RESPIRERX PHARMACEUTICALS : MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q) – marketscreener.com

The following discussion and analysis should be read in conjunction with the condensed consolidated financial statements (unaudited) and notes related thereto appearing elsewhere in this document. Overview The mission of the Company is to develop innovative and revolutionary treatments
to combat disorders caused by disruption of neuronal signaling. We are
developing treatment options that address conditions that affect millions of
people, but for which there are limited or poor treatment options, including
obstructive sleep apnea (“OSA”), attention deficit hyperactivity disorder
(“ADHD”) epilepsy, chronic pain, including inflammatory and neuropathic pain,
recovery from spinal cord injury (“SCI”), as well as other areas of interest
based on results of animal studies to date.
RespireRx is developing a pipeline of new drug products based on our broad patent portfolios across two distinct drug platforms: (i) our pharmaceutical cannabinoids platform (which we refer to as ResolutionRx), including dronabinol (a synthetic form of?9-tetrahydrocannabinol (“?9-THC”)), which acts upon the nervous system’sendogenous cannabinoid receptors, and(ii) our neuromodulators platform (which we refer to as EndeavourRx) is made upof two programs: (a) our ampakines program, including proprietary compoundsthat are positive allosteric modulators (“PAMs”) of AMPA-type glutamatereceptors to promote neuronal function and (b) our GABAkines program,including proprietary compounds that are PAMs of GABAA receptors, which was recently established pursuant to our entry with the University of Wisconsin-Milwaukee Research Foundation, Inc., an affiliate of the University of Wisconsin-Milwaukee (“UWMRF”), into a patent license agreement (the UWMRF Patent License Agreement”). In order to facilitate our business activities and product development, we are
organizing our drug platforms into two separate business units. The business
unit focused on pharmaceutical cannabinoids is named ResolutionRx and the
business unit focused on neuromodulators is named EndeavourRx. It is anticipated
that the Company will use, at least initially, its management personnel to
provide management, operational and oversight services to these two business
units. Management intends to organize our ResolutionRx and EndeavourRx business units
into two subsidiaries: (i) a ResolutionRx subsidiary, into which we intend to
contribute our pharmaceutical cannabinoid platform and its related tangible and
intangible assets and certain of its liabilities and (ii) an EndeavourRx
subsidiary, into which we plan to contribute our neuromodulator platform,
including both the AMPAkine and GABAkine programs and their related tangible and
intangible assets and certain of their liabilities.
Management believes that there are advantages to separating these platforms formally into newly formed subsidiaries, including but not limited to optimizing their asset values through separate finance channels and making them more attractive for capital raising as well as for strategic deal making. The Company is also engaged in a number of business development efforts
(licensing/sub-licensing, joint venture and other commercial structures) with a
view to securing strategic partnerships that represent strategic and operational
infrastructure additions, as well as cash and in-kind funding opportunities.
These efforts have focused on, but have not been limited to, transacting with
brand and generic pharmaceutical and biopharmaceutical companies as well as
companies with potentially useful formulation or manufacturing capabilities,
significant subject matter expertise and financial resources. No assurance can
be given that any transaction will come to fruition and that if it does, that
the terms will be favorable to the Company. 38 Neurotransmission RespireRx is developing drugs to modify neurotransmission and create advanced
treatments for disorders with high unmet needs. Neurotransmission is the basic
process in the brain by which specialized nerve cells called neurons communicate
information with each other. [[Image Removed]] As illustrated in this figure, during neurotransmission, neurons release chemicals called neurotransmitters which attach to receptors, very specific protein structures residing on adjacent neurons. This enables neurons to communicate with one another by either increasing or decreasing the excitability of the neuron receiving the communication. For example, glutamate is the primary excitatory neurotransmitter in the brain, while gamma-amino-butyric acid (“GABA”) is the primary inhibitory neurotransmitter. Neurons also contain receptors for the brain’s own natural cannabinoid (endocannabinoid) substances.
ResolutionRx – Pharmaceutical Cannabinoids Background Cannabinoids are pharmacologically active substances found within the marijuana
plant. Due to the liberalization of state laws regulating the use and sales of
marijuana over the last 5 years, a major industry has grown around the
commercialization of marijuana for both medical and recreational use. However,
while personal marijuana use has been legalized in certain states, it still is
not legal under federal statutes and regulations. The medical use of any
pharmacological agent must be approved by the U.S Food and Drug Administration
(“FDA”) and, to date, the FDA has not recognized or approved the marijuana plant
as medicine nor is it federally legal to sell products that contain cannabinoids
as drugs or dietary supplements without its approval. Worldwide clinical research efforts have established the cannabinoid class of
compounds as bona fide pharmaceutical products, or “pharmaceutical
cannabinoids,” which are being developed and commercialized according to FDA
regulatory and industry guidelines. Scientific research and commercial
development to date has focused primarily on two major cannabinoids, THC and
cannabidiol (“CBD”). This research and development began in 1985 when
dronabinol, a synthetic form of THC, was approved as Marinol® by the FDA for the
treatment of AIDS-related anorexia and later for the treatment of
chemotherapy-induced nausea and vomiting. Dronabinol, in its Marinol®
formulation as well as numerous generic formulations, is available in 2.5 mg, 5
mg, and 10 mg capsules, with a maximum labelled dosage of 20 mg/day for the AIDS
indication, or 15 mg/m2 per dose for chemotherapy-induced nausea and vomiting. This initial breakthrough subsequently led to the recent FDA approval of
Epidiolex®, a proprietary oral solution of highly purified, plant-derived CBD
sold by GW Pharmaceuticals plc (“GW Pharma”) for the treatment of certain rare,
treatment-resistant forms of epilepsy. Nabiximol®, an oromucosal spray
containing THC and CBD, was approved under the tradename Sativex® by applicable
regulatory authorities in 25 countries outside the United States and is sold by
GW Pharma in those countries for the treatment of multiple sclerosis. 39 The commercialization of these pharmaceutical cannabinoids has opened the door
to an expanding market sector. In order to capitalize upon this opportunity, the
Company is implementing an internal restructuring plan by forming ResolutionRx
as a stand-alone business focused on the pharmaceutical cannabinoid market.
ResolutionRx’s initial primary focus has been and will be the re-purposing of
dronabinol using new proprietary formulations and therapeutic indications.
Because dronabinol already is an approved drug, we intend to use publicly
available information, particularly safety data, in support of a 505(b)(2) New
Drug Application (“NDA”), a much more rapid route to FDA approval than a
standard 505(b)(1) NDA. OSA and Existing Treatments The Company is developing dronabinol for the treatment of OSA, a sleep-related
breathing disorder that afflicts an estimated 29 million people in the United
States according to the American Academy of Sleep Medicine (“AASM”), and an
additional 26 million in Germany and 8 million in the United Kingdom, as
presented at the European Respiratory Society’s annual Congress in Paris, France
in September 2018. OSA involves a decrease or complete halt in airflow despite
an ongoing effort to breathe during sleep. When the muscles relax during sleep,
soft tissue in the back of the throat collapses and obstructs the upper airway.
OSA remains significantly under-recognized, as only 20% of cases in the United
States according to the AASM and 20% of cases globally have been properly
diagnosed. About 24 percent of adult men and 9 percent of adult women are
believed to have the breathing symptoms of OSA with or without daytime
sleepiness. OSA significantly impacts the lives of sufferers who do not get
enough sleep; their quality of sleep is deteriorated such that daily function is
compromised and limited. OSA is associated with decreased quality of life,
significant functional impairment, and increased risk of road traffic accidents,
especially in professions like road and rail transportation and shipping. Research has established links between OSA and several important co-morbidities,
including hypertension, type II diabetes, obesity, stroke, congestive heart
failure, coronary artery disease, cardiac arrhythmias, and even early mortality.
