014, the Company
entered into a lease for 4,000 square feet of office space in Newark, New Jersey. The lease commenced on September 1, 2014 and
was to expire on December 1, 2017 and had two (2) one-year renewal options. On May 1, 2016, the Company abandoned the lease and
accrued for the remainder of the lease payments totaling approximately $136,100. The Company subsequently negotiated a settlement
of amounts due and on March 23, 2017, and paid $82,500 to fully settle and satisfy its obligation to the lessor. This resulted
in a gain from settlement of lease obligations of $53,599.
Note 4 – Collaborative Agreements
:
On May 12, 2014, the Company entered
into a license agreement (the “Stanford Agreement”) with The Board of Trustees of The Leland Stanford Junior University
(“Stanford”), pursuant to which Stanford has granted to the Company a revenue-bearing, world-wide right and exclusive
license, with the right to grant sublicenses (on certain conditions), under certain patent rights and related technology for the
use of bryostatin structural derivatives, known as “bryologs,” for use in the treatment of central nervous system disorders,
lysosomal storage diseases, stroke, cardio protection and traumatic brain injury, for the life of the licensed patents.
On January 19, 2017, the Company
entered into a second license agreement with Stanford, pursuant to which Stanford has granted to the Company a revenue-bearing,
world-wide right and exclusive license, with the right to grant sublicenses (on certain conditions), under certain patent rights
and related technology for the use of “Bryostatin Compounds and Methods of Preparing the Same,” or synthesized bryostatin,
for use in the treatment of neurological diseases, cognitive dysfunction and psychiatric disorders, for the life of the licensed
patents. The Company paid Stanford $70,000 upon executing the license and is obligated to pay an additional $10,000 annually as
a license maintenance fee. In addition, based upon certain milestones, the Company will be obligated to pay up to an additional
$2.1 million and between 1.5% and 4.5% royalty payments on certain revenues generated by the Company relating to the licensed technology.
On July 14, 2014, Neurotrope BioScience
entered into an Exclusive License Agreement (the “Mount Sinai Agreement”) with the Icahn School of Medicine at Mount
Sinai (“Mount Sinai”). Pursuant to the Mount Sinai Agreement, Mount Sinai granted Neurotrope BioScience a revenue-bearing,
world-wide right and (a) exclusive license, with the right to grant sublicenses (on certain conditions), under Mount Sinai’s
interest in certain joint patents held by the Company and Mount Sinai (the “Joint Patents”) as well as in certain results
and data (the “Data Package”) and (b) non-exclusive license, with the right to grant sublicenses on certain conditions,
to certain technical information, both relating to the diagnostic, prophylactic or therapeutic use for treating diseases or disorders
in humans relying on activation of Protein Kinase C Epsilon (“PKCε”), which includes Niemann-Pick Disease (the
“Mount Sinai Field of Use”). The Mount Sinai Agreement allows Neurotrope BioScience to research, discover, develop,
make, have made, use, have used, import, lease, sell, have sold and offer certain products, processes or methods that are covered
by valid claims of Mount Sinai’s interest in the Joint Patents or an Orphan Drug Designation Application covering the Data
Package (“Mount Sinai Licensed Product(s)”) in the Mount Sinai Field of Use (as such terms are defined in the Mount
Sinai Agreement). During the six months ended June 30, 2017, the Company was obligated to pay Mount Sinai $10,000, which represents
total amounts due, for annual licensing fees.
On October 9, 2015, Neurotrope BioScience
executed a Services Agreement (the “Services Agreement”) with Worldwide Clinical Trials (“WCT”), effective
as of August 31, 2015. The Agreement relates to services for Neurotrope BioScience’s Phase 2 clinical study assessing the
safety, tolerability and efficacy of bryostatin in the treatment of moderately severe to severe AD (the “Study”). Pursuant
to the terms of the Services Agreement, WCT provided services to enroll approximately one hundred and fifty (150) Study subjects.
The first Study site was initiated during the fourth quarter of 2015. The total estimated budget for the services, including pass-through
costs, was approximately $11.6 million. Neurotrope BioScience paid WCT an advance payment of $200,000 upon execution of the Services
Agreement.
On November 11, 2015, Neurotrope
BioScience paid WCT $1,875,861 for the following advance payment: (i) services fees of approximately $928,000; (ii) pass-through
expenses of approximately $268,000; and (iii) investigator/institute fees of approximately $680,000. The remaining payments of
approximately $9.5 million, before amendment as described below, were to be paid over the period from July 2016 through September
2017. Neurotrope BioScience may terminate the Agreement without cause upon 60 days’ prior written notice. As of June 30,
2017, the Company’s balance sheet includes a payable balance for WCT services of approximately $1.5 million. The Services
Agreement can be terminated by the Company or WCT under certain terms, as described in the Services Agreement.
Also, in connection with the execution
of the Services Agreement, Neurotrope BioScience received consent and entered into a Statement of Work pursuant to its CRE License
Agreement (see Note 5 below).
On July 27, 2016, the Company received
approval of the institutional review board (“IRB”) for its amended protocol submitted on July 21, 2016 to the U.S.
Food and Drug Administration (the “FDA”) relating to the Phase 2 clinical trial of the Company’s lead drug candidate,
bryostatin-1, for the treatment of advanced AD, which amended protocol eliminates the second, exploratory, study period following
the first 12 weeks of treatment. The primary objective is the assessment of safety and tolerability of bryostatin to occur at 13
weeks, which has not been changed with this amendment. The secondary objective is to assess efficacy, also at week 13. The amendment
to cut the exploratory part of the study was made for business reasons in order to provide earlier completion of the study and
for the planning of future studies. The changes to the study design were not due to any safety concerns. The cost savings from
this amendment is approximately $2 million.
Note 5 – Related Party Transactions
and Licensing / Research Agreements
:
As of June 30, 2017, James Gottlieb,
a director of the Company, served as a director of CRE, and Shana Phares, also a director of the Company, served as President and
Chief Executive Officer of CRE. CRE is a stockholder of a corporation, Neuroscience Research Ventures, Inc. (“NRVI”),
which owned 3.6% of the Company's outstanding Common Stock as of June 30, 2017. Shana Phares is Secretary/Treasurer of NRVI.
Effective October 31, 2012, Neurotrope
BioScience executed a Technology License and Services Agreement (the “TLSA”) with CRE, a related party, and NRV II,
LLC (“NRV II”), another affiliate of CRE, which was amended by Amendment No. 1 to the TLSA as of August 21, 2013.
As of February 4, 2015, the parties entered into an Amended and Restated Technology License and Services Agreement (the “CRE
License Agreement”). The CRE License Agreement provides research services and has granted Neurotrope BioScience the exclusive
and nontransferable world-wide, royalty-bearing right, with a right to sublicense (in accordance with the terms and conditions
described below), under CRE’s and NRV II’s respective right, title and interest in and to certain patents and technology
owned by CRE or licensed to NRV II by CRE as of or subsequent to October 31, 2012, to develop, use, manufacture, market, offer
for sale, sell, distribute, import and export certain products or services for therapeutic applications for AD and other cognitive
dysfunctions in humans or animals (the “Field of Use”). Additionally, the TLSA specifies that all patents that issue
from a certain patent application, shall constitute licensed patents and all trade secrets, know-how and other confidential information
claimed by such patents constitute licensed technology under the CRE License. The CRE License Agreement terminates on the later
of the date (a) the last of the licensed patent expires, is abandoned, or is declared unenforceable or invalid or (b) the last
of the intellectual property enters the public domain. After the initial Series A Stock financing, the CRE License Agreement required
Neurotrope BioScience to enter into scope of work agreements with CRE as the preferred service provider for any research and development
services or other related scientific assistance and support services.
