Item 1. Business
Our primary focus is to develop
novel small molecule compounds that positively modulate AMPA-type glutamate receptors, a complex of proteins involved in the communication between nerve cells in the mammalian brain. These compounds, termed A
compounds, enhance the activity of the AMPA receptor. These molecules are designed and developed as proprietary pharmaceuticals because we believe they hold promise for the treatment of
neurological and psychiatric diseases and disorders that are known, or thought, to involve depressed functioning of pathways in the brain that use glutamate as a neurotransmitter. Our most advanced clinical compound is CX717, which currently is in
Phase II clinical development.
platform addresses large potential markets. According to research data from IMS
Health, in 2006 worldwide sales for central nervous system products to treat brain-related disorders and diseases exceeded $82 billion. Our business plan involves partnering with larger pharmaceutical companies for research, development, clinical
testing, manufacturing and global marketing of specific A
compounds for those indications that require sizable, expensive Phase III clinical trials and very large sales forces to achieve significant market penetration.
Diseases such as Alzheimers disease, mild cognitive impairment (MCI), Attention Deficit Hyperactivity Disorder (ADHD), schizophrenia, depression, respiratory depression caused by opiate analgesics, and possibly sleep
apnea may benefit from treatment with A
drugs and require such larger distribution.
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At the same time, we plan to develop compounds internally for a selected set of indications, many of
which will allow us to apply for Orphan Drug status. Such designation by the Food and Drug Administration (the FDA) is usually applied to products where the number of patients in the United States (U.S.) in the
given disease category is typically less than 200,000. The European Medicines Agency adopted a similar system termed The Regulation of Orphan Medicinal Products. These Orphan Drug indications typically require more modest investment in
the development stages, follow a quicker regulatory path to approval, and involve a more concentrated and smaller sales force targeted at selected medical centers in the U.S. and Europe. The key Orphan Drug indications that we plan to pursue
internally include (a) excessive daytime sleepiness due to narcolepsy, sleep apnea and shift work, (b) Huntingtons disease, (c) Amyotrophic Lateral Sclerosis, (d) Fragile X syndrome and (e) Rett syndrome.
We also may pursue other Orphan Drug indications and upon any related approval, may expand our clinical potential into non-Orphan Drug indications. As
an example, if we obtain approval for an indication related to Fragile X syndrome, expansion into treatment of autism-spectrum disorders may follow. While the market potential in the U.S. for most of the listed Orphan Drug indications varies between
$100 million and $500 million per indication, Cortex estimates that the consolidated potential for all indications that we may pursue, including expansion into non-Orphan Drug indications, provides us with a market potential of over $3 billion. This
amount does not include any revenues from any potential license of the Companys intellectual property. We will continue to seek one or more significant license or collaboration arrangements with larger pharmaceutical companies, while we
prepare ourselves for potential entrance into the pharmaceutical market with our own products. These arrangements may permit other applications of the A
compounds to be advanced into later stages of clinical development and may
provide access to the extensive clinical trials management, manufacturing and marketing expertise of such companies.
While not an Orphan
Drug indication, the acute treatment of respiratory depression represents an additional market that we may potentially pursue internally. However, we will continue to evaluate related partnership opportunities for the indication. We believe that
pre-administration of an A
compounds may prevent opiate-induced respiratory depression, while preserving the opiates pain relieving effects. As a result, an A
compound may improve the safety margin
for giving powerful pain relievers following surgical procedures, and thereby provide a valuable tool for anesthesiologists and surgeons to optimize pain management in their patients. Recent research estimates that the treatment market for
respiratory depression, including use of an A
compound as prevention or as a rescue therapy for respiratory depression, may exceed $1.2 billion in the U.S. alone.
In January 1999, we entered into a research collaboration and exclusive worldwide license agreement with NV Organon (Organon), at that time a
subsidiary of Akzo Nobel. The agreement grants Organon worldwide rights to develop and commercialize our A
technology for the treatment of schizophrenia and depression. In November 2007, Organon was acquired by Schering-Plough
Corporation. Schering-Plough is currently in Phase II studies with two collaboration A
compounds, ORG2448 and ORG26576.
In October 2000, we entered into a research collaboration agreement and a license agreement with Les Laboratoires Servier (Servier). The license agreement, as amended to date, will allow Servier to develop and commercialize up
to three A
compounds selected at the end of the research collaboration in defined territories of Europe, Asia, the Middle East and certain South American countries as a treatment for (i) declines in cognitive performance
associated with aging, (ii) neurodegenerative diseases and (iii) anxiety disorders. The indications covered include, but are not limited to, Alzheimers disease, MCI, sexual dysfunction and anxiety disorders. The research
collaboration with Servier was terminated at the end of 2006, and as a result the worldwide rights for (a) treatment of declines in cognitive performance associated with aging, (b) neurodegenerative diseases, (c) anxiety disorders,
and (d) sexual dysfunction have been returned to us. While both the Organon and Servier research collaborations have ended, we remain eligible for milestone payments based upon defined clinical development milestones of the licensed compounds,
as well as royalties based upon potential commercialization under our licenses from both partners.
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For the years ended December 31, 2007, 2006 and 2005, our research and development expenses were
approximately $9,327,000, $13,262,000 and $11,361,000, respectively. Decreased expenses for 2007 primarily resulted from the earlier clinical hold of CX717 that was lifted in July 2007. Expenses for the year ended December 31, 2008 are
anticipated to increase from 2007 primarily due to an increase in clinical development expenses, including our Phase II studies of the acute treatment of respiratory depression with CX717 and the anticipated initiation of clinical development of
CX1739. Expenses for the year ended December 31, 2006 include costs for unanticipated toxicological studies required in response to the earlier clinical hold imposed on CX717 by the FDA at the end of March 2006. Most of those expenses had been
incurred as of December 31, 2006.