The consequences of undiagnosed and untreated OSA are medically serious and
economically costly. According to the AASM, the estimated economic burden of OSA
in the United States is approximately $162 billion annually. All current
treatment options have serious drawbacks. We believe that a new drug therapy
that is effective in reducing the medical and economic burden of OSA would have
major benefits for the treatment of this costly disease indication. Continuous Positive Airway Pressure (“CPAP”) is the most common treatment for
OSA. CPAP devices work by blowing pressurized air into the nose (or mouth and
nose), which keeps the pharyngeal airway open. Patients must use the device
whenever they sleep. Reduction of the apnea/hypopnea index (“AHI”) is the
standard objective measure of therapeutic response in OSA. Apnea is the
cessation of breathing for 10 seconds or more and hypopnea is a reduction in
breathing. AHI is the sum of apnea and hypopnea events per hour. In the sleep
laboratory, CPAP is highly effective at reducing AHI. However, the device is
cumbersome and difficult for many patients to tolerate. Most studies describe
that 25-50% of patients refuse to initiate or completely discontinue CPAP use
within the first several months and that most patients who continue to use the
device do so only intermittently. Oral devices may be an option for patients who cannot tolerate CPAP. Several
dental devices are available. The cost of these devices tends to be high and
side effects associated with them include night-time pain, dry lips, tooth
discomfort, and excessive salivation. Patients with clinically significant OSA who cannot be treated adequately with
CPAP or oral devices may elect to undergo surgery, the most common form of which
involves the removal of excess tissue in the throat to make the airway wider.
Patients who undergo surgery for the treatment of OSA risk complications.
Surgery is often unsuccessful, and at present, no method exists to reliably
predict therapeutic outcome from surgery. Recently, another surgical option has become available based on upper airway
stimulation. It is a combination of an implantable nerve stimulator and an
external remote controlled by the patient. The implanted device stimulates the
hypoglossal nerve, which controls the tongue, with every attempted breath,
regardless of whether such stimulation is needed for that breath. The device is
turned on at night and off in the morning by the patient with the remote. 40
The Company’s Research Efforts Regarding the Treatment of OSA with Cannabinoids The Company conducted a 21-day, randomized, double-blind, placebo-controlled,
dose escalation Phase 2A clinical study in 22 patients with OSA, in which
dronabinol produced a statistically significant reduction in AHI, the primary
therapeutic end-point, and was observed to be safe and well tolerated, with the
frequency of side effects no different from placebo. This clinical trial
provided data supporting the submission of patent applications claiming unique
dosage strengths, blood levels and controlled release formulations optimized for
use in the treatment of OSA. If approved, these pending patents would extend
market exclusivity until at least 2031. With approximately $5 million in funding from the National Heart, Lung and Blood
Institute of the National Institutes of Health (“NIH”), Dr. David Carley of the
University of Illinois at Chicago (“UIC”), along with his colleagues at UIC and
Northwestern University, completed a Phase 2B multi-center, double-blind,
placebo-controlled clinical trial of dronabinol in patients with OSA. This
study, named “Pharmacotherapy of Apnea with Cannabimimetic Enhancement” (“PACE”)
replicated the earlier Phase 2A study. The authors published in January 2018 in
the journal SLEEP and reported that, in a dose-dependent fashion, treatment with
2.5 mg and 10 mg of dronabinol once per day at night, significantly reduced,
compared to placebo, AHI during sleep in 56 evaluable patients with moderate to
severe OSA who completed the study. Additionally, treatment with 10 mg of
dronabinol significantly improved daytime sleepiness as measured by the Epworth
Sleepiness Scale and achieved the greatest overall patient satisfaction. As in
the previous Phase 2A study, dronabinol was observed to be safe and well
tolerated, with the frequency of side effects no different from placebo. The
Company did not manage this clinical trial, which was funded entirely by the
National Heart, Lung and Blood Institute of NIH.
The Opportunity to Improve Dronabinol FormulationsDronabinol is currently marketed as a soft gelatin capsule that suffers from several major deficiencies.First, dronabinol exhibits poor and erratic absorption. ?9-THC is not water
soluble. The market-dominant commercial gelcap formulation of dronabinol is
currently formulated as a sesame oil-based liquid within a soft gelatin capsule.
The absorption of dronabinol after oral administration is poor and highly
variable with some patients achieving very high levels and others achieving very
low levels. This erratic absorption may be responsible for the variable
therapeutic responses observed in dronabinol clinical trials. Syndros®, on the
other hand, is formulated as a solution in dehydrated alcohol, polyethylene
glycol and other materials and exhibits its own challenges and deficiencies,
including but not limited to it being classified as a Schedule II drug by the
U.S. Drug Enforcement Administration (the “DEA”) as compared to the capsule
formulation that is classified as a Schedule III drug. Second, dronabinol is rapidly and extensively (approximately 80%) metabolized
upon first pass through the liver, resulting in low blood levels. Additionally,
dronabinol has a relatively short half-life (approximately 3 – 4 hours) and, in
its present formulation, is not optimally suited for therapeutic indications
requiring blood levels to be sustained for 6 hours or longer. Third, in order to achieve sustained, therapeutic blood levels, we have found it
necessary to use higher doses of dronabinol in our OSA clinical trials. For
example, over an 8-hour period, the 2.5 mg and 10 mg doses produced
therapeutically equivalent effects during the first 4 hours, but only the 10 mg
dose produced therapeutic effects during the second 4 hours. Unfortunately, the
10 mg dose produces a higher occurrence of side effects than the 2.5 mg dose (as
described in the Marinol® package insert). We anticipate focusing on new
formulations that would achieve the blood levels produced by the lower doses for
a sustained time period, resulting in the desired therapeutic effect(s) while
minimizing undesirable side effects.
The Company’s Cannabinoid Intellectual Property Rights In order to expand RespireRx’s respiratory disorders program and develop
cannabinoids for the treatment of OSA, RespireRx acquired 100% of the issued and
outstanding equity securities of Pier Pharmaceuticals, Inc. (“Pier”) effective
August 10, 2012 pursuant to an Agreement and Plan of Merger. Pier was a clinical
stage pharmaceutical company developing a pharmacologic treatment for OSA and
had been engaged in research and clinical development activities. 41 Through the merger, RespireRx gained access to an Exclusive License Agreement
(as amended, the “2007 License Agreement”) that Pier had entered into with UIC
on October 10, 2007. The 2007 License Agreement covered certain patents and
patent applications in the United States and other countries claiming the use of
certain compounds referred to as cannabinoids, of which dronabinol is a specific
example, for the treatment of sleep-related breathing disorders, including
sleep
apnea.
The 2007 License Agreement was terminated effective March 21, 2013 and the
Company entered into a new license agreement (the “2014 License Agreement”) with
UIC on June 27, 2014, the material terms of which were substantially similar to
the 2007 License Agreement. The 2014 License Agreement grants the Company, among
other provisions, exclusive rights: (i) to practice certain patents in the
United States, Germany and the United Kingdom, as defined in the 2014 License
Agreement, that are held by UIC; (ii) to identify, develop, make, have made,
import, export, lease, sell, have sold or offer for sale any related licensed
products; and (iii) to grant sub-licenses of the rights granted in the 2014
License Agreement, subject to the provisions of the 2014 License Agreement. The
Company is required under the 2014 License Agreement, among other terms and
conditions, to pay UIC a license fee, royalties, patent costs and certain
milestone payments. The 2014 License Agreement obligates the Company to pay UIC a license fee,
royalties, patent costs and certain milestones. Royalty payments include a
royalty on net sales of 4%, payment on sub-licensee revenues of 12.5%, and a
minimum annual royalty beginning in 2015 of $100,000, which is due and payable
on December 31 of each year beginning on December 31, 2015. The minimum annual
royalty obligation of $100,000 due on December 31, 2019, was extended to and
paid on July 7, 2020. One-time milestone payments may become due based upon the
achievement of certain development milestones. $350,000 will be due within five
days after the dosing of the first patient in a Phase III human clinical trial
anywhere in the world. $500,000 will be due within five days after the first NDA
filing with the FDA, as defined below, or a foreign equivalent. $1,000,000 will
be due within twelve months of the first commercial sale. One-time and annual
royalty payments may also become due and payable. In the year after the first
application for market approval is submitted to the FDA or a foreign equivalent
and until approval is obtained, the minimum annual royalty will increase to
$150,000. In the year after the first market approval is obtained from the FDA
or a foreign equivalent and until the first sale of a product, the minimum
annual royalty will increase to $200,000. In the year after the first commercial
sale of a product, the minimum annual royalty will increase to $250,000. For
each of the three month and nine month periods ended September 30, 2020 and
2019, the Company recorded a charge to operations of $25,000 and $75,000,
respectively, as its minimum annual royalty obligation, which is included in
research and development expenses in the Company’s condensed consolidated
statements of operations for the three months and nine months ended September
30, 2020 and 2019, respectively. RespireRx has exclusive rights to issued and pending patents claiming
cannabinoid compositions and methods for treating cannabinoid-sensitive
disorders, including sleep apnea, pain, glaucoma, muscular spasticity, anorexia
and other conditions. In October 2019, we filed a continuation-in-part for our
pending patent that describes and claims novel doses, controlled release
compositions and methods of use for cannabinoids, as well as a new U.S.