In addition, the CRE License Agreement
requires the Company to pay CRE a “Fixed Research Fee” of $1 million per year for five years, commencing on the date
that the Company completes a Series B Preferred Stock financing resulting in proceeds of at least $25,000,000 (the “Series
B Financing”). This Fixed Research Fee is not yet due. The CRE License Agreement also requires the payment of royalties ranging
between 2% and 5% of the Company’s revenues generated from the licensed patents and other intellectual property, dependent
upon the percentage ownership that NRVI holds in the Company. Under the CRE License Agreement, the Company was required to prepay
royalty fees at a rate of 5% of all investor funds raised in the Series A or Series B Stock financings or any subsequent rounds
of financing prior to a public offering, less commissions.
On November 12, 2015, Neurotrope
BioScience, CRE, and NRV II entered into an amendment (the “Amendment”) to the TLSA pursuant to which CRE granted rights
in certain technology to Neurotrope BioScience. Under the Amendment, the “Advances on Future Royalties” section of
the TLSA was amended and restated to (i) eliminate the requirement that Neurotrope BioScience pay CRE prepaid royalties equal to
five percent (5%) of financing proceeds received by Neurotrope BioScience in any financing prior to a public offering, and (ii)
provide that Neurotrope BioScience will deliver to CRE, following each closing pursuant to a certain securities purchase agreement,
an amount equal to 2.5% of the Post-PA Fees Proceeds received at such closing. In addition, the Amendment provides that on or prior
to December 31, 2016, Neurotrope Bioscience shall deliver to CRE an amount equal to 2.5% of the aggregate Post-PA Fee Proceeds
received at the closings. Each payment would constitute an advance royalty payment to CRE and will be offset (with no interest)
against the amount of future royalty obligations payable until such time that the amount of such future royalty obligations equals
in full the amount of the advance royalty payments made. “Post-PA Fee Proceeds” means the gross proceeds received,
less all amounts paid to the placement agent(s), in relation to such gross proceeds. No other expenses of Neurotrope Bioscience
shall be subtracted from the gross proceeds to determine the “Post-PA Fee Proceeds.” As of June 30, 2017, the Company
has paid its entire obligation resulting from this Amendment.
Note 6 – Common Stock:
During the six months ended June
30, 2017, 108 holders of 1,051,371 warrants exercisable at $0.32 per share of Common Stock exercised their warrants into 1,051,371
shares of Common Stock and five holders of 77,721 warrants exercisable at $12.80 per share of Common Stock exercised their warrants
into 77,721 shares of Common Stock.
During the three months ended June
30, 2017, five holders of 27,912 warrants exercisable at $0.32 per share of Common Stock exercised their warrants into 27,912 shares
of Common Stock and two holders of 11,313 warrants exercisable at $12.80 per share of Common Stock exercised their warrants into
11,313 shares of Common Stock.
Reverse Stock Split
On January 11, 2017, the Company
effected a 1-for-32 reverse stock split of its shares of common stock. As a result of the reverse stock split, every thirty-two
(32) shares of the Company's pre-reverse split common stock was combined and reclassified into one share of common stock. In addition,
the Company's pre-reverse split 400,000,000 authorized shares of common stock was proportionately reduced to 12,500,000 authorized
shares of common stock as a result of the split. These financial statements have been adjusted to retrospectively reflect this
reverse stock split.
On February 17, 2017, the stockholders
of the Company approved as increase in the number of authorized shares of Common Stock to 150 million shares, which increase became
effective upon the filing of a Certificate of Amendment with the Secretary of State of the State of Nevada on February 24, 2017.
Note 7 – Stock Options
:
The Board adopted, with the approval
of the Company’s stockholders, the 2013 Equity Incentive Plan (the “2013 Plan”), which provided for the issuance
of incentive awards of up to 218,750 shares of Common Stock (until it was amended as provided below) to officers, key employees,
consultants and directors.
On July 23, 2014, the Company’s
Board approved an increase in the total number of shares available under the 2013 Plan by 93,750 to 312,500 shares. The increase
was subsequently approved by the Company’s stockholders on June 9, 2015.
Effective on November 21, 2016, the
Company amended the 2013 Plan pursuant to an Amendment to the Neurotrope, Inc. 2013 Equity Incentive Plan (the “Equity Incentive
Plan Amendment”) to increase the number of shares of Common Stock available for issuance under the Plan to 685,325 shares
of Common Stock.
On March 9, 2017, the Company’s
Board of Directors approved the Neurotrope, Inc. 2017 Equity Incentive Plan (the “2017 Plan”), which provides for
the issuance of incentive awards of up to 800,000 shares of Common Stock to officers, key employees, consultants and directors.
Such grants under the 2017 Plan are subject to stockholder approval of the 2017 Plan. On March 17, 2017, the Company agreed to
issue non-qualified stock options to purchase 70,000 shares of common stock to seven non-executive directors of the Company. On
April 11, 2017, the Company agreed to issue stock options to purchase an aggregate of 248,445 shares of common stock to three
executive officers and one Board member of the Company. These awards are not considered outstanding as the 2017 Plan has not yet
been approved by shareholders.
Option Grants
The following is a summary of stock
option activity under the stock option plans for the six months ended June 30, 2017:
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
|
|
|
Average
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
Number of
|
|
|
Exercise
|
|
|
Term
|
|
|
Value
|
|
|
|
Shares
|
|
|
Price
|
|
|
(Years)
|
|
|
(in millions)
|
|
Options outstanding at January 1, 2017
|
|
|
675,812
|
|
|
$
|
23.54
|
|
|
|
8.3
|
|
|
$
|
0
|
|
Options granted
|
|
|
9,375
|
|
|
$
|
15.77
|
|
|
|
|
|
|
|
|
|
Less options forfeited
|
|
|
(1,952
|
)
|
|
$
|
19.20
|
|
|
|
|
|
|
|
|
|
Less options expired/cancelled
|
|
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
Less options exercised
|
|
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
Options outstanding at June 30, 2017
|
|
|
683,235
|
|
|
$
|
23.38
|
|
|
|
8.5
|
|
|
$
|
0
|
|
Options exercisable at June 30, 2017
|
|
|
464,391
|
|
|
$
|
27.87
|
|
|
|
8.1
|
|
|
$
|
0
|
|
During the six months ended June
30, 2017, the Company issued 9,375 stock options with an exercise price of $15.77 to one Company board member (excluding the issuance
of options to purchase 70,000 shares of common stock as noted above.) All of the stock options have a term of ten years.
As of June 30, 2017, there was
approximately $2.4 million of total unrecognized compensation costs related to unvested stock options and restricted stock. These
costs are expected to be recognized over a weighted average period of 3.3 years.
The Company used the Black-Scholes
valuation model to calculate the fair value of stock options. Stock-based compensation expense is recognized over the vesting period
using the straight-line method.
The fair value of stock options issued
for the six months ended June 30, 2017 was estimated at the grant date using the following weighted average assumptions: Dividend
yield 0%; Volatility 89.31%; Risk-free interest rate 2.420%; weighted average grant date fair value of $13.57 per share. There
is no current allowance for forfeitures.
The total stock option-based compensation
recorded as operating expense was $451,321 and $414,687 for the six months ended June 30, 2017 and 2016, respectively and was $228,589
and $209,641 for the three months ended June 30, 2017 and 2016, respectively. All of the stock option-based compensation expense
was classified as stock based compensation expense.