We face a number of risks in moving our technology through research, development and
commercialization. We have never had revenues from commercial sales, have never been profitable on an annual basis and have incurred net losses approximating $92,727,000 through December 31, 2007. We do not anticipate profitability in the short
term and will continue to require external funding, either from key corporate partnerships and licenses of our technology or from the private or public equity markets, debt from banking arrangements or some combination of these financing vehicles.
As of yet, neither we nor any of our corporate partners have obtained regulatory approval to market any of our products. All of these risks, and others, are described in Risk Factors starting on page 18.
Our executive offices are located at 15241 Barranca Parkway, Irvine, California 92618, and our telephone number is (949) 727-3157.
Our website is
. We make available free of charge through our website our annual report on Form 10-K, quarterly reports on Form
10-Q, current reports on Form 8-K and all amendments to those reports as soon as practicable after such material is electronically filed with the Securities and Exchange Commission (the SEC).
AMPA Receptor Modulator Program
In June 1993, we
licensed a new class of molecules and technology, the A
technology, from the University of California. We have subsequently been working to develop and patent new A
molecules and to demonstrate efficacy
and safety in a number of potential indications.
compounds facilitate the activity of the AMPA receptor, which is
activated by the neurotransmitter glutamate. The A
compounds interact in a highly specific manner with the AMPA receptor, lowering the amount of neurotransmitter required to generate a response, and increasing the magnitude
and/or duration of the response to any given amount of glutamate. We believe that this selective amplification of the normal glutamate signal may eventually find utility in the treatment of neurological and psychological diseases and disorders
characterized by depressed functioning of brain pathways.
technology is composed of two groups of compounds
that we have designated as low impact and high impact. Compounds from these two groups bind at different sites on the AMPA receptor complex and affect the response in different ways. Both types of compounds positively
modulate the AMPA receptor function; low impact compounds generally increase the amplitude of the neuronal action potential, while the high impact compounds increase both the amplitude and the half-width of the neuronal action potential.
Additionally, there is evidence that the high impact compounds activate the expression of certain genes in the neuron, including the production of neurotrophins such as Brain-Derived Neurotrophic Factor (BDNF). BDNF mediates the
differentiation and survival of neurons by providing the necessary trophic support, and modulates synaptic transmission and plasticity. We believe
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that this action of A
molecules imparts these compounds with the potential for disease-modifying activity, since deficits in BDNF have
been observed in psychiatric diseases such as anxiety, depression, and ADHD, and neurodegenerative disease such as Alzheimers disease, Huntingtons disease, Parkinsons disease, and Retts syndrome.
The vast majority of excitatory synaptic connections in the brain utilize glutamate, and those synaptic connections decline with age. Thus, brain
disorders associated with aging may be amenable to treatment with A
compounds. Such disorders include MCI, Alzheimers disease and Parkinsons disease. Schizophrenia, depression and other psychiatric disorders may
involve imbalances of neurotransmitters in the brain, such as dopamine, serotonin, acetylcholine and norepinephrine. Given that glutamate modulates many of these other neurotransmitters, it may play a role in the rebalancing of neurotransmission.
We continue to design, synthesize and test new A
molecules. Significant progress has been made with both our
low impact and high impact programs, resulting in the filing of two and three, respectively, provisional patent applications in 2007. When and if these patents are granted, they will provide patent protection for our new
molecules through 2028.
Low Impact A
Our most advanced low impact A
compound is CX717, which is currently being tested in Phase II clinical trials. Several additional
compounds with improved potency over CX717 are in late-stage preclinical development. One of these, CX701, may be developed for veterinary use to prevent respiratory depression associated with analgesics and anesthetic agents. The additional
compounds, which include CX1739 and CX1763, are structurally different from the CX717 and CX701 series of molecules, and have been included in recently filed patent applications. Assuming no issues arise, the first compound that we plan to move into
clinical development during 2008 will be CX1739.
The Phase I safety trials provided evidence of safety for doses of up to 1,600 mg of CX717 in single doses and up to 800 mg of the drug given twice daily for ten (10) days in 104 human subjects. The
pharmacokinetic results to date from the volunteers who have taken CX717 show that the half-life of the drug averages 9 hours, and the amount of drug absorbed over the range of 25 mg to 1600 mg was linear and predictable. Very high plasma drug
levels were found in the volunteers, indicating an excellent absorption profile for the drug. CX717 exhibited an excellent safety profile in normal volunteers.
Several Phase II studies have been completed with CX717. These included two sleep deprivation studies and a study in adults with ADHD. A positron emission tomography (PET) scan study in Alzheimers
disease patients has restarted, and two Phase II studies are planned to start during the first quarter of 2008 to investigate the ability of CX717 to prevent respiratory depression induced by an opiate analgesic.
In the first sleep deprivation study, conducted in the United Kingdom (UK) in 2005, CX717 was evaluated for its effectiveness in ameliorating the
sleepiness and temporary cognitive impairment induced by overnight sleep deprivation. The study was a randomized, double-blind, placebo-controlled, four-way crossover trial of 16 male volunteers. Doses of 100 mg, 300 mg, and 1,000 mg and placebo
were tested. The primary finding, derived from results on the maintenance of wakefulness test and polysomnography, was that CX717 produced some stimulant activity at the highest doses and seemed to interfere with deep sleep and the ability to fall
asleep in a dose-dependent manner. Modest improvements in cognitive function with CX717 were best illustrated in the subjects who suffered a decline in their cognition as a result of the sleep deprivation. There were no serious adverse events or
clinically significant safety issues in the study. All doses of CX717 were well tolerated. Mild headache was the most common adverse event.