provisional patent application further disclosing novel dosage and controlled
release compositions and methods of use for cannabinoids, alone or in
combination, including with cannabinoid and non-cannabinoid molecules. Specific
claims describe low dosage strengths and controlled release formulations for
attaining a therapeutic window of cannabinoid blood levels that produce the
desired therapeutic effect(s) for a controlled period of time, while minimizing
undesirable side effects. Certain original patents were filed by RespireRx and
are now included in the 2014 License Agreement. See Note 8. Commitments and
Contingencies-University of Illinois 2014 Exclusive License Agreement in the
notes to condensed consolidated financial statements as of September 30, 2020
for more information on the 2014 License Agreement. While no assurance can be
provided that the claims in this continuation-in-part or the U.S. provisional
patent application will be allowed in whole or in part, or that the patents will
ultimately issue, we believe that these new filings, if allowed, will provide
market protections through at least 2031. We believe our intellectual property initiatives may afford expanding strategic
options and market exclusivity in the burgeoning pharmaceutical cannabinoid
business sector. New cannabinoid formulation technology is headed in the
direction of enhanced absorption. These technologies, including nano- and
micro-emulsions and thin films, have been shown to bypass the normal route of
absorption and liver metabolism of cannabinoids, thus dramatically increasing
blood levels and allowing for the use of low doses. Similarly, technologies may
be used to achieve a controlled release of dronabinol, and we believe that our
pending patent priority relating back to 2010 predates the efforts of others
seeking to develop low-dose or extended release formulations of cannabinoids.
Thus, to the extent that new technologies result in lower doses and/or
controlled release formulations, we believe they would infringe on our pending
patents once issued, not only for use in the treatment of OSA but potentially a
wide variety of other indications as well. 42 Data from our Phase 2 clinical trials has allowed us to design new proprietary
formulations of dronabinol, disclosed in our patent filings and optimized for
the treatment of not only OSA, but also other indications. New formulation
technology has emerged potentially allowing for the creation of a proprietary
dronabinol formulation with optimized dose and duration of action for treating
OSA. We have discussions in progress with a number of companies that have
existing cannabinoid formulation technologies, expertise, and licensure
capabilities, which may lead to the development of a proprietary formulation of
dronabinol for RespireRx based on our pending patents for low-dose and extended
release dronabinol and may lead to the development of a marketable proprietary
formulation of dronabinol. In support of this formulation program, David
Dickason joined the Company as Senior Vice-President Preclincial Product
Development on September 15, 2020. Mr. Dickason has an extensive background in
product formulation development. We believe that the development of a novel,
proprietary formulation of dronabinol would only extend time to market entry by
approximately 12 months compared to the market entry with a currently available
generic soft gel capsule, but would dramatically extend market exclusivity;
however, no assurance can be provided that any of the formulation technologies
that we are currently analyzing will result in viable products or that
formulation agreements will be consummated on terms acceptable to us. The
failure to consummate a formulation agreement would materially and adversely
affect the Company. Proposed Regulatory Process
In conjunction with its management and consultants, the Company intends to file
a new NDA under Section 505(b)(2) of the Federal Food, Drug and Cosmetic Act (as
amended, the “FDCA” and such NDA a “505(b)(2) NDA”), claiming the efficacy and
safety of our proposed proprietary dronabinol formulation in the treatment of
OSA. We believe the use of dronabinol for the treatment of OSA is a novel
indication for an already approved drug, making it eligible for a 505(b)(2) NDA,
as opposed to the submission and approval of a full 505(b)(1) NDA. The 505(b)(2) NDA was created by the Hatch-Waxman Act, as amended (the “Hatch-Waxman Act”), which amended the FDCA to help avoid unnecessary
duplication of studies already performed on a previously approved drug. As
amended, the FDCA gives the FDA express permission to rely on data not developed
by the NDA applicant. Accordingly, a 505(b)(2) NDA contains full safety and
effectiveness reports but allows at least some of the information required for
NDA approval, such as safety and efficacy information on the active ingredient,
to come from studies not conducted by or for the applicant. This can result in a
less expensive and faster route to approval, compared with a traditional
development path, such as 505(b)(1), while still allowing for the creation of
new, differentiated products. The 505(b)(2) NDA regulatory path offers the
applicant market protections, such as market exclusivity, under the Hatch-Waxman
Act and the rules promulgated thereunder. Other, international regulatory routes
are available to pursue proprietary formulations of dronabinol and would provide
further market protections. For example, in Europe, a regulatory approval route
similar to the 505(b)(2) pathway is the hybrid procedure based on Article 10 of
Directive 2001/83/EC.
We have worked with regulatory consultants who will assist with FDA filings and
regulatory strategy. If we can secure sufficient financing, of which no
assurance can be provided, we anticipate requesting a pre-IND
(pre-Investigational New Drug application) meeting with the FDA. This meeting
also could create the type of dialogue with the FDA that is normally
communicated at an end-of-Phase 2 meeting. The FDA responses to this meeting
will be incorporated into an IND. If we can secure sufficient financing and successfully create a proprietary
formulation of ? 9-THC, of which no assurance can be provided, we plan to
propose conducting the appropriate clinical studies with our proprietary
controlled release formulation in OSA patients to determine safety,
pharmacokinetics (“PK”) and efficacy, as well as a standard Phase 1 clinical
study to determine potential abuse liability. When a Phase 3 study is required
for a 505(b)(2), usually only one study with fewer patients is necessary versus
the two, large scale, confirmatory studies generally required for the standard
505(b)(1) NDA. While no assurance can be provided, with an extensive safety
database tracking chronic, long-term use of Marinol® and generics, we believe
that the FDA should not have major safety concerns with dronabinol in the
treatment of OSA. 43 The Company has worked with the investigators who conducted the Phase 2B
clinical trial and our Clinical Advisory Panel to design a draft Phase 3
protocol that, based on the experience and results from the Phase 2A and Phase
2B trials, we believe will provide sufficient data for FDA approval of a
RespireRx dronabinol controlled release formulation for OSA. The current version
of the protocol is designed as a 90-day randomized, blinded, placebo-controlled
study of dronabinol in the treatment of OSA. Depending on feedback from the FDA,
the Company estimates that the Phase 3 trial would require between 120 and 300
patients at 15 to 20 sites, and take 18 to 24 months to complete, at a cost of
between $10 million and $14 million. We believe our rights under the Purisys Agreement would help facilitate
regulatory approval. See “Information with Respect to our Company-Description of
Business-Manufacturing” for information on the Purisys Agreement. Under the
Purisys Agreement, Purisys has agreed to (i) provide all of the API estimated to
be needed for the clinical development process for first- and second-generation
products, three validation batches for NDA filings and adequate supply for the
initial inventory stocking for the wholesale and retail channels, subject to
certain limitations, (ii) maintain or file valid DMFs with the FDA or any other
regulatory authority and provide the Company with access or a right of reference
letter entitling the Company to make continuing reference to the DMFs during the
term of the agreement in connection with any regulatory filings made with the
FDA by the Company, (iii) participate on a development committee, and (iv) make
available its regulatory consultants, collaborate with any regulatory consulting
firms engaged by the Company and participate in all FDA or DEA meetings as
appropriate and as related to the API. In consideration for these supplies and services, the Company has agreed to (i)
purchase exclusively from Purisys, during the commercialization phase, all API
for these products at a pre-determined price subject to certain producer price
adjustments and (ii) allow Purisys’s participation in the economic success of
the commercialized products up to the earlier of the achievement of a maximum
dollar amount or the expiration of a period of time. Large Commercial Opportunity As a serious public health issue, the important need for diagnosing and
ultimately treating OSA has recently been highlighted by the FDA clearance of
several sleep apnea home test kits that are now third party reimbursed. Further
highlighting this need, CVS Health Corporation (NYSE: CVS) announced the
implementation of a program to diagnose and treat OSA initially within their own
in-store, walk-in MinuteClinics. If implemented throughout their HealthHUB store
network, the number of people diagnosed with sleep apnea and eligible for
treatment should increase dramatically. Fitbit, Inc., (NYSE: FIT), a health
oriented smart watch company is seeking clearance from the FDA to diagnose sleep
apnea. We believe that the combination of more efficient and patient friendly
diagnostic procedures and, ultimately, pharmaceutical treatments such as those
we are developing will encourage more patients to seek diagnosis and treatment.
