Notes to Financial Statements (Unaudited)
(1)
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Organization and Basis of Presentation
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(a)
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Organization and Business Description
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Prior to February 2012, Myrexis, Inc. (Myrexis or the Company) was a biopharmaceutical company that generated a pipeline of differentiated drug candidates in oncology and
autoimmune diseases. In February 2012, the Company announced that it had suspended development activity on all of its preclinical and clinical programs and retained Stifel Nicolaus Weisel, an investment banking firm, to assist in reviewing and
evaluating a full range of strategic alternatives to enhance shareholder value. Thereafter, in March 2012, the Company initiated an alignment of its resources involving a phased reduction in its workforce from approximately 59 employees to 6
employees as of February 8, 2013.
Based on the Companys evaluation of strategic alternatives, it
determined to pursue the acquisition of one or more commercial-stage biopharmaceutical assets, with the goal of building a commercial-stage biopharmaceutical company by optimizing their performance and profitability. Integral to these efforts, on
May 11, 2012, the Company announced a change in management, including the appointment of Richard B. Brewer as President and Chief Executive Officer and David W. Gryska as Chief Operating Officer. In addition, both Mr. Brewer and
Mr. Gryska were appointed as members of the Board of Directors.
On August 15, 2012, the Company
announced the death of Richard B. Brewer, its President and Chief Executive Officer. The Board of Directors appointed David W. Gryska as the Acting President and Chief Executive Officer while considering succession plans and proceeded to
further evaluate the Companys strategic direction in light of this development and the Companys progress to date in identifying attractive biopharmaceutical assets.
On November 9, 2012, the Board of Directors concluded that it appeared unlikely that a strategic transaction at a
valuation materially in excess of the Companys estimated liquidation value would be achieved in the near term. Based on these and other factors, the Board of Directors concluded that a statutory dissolution and liquidation was in the best
interests of the Company and its stockholders and therefore unanimously adopted a Plan of Complete Liquidation and Dissolution (the Plan of Dissolution), subject to stockholder approval.
On December 14, 2012, the Company filed proxy materials with the Securities and Exchange Commission (SEC)
for a special meeting of stockholders on January 23, 2013, to consider and vote upon the Plan of Dissolution (the Special Meeting).
As previously disclosed, pursuant to the Companys Separation and Distribution Agreement with Myriad Genetics, Inc. (Myriad Genetics), dated June 30, 2009, at the time of
Myrexis separation from Myriad Genetics, Myrexis assumed liability for certain pending or threatened legal matters related to its business, and is obligated to indemnify Myriad Genetics for any liability arising out of such matters, including
any costs and expenses of litigating such matters, including payment of attorneys fees incurred to defend against claims. One such matter, a lawsuit brought by the Alzheimers Institute of America, Inc. (AIA) against Myriad
Genetics and its wholly owned subsidiary, Myriad Therapeutics, Inc. (formerly known as Myriad Pharmaceuticals, Inc.) (referred to hereinafter together with Myriad Genetics as Myriad), and the Mayo Clinic Jacksonville and Mayo Foundation
for Medical Education and Research (referred to hereinafter together as Mayo), asserted that Myriad and Mayo infringed certain patents allegedly owned by AIA in connection with Myriads research and development of its failed
Alzheimers drug candidate Flurizan (hereinafter referred to as the Litigation). Myrexis, Myriad, Mayo and AIA are hereinafter referred to collectively as the Parties.
On December 21, 2012, the Company announced that it entered into a settlement agreement that settled fully and
finally the Litigation. Pursuant to the terms of the Settlement Agreement, in consideration of AIAs release of claims against and covenant not to sue the other Parties for matters related to the Litigation, Myrexis agreed to (1) pay AIA
approximately $1,525,000, and (2) transfer to AIA all program rights and assets associated with Myrexis Hsp90 inhibitor program, cancer metabolism inhibitor program, and small molecule anti-interferon (IKK/TBK1) inhibitor program
(the Program Assets Transfer). AIA assumed Myrexis liabilities under the program contracts being transferred to AIA and all liabilities for the further conduct of the programs, subject, in each case, to certain exclusions,
including liabilities accruing or arising from events occurring prior to the Program Assets Transfer. The Settlement Agreement also includes a release of claims against AIA by each of Myrexis, Myriad and Mayo. Simultaneously with the delivery of the
settlement payment to AIA by Myrexis on December 21, 2012, the Parties filed a stipulation of dismissal of the Litigation.