Note 8 – Common Stock Warrants
:
The following is a summary of common
stock warrant activity for the six months ended June 30, 2017:
|
|
Number
of shares
|
|
Warrants outstanding January 1, 2017
|
|
|
6,244,366
|
|
Warrants exercised
|
|
|
(1,129,092
|
)
|
Warrants outstanding June 30, 2017
|
|
|
5,115,274
|
|
As of June 30, 2017, the Company’s
warrants by exercise price were as follows: 161,440 warrants exercisable at $0.32, 382,887 warrants exercisable at $6.40, 3,751,033
warrants exercisable at $12.80 and 819,914 warrants exercisable at $32.00.
Note 9 – Contingencies
Since May 17, 2017, two purported
class action lawsuits have been commenced in the United States District Court for the Southern District of New York, naming as
defendants the Company, its Chief Executive Officer, its co-founder and President/Chief Scientific Officer, and its former Board
of Directors, President and Chief Executive Officer. The lawsuits allege violations of the Securities Exchange Act of 1934,
as amended, in connection with allegedly false and misleading statements made by the Company in certain press releases and in its
Annual Report on Form 10-K relating to the results stemming from the Company’s Phase 2b clinical trial for Bryostatin.
Plaintiffs seek, among other things, damages for purchasers of the Company’s securities during different periods, all of
which fall between January 7, 2016 and April 28, 2017. It is possible that additional suits will be filed, or allegations
received from stockholders, with respect to similar matters and also naming the Company and/or its officers and directors as defendants.
The Company expects that that these lawsuits will be consolidated, but a consolidated complaint has yet to be filed.
The Court has not yet set a schedule
for resolving these actions on the merits. Because each of the pending actions is in the early stages, no reasonable estimate
of possible loss, if any, can be made. The Company and its directors and officers believe that these actions are without
merit and intend to defend the lawsuits vigorously.
Note 10 – Subsequent Events
On August 1, 2017, the Company
issued 4,063 shares of common stock to a third party for professional services provided to the Company.
Item 2. Management’s Discussion and Analysis of Financial
Condition and Results of Operations.
You should read the following discussion
and analysis of our financial condition and results of operations together with our financial statements and the related notes
appearing elsewhere in this report. In addition to historical information, this discussion and analysis contains forward-looking
statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those discussed below.
Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed
in the section titled “Risk Factors” included elsewhere in this report and our annual report filed on Form 10-K for
the year ended December 31, 2016. Unless otherwise noted, all share and per share data give effect to the 1-for-32 reverse stock
split of our common stock that was effected on January 11, 2017.
On August 23, 2013, our wholly-owned subsidiary,
Neurotrope Acquisition, Inc., a corporation formed in the State of Nevada on August 15, 2013 merged with and into Neurotrope BioScience.
Neurotrope BioScience was the surviving corporation in the Reverse Merger and became Neurotrope, Inc.’s wholly-owned subsidiary.
As the result of the Reverse Merger, the Company’s business changed from engaging in the business of providing software solutions
to deliver geo-location targeted coupon advertising to mobile internet devices, to the biotechnology business, including the development
of a drug candidate called bryostatin for the treatment of Alzheimer’s disease (“AD”).
The following discussion highlights our results
of operations and the principal factors that have affected our financial condition as well as our liquidity and capital resources
for the periods described, and provides information that management believes is relevant for an assessment and understanding of
the statements of financial condition and results of operations presented herein. The following discussion and analysis are based
on the unaudited financial statements contained in this report, which we have prepared in accordance with United States generally
accepted accounting principles. You should read the discussion and analysis together with such financial statements and the related
notes thereto.
Basis of Presentation
The unaudited financial statements for the
fiscal quarters ended June 30, 2017 and 2016 include a summary of our significant accounting policies and should be read in conjunction
with the discussion below and our financial statements and related notes included elsewhere in this quarterly report. In the opinion
of management, all material adjustments necessary to present fairly the results of operations for such periods have been included
in the financial statements. All such adjustments are of a normal recurring nature.
Overview
We are a biopharmaceutical company with product
candidates in pre-clinical and clinical development. Neurotrope BioScience began operations in October 2012. We are principally
focused on developing a product platform based upon a drug candidate called bryostatin for the treatment of Alzheimer’s disease
(“AD”), which is in the clinical testing stage. We are also developing bryostatin for other neurodegenerative or cognitive
diseases and dysfunctions, such as Fragile X and Niemann-Pick Type C, which are in pre-clinical testing. Neurotrope has been
a party to a technology license and services agreement with the original Blanchette Rockefeller Neurosciences Institute (“BRNI”)
(which has been known as Cognitive Research Enterprises, Inc. (“CRE”) since October 2016), and its affiliate NRV II,
LLC, which we collectively refer to herein as “CRE,” pursuant to which we now have an exclusive non-transferable license
to certain patents and technologies required to develop our proposed products. Neurotrope BioScience was formed for the primary
purpose of commercializing the technologies initially developed originally by BRNI for therapeutic applications for AD or other
cognitive dysfunctions. These technologies have been under development by BRNI since 1999 and, until March 2013, had been financed
through funding from a variety of non-investor sources (which include not-for-profit foundations, the National Institutes of Health,
which is part of the U.S. Department of Health and Human Services, and individual philanthropists). From March 2013 forward, development
of the licensed technology has been funded principally through Neurotrope BioScience in collaboration with CRE.
Pursuant to the CRE License, Neurotrope BioScience
maintained its exclusive (except as described below), non-transferable (except pursuant to the CRE License’s assignment provision),
world-wide, royalty-bearing right, with a right to sublicense (in accordance with the terms and conditions described below), under
CRE’s and NRV II’s respective right, title and interest in and to certain patents and technology owned by CRE or licensed
to NRV II, LLC by CRE as of or subsequent to October 31, 2012 to develop, use, manufacture, market, offer for sale, sell, distribute,
import and export certain products or services for therapeutic applications for AD and other cognitive dysfunctions in humans or
animals (the “Field of Use”). Additionally, the CRE License specifies that all patents that issue from a certain patent
application, shall constitute licensed patents and all trade secrets, know-how and other confidential information claimed by such
patents constitute licensed technology under the CRE License. Furthermore, on July 10, 2015 under the terms of the Statement of
Work and Account Satisfaction Agreement dated February 4, 2015, Neurotrope BioScience’s rights relating to an in vitro diagnostic
test system reverted to CRE and, accordingly, Neurotrope BioScience no longer has any rights under the CRE License for diagnostic
applications using the CRE patent portfolio or technology.
Notwithstanding the above license terms, CRE
and its affiliates retain rights to use the licensed intellectual property in the Field of Use to engage in research and development
and other non-commercial activities and to provide services to Neurotrope BioScience or to perform other activities in connection
with the CRE License.
Under the CRE License, CRE is a preferred service
provider in certain circumstances and Neurotrope BioScience may not enter into sublicense agreements with third parties except
with CRE’s prior written consent, which consent shall not be commercially unreasonably withheld. Furthermore, the CRE License
dated February 4, 2015 revises the agreement that was entered into as of October 31, 2012 and amended on August 21, 2013, in that
it provides that any intellectual property developed, conceived or created in connection with a sublicense agreement that Neurotrope
BioScience entered into with a third party pursuant to the terms of the CRE License will be licensed to CRE and its affiliates
for any and all non-commercial purposes, on a worldwide, perpetual, non-exclusive, irrevocable, non-terminable, fully paid-up,
royalty-free, transferable basis, with the right to freely sublicense such intellectual property. Previously, the agreement had
provided that such intellectual property would be assigned to CRE.