As noted above, there are approximately 29 million OSA patients in the United
States and an additional 26 million in Germany and 8 million in the United
Kingdom. There are currently no drugs approved for the treatment of OSA.
EndeavourRx – Neuromodulators Background As described above, during the neurotransmission process, neurons release
neurotransmitters that attach to specific receptors residing on adjacent
neurons, enabling them to communicate with one another and produce excitatory or
inhibitory effects. For example, glutamate is the primary excitatory
neurotransmitter in the brain and GABA is the primary inhibitory
neurotransmitter. While the neurotransmitter attachment site on each of these
receptors does not change, the receptor protein subunit structures can vary so
that the receptors can produce a variety of effects. With the AMPA glutamate
receptor, the binding of glutamate or an artificial agonist to its attachment
site causes a change in the structure of the AMPA receptor resulting in an
increased excitability. Likewise, in the case of the GABAA receptor, the binding
of GABA or an artificial agonist to its attachment site causes a change in the
structure of the GABAA receptor ion channel and increases the flow of chloride
ions (negatively charged anion) into the cell, resulting in a decreased
excitability. 44
Neurotransmitter receptor proteins also may contain auxiliary “allosteric”
binding sites, which are located adjacent to the agonist binding sites at which
neurotransmitters act. Unlike neurotransmitters, neuromodulators are drugs that
act at these allosteric binding sites rather than directly at the agonist
binding site. They can act either as PAMs, which enhance, or as negative
allosteric modulators (“NAMs”), which reduce, the actions of neurotransmitters
at their primary receptor sites. Neuromodulators have no intrinsic activity of
their own. We have coined the terms “ampakines” and “GABAkines” to refer to
drugs that act as PAMs at the AMPA and GABAA receptors, respectively. By
enhancing the effects of neurotransmitters without altering the normal pattern
of neuronal activity, neuromodulators offer the possibility of developing “kinder and gentler” neuropharmacological drugs effective in certain
neurological and neuropsychiatric disorders, with greater pharmacological
specificity and reduced side effects.
In order to capitalize upon a possible market opportunity with respect to neuromodulators, the Company is implementing an internal restructuring plan by forming EndeavourRx as a stand-alone business focused on the neuromodulator market. EndeavourRx will comprise our ampakine program and our GABAkine program. AMPAkines The Company is developing a class of proprietary compounds known as ampakines,
which are PAMs of the AMPA glutamate receptor. Ampakines are small molecule
compounds that enhance the excitatory actions of glutamate at the AMPA receptor
complex, which mediates most excitatory transmission in the central nervous
system (“CNS”). Through an extensive translational research effort from the
cellular level through Phase 2 clinical trials, we have developed a family of
ampakines, including CX717, CX1739 and CX1942 that may have clinical application
in the treatment of CNS-driven neurobehavioral and cognitive disorders, SCI,
neurological diseases, and certain orphan indications. CX717 and CX1739, our
lead clinical compounds, have successfully completed multiple Phase 1 safety
trials with no drug-associated serious adverse events. Both compounds have also
completed Phase 2 efficacy trials demonstrating target engagement, by
antagonizing the process of opioid-induced respiratory depression (“OIRD”).
CX717 has successfully completed a Phase 2 trial demonstrating the ability to
significantly reduce the symptoms of adult ADHD. In an early Phase 2 study,
CX1739 improved breathing in patients with central sleep apnea. Preclinical
studies have highlighted the potential ability of these ampakines to improve
motor function in animals with SCI. Subject to raising sufficient financing (of
which no assurance can be provided), we believe that we will be able to initiate
a human Phase 2 study with CX1739 or CX717 in patients with SCI and a human
Phase 2B study in patients with ADHD using either CX1739 or CX717.
AMPAkines as Treatment for ADHD ADHD is one of the most common neurobehavioral disorders. Currently available
treatments for ADHD include amphetamine-type stimulants and non-stimulant agents
targeting monoaminergic neurotransmitter systems in the brain. However, these
neurotransmitter systems are not restricted to the brain and are widely found
throughout the body. Thus, while these agents can be effective in ameliorating
ADHD symptoms, they also can produce adverse cardiovascular effects, such as
increased heart rate and blood pressure. Existing treatments also affect eating
habits and can reduce weight gain and growth in children and have been
associated with suicidal ideation in adolescents and adults. In addition,
approved stimulant treatments are DEA classified as controlled substances and
present logistical issues for distribution and protection from diversion.
Approved non-stimulant treatments, such as atomoxetine (Strattera® and its
generic equivalents), can take four to eight weeks to become effective and
undesirable side effects also have been observed. Various investigators have generated data supporting the concept that
alterations in AMPA receptor function might underlie the production of some of
the symptoms of ADHD. In rodent and primate models of cognition, ampakines have
been demonstrated to reduce inattention and impulsivity, two of the cardinal
symptoms of ADHD. Furthermore, ampakines do not stimulate spontaneous locomotor
activity in either mice or rats, unlike the stimulants presently used for the
treatment of ADHD, nor do they increase the stimulation produced by amphetamine
or cocaine. These preclinical considerations prompted us to conduct a
randomized, double-blind, placebo controlled, two period crossover study to
assess the efficacy and safety of CX717 in adults with ADHD. In a repeated measures analysis, a statistically significant treatment effect on
ADHD Rating Scale (ADHD-RS), the primary outcome measure, was observed after a
three-week administration of CX717, 800 mg BID. Differences between this dose of
CX717 and placebo were observed as early as week one of treatment and continued
throughout the remainder of the study. The low dose of CX717, 200 mg BID, did
not differ from placebo. In general, results from both the ADHD-RS hyperactivity
and inattentiveness subscales, which were secondary efficacy variables,
paralleled the results of the total score. CX717 was considered safe and well
tolerated. 45 Based on these clinical results, ampakines such as CX717 or CX1739 might
represent a breakthrough opportunity to develop a non-stimulating therapeutic
for ADHD with the rapidity of onset normally seen with stimulants. Subject to
raising sufficient financing (of which no assurance can be provided), we are
planning to continue this program with a Phase 2 clinical trial in patients with
adult ADHD using one of our two lead ampakine compounds.