On December 21, 2012, David W. Gryska informed Myrexis of his resignation as Acting President and Chief Executive Officer, Chief Operating Officer and member of the Board of Directors, effective
December 24, 2012.
4
On January 22, 2013, the Board of Directors of the Company unanimously
determined to cancel the Special Meeting. The Board of Directors decided, after extensive and careful consideration of strategic alternatives, to abandon the proposed Plan of Dissolution and instead, the Board of Directors declared a special
cash distribution to shareholders in the amount of $2.86 per share. The special cash distribution will be paid to shareholders of record at the close of business on Monday, February 4, 2013. The dividend is expected to be paid on Friday,
February 15, 2013, and the common stock is expected to trade ex-dividend commencing on Tuesday, February 19, 2013. The Board of Directors also appointed Jonathan M. Couchman as a Class II director of the Company and as its President and
Chief Executive Officer. Subsequent to Mr. Couchmans appointment to the Board of Directors, the remaining members of the Board of Directors, Gerald P. Belle, Jason M. Aryeh, Robert Forrester, Timothy R. Franson, M.D.,
John T. Henderson, M.D., and Dennis H. Langer, M.D., J.D., resigned. Myrexis, under the leadership of Mr. Couchman, will continue its evaluation of strategic alternatives.
5
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(b)
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Basis of Accounting and Combination
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The accompanying financial statements have been prepared by Myrexis in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial information and pursuant to
the applicable rules and regulations of the SEC. In the opinion of management, the accompanying financial statements contain all adjustments necessary to present fairly all financial statements in accordance with GAAP, which consist of only normal
recurring adjustments. The financial statements herein should be read in conjunction with the Companys audited financial statements and notes thereto for the fiscal year ended June 30, 2012, included in the Companys Annual Report on
Form 10-K for the year ended June 30, 2012. Operating results for the three and six months ended December 31, 2012, may not necessarily be indicative of results to be expected for any other interim period or for the full year.
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
(2)
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Marketable Investment Securities
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The amortized cost, gross unrealized holding gains and losses, and fair value for available-for-sale
securities by major security type and class of security at December 31, 2012 and June 30, 2012, were as follows:
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Amortized
cost
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Gross
unrealized
holding
gains
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Gross
unrealized
holding
losses
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Estimated
fair value
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(In thousands)
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December 31, 2012:
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Available-for-sale:
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Money market funds
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$
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43,724
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$
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$
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$
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43,724
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Corporate bonds and notes
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25,498
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25,498
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Federal agency issues
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11,434
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2
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11,436
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Total
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$
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80,656
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$
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2
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$
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$
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80,658
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Amortized
cost
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Gross
unrealized
holding
gains
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Gross
unrealized
holding
losses
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Estimated
fair value
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(In thousands)
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June 30, 2012:
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Available-for-sale:
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Money market funds
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$
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19,707
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$
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$
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$
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19,707
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Corporate bonds and notes
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53,989
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2
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53,991
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Federal agency issues
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15,679
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2
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15,681
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Total
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$
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89,375
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$
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4
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$
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$
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89,379
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In addition, the Company holds $75,000 restricted cash in a 12-month certificate of
deposit as collateral for a corporate purchasing card program and $48,000 in a restricted cash account as collateral for office equipment. On June 30, 2012, the Company held $200,000 restricted cash in an 18-month certificate of deposit as
collateral for a corporate purchasing card program and $48,000 in a restricted cash account as collateral for office equipment. These amounts are included in long-term marketable securities on the balance sheet as of December 31, 2012 and
June 30, 2012.