Under the CRE License, CRE and Neurotrope BioScience
will jointly own data, reports and information that is generated on or after February 28, 2013, by Neurotrope BioScience, on behalf
of Neurotrope BioScience by a third party or by CRE pursuant to a statement of work that the parties enter into pursuant to the
CRE License, in each case to the extent not constituting or containing any data, reports or information generated prior to such
date or by CRE not pursuant to a statement of work (the “Jointly Owned Data”). CRE has agreed not to use the Jointly
Owned Data inside or outside the Field of Use for any commercial purpose during the term of the CRE License or following any expiration
of the CRE License other than an expiration that is the result of a breach by Neurotrope BioScience of the CRE License that caused
any licensed patent to expire, become abandoned or be declared unenforceable or invalid or caused any licensed technology to enter
the public domain (a “Natural Expiration”), provided, however, CRE may use the Jointly Owned Data inside or outside
the Field of Use for any commercial purpose following any termination of the CRE License. Also, CRE granted Neurotrope BioScience
a license during the term and following any Natural Expiration, to use certain CRE data in the Field of Use for any commercial
purposes falling within the scope of the license granted to Neurotrope BioScience under the CRE License.
The CRE License further requires us to pay
CRE (i) a fixed research fee equal to a pro rata amount of $1 million in the year during which we close on a Series B Preferred
Stock financing resulting in proceeds of at least $25 million, (ii) a fixed research fee of $1 million per year for each of the
five calendar years following the completion of such financing and (iii) an annual fixed research fee in an amount to be negotiated
and agreed upon no later than 90 days prior to the end of the fifth calendar year following the completion of such financing to
be paid with respect to each remaining calendar year during the term of the CRE License. This fixed research fee is not yet due.
On November 12, 2015, we entered into an amendment
to the CRE License. Pursuant to the amendment, we paid an aggregate of approximately $348,000 to CRE following the closings of
the Series B private placement, which constituted an advance royalty payment to CRE and will be offset (with no interest) against
the amount of future royalty obligations payable until such time that the amount of such future royalty obligations equals in full
the amount of the advance royalty payments made.
The term of the CRE License continues until
the later of the date (i) the last of the licensed patents expires, is abandoned or is declared unenforceable or invalid (in each
case, determined in accordance with the CRE License) and (ii) the last of the licensed technology enters the public domain. Either
party has the right to terminate the CRE License after 30 days prior notice in certain circumstances, including if either party
were to materially breach any provisions of the CRE License and does not cure such material breach within 60-days from notice of
such material breach from the non-breaching party, and for breaches that are capable of being cured, in the event of certain bankruptcy
or insolvency proceedings.
Concurrently with the November 12, 2015 amendment
to the CRE License, Neurotrope Bioscience entered into a Statement of Work Agreement pursuant to the CRE License Agreement (the
“November 2015 SOW Agreement”). The November 2015 SOW Agreement replaced the February 2015 SOW Agreement, which was
effective as of October 1, 2014 and expired on September 30, 2015.
Pursuant to the November 2015 SOW Agreement,
Neurotrope Bioscience agreed to pay CRE $1,166,666 in service fees payable in the amount of $83,333 per month for each month from
November 1, 2015 through December 31, 2016. The payments under the November 2015 SOW Agreement satisfied Neurotrope Bioscience’s
obligations to reimburse CRE for any and all attorneys’ fees, translation costs, filing fees, maintenance fees, and other
costs and expenses related to applying for, filing, prosecuting, and maintaining patents and applications for the licensed intellectual
property incurred by CRE during the term of the November 2015 SOW Agreement (but, for the avoidance of doubt, such payments shall
not satisfy any attorneys’ fees, translation costs, filing fees, maintenance fees, or other costs or expenses related to
applying for, filing, prosecuting, and maintaining patents and applications for the licensed intellectual property incurred by
CRE after the expiration or termination of the November 2015 SOW Agreement term), as well as any litigation costs which CRE may
incur related to any of the licensed intellectual property during the November 2015 SOW Agreement term. CRE shall not commence
any litigation to enforce the licensed intellectual property without the consent of Neurotrope Bioscience (which consent shall
not be unreasonably withheld, delayed, or denied). In consideration for the payments made pursuant to the November 2015 SOW Agreement,
CRE performed the services requested by Neurotrope Bioscience for the further development of Neurotrope’s bryostatin drug
platform.
On July 28, 2016, CRE filed a petition for
Chapter 11 Reorganization in the United States Bankruptcy Court for the Northern District of West Virginia. As part of the bankruptcy
filing, CRE asked the Bankruptcy Court to reject certain executory contracts including employment agreements with a number of its
researchers and other personnel, including, without limitation, Dr. Daniel Alkon, who is our President and Chief Scientific Officer
and was also the former scientific director of BRNI (prior to its name change to Cognitive Research Enterprises, Inc.), and who
led a team of scientists who were principally involved on behalf of BRNI in support of the CRE License. CRE has not requested that
the CRE License itself be rejected. We do not believe that CRE, as a matter of law, has a right to terminate the CRE License as
a result of the bankruptcy filing and have been advised by CRE’s representatives that there will be no action regarding the
CRE License and that CRE intends to meet all of its obligations in support of the Company’s work. On September 23, 2016,
the United States Bankruptcy Court for the Northern District of West Virginia entered an order approving the sale of a substantial
amount of CRE's assets to West Virginia University (“WVU”). The Court also entered an order approving a settlement
agreement between Dr. Alkon, CRE and WVU. As part of the asset sale, CRE sold the BRNI name and all derivatives to WVU. Consequently,
the Board of CRE resolved on September 28, 2016 to change its name to Cognitive Research Enterprises, Inc. CRE continues to own
the assets that are being licensed to us under the CRE License. We are in the process of negotiating with WVU and CRE regarding
the license of certain assets that were previously returned to CRE in December 2013. Some of these assets were subsequently transferred
to WVU as part of CRE’s asset sale and others were retained by CRE.
On May 12, 2014, we entered into a license
agreement (the “Stanford Agreement”) with The Board of Trustees of the Leland Stanford Junior University (“Stanford”)
pursuant to which Stanford granted us a revenue-bearing, world-wide right and exclusive license, with the right to grant sublicenses
(on certain conditions), under certain patent rights and related technology for the use of bryostatin structural derivatives, known
as “bryologs,” for use in the treatment of central nervous system disorders, lysosomal storage diseases, stroke, cardio
protection and traumatic brain injury, for the life of the licensed patents. Pursuant to the Stanford Agreement, we paid a $60,000
license initiation fee to Stanford. We currently pay Stanford a $10,000 annual license maintenance fee, and will pay milestone
payments in the aggregate amount of up to $3,700,000 upon the achievement of certain product development events commencing upon
the filing of the first IND application through approval of an applicable product, as well as low single-digit royalties on net
sales of the licensed products. Each party has the right to terminate the Stanford Agreement for an uncured material breach of
the other party. Additionally, we may terminate the Stanford Agreement at any time upon 60 days written notice to Stanford. In
January 2017, we entered into an additional license agreement with Stanford relating to an accelerated synthesis of bryostatin-1.