AMPAkines as Treatment for SCI Ampakines also may have potential utility in the treatment and management of SCI
to enhance motor functions and improve the quality of life for SCI patients. An
estimated 17,000 new cases of SCI occur each year in the United States, most a
result of automobile accidents. Currently, there are roughly 282,000 people
living with spinal cord injuries, which often produce impaired motor function. SCI can profoundly impair neural plasticity leading to significant morbidity and
mortality in human accident victims. Plasticity is a fundamental property of the
nervous system that enables continuous alteration of neural pathways and
synapses in response to experience or injury. A large body of literature exists
regarding the ability of ampakines to stimulate neural plasticity, possibly due
to an enhanced synthesis and secretion of various growth factors. Recently, studies of acute intermittent hypoxia (“AIH”), exposure to short
periods of low oxygen, in patients with SCI demonstrate that neural plasticity
can be induced to improve motor function. This is based on the ability of spinal
circuitry to learn how to adjust spinal and brainstem synaptic strength
following repeated hypoxic bouts. Because AIH induces spinal plasticity, the
potential exists to harness repetitive AIH as a means of inducing functional
recovery of motor function following SCI. The Company has been working with Dr. David Fuller at the University of Florida
with funding from NIH, to evaluate the use of ampakines for the treatment of
compromised motor function in SCI. Using mice that have received spinal
hemi-sections, CX717 was observed to increase motor nerve activity bilaterally.
The effect on the hemisected side was greater than that measured on the intact
side, with the recovery approximating that seen on the intact side prior to
administration of ampakine. The doses of ampakines active in SCI were comparable
to those demonstrating antagonism of OIRD, indicating target engagement of
the
AMPA receptors.
These animal models of motor nerve function following SCI support proof of
concept for a new treatment paradigm using ampakines to improve motor functions
in patients with SCI. With additional funding granted by NIH to Dr. Fuller, the
Company is continuing its collaborative preclinical research with him while it
is planning a clinical trial program focused on developing ampakines for the
restoration of certain motor functions in patients with SCI. The Company is
working with researchers at highly regarded clinical sites to finalize a Phase 2
clinical trial protocol. We believe that a clinical study could be initiated
within several months of raising sufficient financing (of which no assurance can
be provided). GABAkines
The GABAkine program was recently established pursuant to the UWMRF Patent License Agreement. At present, the program is focused on developing certain GABAkines with certain GABAA receptor subtype selectivity. We believe that there is a considerable degree of receptor subtype heterogeneity, making subtype selectivity of our compounds a desirable attribute. Benzodiazepines (“BDZs”), such as Valium® (diazepam), Librium®
(chlordiazepoxide) and Xanax® (alprazolam) were the first major class of drugs
reported to act as GABAA PAMs, by binding at a site distinct from the binding
site for GABA. These drugs produced a wide range of pharmacological properties,
including anxiety reduction, sedation, hypnosis, anti-convulsant, muscle
relaxation, respiratory depression, cognitive impairment, as well as tolerance,
abuse and withdrawal. For this reason, it was not surprising that BDZs were
observed to act as GABAA PAMs indiscriminately across all GABAA receptor
subtypes. Following the identification of BDZ binding sites on GABAA receptors,
Dr. Lippa described CL218,872, the first non-BDZ to demonstrate that these
receptors were heterogeneous by binding selectively to a subtype of GABAA
receptor. This demonstration of receptor heterogeneity led to the hypothesis
that the various pharmacological actions of the BDZs might be separable
depending on the receptor subtype involved. In animal testing, CL218,872
provided the proof of principle that such a separation could be achieved by
displaying anti-anxiety and anti-convulsant properties in the absence of
sedation, amnesia and muscular incoordination. These findings gave impetus to
the search for novel therapeutic drugs for neurological and psychiatric
illnesses that display improvements in efficacy and reductions in side effects. 46
Over the last several years, a group of scientists led by Dr. James Cook of the
University of Wisconsin and Dr. Jeffrey Witkin affiliated with the Indiana
University School of Medicine, who are advising us, have synthesized and tested
a broad series of novel drugs that display GABAA receptor subtype selectivity
and pharmacological specificity. Certain of these chemical compounds are the subject of the UWMRF Patent License
Agreement. Of these compounds, we have identified KRM-II-81 as a clinical lead.
KRM-II-81 is the most advanced and druggable of a series of compounds that
display certain receptor subtype selective and pharmacological specificity. In
studies using cell cultures, brain tissues and whole animals, KRM-II-81 acts as
a GABAA PAM at selective GABAA receptor subtypes that we feel are intimately
involved in neuronal processes underlying epilepsy, pain, anxiety and certain
other indications. KRM-II-81 has demonstrated highly desirable properties in
animal models of these and other potential therapeutic indications, in the
absence of or with greatly reduced liability to produce sedation, motor
incoordination, cognitive impairments, respiratory depression, tolerance, abuse
and withdrawal seizures, all side effects associated with BDZs. We currently are
focused on the potential treatment of epilepsy and pain.
Epilepsy and Existing Treatments Epilepsy is a chronic and highly prevalent neurological disorder that affects
millions of people world-wide and has serious consequences for the life of the
affected individual. A first-line approach to the control of epilepsy is through
the administration of anticonvulsant drugs. Repeated, uncontrolled seizures and
the side effects arising from seizure medications have a negative effect on the
developing brain and can lead to brain cell loss and severe impairment of
neurocognitive function. The continued occurrence of seizure activity also
increases the probability of subsequent epileptic events through sensitization
mechanisms called seizure kindling. Seizures that are unresponsive to
anti-epileptic treatments are life-disrupting and life-threatening with broad
health, life, and economic consequences. Like many diseases, epilepsy is still remarkably underserved by currently
available medicines. Pharmaco-resistance to anticonvulsant therapy continues to
be one of the key obstacles to the treatment of epilepsy. Although many
anticonvulsant drugs are approved to decrease seizure probability, seizures
frequently are not fully controlled and patients are generally maintained daily
on multiple antiepileptic drugs with the hope of enhancing the probability of
seizure control. Despite this polypharmacy approach, as many as 60% to 70% of
patients continue to have seizures. As a result of the lack of seizure control,
pharmaco-resistant epilepsy patients, including young children, sometimes
require and elect to have invasive therapeutic procedures such as surgical
resection. Despite the availability of a host of marketed drugs of different mechanistic
classes, the lack of seizure control in patients is the primary factor driving
the need for improved antiepileptic drugs emphasized by researchers and patient
advocacy communities. Increasing inhibitory tone in the CNS through enhancement
of GABAergic inhibition is a proven mechanism for seizure control. However,
GABAergic medications also exhibit liabilities that limit their antiepileptic
potential. Tolerance develops to GABAergic drugs such as BDZs, limiting their
use in a chronic setting. These drugs can produce cognitive impairment,
somnolence, sedation, tolerance and withdrawal seizures that create dosing
limitations such that they are generally used only for acute convulsive
episodes.
GABAkines as Treatments for EpilepsyKRM-II-81 has demonstrated efficacy in multiple rodent models and measures of
antiepileptic drug efficacy in vivo. This includes nine acute seizure
provocation models in mice and rats, four seizure sensitization models in rats
and mice, two models of chronic epilepsy, and three models specifically testing
pharmaco-resistant antiepileptic drug efficacy. Because it appears to have a
greatly reduced side effect liability, it might be possible to use higher, more
effective doses that standard of care medications. Predictions of superior
efficacy of KRM-II-81 over standard of care anti-epileptics comes from the
efficacy of this compound across a broad range of animal models of epilepsy.
Importantly, KRM-II-81 has been shown to be effective in models assessing
pharmaco-resistant epilepsy. Under these conditions, KRM-II-81 is efficacious in
cases where standard of care medicines do not work. 47
In the absence of seizure control by anti-epileptics, surgical resection of
affected brain tissue is one potential alternative to help with the control of
seizures. In the process of this surgery, epileptic brain tissue can become
available for research into epileptic mechanisms and the identification of novel
antiepileptic drugs. The anticonvulsant action of KRM-II-81 was confirmed by
microelectrode recordings from slices obtained from freshly excised cortex from
epileptic patients where KRM-II-81 suppressed epileptiform electrical activity.
While preliminary, these translational data lend considerable support to the
further development of KRM-II-81 for the treatment of epilepsy.