Maturities of debt securities classified as available-for-sale are as follows at
December 31, 2012:
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Amortized
cost
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Estimated
fair value
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(In thousands)
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December 31, 2012:
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Available-for-sale:
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Due within one year
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$
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36,932
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$
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36,934
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Due after one year through three years
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$
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36,932
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$
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36,934
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6
(3)
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Fair Value Measurements
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The fair value of the Companys financial instruments reflects the amounts that the Company
estimates to receive in connection with the sale of an asset or be paid in connection with the transfer of a liability in an orderly transaction between market participants at the measurement date (exit price). The fair value hierarchy prioritizes
the use of inputs used in valuation techniques into the following three levels:
Level 1quoted prices in
active markets for identical assets and liabilities.
Level 2observable inputs other than quoted prices in active markets
for identical assets and liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Some of the
Companys marketable securities utilize a third-party pricing service which provides documentation on an ongoing basis that includes, among other things, pricing information with respect to reference data, methodology, inputs summarized by
asset class, pricing application, corroborative information, etc. The documentation includes consensus price or weighted average based on reported trades, broker/dealer quotes, benchmark securities, bids, offers, and reference data including market
research publications. Also included are data from the vendor trading platform. We review, test and validate this information as appropriate.
Level 3unobservable inputs.
The substantial majority of the
Companys financial instruments are valued using quoted prices in active markets or based on other observable inputs. The following table sets forth the fair value of the Companys financial assets that the Company re-measured at
December 31, 2012, and June 30, 2012:
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(In thousands)
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Level 1
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Level 2
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Level 3
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Total
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December 31, 2012
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Money market funds
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$
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43,724
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$
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$
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$
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43,724
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Corporate bonds and notes
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25,499
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25,499
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Federal agency issues
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11,436
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11,436
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Total
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$
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43,724
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$
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36,935
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$
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$
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80,659
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(In thousands)
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Level 1
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Level 2
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Level 3
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Total
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June 30, 2012
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Money market funds
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$
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19,707
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$
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$
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$
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19,707
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Corporate bonds and notes
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|
|
|
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53,991
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|
|
|
|
|
|
|
53,991
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Federal agency issues
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|
|
|
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15,681
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15,681
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Total
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$
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19,707
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$
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69,672
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$
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$
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89,379
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In conjunction with the suspension of all development activities, the Company has
evaluated its equipment and management has committed to a plan to sell the Companys laboratory equipment. Equipment categorized as equipment held for sale on the balance sheet at June 30, 2012 totaled $974,000. Equipment held for sale is
no longer subject to depreciation, and is recorded at the lower of depreciated carrying value or fair market value less costs to sell. The fair value of the equipment was determined by using broker quotes for similar assets. The Company has
classified the inputs used for determining the fair value of these assets as Level 2 in the fair value hierarchy. All such equipment had been sold as of December 31, 2012.
7
The loss per basic and diluted share is calculated by dividing net loss by the weighted-average number of shares
outstanding during the reported period. For the three and six months ended December 31, 2012, there were outstanding potential common equivalent shares of 1,886,671 and 1,979,230, respectively, compared to 2,879,978 and 2,553,457, respectively,
in the same periods in 2011, which were excluded from the computation of diluted earnings per share because the effect would have been anti-dilutive. These potential dilutive common equivalent shares may be dilutive to basic earnings per share in
future periods.
The calculation of diluted loss per share is the same as the basic loss per share since the
inclusion of any potentially dilutive securities would be anti-dilutive.
(5)
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Share-Based Compensation
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The Company recognizes compensation expense using a fair-value based method for costs related to stock
options and other equity-based compensation. The expense is measured based on the grant date fair value of the awards that are expected to vest, and the expense is recorded over the applicable requisite service period. In the absence of an
observable market price for a share-based award, the fair value is based upon a valuation methodology that takes into consideration various factors, including the exercise price of the award, the expected term of the award, the current price of the
underlying shares, the expected volatility of the underlying share price based on peer companies, the expected dividends on the underlying shares and the risk-free interest rate.
The Company has adopted two equity incentive plans, the Myrexis, Inc. 2009 Employee, Director and Consultant Equity
Incentive Plan (the Equity Incentive Plan) and the Myrexis, Inc. 2009 Employee Stock Purchase Plan (the ESPP). The Company is authorized to issue a total of 10,063,259 shares under the plans.
The Companys Equity Incentive Plan provides for the issuance of common stock based awards, including restricted
stock, restricted stock units, stock options, stock appreciation rights and other equity based awards to its directors, officers, employees and consultants.