Pursuant to this additional license agreement, we paid a $70,000 license initiation fee
to Stanford. We will pay Stanford a $10,000 annual license maintenance fee, and will pay milestone payments in the aggregate amount
of up to $2,100,000 upon the achievement of certain product development events commencing upon the dosing of the first patient
with synthesized bryostatin, as well as low single-digit royalties on net sales of the licensed products. Each party has the right
to terminate the Stanford Agreement for an uncured material breach of the other party. Additionally, we may terminate the Stanford
Agreement at any time upon 60 days written notice to Stanford.
Following on the results of its Phase 2a clinical
trial completed in March 2015, on October 9, 2015, Neurotrope BioScience executed a Services Agreement with Worldwide Clinical
Trials, Inc. (“WCT”), effective as of August 31, 2015. The Services Agreement relates to services for Neurotrope BioScience’s
Phase 2 clinical study assessing the safety, tolerability and efficacy of bryostatin in the treatment of moderately severe to severe
AD (the “Study”). Pursuant to the terms of the Services Agreement, WCT was to provide services to enroll approximately
150 study subjects at approximately 30 sites across the United States. We began enrollment at the initial sites at the end of 2015,
completed enrollment in November 2016 and announced top-line results May 1, 2017. This trial was designed to administer dosing
of bryostatin for up to six months for moderately severe to severe AD patients but has been amended to administer dosing of bryostatin
for up to three months (see details of the amendment below). Among the trial’s endpoints are the measurement of improvement
in cognition, activities of daily living and behavior. The Company’s goal is to show the robust treatment effect that the
regulatory agencies, the marketplace and, most importantly, our patients and their caregivers are seeking.
On July 27, 2016, we received approval of the
institutional review board (“IRB”) for our amended protocol submitted on July 21, 2016 to the FDA relating to the Phase
2 clinical trial of our lead drug candidate, bryostatin-1, for the treatment of advanced AD, which amended protocol eliminates
the second, exploratory, study period following the first 12 weeks of treatment. The primary objective was the assessment of safety
and tolerability of bryostatin to occur at 13 weeks and that has not been changed with this amendment. The secondary objective
was to assess efficacy, also at week 13. Such amendment, to cut the exploratory part of the study, was made for business reasons
in order to provide earlier completion of the study and for the planning of future studies. The changes to the study design were
not due to any safety concerns. In the study, two doses of bryostatin, 20μg or 40μg, were compared to placebo. Study subjects
received a total of 7 doses of the study drug over 12 weeks of treatment, followed by safety and efficacy assessments at week 13
and a final study visit at week 16. There will be no second randomization for additional treatment. Subjects who have already entered
into the second study period will be discontinued and evaluated 30 days following last treatment for their final study visit.
Results of Phase 2 Clinical Trial
On May 1, 2017, we reported certain relevant
top-line results from this clinical trial. This study was the first repeat dose study of bryostatin-1 in patients with late stage
AD (defined as a Mini Mental State Exam 2 (“MMSE-2”) of 4-15), in which two dose levels of bryostatin-1 were compared
with placebo to assess safety and preliminary efficacy (p < 0.1, one-tailed) after 12 weeks of treatment. The pre-specified
primary endpoint, the Severe Impairment Battery (the “SIB”) (used to evaluate cognition in severe dementia), compared
each dose of bryostatin-1 with placebo at Week 13 in two sets of patients: (1) the modified intent-to-treat (the “mITT”)
population, consisting of all patients who received study drug and had at least one efficacy/safety evaluation, and (2) the Completer
population, consisting of those patients within the mITT population who completed the 13-week assessment.
These announced top-line results indicate that
the 20 µg dose, administered every two weeks, met the pre-specified primary endpoint in the Completer population, but not
in the mITT population. Among the patients who completed the protocol (n = 113), the patients on the 20 µg dose at 13 weeks
showed a mean increase on the SIB of 1.5 vs. a decrease in the placebo group of -1.1 (net improvement of 2.6, p < 0.07), whereas,
in the mITT population, the 20 mcg group had a mean increase on the SIB of 1.2 vs. a decrease in the placebo group of -0.8 (net
improvement of 2.0, p < 0.134). Unlike the 20 µg dose, there was no therapeutic signal observed with the 40 µg dose.
A total of 147 patients were enrolled into
the study; 135 patients in the mITT population and 113 in the Completer population. The Alzheimer Disease Cooperative Study Activities
of Daily Living Inventory Severe Impairment version (ADCS-ADL-SIV) was a secondary endpoint. The p values for the comparisons between
20 µg and placebo for the ADCS-ADL endpoint were 0.082 and 0.104, respectively, among the patients who completed the protocol
in the mITT population. Analysis of secondary and numerous additional exploratory endpoints are ongoing.
Together these results indicate, in this
relatively small trial, that Bryostatin-1, at the 20 µg dose, improved outcomes in important functions that are impaired
in patients with moderate to severe Alzheimer’s disease i.e., cognition and the ability to care for oneself. Since most of
the patients in this study were already taking donepezil and/or memantine, the efficacy of Bryostatin-1 was in addition to standard
of care.
The safety profile of Bryostatin-1
20 µg was similar to that of the placebo group except for a higher incidence of diarrhea and infusion reactions (11%
versus 2% for diarrhea and 17% versus 6% for infusion reactions). Fewer adverse events were reported in patients in the 20 µg
group, compared to the 40 µg group. Patients dosed with 20 µg had a dropout rate similar to placebo, while
patients dosed at 40 µg experienced poorer safety and tolerability, and had a higher dropout rate. Treatment emergent
adverse events (TEAEs) were mostly mild or moderate in severity. TEAEs, including serious adverse events, were more common in
the 40 µg group, as compared to the 20 µg and placebo groups. The mean age of patients in the study was 72 years
and similar across all three treatment groups.
Further
analysis of the data from this Phase 2 study is ongoing. We presented additional data in July 2017 at the Alzheimer’s Association
International Conference in London,
and we intend to present
more data and analyses from this study. Based upon the results of this clinical trial, the Company plans to continue with additional
clinical trials using bryostatin-1 to treat Alzheimer’s patients.
The total estimated budget for the services,
including pass-through costs, was approximately $11.6 million before the amendment of its Phase 2 clinical study protocol as outlined
above. As a result of the amendment, the Company believes that the total trial cost will be reduced by approximately $2 million.
Neurotrope BioScience may terminate the Services Agreement without cause upon sixty (60) days’ prior written notice. As of
June 30, 2017, Neurotrope BioScience has paid WCT approximately $7.4 million for services provided.
Strategy
Our strategy is to efficiently utilize our
licensed proprietary and patented technologies to further the development of those technologies toward commercializing a therapeutic
for AD and potentially utilize these technologies to treat other neurological diseases. We may also seek to acquire, by license
or otherwise, other development stage products that are consistent with our product portfolio objectives and commercialization
strategy. In addition, we plan to utilize technologies licensed from CRE and Mount Sinai in order to pursue therapeutics for orphan
drug indications, including Fragile X Syndrome and Niemann-Pick Type C disease. Through an agreement with CRE, we have the exclusive
worldwide license relating to Fragile X Syndrome (“FXS”). FXS is the most common cause of inherited intellectual disability
and the most common known genetic cause of autism or autism spectrum disorders. Symptoms of FXS include a range from learning disabilities
to more severe cognitive or intellectual disabilities. Delays in speech and language development are common, as are a variety of
physical and behavioral characteristics. FXS is caused by a “full mutation” of the FMR1 Gene. There are approximately
135,000 Fragile X Syndrome patients in the United States and a similar number in Europe. Neurotrope BioScience received support
from the FRAXA Research Foundation, Inc. (“FRAXA”) to fund a pre-clinical FXS behavior study for bryostatin at FRAXA’s
sponsored laboratory located at the University of Chile in Santiago, Chile. FRAXA provided full funding for a preclinical study
to evaluate the behavioral effects of bryostatin-1 in an FXS mouse model. Twice weekly treatment for 13 weeks yielded statistically
significant improvements in outcome measures with bryostatin compared to placebo. We have formed and are advancing our discussions
with an experienced clinical advisory board to assist us with protocol development for a planned Phase 2a study in FXS patients.