GABAkines as Treatments for PainIt is impossible not to be aware of the crisis that the opioid epidemic has
created in the treatment of chronic pain. While there is no question as to their
efficacy, the clinical use of opioids is severely limited due to the rapid
development of tolerance and the production of OIRD, the major cause of
opioid-induced lethality. Research programs are underway nationwide to discover
and develop new non-opioid drugs that are effective analgesics without the
tolerance and abuse liability ascribed to opioids. Chronic pain is especially
difficult to treat due to its complex nature with a variety of different
etiologies. For example, chronic pain may be produced by injury, surgery,
neuropathy, the inflammation produced by arthritis or by certain drugs such as
cancer chemotherapeutics. For these reasons, better management and control of
chronic pain continues to be a serious need in medical practice. Data from both preclinical and clinical studies are consistent with the idea
that GABAergic neurotransmission is an important regulatory mechanism for the
control of pain. gabapentin (Neurontin®) and pregabalin (Lyrica®) two commonly
used drugs for the treatment of chronic pain are believed to produce their
analgesic effects by enhancing GABAergic neurotransmission. However, although
they have received FDA approval, the clinical results have not been
overwhelming. In a published review of 37 clinical trials with a total of 5,914
patients experiencing neuropathic pain there was no difference in the percentage
of patients experiencing pain reduction of greater than 50% when comparing
gabapentin to placebo. The most common side effects produced by gabapentin were
sedation, dizziness and problems walking. It is uncertain whether greater
efficacy was not observed because of poor intrinsic pharmacological efficacy or
insufficient dosages due to dose limiting side effects. An alternate approach to enhancing GABAergic neurotransmission is the use of
GABAA PAMs. This approach has been under-utilized because of the general lack of
efficacy of the BDZ PAMs. However, a strong case for the potential value of
subtype selective GABAA PAMs for the treatment of pain can be made. First, GABAA
receptor regulated pathways are integral to pain processing with ?2/3 containing
GABAA receptor subtypes present on nerve pathways modulating pain sensation and
perception. Second, we believe that the analgesic properties of BDZs may be
masked by concurrent activation of other receptor subtypes that mediate the side
effects. Diazepam has been reported to produce maximal analgesia if the side
effects are attenuated by GABAA subtype genetic manipulation. Third, predecessor
GABAkines, made by Dr. Cook, that selectively amplify GABAAreceptor subtype
signaling are effective in pain models in rodents at doses lower than those
producing motor side effects. In a number of laboratory procedures and animal studies, KRM-II-81 has been
shown to selectively bind to GABAA receptor subtypes and enhance GABAergic
neurotransmission. Sub-chronic dosing for 22 days with KRM-II-81 and the
structural analogue, MP-III-80, demonstrated enduring analgesic efficacy without
tolerance development. In contrast, tolerance developed to the analgesic effects
of gabapentin. At a dose that produces maximal analgesic effect in an
inflammatory chronic pain model, KRM-II-81 does not substitute for the BDZ
midazolam in a drug discrimination assay, suggesting a reduced abuse liability.
Furthermore, KRM-II-81 did not produce the respiratory depression observed with
alprazolam, a major problem with BDZs leading to emergency room visits and
overdose. We believe that the ability to attenuate both acute and chronic pain combined
with a greatly reduced side effect profile, a lack of tolerance and a reduced
abuse potential makes KRM-II-81 a promising clinical lead and a potential
advance in pain therapeutics. Results from preliminary chemistry, metabolism and
pharmacokinetic studies support its further development. 48
Corporate and Product Development Plans As discussed above, in order to facilitate our business activities and product
development, we have organized our drug platforms into two separate business
units. ResolutionRx is focused on pharmaceutical cannabinoids and EndeavourRx is
focused on neuromodulators. Below is a description of the Company’s product
development plans within these business units.
ResolutionRx – Dronabinol program For the dronabinol program within our ResolutionRx cannabinoid platform, the
Company plans to manufacture, on a pilot scale, one or more new proprietary
formulations of dronabinol with the enhanced properties described in our patent
applications, for which we plan to spend approximately $150,000 to bench test in
vitro several versions of dronabinol formulations in order to determine those
with the best physico-chemical properties. To finance these efforts, the Company
intends to use the estimated net proceeds from exercise of its put right, if
available, under the White Lion EPA. Assuming additional financing is obtained in addition to the net proceeds from
the Company’s exercise of its put right under the White Lion EPA, the Company
intends to spend approximately $450,000 to $600,000 of these funds on the
continued development of a proprietary formulation of dronabinol. This
development would include (i) improvements to the Company’s intellectual
property position, (ii) improvements to our dronabinol formulation’s PK profile,
(iii) improvements to regulatory compliance, and (iv) expenditures for the
initial stocking of clinical supply, packaging and distribution in anticipation
of a Phase 2 PK/PD (pharmacodynamic) clinical trial and a pivotal Phase 3
clinical study. The performance of the Phase 2 PK/PD clinical trial and Phase 3
clinical study, however, would need yet additional funds either from separate
financings or a collaboration with a strategic partner. The Purisys Agreement and the 2014 License Agreement will need to be transferred
or otherwise made available to ResolutionRx. See “-Noramco Inc./Purisys, LLC –
Dronabinol Development and Supply Agreement” and “-University of Illinois 2014
Exclusive License Agreement” in Note 8. Commitments and Contingencies in the
notes to condensed consolidated financial statements as of September 30, 2020
for more information on these agreements . While this subsidiary’s initial,
primary focus will be on re-purposing dronabinol for the treatment of OSA, we
believe that our broad enabling patents and a new proprietary formulation may
provide a framework for expanding into the larger burgeoning pharmaceutical
cannabinoid industry. We believe that by creating this subsidiary, it may be
possible, through separate finance channels and potential strategic
transactions, to optimize the asset value not only of the cannabinoid platform,
but our neuromodulation platform as well.
EndeavourRx – AMPAkines programFor the AMPAkines program within our EndeavourRx neuromodulators platform, the
Company plans to initiate clinical testing of our AMPAkines in the treatment of
SCI. To this end, approximately $145,000 would be utilized to assess the purity
of our existing drug supplies and finalize a clinical trial protocol for a Phase
2A clinical trial to determine the safety and PK properties of one of our lead
AMPAkines in patients who have had SCI. These tasks are critical for applying to
the FDA for permission to amend our existing IND or initiate a new IND enabling
the commencement of clinical trials. To finance these efforts, the Company
intends to use the net proceeds to it from exercise of its put right under
the
White Lion EPA. Assuming financing is obtained in addition to the net proceeds from the
Company’s exercise of its put right under the White Lion EPA, the Company would
continue to focus on SCI, as we believe it would be the most efficient
expenditure of our resources and yield an actionable result in the shortest
period of time. Expenditures would include: (i) an estimated spend of $200,000
for chemistry, manufacturing and controls (“CMC”) efforts, depending on the
assessment of our drug supplies, (ii) an estimated spend of $400,000 on an
initial Phase 2A single ascending dose safety and PK and pharmacodynamic (“PD”)
study in human SCI patients, (iii) an estimated spend of $600,000 on a Phase 2A
multiple ascending dose safety and PK and PD study in SCI patients, and (iv) an
estimated spend of $650,000 on a Phase 2B efficacy study in SCI patients. Our
anticipated spend for ADHD would be approximately $100,000 with the larger
spends occurring later dependent upon availability of financing. 49
EndeavourRx – GABAkines program Assuming sufficient financing is obtained in addition to the net proceeds from
the Company’s exercise of its put right under the White Lion EPA, the Company
plans to finance efforts with respect to the GABAkines program within our
EndeavourRx neuromodulators platform. These efforts would be in preparation of
an IND to be submitted to the FDA to commence human studies of KRM-II-81, our
lead GABAkine drug candidate, for treatment-resistant epilepsy, and expenditures
would include (i) an estimated spend of $530,000 for CMC efforts, (ii) an
estimated spend of $450,000 for pre-clinical pharmacology, safety and
absorption, distribution, metabolism, excretion (“ADME”) studies, (iii) an
estimated spend of $225,000 for animal safety studies and (iv) an estimated
spend of $65,000 for regulatory consultants. In connection with the organization and development of the ResolutionRx and
EndeavourRx business units, we are planning certain corporate and development
actions as summarized below. All of the below are subject to raising additional
financing and/or entering into strategic relationships, of which no assurance
can be given.