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The second sleep deprivation study was designed, funded and executed by the Defense Advanced Research
Projects Agency (DARPA). The study, conducted in 2006, assessed the effect of CX717 on cognitive performance and alertness across four nights of simulated night-shift work and restricted daytime sleep. The study was a randomized,
double-blind, placebo-controlled, parallel group study in healthy young adult male volunteers. Fifty subjects were assigned to one of three CX717 dose groups or placebo. The primary finding from the study was that CX717 did not enhance cognitive
performance relative to treatment with placebo. However, similar to the observations in the UK sleep deprivation study, CX717 did alter the recovery sleep architecture as measured by EEG polysomnography in a dose-related manner. CX717 was well
tolerated, and no serious adverse events or other significant safety concerns were observed. Differences in study design and study procedures may have contributed to some of the divergent results between the shift work simulation study and the UK
In early 2006, we reported that a three-week treatment with CX717 reduced symptoms of ADHD in adult patients. Forty-nine patients
with ADHD completed the randomized, double-blind, placebo-controlled, two-way crossover design study. The primary outcome measure was the ADHD Rating Scale, which evaluates both the inattentiveness and hyperactivity symptoms. The overall ADHD Rating
Scale score showed positive statistical changes in the ADHD Rating Scale scores (p<0.002) in the 800 mg twice daily dose group of 22 patients and also statistically significant effects on the hyperactivity subscale (p<0.01) and the
inattentiveness subscale (p<0.03) compared to placebo. The 200 mg twice daily dose, tested in a group of 27 patients, did not show a significant effect. However, while the ADHD-RS values did not separate from the placebo values at the lower dose,
they did show a trend for improvements in the ADHD-RS as dosing progressed from week 1 to week 3. CX717 was well tolerated, and there were no serious adverse events or other significant safety concerns with either dose.
A Phase II positron emission (PET scan) study in Alzheimers patients was previously initiated in 2005. However, following the FDA-enforced clinical
hold for CX717 (described below), the study was temporarily stopped. Following the decision by the FDA in July 2007 that we can proceed again at all dose levels originally planned for this study, the study has been re-initiated. The pilot study
design is a randomized, double-blind, study using placebo and two dose levels to assess the efficacy and safety of single administrations of CX717 on measures of regional cerebral blood flow and cognitive function in a population of patients with
Alzheimers disease and matched normal elderly volunteers.
Phase II studies have been approved by the German Federal Institute for Drugs and Medical Devices, or BfArM (the German regulatory agency) for initiation during first quarter of 2008. These studies will examine the effect of CX717 on the respiratory
depression induced by the opiate agonist, alfentanil. The first study is a single dose, randomized, double-blind, placebo-controlled, two-period crossover design in 16 healthy subjects. The primary study objective is to determine if CX717 can
prevent respiratory depression while preserving the underlying desired analgesic effect of alfentanil. Currently available opioid reversal agents, such as naloxone (Narcan
), also eliminate
the analgesic effect of opioids, which is a major drawback.
The second study is a single dose, randomized, double-blind,
placebo-controlled, two-period crossover design in 24 (8 subjects/dose) healthy subjects. Three different doses of CX717 will be assessed in this study, with the objective to determine an optimal dose for the prevention of respiratory depression in
humans. We anticipate preliminary results from the one study by the end of the second quarter 2008 and the other by early in the third quarter 2008.
Regulatory Issues with CX717
In late March 2006 the Neurology Division of the FDA notified us that it was placing CX717 on
clinical hold due to concerns related to some preclinical animal toxicology data. After submitting a response to the Agency in September 2006, the clinical hold was lifted in October 2006, but the FDA limited the approved dosage levels of the
compound. Those dosing limitations impacted our plans to
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conduct further clinical testing of CX717. We submitted additional data to the Neurology Division in April 2007 that demonstrated that the animal toxicity
issues were postmortem, fixative-induced effects. In July 2007, the Neurology Division removed the dosing restrictions, and allowed us to resume our clinical trial with CX717 in Alzheimers disease at all dose levels requested prior to the hold
being placed on the compound.
Shortly thereafter, in September 2007 we submitted a Notice of Claimed Investigational Exemption for a New
Drug (IND) to the Division of Psychiatry Products of the FDA to allow us to proceed with longer term human clinical studies of CX717 for ADHD. In October 2007, the Division rejected our IND application. At this time, we do not anticipate submitting
further data to the Agency for CX717 as a treatment for ADHD, but we continue to advance additional preclinical A
compounds that may be a potential therapy for such indication.
The data developed during the additional toxicology studies conducted during 2006 and 2007 clearly demonstrated that the postmortem artifacts could not
be developed during short dosing periods with CX717, but only were found after chronic dosing at very high dose levels in animals. We believe that by developing an acute use for CX717 we can mitigate any perceived risks associated with chronic doses
of the compound. The risk/benefit ratio for the treatment of patients with life-threatening disorders, such as respiratory depression, is significantly different than that for the treatment of ADHD. In addition, our preclinical data for improvement
of memory and cognition in animals consistently indicates required dose levels of CX717 that represent a 5 to 10-fold level less than the dose required in animal models of ADHD. Either lower dosage levels for chronic administration and/or acute uses
are thus possible options for the continued development of CX717.
High Impact AMPAKINE Platform
We have made significant progress with our high impact program during the last 12 months. The most advanced compound, CX1837 is currently
undergoing preclinical testing. Assuming all tests are positive, we plan to move the compound into toxicology testing in late 2008. Several compounds have been tested in animal behavioral models. In genetic mouse models that have shown
Huntingtons-like disease, the high impact molecule CX929 has demonstrated potential to restore depressed levels of the growth factor BDNF, and improve deficits in a process known as hippocampal long-term potential, a cellular mechanism thought
to underlie learning and memory. Furthermore, treating these mice with CX929 also has demonstrated an improvement in motor deficits that occur in untreated mice. This preclinical data therefore suggests that high impact A
molecules might have beneficial effects in Huntingtons disease patients.