We seek resources to initiate the first clinical trial with bryostatin in patients with FXS. We have been granted orphan drug designation
by the FDA for the use of bryostatin in the treatment of Fragile X Syndrome.
Use of bryostatin to treat a serious and deadly
lysosomal storage disorder, Niemann-Pick Type C Disease (“NP-C”), is being explored by the Company in collaboration
with the Icahn School of Medicine at Mount Sinai in New York City. NP-C mainly affects children who develop severe neurologic symptoms
including gait disturbance and cognitive deficits early in life. There are approximately 3,500 NP-C patients in the United States
and a similar number in Europe. Patients with NP-C have a gene defect that results in the loss of the “normal” NPC1
or NPC2 protein that is important for cholesterol trafficking.
A study was funded by several family foundations
under the auspices of SOAR-NPC. This study examined the effects of various dosing regimens of bryostatin in NP-C mice over a brief
treatment period. Although bryostatin showed mixed results
in vivo
, the SOAR study did not find encouraging results
with its
in vivo
animal model. Another
in vivo
study began at the beginning of 2016 and is currently
underway at Mt. Sinai to evaluate the effect of bryostatin in an animal model (NPC1 mice) of Niemann-Pick Type C. Depending upon
the
in vivo
results and available funding, we will work towards completion of the necessary pre-clinical work
in order to file and obtain FDA approval of an IND, or investigational new drug application. We are encouraged by preliminary data
in the NPC1 animal model. Assuming that the pre-clinical work shows positive activity, we expect to apply for orphan drug designation
for this indication.
Neurotrope has entered into a research collaboration
with the International Rett Syndrome Foundation (“Foundation”), under the Rett Syndrome.org Scout Program, funded by
the Foundation, whereby bryostatin will be tested using mouse models. We intend to explore whether bryostatin will activate
key synaptic growth factors that are deficient in patients suffering from Rett Syndrome.
The Company is also advancing its drug development
program through a licensing agreement with Stanford regarding the synthesis of bryologs and related technology.
Critical Accounting Policies, Estimates,
and Judgments
Our financial statements are prepared in accordance
with accounting principles that are generally accepted in the United States. The preparation of these financial statements requires
us to make estimates and judgments that affect the reported amounts of assets and liabilities, disclosure of contingent assets
and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting
period. We continually evaluate our estimates and judgments, the most critical of which are those related to accounting for equity
compensation and our commitments to strategic alliance partners and the timing of the achievement of collaboration milestones.
We base our estimates and judgments on historical experience and other factors that we believe to be reasonable under the circumstances.
Materially different results can occur as circumstances change and additional information becomes known. Besides the estimates
identified above that are considered critical, we make many other accounting estimates in preparing our financial statements and
related disclosures. All estimates, whether or not deemed critical, affect reported amounts of assets, liabilities, revenues and
expenses, as well as disclosures of contingent assets and liabilities. These estimates and judgments are also based on historical
experience and other factors that are believed to be reasonable under the circumstances. Materially different results can occur
as circumstances change and additional information becomes known, even for estimates and judgments that are not deemed critical.
Comparison of the six months ended June
30, 2017 and June 30, 2016
The following table summarizes our results
of operations for the six months ended June 30, 2017 and 2016:
|
|
Six Months ended June 30,
|
|
|
Dollar Change
|
|
|
% Change
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
0
|
%
|
Operating Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development expenses
|
|
$
|
3,007,159
|
|
|
$
|
2,333,237
|
|
|
$
|
673,922
|
|
|
|
28.9
|
%
|
General and administrative expenses
|
|
$
|
2,595,418
|
|
|
$
|
1,577,001
|
|
|
$
|
1,018,417
|
|
|
|
64.6
|
%
|
Stock based compensation expenses
|
|
$
|
451,321
|
|
|
$
|
414,687
|
|
|
$
|
36,634
|
|
|
|
8.8
|
%
|
Other income, net
|
|
$
|
45,782
|
|
|
$
|
3,934
|
|
|
$
|
41,848
|
|
|
|
1,063.8
|
%
|
Net loss
|
|
$
|
6,008,116
|
|
|
$
|
4,320,991
|
|
|
$
|
1,687,125
|
|
|
|
39.0
|
%
|
Revenues
We did not generate any revenues for the six
months ended June 30, 2017 and 2016.
Operating Expenses
Overview
Total operating expenses for the six months
ended June 30, 2017 were $6,053,898 as compared to $4,324,925 for the six months ended June 30, 2016, an increase of approximately
40%. The increase in operating expenses is due primarily to the significant increases in research and development associated primarily
with our ongoing Phase 2 clinical trial in AD and general and administrative expenses, partially offset by the decrease in related
party research and development expenses.
Research and Development Expenses
For the six months ended June 30, 2017, we
incurred $89,188 of research and development expenses with a related party as compared to $514,558 for the six months ended June
30, 2016. The $89,188 was incurred during the six months ended June 30, 2017 for patent maintenance expenses, as compared to the
pro rata portion of an annual $1,000,000 fixed fee, or $500,000 plus fees associated with product testing of $14,558, for the six
months ended June 30, 2016. The fixed fees for the six months ended June 30, 2016 were incurred pursuant to our strategic alliance
with CRE for ongoing research and development principally relating to the development of our potential therapeutic products. The
change in monthly expense is pursuant to the November 2015 SOW, which covered product development activities and maintenance of
the licensed patent portfolio through December 31, 2016. No such agreement was in place during the six month period ended
June 30, 2017.
For the six months ended June 30, 2017, we
incurred $2,917,971 in research and development expenses with non-related parties as compared to $1,818,679 for the six months
ended June 30, 2016. These expenses were incurred pursuant to developing the potential AD therapeutic product, specifically conducting
the Phase 2 clinical trial for AD and products relating to orphan drug indications. Of these expenses, for the six months ended
June 30, 2017, $2,599,302 related to conducting our AD Phase 2 clinical trial and related storage of drug product, $251,218 for
clinical consulting services, $40,189 of amortization of prepaid licensing fees relating to the Stanford and Mount Sinai license
agreements, $12,000 for orphan drug development costs and $15,262 for development of alternative drug supply with Stanford University
as compared to, for the six months ended June 30, 2016, $1,727,796 related to conducting our AD Phase 2 clinical trials and related
storage of drug product, $33,366 for clinical consulting services, $13,917 of licensing payment amortization relating to the Stanford
and Mount Sinai license agreements, $31,600 for orphan drug development costs and $12,000 for development of alternative drug supply
with Stanford University. We expect our research and development expenses to increase, as our resources permit, in order to advance
our potential products.
General and Administrative Expenses
We incurred related party general and administrative
expenses totaling $14,418 for the six months ended June 30, 2017 as compared to $54,000 for the six months ended June 30, 2016.
The amounts for the six months ended June 30, 2017 are attributable to fees paid to members of the Board of Directors versus the
amounts for the six months ended June 30, 2016 which were attributable to the payments to our prior Chairman for services provided
to us.