Proposed Creation of SubsidiariesPending approval by the Board of Directors, management intends to organize our
ResolutionRx and EndeavourRx business units into two subsidiaries: (i) a
ResolutionRx subsidiary, into which we intend to contribute our pharmaceutical
cannabinoid platform and its related tangible and intangible assets and certain
of its liabilities and (ii) an EndeavourRx subsidiary, into which we plan to
contribute our neuromodulator platform, including both the AMPAkine and GABAkine
programs and their related tangible and intangible assets and certain of their
liabilities. Management believes that there are several advantages to separating these
platforms formally into newly formed subsidiaries, including but not limited to
optimizing their asset values through separate finance channels and making them
more attractive for capital raising as well as for strategic deal making.
Employee/Consultant Infrastructure Build-out It is anticipated that the Company will use, at least initially, its management
personnel to provide management, operational and oversight services to these two
business units.
In order to broaden our operational expertise, we are planning to hire a number of highly qualified individuals, either as employees or consultants and, in tandem, increase our administrative support function. Our relationship with Drs. Cook and Witkin has been highly cooperative to date.
Our intent is to contractually formalize these relationships as consultants
to
the Company. Technology Rights
University of Illinois License AgreementSee Note 8. Commitments and Contingencies – Significant Agreements and Contracts – University of Illinois 2014 Exclusive License Agreement to our condensed consolidated financial statements at September 30, 2020.UWMRF Patent License AgreementSee Notes 1, 2, 8 and 9 to our condensed consolidated financial statements at September 30, 2020. Going Concern The Company’s management has concluded that there is substantial doubt about the
Company’s ability to continue as a going concern, and the Company’s independent
registered public accounting firm, in its audit report on the Company’s
consolidated financial statements for the year ended December 31, 2019,
expressed substantial doubt about the Company’s ability to continue as a going
concern. See Note 2. Business – Going Concern to our condensed consolidated
financial statements at September 30, 2020. The Company’s regular efforts to raise capital and to evaluate measures to
permit sustainability are time-consuming and intensive. Such efforts may not
prove successful and may cause distraction, disruption or other adversity that
limits the Company’s development program efforts. 50
Recent Accounting PronouncementsSee Note 2 to the Company’s condensed consolidated financial statements at September 30, 2020. Management does not believe that any recently issued, but not yet effective,
authoritative guidance, if currently adopted, would have a material impact on
the Company’s financial statement presentation or disclosures. Concentration of Risk
See Note 2. Significant Accounting Policies – Concentration of Credit Risk to the Company’s condensed consolidated financial statements at September 30, 2020.See Note 8. Commitments and Contingencies – Significant Agreements and Contracts – University of Illinois 2014 Exclusive License Agreement to the Company’s condensed consolidated financial statements at September 30, 2020.See Note 8. Commitments and Contingencies – Significant Agreements and Contracts – UWMRF Patent License Agreement to the Company’s condensed consolidated financial statements at September 30, 2020.Critical Accounting Policies and Estimates The Company prepared its condensed consolidated financial statements in
accordance with accounting principles generally accepted in the United States of
America. The preparation of these condensed consolidated financial statements
requires the use of estimates and assumptions that affect the reported amounts
of assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amount of
revenues and expenses during the reporting period. Management periodically
evaluates the estimates and judgments made. Management bases its estimates and
judgments on historical experience and on various factors that are believed to
be reasonable under the circumstances. Actual results may differ from these
estimates as a result of different assumptions or conditions.
Critical accounting policies and estimates are described in the notes to the Company’s condensed consolidated financial statements and include: – Stock-based awards – Research and Development Costs – License Agreements – Patent Costs – Convertible Notes – Warrant Exercises See Critical Accounting Policies and Estimates in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019 for a complete description. Results of Operations The Company’s unaudited consolidated statements of operations as discussed
herein are presented below. Three Months Ended Nine Months Ended September 30, September 30, 2020 2019 2020 2019
Operating expenses:
General and administrative, including
$492,900 and $121,600 to related parties
for the three months ended September 30,
2020 and 2019, respectively, and
$725,780 and $364,825 to related parties
for the nine months ended September 30,
2020 and 2019, respectively $ 1,140,204$ 279,930$ 1,969,223$ 874,834
Research and development, including
144,900 and $122,400 to related parties
for the three months ended September 30,
2020 and 2019, respectively, and
$389,700 and $367,200 to related parties
for the nine months ended September 30,
2020 and 2019, respectively 171,776 150,527 480,242 447,877
Total operating expenses 1,311,980 430,457 2,449,465 1,322,711
Loss from operations (1,311,980 ) (430,457 ) (2,449,465 ) (1,322,711 )
Loss on extinguishment of debt and other
liabilities in exchange for equity (65,906 ) – (389,902 ) –
Interest expense, including $2,848 and
$2,589 to related parties for the three
months ended September 30, 2020 and
2019, respectively, and $8,481 and
$7,683 to related parties for the nine
months ended September 30, 2020 and
2019, respectively (78,678 ) (70,168 ) (409,994 ) (221,813 )
Foreign currency transaction gain (loss) (22,791 ) 30,781 7,151 57,135 Net loss attributable to common
stockholders $ (1,479,355 )$ (469,844 )
$ (3,242,210 )$ (1,487,389 ) Net loss per common share – basic and
diluted $ (0.01 )$ 0.12 )
$ (0.02 )$ (0.38 ) Weighted average common shares
outstanding – basic and diluted 224,352,033 3,874,465
131,793,037 3,873,097 51 Three months Ended September 30, 2020 and 2019Revenues. The Company had no revenues during the three months ended September 30, 2020 and 2019.General and Administrative. For the three months ended September 30, 2020,
general and administrative expenses were $1,140,204, an increase of $860,274, as
compared to $279,930 for the three months ended September 30, 2019. The increase
in general and administrative expenses for the three months ended September 30,
2020, as compared to the three months ended September 30, 2019, is primarily due
to an increase in corporate legal fees of $452,365 associated primarily with
three convertible note financings, an equity purchase agreement, the preparation
of a registration statement on Form S-1, our proxy statement on Schedule 14A and
the special meeting of stockholders and advance work with respect to a potential
Regulation A offering, an increase of $315,000 of stock-based compensation as a
result of option grants and an increase of $84,900 in compensation and related
benefits with RespireRx’s new Chief Executive Officer and President being in
that role for a full quarter in the current period but not having been employed
by the Company in the prior comparable three month period, and smaller increases
and decreases in a number of other general and administrative expenses. Stock-based compensation in general and administrative expenses was $315,000 for
the three months ended September 30, 2020 whereas there was no stock-based
compensation in general and administrative expenses for the three months ended
September 2019. Research and Development. For the three months ended September 30, 2020,
research and development expenses were $171,776, an increase of $21,249, as
compared to $150,526 for the three months ended September 30, 2019. The increase
in research and development expenses for the three months ended September 30,
2020, as compared to the three months ended September 30, 2019, is primarily a
result of an increase in research and development stock-based compensation of
$22,500, offset by a decrease of $1,251 in research and development insurance
related costs. Stock-based compensation in research and development expenses was $22,500 for
the three months ended September 30, 2020 whereas there was no stock-based
compensation in research and development expenses for the three months ended
September 2019. Loss on Extinguishment of Liabilities. During the three months ended September
30, 2020, the Company incurred a $65,906 loss on the settlement of certain
accounts payable to a single vendor with the settlement paid with Series H
Preferred Stock that was converted into Common Stock and warrants on September
30, 2020. There was no loss on extinguishment of liabilities for the three
months ended September 30, 2019. Interest Expense. During the three months ended September 30, 2020, interest
expense was $78,678 as compared to $70,168 for the three months ended September
30, 2019. The increase of $8,510 is primarily the result of interest and
amortization of note discounts to interest expense with respect to four
convertible notes in June and July 2020 that were included in the current year