We have also looked at the effect of
molecules on two different genetically altered mouse models of central nervous system disease: Rett syndrome and Fragile X syndrome. The Rett syndrome mice exhibit many of the same characteristics as the disease that occurs
in girls. One aspect of the disease, the irregular breathing patterns with bouts of apnea, is a disturbing aspect of the disease in patients, and is also seen in the genetically altered mice. We have found that A
restore the breathing pattern to a more normal, regular breathing pattern in those mice. The other genetically altered mouse model exhibits many of the characteristics of Fragile X. The current data that has been generated in these mice suggests
molecules such as CX929 augment levels of the growth factor BDNF, which could be valuable for correcting abnormalities in dendritic spines and synaptic function associated with Fragile X syndrome.
See Risk Factors
Risks related to our business
We are at an early stage of development and we may not be able to successfully
develop and commercialize our products and technologies
on page 20 for a discussion of certain risks related to the development and commercialization of our products, including, without limitation, risks related to our clinical trials.
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Potential Applications for A
ADHD is a common psychiatric disorder in
both children and adults. The National Institute of Mental Health (NIMH) estimates that ADHD affects three to five percent of school-age children, with about one child in every classroom in the U.S. in need of help for this disorder.
ADHD is characterized by inattentiveness, poor impulse control and hyperactivity. The disorder was historically thought of as a childhood illness. Longitudinal studies however have documented the persistence of symptoms into adulthood in a large
percentage of childhood sufferers. The prevalence of ADHD is estimated at 2% to 4% of adults. ADHD exacts a significant toll on social relationships, education, and vocational attainment.
Psychostimulants, including amphetamine and methylphenidate, represent the most widely researched and commonly prescribed treatments for the disorder.
Based upon data from IMS Health, in 2006, psychostimulants accounted for a global market of approximately $3 billion. Because of the availability and frequent prescribing of psychostimulants, concerns over their potential overuse and abuse have
intensified. Along with the abuse potential, treatments with psychostimulants may result in side effects. According to the National Institutes of Health, some children on these medications may lose weight, have less appetite and temporarily grow
more slowly. Others may experience problems falling asleep. Given the lack of consistent improvement beyond the disorders core symptoms and the deficit of long-term studies, the need remains for additional testing with medications and
behavioral treatments. Most of the psychostimulants also carry black box warnings related to the cardiovascular risks associated with the increases in blood pressure and heart rate caused by these agents.
We believe that A
compounds with appropriate potency and duration of activity may represent a novel, non-stimulant approach for
treating ADHD patients.
Respiratory depression represents a potentially life-threatening condition resulting from analgesic, hypnotic and anesthesia medications. The condition results in a depression of breathing that causes a reduced
availability of oxygen to vital organs.
Respiratory depression is a leading cause of death from the overdose of some classes of abused
drugs, but the condition also may arise during typical physician-supervised procedures such as surgical anesthesia, post operative analgesia and as a consequence of normal out-patient management of pain from illnesses or injuries. Events also may
occur when two or more central nervous depressants are taken together or when prescribed drugs are taken in ways not intended by the physician. Sleeping disorders like sleep apnea are another predisposing factor for respiratory depression. Recent
research estimates that the treatment market for respiratory depression may be approximately $1.2 billion in the U.S. alone.
recently completed market research suggests that respiratory depression may occur during 10% to 15% of inpatient surgical procedures. Some of these respiratory depression events lead to death. The primary drug classes responsible for these effects
are opiates and barbiturates. Opiates include standard pain medications such as morphine, fentanyl and codeine, along with vicodin, hydrocodone and oxycontin. Barbiturates include sedative drugs such as pentobarbital.
Currently, the only pharmacological method to counter respiratory depression induced by opiates is
to administer opiate receptor antagonists such as naloxone (Narcan
), but those antagonists eliminate the analgesic activity of drugs administered for severe pain relief, which is a major
drawback for using those agents.
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In May 2007, we entered into an exclusive patent
license agreement with the University of Alberta to potentially broaden the use of our A
technology to prevent and treat opiate- and barbiturate-induced respiratory depression. The related patent application filed by
Dr. John Greer of the University of Alberta describes a method by which an A
compound can reverse the respiratory depression associated with classes of commonly prescribed opiate analgesics and barbiturates. Dr Greer has
demonstrated in animal models that the respiratory depression induced by these agents can be reversed or prevented with an A
, without a reduction of pain relief or sedation. We believe that this creates the opportunity to use
compound in conjunction with commonly prescribed barbiturates or opiates to reduce the mortality caused by these adverse reactions. Preliminary animal data also suggests that an A
compound may also
reverse the respiratory depression effects of propofol (Diprivan
), a commonly used intravenous anesthetic agent.
Alzheimers Disease and Mild Cognitive Impairment
Impairment of memory and cognition is
a significant health care problem that grows as the elderly population continues to increase. Dementia can be diagnosed in those individuals who develop persistent memory and cognitive deficits as well as in those who suffer from difficulties in
their social, occupational and other activities of daily living. With advanced dementia, many elderly individuals become confined to nursing homes because of psychological disorientation and profound functional difficulties. Pharmaceuticals to
alleviate deficits in memory and cognition could potentially enable elderly individuals with dementia to regain some functional abilities that may help them remain independent longer, resulting in improved quality of life and substantial savings in
health care costs.
Alzheimers disease is the most common form of dementia, currently afflicting some 4 million people in the
U.S. and 12 million people worldwide. With the aging of our population, unless a treatment is found, the number of people in the U.S. with the disease is expected to reach 14 million by the middle of this century. According to the
Alzheimers Association, the U.S. society spends at least $100 billion a year on Alzheimers disease at an average lifetime cost per patient of $174,000. Neither Medicare nor most private health insurance covers the long-term care
more patients need. The impact of an effective treatment, even a symptomatic one, would be enormous.