We incurred $2,581,000 and $1,523,001 of other
general and administrative expenses for the six months ended June 30, 2017 and 2016, respectively, an increase of approximately
69%. Of the amounts for the six months ended June 30, 2017 as compared to the comparable 2016 period: $875,344 was incurred primarily
for wages, vacation pay, taxes and insurance, versus $723,877 for the 2016 comparable period; $781,431 was incurred for ongoing
legal expenses associated with ongoing obligations and regulatory compliance, versus $211,564 for the 2016 comparable period,
$195,476 was incurred for outside operations consulting services, as the Company paid certain consulting fees of $101,812 to members
of the Board of Directors and paid regulatory consultants, versus $52,000 for the 2016 comparable period, during which the Company
hired a consultant to help recruit our former Chief Medical Officer; $93,493 was incurred for travel expenses, versus $56,587
for the 2016 comparable period; $220,513 was incurred for investor relations services primarily relating to announcing top-line
results of our Phase 2 clinical trial, versus $111,873 for the 2016 comparable period; $102,755 was incurred for professional
fees associated with auditing, financial, accounting and tax advisory services, versus $84,112 for the 2016 comparable period;
$178,473 was incurred for insurance increase primarily relating to increased coverages, versus $85,282 for the 2016 comparable
period, and; $133,518 was incurred for utilities, supplies, license fees, filing costs, rent, advertising and other, including
expenses associated with the listing of the Company’s Common Stock on the NASDAQ Capital Market, versus $197,707 for the
2016 comparable period which included approximately $120,000 of accelerated rent expense based upon lease abandonment.
Stock Based Compensation Expenses
We incurred related party non-cash expenses
totaling $66,803 and $87,635 for the six months ended June 30, 2017 and 2016, respectively.
We incurred $384,518 and $327,052 of non-related
party non-cash expenses for issuance of stock options for the six months ended June 30, 2017 and 2016, respectively.
Other Income (Expense)
We earned $26,457 of interest income for the
six months ended June 30, 2017 as compared to $3,934 for the six months ended June 30, 2016 on funds temporarily deposited in interest
bearing money market accounts. This increase is attributable to interest earned on the proceeds from our November 2016 private
placement. In addition, during the six months ended June 30, 2017, we incurred a loss of $34,274 from abandonment of furniture
and fixtures relating to the closing of our Newark, New Jersey Office and a gain of $53,599 upon settlement of our Newark, New
Jersey lease obligation.
Net losses and earnings per share
We incurred losses of $6,008,116 and $5,345,743
for the six months ended June 30, 2017 and 2016, respectively. The increased loss was primarily attributable to our increase in
expenses associated with our current Phase 2 clinical trial, an increase in stock-based compensation expense and an increase in
our general and administrative expenses, offset by a decrease in our preferred stock dividends as all of our preferred stock was
converted to common stock in November 2016 in conjunction with our financing at that time. Earnings (losses) per common share were
($0.82) and ($3.47) for the six months ended June 30, 2017 and 2016, respectively. The decrease in loss per share is primarily
attributable to the increased weighted average common shares outstanding partially offset by the increase in net loss.
The computation of diluted loss per share for
the six months ended June 30, 2017 excludes 5,115,274 warrants and options to purchase 683,235 shares of our common stock as they
are anti-dilutive due to our net loss. For the six months ended June 30, 2016, the computation excludes 4,465,150 warrants and
options to purchase 276,030 shares of our common stock, as they are anti-dilutive due to our net loss.
Comparison of the three months ended
June 30, 2017 and June 30, 2016
The following table summarizes our results
of operations for the three months ended June 30, 2017 and 2016:
|
|
Three Months ended June 30,
|
|
|
Dollar Change
|
|
|
% Change
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
0
|
%
|
Operating Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development expenses
|
|
$
|
1,364,690
|
|
|
$
|
1,190,500
|
|
|
$
|
174,190
|
|
|
|
14.6
|
%
|
General and administrative expenses
|
|
$
|
1,370,399
|
|
|
$
|
794,649
|
|
|
$
|
575,750
|
|
|
|
72.5
|
%
|
Stock based compensation expenses
|
|
$
|
228,589
|
|
|
$
|
209,641
|
|
|
$
|
18,948
|
|
|
|
9.0
|
%
|
Other income, net
|
|
$
|
17,783
|
|
|
$
|
1,856
|
|
|
$
|
15,927
|
|
|
|
858.1
|
%
|
Net loss
|
|
$
|
2,945,895
|
|
|
$
|
2,192,934
|
|
|
$
|
752,961
|
|
|
|
34.3
|
%
|
Revenues
We did not generate any revenues for the three
months ended June 30, 2017 and 2016.
Operating Expenses
Overview
Total operating expenses for the three months
ended June 30, 2017 were $2,963,678 as compared to $2,194,790 for the three months ended June 30, 2016, an increase of approximately
35%. The increase in operating expenses is due primarily to the significant increases in research and development associated primarily
with our ongoing Phase 2 clinical trial in AD and general and administrative expenses, partially offset by the decrease in related
party research and development expenses.
Research and Development Expenses
For the three months ended June 30, 2017, we
incurred $76,733 of research and development expenses with a related party as compared to $264,558 for the three months ended June
30, 2016. The amounts incurred during the three months ended June 30, 2017 was for patent maintenance expenses, as compared to
the pro rata portion of an annual $1,000,000 fixed fee, or $250,000, plus fees associated with product testing of $14,558 for the
three months ended June 30, 2016. The fixed fees for the three months ended June 30, 2016 were incurred pursuant to our strategic
alliance with CRE for ongoing research and development principally relating to the development of our potential therapeutic products.
The change in monthly expense is pursuant to the November 2015 SOW, which covered product development activities and maintenance
of the licensed patent portfolio through December 31, 2016. No such agreement was in place during the three month period ended
June 30, 2017.
For the three months ended June 30, 2017, we
incurred $1,287,957 in research and development expenses with non-related parties as compared to $925,942 for the three months
ended June 30, 2016. These expenses were incurred pursuant to developing the potential AD therapeutic product, specifically conducting
the Phase 2 clinical trial for AD and products relating to orphan drug indications. Of these expenses, for the three months ended
June 30, 2017, $1,083,243 related to conducting our AD Phase 2 clinical trial and related storage of drug product, $168,782 for
clinical consulting services, $22,454 of amortization of prepaid licensing fees relating to the Stanford and Mount Sinai license
agreements, $6,000 for orphan drug development costs and $7,478 for development of alternative drug supply with Stanford University
as compared to, for the three months ended June 30, 2016, $881,669 related to conducting our AD Phase 2 clinical trials and related
storage of drug product, $25,287 for clinical consulting services, $6,986 of licensing payment amortization relating to the Stanford
and Mount Sinai license agreements, $6,000 for orphan drug development costs and $6,000 for development of alternative drug supply
with Stanford University. We expect our research and development expenses to increase, as our resources permit, in order to advance
our potential products.
General and Administrative Expenses
We incurred related party general and administrative
expenses totaling $12,500 for the three months ended June 30, 2017 as compared to $27,000 for the three months ended June 30, 2016.
The amounts for the three months ended June 30, 2017 are attributable to fees paid to members of the Board of Directors versus
the amounts for the quarter ended June 30, 2016 which were attributable to the payments to our prior Chairman for services provided
to us.