The Companys ESPP is intended to qualify as an employee stock purchase plan under Section 423 of the Internal Revenue Code of 1986, as amended. Full-time employees of Myrexis who
will own less than five percent of Myrexiss outstanding shares of common stock are eligible to contribute a percentage of their base salary, subject to certain limitations, over the course of six-month offering periods for the purchase of
shares of common stock. The purchase price for shares of common stock purchased under the ESPP will equal 85 percent of the fair market value of a share of common stock at the beginning or end of the relevant six-month offering period, whichever is
lower.
Share-based compensation expense recognized for Myrexis employees included in the statements of
operations for the three and six months ended December 31, 2012 and 2011 was as follows:
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Three Months Ended December 31,
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Six Months Ended December 31,
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(In thousands)
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2012
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2011
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2012
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2011
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Research and development
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$
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16
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$
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204
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$
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(37
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)
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$
|
539
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General and administrative
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144
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|
314
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|
372
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|
464
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Total employee stock-based compensation expense
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$
|
160
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$
|
518
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$
|
335
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$
|
1,003
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During the three months ended December 31, 2012, the Company did not grant options
or restricted stock units under the Equity Incentive Plan. During the six months ended December 31, 2012, the Company granted 60,000 options and 56,800 restricted stock units under the Equity Incentive Plan. The weighted-average option exercise
price was $2.65 per share for options and the weighted-average grant price was $2.65 per share for restricted stock units.
During the three months ended December 31, 2012, stock options for 319,313 shares were exercised at a weighted average price of $2.21 per share. During the six months ended December 31, 2012,
stock options for 333,714 shares were exercised at a weighted average price of $2.19. As of December 31, 2012, unrecognized compensation expense related to the unvested portion of stock options granted to Myrexis employees was approximately
$0.3 million, which will be recognized over a weighted-average period of 1.56 years.
8
The fair value of each option grant is estimated on the grant date using the
Black-Scholes option pricing model. Expected option lives were based on historical option lives under the Myrexis equity compensation plan and volatilities used in fair value calculations are based on a benchmark of peer companies with similar
expected option lives. The related expense is recognized on a straight-line basis over the vesting period.
Eligible Myrexis employees participated in the ESPP offering period that began June 1, 2012 and closed
November 30, 2012. Expense associated with Myrexis employees participating in the ESPP was approximately $3,000 and $9,000, respectively, for the three and six months ended December 31, 2012.
In accordance with the interim reporting requirements, the Company uses an estimated annual effective
rate for computing its provision for income taxes. The effective rate was zero for each of the three and six month periods ended December 31, 2012 and 2011.
The Company reduces deferred tax assets by a valuation allowance if, based on the weight of evidence, it is more likely
than not that some portion or all of the deferred tax assets will not be realized. At December 31, 2012 the Company has certain deferred tax assets, primarily from net operating losses or NOLs and research and development tax credits generated
since June 30, 2009, which have been offset in total by a valuation allowance.
The Company has adopted
Accounting for Uncertainty in Income Taxes. For the three months ended December 31, 2012 and 2011, the Company recorded approximately $0 and $43,000, respectively, of additional liability for unrecognized tax benefits related to research tax
credits. For the six months ended December 31, 2012 and 2011, the Company recorded approximately $0 and $89,000, respectively, of additional liability for unrecognized tax benefits related to research tax credit. The Company includes any
interest and penalties associated with any unrecognized tax benefits within the provision for income taxes on the statement of operations. The Company does not anticipate any material changes in the liability for unrecognized benefits in the next 12
months.
As of December 31, 2012, the Company had Federal and State net operating loss carryforwards of
approximately $137,804,000, of which $14,386,000 is attributable to excess tax benefits for which no deferred tax asset has been established. In addition, the Company had Federal research credit carryforwards of $2,650,000 and Utah research credit
carryforwards of $1,082,000. These carryforward tax benefits can be used in certain circumstances to offset future tax liabilities. Pursuant to Sections 382 and 383 of the Internal Revenue Code, with which Utah complies, the Companys use of
the carryforward tax benefits may be limited in any given year as a result of certain changes in the Companys ownership, including significant increases in ownership by the Companys 5-percent shareholders. While the Company believes that
its carryforward tax benefits as of December 31, 2012 are not limited under Sections 382 and 383, significant changes in ownership in the future may limit such usage. In March 2012, in an effort to protect the use of its carryforward tax
benefits, the Company adopted a Tax Benefits Preservation Rights Plan that discourages significant changes in ownership of the Companys stock that might limit the use of the Companys carryforward tax benefits.