It is in the early and middle stages
of Alzheimers disease that we believe A
molecules may play a valuable role, enhancing the effectiveness of the brain cells and brain circuits that have not yet succumbed to the disease. This enhancement may help to
alleviate the memory and cognitive deficits that constitute the major symptoms of Alzheimers disease.
There is also a possibility
that treatment with high impact A
compounds may slow the progression of Alzheimers disease. Brain cells, or neurons, require continued input from other brain cells to remain alive. As neurons die, other neurons begin to
lose their inputs, hastening their own death. A
compounds may slow the rate at which functional levels of input from other neurons are lost. In animal models, selected A
compounds have been shown to
increase the production of BDNF, which is a protein associated with the formation of synapses by neurons. This possible mode of action also may prove beneficial to patients with Alzheimers disease, although it has not been demonstrated whether
the same mechanism may produce similar results in humans.
Patients with MCI represent the earliest clinically-defined group with memory
impairment beyond that expected for normal individuals of the same age and education, but do not meet the clinical criteria for Alzheimers disease.
It is estimated that there are between three and four million people with MCI. The memory deficits in the MCI population are clinically discernible and can interfere with daily functioning. MCI patients also appear to
have a greatly increased risk of developing Alzheimers disease. Whereas approximately 1-2% of the normal elderly population will be diagnosed with Alzheimers disease every year, 10-15% or more of MCI patients will progress to
Alzheimers disease per year.
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Given the lack of consensus by the FDA on the diagnostic and outcome for success in MCI, we believe that
compounds must first demonstrate efficacy in Alzheimers disease before undertaking studies with the compounds in MCI. Yet given the potential size of the MCI market, we remain interested in this indication.
Day-Time Sleepiness Disorders
Sleep disorders represent a broad range of illnesses arising from many causes, including abnormalities in physiological functions during sleep, abnormalities of the biological clock and sleep disturbances that are induced by factors outside
of the sleep process. According to the National Sleep Foundation, over the past century, society has reduced its average asleep time by 20 percent and, in the past 25 years, added a month to its average annual work/commute time. When the body is
deprived of the sleep that it needs, the ability to concentrate or perform even simple tasks declines, and productivity suffers. We believe that A
compounds may be useful in treating day-time sleepiness resulting from
narcolepsy, shift work and obstructive and central sleep apnea among other potential causes.
Narcolepsy is the classic example of a
disorder causing excessive daytime sleepiness. It is a disabling neurological disorder that affects approximately 50,000 people in the U.S. The key features of narcolepsy are excessive daytime sleepiness, disrupted nighttime sleep and periodic
irresistible sleep attacks of sudden onset and brief duration. The number and severity of symptoms vary widely among individuals with the disorder, with symptoms generally beginning between the ages of 15 and 30. There is currently no cure for
narcolepsy although many of the symptoms can be controlled with behavioral and medical therapy.
Narcolepsy represents an Orphan Drug
indication that would reduce both our cost and time to market for a potential therapeutic agent. The potential of using A
compounds for treatment of narcolepsy comes from work done in a monkey model of sleep deprivation. In
these monkey studies, CX717 and other A
compounds were able to reverse the deficits that sleep deprivation caused in the ability of the monkeys to accurately perform a challenging cognitive performance task. The human trials to
date with CX717 suggests that a more potent low impact compound, perhaps such as CX1739, may lead to a therapy for narcolepsy with a low impact A
It is estimated that major depression affects over 18.8 million people in the
U.S. and over 121 million people worldwide, with approximately 20% of the global population at risk of developing major depression at some point in their lives. Women are almost twice as likely to suffer from depression as men (9.5% versus
5.8%), but prevalence figures vary from country to country. Depression costs the U.S. an estimated $44 billion each year. The World Health Organization predicts depression will become the leading cause of disability by the year 2020.
In the U.S., the depression market is considered the largest segment of the central nervous system market with global sales in excess of $20 billion in
2006. This is a mature market with a number of the leading brands facing patent expiration in the next five to six years.
In January 1999,
we entered an exclusive worldwide license agreement with Organon that enables Organon to develop and commercialize the A
compounds for the treatment of schizophrenia. The agreement with Organon included an option for a similar
license in the field of depression.
In December 2003 Organon exercised its option to the depression field and currently has a Phase II
study in bipolar depression underway at the NIMH. Organon is subject to annual spending
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requirements for research and development using A
compounds in the depression field. The terms of the agreement also include milestone
payments based upon clinical development and royalties on worldwide sales.
Fragile X and Autism
Fragile X is an inherited disorder that represents the most common cause of inherited mental retardation. The disorder affects approximately 60,000 to
80,000 patients in the U.S., thus qualifying the disorder as an Orphan Drug indication. Symptoms of Fragile X syndrome include mental impairment ranging from learning disabilities to mental retardation, attention deficit and hyperactivity, anxiety
and unstable mood and autistic-like behaviors.
Males are typically more severely affected by Fragile X syndrome than females. Although
most males with Fragile X syndrome have mental retardation, only one-third to one-half of females with the disorder has significant intellectual impairment; the rest have either normal intelligence or learning disabilities. Emotional and behavioral
problems are common in both sexes. There are no current therapeutic treatments for the disorder, although medications are used to treat some symptoms.
Autism is a complex developmental disability that typically appears during the first three years of life and is the result of a neurological disorder that affects the functioning of the brain. Autism and its
associated behaviors have been estimated to occur in as many as 2 to 6 in 1,000 individuals. The disability is four times more prevalent in males than in females.