We incurred $1,357,899 and $767,649 of other
general and administrative expenses for the three months ended June 30, 2017 and 2016, respectively, an increase of approximately
77%. Of the amounts for the three months ended June 30, 2017 as compared to the comparable 2016 period: $436,874 was incurred primarily
for wages, vacation pay, taxes and insurance, versus $356,774 for the 2016 comparable period; $449,779 was incurred for ongoing
legal expenses associated with ongoing obligations and regulatory compliance, versus $118,052 for the 2016 comparable period, $90,615
was incurred for outside operations consulting services, as the Company paid certain consulting fees of $66,250 to affiliates of
members of the Board of Directors and paid regulatory consultants, versus $0 for the 2016 comparable period; $46,814 was incurred
for travel expenses, versus $24,607 for the 2016 comparable period; $132,448 was incurred for investor relations services primarily
relating to announcing top-line results of our Phase 2 clinical trial, versus $46,399 for the 2016 comparable period; $31,055 was
incurred for professional fees associated with auditing, financial, accounting and tax advisory services, versus $20,300 for the
2016 comparable period; $123,471 was incurred for insurance increase primarily relating to increased coverages, versus $44,004
for the 2016 comparable period, and; $46,843 was incurred for utilities, supplies, license fees, filing costs, rent, advertising
and other, versus $37,513 for the 2016 comparable period.
Stock Based Compensation Expenses
We incurred related party non-cash expenses
totaling $33,586 and $43,818 for the three months ended June 30, 2017 and 2016, respectively.
We incurred $195,003 and $165,823 of non-related
party non-cash expenses for issuance of stock options for the three months ended June 30, 2017 and 2016, respectively.
Other Income (Expense)
We earned $17,783 of interest income for the
three months ended June 30, 2017 as compared to $1,856 for the three months ended June 30, 2016 on funds temporarily deposited
in interest bearing money market accounts. This increase is attributable to interest earned on the proceeds from our November 2016
private placement.
Net losses and earnings per share
We incurred losses of $2,945,895 and $2,697,646
for the three months ended June 30, 2017 and 2016, respectively. The increased loss was primarily attributable to our increase
in expenses associated with our current Phase 2 clinical trial, an increase in stock-based compensation expense and an increase
in our general and administrative expenses, offset by a decrease in our preferred stock dividends as all of our preferred stock
was converted to common stock in November 2016 in conjunction with our financing at that time. Earnings (losses) per common share
were ($0.38) and ($1.75) for the three months ended June 30, 2017 and 2016, respectively. The decrease in loss per share is primarily
attributable to the increased weighted average common shares outstanding partially offset by the increase in net loss.
The computation of diluted loss per share for
the three months ended June 30, 2017 excludes 5,115,274 warrants and options to purchase 683,235 shares of our common stock as
they are anti-dilutive due to our net loss. For the three months ended June 30, 2016, the computation excludes 4,465,150 warrants
and options to purchase 276,030 shares of our common stock, as they are anti-dilutive due to our net loss.
Financial Condition, Liquidity and Capital
Resources
Cash and Working Capital
Since inception, we have incurred negative
cash flows from operations. As of June 30, 2017, we had an accumulated deficit of $56,052,853 and had working capital of $19,461,675
as compared to working capital of $23,549,478 as of December 31, 2016. The $4,087,803 decrease in working capital was primarily
attributable to net proceeds from the exercise of warrants totaling $1,331,265, offset by expenditures relating to development
of a potential therapeutic product and general and administrative expenses, which resulted in a net loss, excluding non-cash stock
compensation expense and loss from abandonment of fixed assets, of $5,522,521 plus capital expenditures of $3,585 for the six months
ended June 30, 2017.
In the November 2016 Private Placement, we
sold 3,828,754 shares of common stock and warrants to purchase an equivalent number of shares of our common stock, with an exercise
price of $12.80 per share (subject to adjustment), for a period of five years from the date of issuance (the “Series F Warrants”),
at a purchase price of $6.40 per share of Common Stock and Series F Warrant, resulting in gross proceeds of approximately $24.5
million.
Sources and Uses of Liquidity
Since inception, we have satisfied our operating
cash requirements from the private placement of equity securities sold principally to outside investors. We expect to continue
to incur expenses, resulting in losses and negative cash flows from operations, over at least the next several years as we continue
to develop AD therapeutic products. We anticipate that this development will include continuing our current clinical trials as
well as new clinical trials and additional research and development expenditures.
|
|
Six Months ended June 30,
|
|
|
|
2017
|
|
|
2016
|
|
Cash used in operating activities
|
|
$
|
(5,635,289
|
)
|
|
$
|
(2,259,261
|
)
|
Cash used in investing activities
|
|
|
(3,585
|
)
|
|
|
(2,947
|
)
|
Cash provided by (used in) financing activities
|
|
|
1,331,265
|
|
|
|
(10,237
|
)
|
Net Cash Used in Operating Activities
Cash used in operating activities was
$5,635,289 for the six months ended June 30, 2017, compared to $2,259,261 for the six months ended June 30, 2016, an increase
of $3,376,028. The increase primarily resulted from the utilization of prepaid expenses, payments of accounts payable and
accrued expenses and the increased net loss for the six months ended June 30, 2017.
Net Cash Used in Investing Activities
Net cash used in investing activities was $3,585
for the six months ended June 30, 2017 compared to $2,947 for the six months ended June 30, 2016. The cash used in investing activities
was the result of capital expenditures.
Net Cash Provided by (Used in) Financing Activities
Net cash provided by financing activities was
$1,331,265 for the six months ended June 30, 2017 compared to net cash used in financing activities of $10,237 for the six months
ended June 30, 2017. The cash provided by financing activities during both periods was primarily the result of funds raised through
exercise of warrants to purchase common stock from investors in our private placements offset by use of cash for repayments of
notes payable for the six months ended June 30, 2016.
As of August 4, 2017, we have paid WCT approximately
$7.4 million relating to our Phase 2 clinical trial. We estimate that we will incur an additional approximately $2.4 million to
complete this trial.
As of August 4, 2017, we had approximately
$21 million in cash, cash equivalents and marketable investment securities. We expect that our existing capital resources will
be sufficient to support our projected operating requirements over the next 18 to 24 months from June 30, 2017, including the continuing
development of bryostatin, our novel drug targeting the activation of PKC epsilon. Funds are anticipated to be used to complete
the current Phase 2 study treating moderate to severe Alzheimer's patients, plus the potential initiation of an open label extension
study treating patients enrolled in the current Phase 2 study. We also plan to initiate an open label study in Fragile X syndrome.
The balance of the funds will be used for general corporate and working capital purposes.
We expect to require additional capital in
order to initiate, pursue and complete all planned clinical trials and development of bryostatin. Additional funding may not be
available to us on acceptable terms, or at all. If we are unable to access additional funds when needed, we may not be able to
initiate, pursue and complete all planned clinical trials or continue the development of our product candidates or we could be
required to delay, scale back or eliminate some or all of our development programs and operations. Any additional equity financing,
if available, may not be available on favorable terms, would most likely be significantly dilutive to our current stockholders
and debt financing, if available, may involve restrictive covenants. If we are able to access funds through collaborative or licensing
arrangements, we may be required to relinquish rights to some of our technologies or product candidates that we would otherwise
seek to develop or commercialize on our own, on terms that are not favorable to us. Our ability to access capital when needed is
not assured and, if not achieved on a timely basis, will materially harm our business, financial condition and results of operations.
Off-Balance Sheet Arrangements
We did not engage in any “off-balance
sheet arrangements” (as that term is defined in Item 303(a)(4)(ii) of Regulation S-K) as of June 30, 2017.