(7)
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Commitments and Contingencies
|
Our former parent Myriad Genetics, Inc. (MGI) had entered into a license agreement (the
License Agreement) for exclusive rights to utilize certain intellectual property rights related to the drug candidate Azixa with Maxim Pharmaceuticals, Inc. and Cytovia, Inc. All licensed rights of Maxim and Cytovia were subsequently
acquired by EpiCept Corporation, and Maxim, Cytovia and EpiCept are collectively referred to herein as EpiCept. Pursuant to the separation agreement with MGI, Myrexis assumed all rights and obligations under the License Agreement.
In September 2011, Myrexis announced that it had suspended any further development of Azixa. On August 28, 2012,
Myrexis provided EpiCept notice of termination of the License Agreement following its election to terminate all of its efforts to develop and commercialize Azixa in any major market as such products and markets are defined in the agreement. On
January 4, 2013, Myrexis and EpiCept entered into an Asset Purchase Agreement (the APA) which expressly terminated the License Agreement and assigned to EpiCept rights in intellectual property, regulatory filings and certain other
assets of Myrexis related to its Azixa development program. The APA expressly terminates the License Agreement without further liability of either Myrexis or EpiCept. Myrexis has no further obligation for royalty or milestone payments to EpiCept.
The APA provides for certain royalty and milestone payments to be made to Myrexis should EpiCept or its licensee develop and commercialize a product using intellectual property rights transferred to EpiCept under the APA.
In conjunction with the March 2012 reorganization, the Company determined that there were indicators of
impairment of certain fixed assets, based on quoted market prices, and evaluated whether the carrying value of assets with impairment
9
indicators is recoverable. Impairment charges of $281,000 were recorded in the year ended June 30, 2012, in conjunction with the March 2012 reorganization. During the six months ended
December 31, 2012, management reviewed the carrying value of certain fixed assets and recorded $20,000 of impairment loss which is reflected in the statement of operations and comprehensive income in general and administrative.
As of June 30, 2012, the Company evaluated its equipment and management has committed to a plan to sell the
Companys laboratory equipment. Equipment categorized as equipment held for sale on the balance sheet at June 30, 2012 totaled $974,000. Equipment held for sale is no longer subject to depreciation, and is recorded at the lower of
depreciated carrying value or fair market value less costs to sell. For the three and six months ended December 31, 2012, the Company sold assets with a net book value of $700,000 and $1.2 million, respectively, recognizing a net gain of $8,000
and $326,000, respectively. The gain is reflected in other income in the statement of operations and comprehensive loss.
On January 22, 2013, the Board of Directors of the Company unanimously determined to cancel the
special meeting of its shareholders scheduled for January 23, 2013 at which the Company had been intending to seek approval by the shareholders of a Plan of Complete Liquidation and Dissolution (the Plan of Dissolution). The
Board of Directors decided, after extensive and careful consideration of strategic alternatives, to abandon the Proposed Plan of Dissolution and instead, the Board of Directors has declared a special cash distribution to shareholders in the amount
of $2.86 per share. The special cash distribution will be paid to shareholders of record at the close of business on Monday, February 4, 2013. The dividend is expected to be paid on Friday, February 15, 2013, and the common stock is expected to
trade ex-dividend commencing on Tuesday, February 19, 2013. The Board of Directors also appointed Jonathan M. Couchman as a Class II director and as its President and Chief Executive Officer. Subsequent to Mr. Couchmans appointment to the
Board of Directors, the remaining members of the Board of Directors, Gerald P. Belle, Jason M. Aryeh, Robert Forrester, Timothy R. Franson, M.D., John T. Henderson, M.D., and Dennis H. Langer, M.D., J.D., resigned. Myrexis, under the leadership of
Mr. Couchman, will continue its evaluation of strategic alternatives.
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