Autism impacts the normal development of the brain in the areas of social interaction and communication skills. Children and adults with autism typically have difficulties in verbal and nonverbal communication, social
interactions, and leisure or play activities. Persons with autism may exhibit repeated body movements, unusual responses to people or attachments to objects, and resistance to changes in routines. Individuals also may experience heightened
sensitivities of sight, hearing, touch, smell and taste. There are currently no approved therapeutic treatments for autism, although early behavioral intervention dramatically improves the outcome.
Recent scientific research has led to an improved understanding of Fragile X syndrome and autism. A number of scientists have suggested that the use of a
drug to enhance glutamate transmission, such as an A
compound, may be beneficial.
Further, the genetic defect in
Fragile X results in the reduction or absence of an important protein, Fragile X Mental Retardation Protein, or FMRP. FMRP is thought to play an important role in allowing normal levels of AMPA receptor proteins to be made. Increasing the activity
of AMPA receptors with an A
may overcome the reduced number of AMPA receptors produced by the reduced level of FMRP protein.
Some Fragile X clinicians believe that A
compounds with the potential to raise neurotrophic levels may improve Fragile X patients, especially if administered at a young age. Preliminary studies in transgenic mice with
the Fragile X gene provide some encouraging information that may lead to clinical trials using a high impact A
compound. More potent and longer lasting A
compounds, particularly ones which up regulate
BDNF, will most likely be required to moderate this disease.
Huntingtons disease is an inherited, progressive brain disorder characterized by involuntary movements, psychiatric disturbances, and dementia. It
typically strikes people whose ages are in the 30s or 40s. Patients ultimately lose physical and mental abilities to care for themselves. Walking becomes
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impossible, swallowing difficult, and dementia profound. At the end stage of the disorder, most patients require institutionalization. Current epidemiologic
data show that there are 25,000 to 30,000 patients in the U.S. with Huntingtons disease, thus qualifying it as an Orphan Drug indication.
Both low and high impact A
compounds may play a role in the treatment of Huntingtons disease, either as a mono-therapy or in combination with existing pharmacology. A
compounds, like CX717,
could potentially play a symptomatic role in the reduction of memory and cognitive components of this disease. High impact A
compounds that have a potent effect on the production of neurotrophic factors, such as BDNF,
theoretically could have a disease modifying effect on this terminal disease.
The worldwide incidence of schizophrenia is approximately 1.0% of the population, regardless of ethnic, cultural or socioeconomic status. Schizophrenia
typically develops in late adolescence or early adulthood and involves a collection of symptoms. These are generally characterized as
(delusions and hallucinations),
(social withdrawal and loss of
emotional responsiveness) and
(disordered thought and attention deficits).
The first conventional
anti-psychotics for schizophrenia were developed in the 1950s and 1960s. These drugs helped to reduce the positive symptoms of the disease and greatly reduced the need for chronic hospitalization but can be difficult to use because of safety and
tolerability issues. Newer agents achieve good control of positive symptoms, partial control of negative symptoms and better patient compliance with medication due to lower frequency of side effects. However, clinicians agree that there are still
substantial side effects and that the cognitive symptoms of schizophrenia are not greatly improved by any available agent. The persistence of cognitive symptoms prevents many patients from successfully reintegrating into society.
Schizophrenia has long been thought to have its biochemical basis in an over-activity of dopamine pathways projecting into an area of the brain known as
the striatum. More recently, a developing body of evidence suggests that schizophrenia also involves reduced activity of glutamate pathways projecting into the same area. We began studying whether A
compounds, which increase
current flow through the AMPA subtype of glutamate receptor, might have relevance to the treatment of schizophrenia.
In January 1999, we
entered into an exclusive worldwide license agreement with Organon. The agreement will enable Organon to develop and commercialize our proprietary A
technology for the treatment of schizophrenia. Under the agreement, Organon
has rights to intellectual property that includes broad medical use patents covering the use of any AMPA receptor modulating compound to treat schizophrenia as a mono-therapy, or in combination with other anti-psychotic medications.
Organon is currently conducting clinical testing of the A
compound, ORG24448, in patients with schizophrenia. In May 2000, we
achieved our first milestone under the related agreement when Organon selected a licensed compound to pursue in Phase I clinical testing, triggering a $2,000,000 payment to us. In September 2001, Organon informed us of its intent to continue
development of the selected compound by entering Phase II clinical testing, triggering a second $2,000,000 milestone payment. Additional payments from the Organon agreement for schizophrenia will depend upon the drug successfully completing Phase II
studies and the initiation of Phase III trials.
We may conduct studies in various other indications that have not been discussed above. In addition to the A
CX717, we plan to
advance other A
compounds that have shown promise in animal models. During 2007, we developed a number of new patent applications for new composition of matter patents for both high and low impact compounds. If these
applications are granted, they will provide patent protection for our new A
molecules through 2028.
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We have no experience or capability to either manufacture bulk quantities of the new compounds that we develop, or to produce finished dosage forms of the compounds, such as tablets or capsules. We rely, and presently intend to rely, on the
manufacturing and quality control expertise of contract manufacturing organizations or current and prospective corporate partners. There is no assurance that we will be able to enter into manufacturing arrangements to produce bulk quantities of our
compounds on favorable financial terms. There is, however, substantial availability of both bulk chemical manufacturing and dosage form manufacturing capability in the U.S. and international pharmaceutical industry that we believe that we can
readily access. See Risk Factors
Risks related to our business
We are at an early stage of development and we may not be able to successfully develop and commercialize our products and technologies on page 20 for a
discussion of certain risks related to the development and commercialization of our products.
We have no experience in the marketing of pharmaceutical products and do not anticipate having the resources to distribute and broadly market any products
that we may develop for indications such as Alzheimers disease and schizophrenia. We will therefore continue to seek commercial development arrangements with other pharmaceutical companies for our proposed products for those indications that
require significant sales forces to effectively market. In entering into such arrangements, we may seek to retain the right to promote or co-promote products for certain of the Orphan Drug indications in North America. We believe that there is a
significant expertise base for such marketing and sales functions within the pharmaceutical industry and expect that we could recruit such expertise if we pursue to directly market a drug. Our worldwide licensing agreement with Organon (see Note 5
of Notes to Financial Statements) does not provide us with co-promotional rights. With respect to Orphan Drugs, we may distribute and market such products directly. See Risk Factors
Risks related to our business
We are at
an early stage of development and we may not be able to successfully develop and commercialize our products and technologies on page 20 for a discussion of certain risks related to the development and commercialization of our products.
In 1993, we entered
into an agreement with the Regents of the University of California (the University), under which we secured exclusive commercial rights to AMPA-receptor modulating technology and compounds (the A
technology) for the
treatment of deficits of memory and cognition. The relationship later was expanded to include additional agreements for other indications. We paid an initial license fee and are obligated to make additional payments, including license maintenance
fees and patent expense reimbursements creditable against future royalties, over the course of initiating and conducting human clinical testing and obtaining regulatory approvals. When and if sales of licensed products commence, we will pay
royalties on net sales. During the fiscal year ended June 30, 2003, we amended the agreement with the University to exclude the treatment of disease areas outside of the central nervous system that we would not have the resources or the
capability to develop in a timely manner. Of the patents licensed from the University, the date for the last to expire patent is September 2017. See Risk Factors
Risks related to our business
Our products rely on licenses
from the Regents of the University of California, and if we lose access to these technologies, our business would be substantially impaired on page 20 for a discussion of certain risks related to our licenses with the University.
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Patents and Proprietary Rights
We are aggressively pursuing patent protection of our technologies. We own or have exclusive rights (within our areas of product development) to more than 22 patent families comprising over 150 issued or allowed U.S.
and foreign patents and over 100 additional U.S. patent applications and their international counterparts pending. Over 130 of these are composition of matter patents that cover hundreds of our compounds. These patents form the foundation of the
Companys business and the pharmaceutical industry in general. Additionally, we are consistently filing new disclosures and patents for new structures and new uses, and in 2007 we filed five new patent applications covering hundreds of new
compounds. If these applications are granted as filed, they will provide patent protection for our new molecules through 2028.
One of our
patents covers the method of use for our A
compounds as well as compounds made by others and describes the mechanism by which A
compounds may affect the treatment of memory and cognition.
This patent issued to the University in the U.S. in 1999 and provides protection through 2016. We believe that this patent provides coverage in the U.S. that extends to both neurological disorders such as Alzheimers disease as well as
psychiatric conditions with cognitive disturbances including depression, obsessive compulsive disorder, attention deficit disorder, and phobic disorders. Similar method of use patents have been issued to us in Mexico, Australia and New Zealand.
In November 2003, a similar patent was issued to the University by the European Patent Office (EPO) that provides protection
through 2013. Upon issuance of the patent, an opposition was filed by Eli Lilly and Company. In August 2004, GlaxoSmithKline also filed an opposition. In cooperation with the University, we responded to the oppositions. An oral hearing took place at
the EPO in late January 2008. A formal written decision has not yet been received from the EPO Opposition Division to provide clarity on the decision, although a verbal decision to revoke the patent was rendered at the hearing. Upon receipt of the
written decision, which will give the reasons for the revocation decision, we will file a formal appeal. One of the reasons for the revocation cited at the hearing was a filing technicality related to matter added to the original patent application.
The EPO decided that the parent application as filed did not provide sufficient basis for several terms that appeared in the final claims of the patent. The revocation decision does not take effect until any appeal is concluded, and that process
will take several years to resolve.
We believe that the legal process related to our appeal of the revocation by the EPO may continue for
most of the remaining life of the patent, given that the European patent expires in 2013. We do not believe that the European decision is material to the future of our A
technology because of this patents limited life for
commercial protection. Most importantly, we own a large portfolio of composition of matter patents with much longer patent lives that we believe are fundamental to pharmaceuticals in general and more critical to our commercial protection worldwide.
Because patent rules and regulations, and burden of proof requirements differ substantially between the U.S. and Europe, specifically in
regards to the revocation reason cited by the EPO above, we believe that the decision by the EPO is not likely to impact the patent that has issued in the U.S.
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Another method of use patent contains a broad claim for any AMPA-modulating compound to treat
schizophrenia. This patent was issued to the University in the U.S. in 1998, and subsequently has issued in Australia. An additional method of use patent containing a broad claim for any AMPA-modulating compounds combined with antipsychotic
medications to treat schizophrenia has issued in Europe. However, in December 2006 we were notified by the EPO that oppositions to this patent were filed by Eli Lilly and Company and another by Glaxo Group Limited. In April 2007, we submitted our
written response to the EPO to counter these objections. There is no timeframe available for a decision from the EPO and such decision may be appealed by us or the party filing the opposition. As a result, the process to determine whether the
oppositions filed for this patent will or will not prevail in Europe may take several years to resolve.
Our rights under the University
patents are contingent upon us making certain minimum annual payments to the University, meeting certain milestones and diligently seeking to commercialize the underlying technology. Over the past five years, we believe that we have demonstrated
such diligence and our investment in the technology has been at unprecedented levels.
Since issuance of a patent does not guarantee the
right to practice the claimed invention, others may obtain patents that we would then need to license or design around in order to practice our patented technologies. We may not be able to obtain licenses that might be required to practice these
technologies due to patents of others on reasonable terms or at all. Additionally, any unpatented manufacture, use or sale of our technology, processes or products may infringe on patents or proprietary rights of others, and we may be unable to
obtain licenses or other rights to these other technologies that may be required for commercialization of our proposed products or processes.
Also, we rely to a certain extent upon unpatented proprietary technology and may determine in some cases that our interests would be better served by reliance on trade secrets or confidentiality agreements rather than patents. See
Risks related to our industry
If we fail to secure adequate intellectual property protection, it could significantly harm our financial results and ability to compete on page 22 for a discussion of
certain risks related to the protection of our intellectual property rights.
In order to test, produce and market human therapeutic products in the U.S., mandatory procedures and safety standards established by the FDA must be
satisfied. Obtaining FDA approval is a costly and time-consuming process. We have initiated Phase I and early Phase II testing in the U.S. and Europe. Some clinical trials were and are performed in the U.S. under Notices of Claimed
Investigational Exemption for a New Drug (IND) filed with the FDA by our clinical collaborators. We filed an IND for the A
CX717 in December 2004. It is our intent that Organon, Servier or another pharmaceutical
company partner or partners that we are seeking, will pursue other required regulatory approvals to conduct further clinical testing with A
compounds. However, we intend to file other INDs for additional
compounds to facilitate the development of our Orphan Drug strategy and the newer respiratory depression indications.
Clinical trials are normally conducted in three phases. Phase I trials are concerned primarily with safety of the drug, involve fewer than 100 subjects, and may take from six months to over a year. Phase II trials normally involve a few
hundred patients. Phase II trials are designed to demonstrate effectiveness and to determine optimal dosing in treating or diagnosing the disease or condition for which the drug is intended. Short-term side effects and risks in people whose health
is impaired also may be examined. Phase III trials may involve up to several thousand patients who have the disease or condition for which the drug is intended, to approximate more closely the conditions of ordinary medical practice. Phase III
trials also are designed to clarify the drugs benefit-risk relationship, to uncover less common side effects and adverse reactions, and to generate information for proper labeling of the drug. The FDA receives
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reports on the progress of each phase of clinical testing, and may require the modification, suspension, or termination of clinical trials if an unwarranted
risk is presented to patients. The FDA estimates that the clinical trial period of drug development can take up to ten years, and typically averages six years. With certain exceptions, once clinical testing is completed, the sponsor can submit a New
Drug Application for approval to market a drug. The FDAs review of a New Drug Application can also be lengthy.
that may be developed and sold by us outside the U.S. will be subject to regulation by the various countries in which they are to be distributed. In addition, products manufactured in the U.S. that have not yet been cleared for domestic distribution
will require FDA approval in order to be exported to foreign countries for distribution there. See Risk Factors
Risks related to our industry
The regulatory approval process is expensive, time consuming, uncertain and may
prevent us from obtaining required approvals for the commercialization of some of our products on page 23 for a discussion of certain risks related to the regulatory approval of our products.
We plan to seek additional financing to support our development of selected A
compounds for Orphan Drug indications. Without such
financing, we may be severely restricted in our overall development. We would be dependent upon our sub-licensees and might be unable to maintain our current core technical and management capabilities. Under such circumstances, we would be dependent
upon entering into partnerships or other collaborative arrangements with third parties with the required resources to obtain the needed approvals. Along with our licensing agreements with Organon and Servier, we intend to enter into license or other
arrangements with other pharmaceutical companies under which those companies would conduct the required clinical trials and seek FDA approval for most or all of our proposed products. See Risk Factors
Risks related to our business
We may not be able to enter into the strategic alliances necessary to fully develop and commercialize our products and technologies, and we will be dependent on our corporate partners if we do on page 21 for a discussion of certain
risks related to the proposed strategic alliances that we are seeking.
The pharmaceutical industry is characterized by rapidly evolving technology and intense competition. Many companies of all sizes, including both major
pharmaceutical companies and specialized biotechnology companies, are engaged in activities similar to ours. A large number of drugs intended for the treatment of Alzheimers disease, MCI, schizophrenia, depression, ADHD and other neurological
and psychiatric diseases and disorders are on the market or in the later stages of clinical testing. For example, approximately 15 drugs are in development in the U.S. for schizophrenia and over 25 drugs are under clinical investigation in the U.S.
for the treatment of Alzheimers disease. We are not aware of any other companies developing drugs for the reversal of respiratory depression induced by opiates or other central nervous system agents. Most of our competitors have substantially
greater financial and other resources and larger research and development staffs. Larger pharmaceutical company competitors also have significant experience in preclinical testing, human clinical trials and regulatory approval procedures.
In addition, colleges, universities, governmental agencies and other public and private research organizations will continue to conduct
research. These institutions are becoming more active in seeking patent protection and licensing arrangements to collect license fees, milestone payments and royalties in exchange for license rights to technology that they have developed, some of
which may be directly competitive with us.
We expect technological developments in the neuropharmacology field to continue to occur at a
rapid rate and expect that competition will remain intense as those advances continue. Based on the technical qualifications, expertise and reputations of our Scientific Directors, consultants and other key scientists, we believe that our operating
strategy to develop A
compounds for the treatment of selected Orphan Drug indications and to out-license the technology to larger pharmaceutical companies for major chronic indications is appropriate.
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Product Liability Insurance
The clinical testing, manufacturing and marketing of our products may expose us to product liability claims, against which we maintain liability insurance. See Risk Factors
Risks related to our
We may be subject to potential product liability claims. One or more successful claims brought against us could materially impact our business and financial condition on page 22 for a discussion of certain risks related to
product liability claims against us.
We currently have 27 full-time employees, of which eight are engaged in management and administrative support and the remainder are engaged in research and development, including one M.D. and 12 Ph.D.-level or equivalent employees.
We do not anticipate significant increases in our employee levels during the next twelve months. We will continue to outsource a
substantial amount of our research and development to qualified vendors. We sponsor a substantial amount of research in academic laboratories, primarily at the University of California, Irvine.