three month period but did not exist in the prior year comparable three month
period, while one convertible note that existed in the prior period was paid in
full and terminated July 2020. Foreign Currency Transaction (Loss) Gain. Foreign currency transaction loss was
$22,791 for the three months ended September 30, 2020, as compared to a foreign
currency transaction gain of $30,781 for the three months ended September 30,
2019. The foreign currency transaction (loss) gain relates to the $399,774 loan
from SY Corporation made in June 2012, which is denominated in the South Korean
Won. 52
Net Loss Attributable to Common Stockholders. For the three months ended September 30, 2020, the Company incurred a net loss of $1,479,355 as compared to a net loss of $469,843 for the three months ended September 30, 2019.Nine months Ended September 30, 2020 and 2019Revenues. The Company had no revenues during the nine months ended September 30, 2020 and 2019. General and Administrative. For the nine months ended September 30, 2020,
general and administrative expenses were $1,969,223, an increase of $1,094,389,
as compared to $874,834 for the nine months ended September 30, 2019. The
increase in general and administrative expenses for the nine months ended
September 30, 2020, as compared to the nine months ended September 30, 2019, is
primarily due to an increase in corporate legal fees of $606,692 associated
primarily with three convertible note financings, an equity purchase agreement,
the preparation of a registration statement on Form S-1, our proxy statement on
Schedule 14A and special meeting of stockholders and advance work in respect of
a potential Regulation A offering, an increase of $315,000 of stock-based
compensation as a result of option grants and an increase of $134,425 in
compensation and related benefits with RespireRx’s new Chief Executive Officer
and President being in that role for a approximately five of the nine months
ended September 30, 2020 but not having been employed by the Company in the
prior comparable nine month period, and smaller increases and decreases in a
number of other general and administrative expenses. Stock-based compensation in general and administrative expenses was $315,000 for
the nine months ended September 30, 2020 whereas there was no stock-based
compensation in general and administrative expenses for the nine months ended
September 2019. Research and Development. For the nine months ended September 30, 2020, research
and development expenses were $480,241, an increase of $32,365, as compared to
$447,876 for the nine months ended September 30, 2019. The increase in research
and development expenses for the nine months ended September 30, 2020, as
compared to the nine months ended September 30, 2019, is primarily a result of
an increase in research and development stock-based compensation of $22,500 and
smaller increases in licensing fees ($2,500 pursuant to the UWMRF Patent License
Agreement), insurance and with one vendor. Stock-based compensation in research and development expenses was $22,500 for
the nine months ended September 30, 2020 whereas there was no stock-based
compensation in research and development expenses for the three months ended
September 2019. Loss on Extinguishment of Debt and other Liabilities. During the nine months
ended September 30, 2020, the Company incurred a $389,902 loss on the exchange
of equity for debt with respect to exchange agreements in March 2020 and
settlement of certain accounts payable to a single vendor with the settlement
paid with Series H Preferred Stock that was converted into Common Stock and
warrants on September 30, 2020. On March 21, 2020, the Company entered into
exchange agreements with several note holders and exchanged an aggregate of
$255,786 of principal and accrued interest for 17,052,424 shares of the
Company’s stock with an exchange price of $0.015 per share which was less than
the closing price of $0.034 per share. There was no loss on extinguishment of
debt or liabilities for the nine months ended September 30, 2019. Interest Expense. During the nine months ended September 30, 2020, interest
expense was $409,994 as compared to $221,813 for the nine months ended September
30, 2019. The increase of $188,181 is primarily the result of interest incurred
with respect to new convertible notes issued in April, June and July 2020 that
were included in the current nine month period but did not exist in the prior
year comparable nine month period while several notes that were outstanding
during the comparable prior year nine month period were paid in full during the
current nine months ended September 30, 2020. Foreign Currency Transaction (Loss) Gain. Foreign currency transaction gain was
$7,151 for the nine months ended September 30, 2020, as compared to a foreign
currency transaction gain of $57,135 for the nine months ended September 30,
2019. The foreign currency transaction (loss) gain relates to the $399,774 loan
from SY Corporation made in June 2012, which is denominated in the South Korean
Won. 53 Net Loss Attributable to Common Stockholders. For the nine months ended
September 30, 2020, the Company incurred a net loss of $3,242,210 as compared to
a net loss of $1,487,388 for the nine months ended September 30, 2019. Included
in the net loss is a loss on extinguishment of convertible debt and the loss on
the settlement of certain accounts payable.
Liquidity and Capital Resources – September 30, 2020 The Company’s condensed consolidated financial statements have been presented on
the basis that it is a going concern, which contemplates the realization of
assets and satisfaction of liabilities in the normal course of business. The
Company has incurred net losses of $3,242,210 and net losses from operations of
$2,449,465 for the nine months ended September 30, 2020 and net losses of
$2,115,033 for the fiscal year ended December 31, 2019, and negative operating
cash flows of $350,724 for the nine months ended September 30, 2020 and $487,745
for the fiscal year ended December 31, 2019, had a stockholders’ deficiency of
$7,288,185 at September 30, 2020, and expects to continue to incur net losses
and negative operating cash flows for at least the next few years. As a result,
management has concluded that there is substantial doubt about the Company’s
ability to continue as a going concern, and the Company’s independent registered
public accounting firm, in its report on the Company’s consolidated financial
statements for the year ended December 31, 2019, expressed substantial doubt
about the Company’s ability to continue as a going concern. At September 30, 2020, the Company had a working capital deficit of $7,288,185,
as compared to a working capital deficit of $7,444,819 at December 31, 2019
reflecting an decrease in the working capital deficit of $156,634 for the nine
months ended September 30, 2020. The decrease in the working capital deficit is
due to an decrease in current liabilities resulting from executive officer
compensation and benefit forgiveness in exchange for equity and settlements of
two vendor accounts payable with equity and a decrease in cash of $16,474 offset
by an increase in prepaid expenses of $27,386.
At September 30, 2020, the Company had cash aggregating $216 as compared to $16,690 at December 31, 2019, reflecting a decrease in cash of $16,474 for the nine months ended September 30, 2020. The Company is currently, and has for some time, been in significant financial
distress. It has extremely limited cash resources and current assets and has no
ongoing source of revenue. Management is continuing to address numerous aspects
of the Company’s operations and obligations, including, without limitation, debt
obligations, financing requirements, intellectual property, licensing
agreements, legal and patent matters and regulatory compliance, and has taken
steps to continue to raise new debt and equity capital to fund the Company’s
business activities.
The Company is continuing its efforts to raise additional capital in order to be
able to pay its liabilities and fund its business activities on a going forward
basis and regularly evaluates various measures to satisfy the Company’s
liquidity needs, including development and other agreements with collaborative
partners and seeking to exchange or restructure some of the Company’s
outstanding securities. The Company is evaluating certain changes to its
operations and structure to facilitate raising capital from sources that may be
interested in financing only discrete aspects of the Company’s development
programs. Such changes could include a significant reorganization. Though the
Company actively pursues opportunities to finance its operations through
external sources of debt and equity financing, it has limited access to such
financing and there can be no assurance that such financing will be available on
terms acceptable to the Company, or at all. Operating Activities. For the nine months ended September 30, 2020, operating
activities utilized cash of $350,074, as compared to utilizing cash of $313,691
for the nine months ended September 30, 2019, to support the Company’s ongoing
general and administrative expenses as well as its research and development
activities. 54 Financing Activities. For the nine months ended September 30, 2020, financing
activities consisted of $66,250 in advances from an executive officer, net
proceeds of $50,000 after payment of $3,000 of capitalized note costs from the
April 2020 Note financing and net proceeds of $40,000 after payment of $3,000 of
capitalized note costs from the June 2020 Note financing, net proceeds of
$121,000 from the FirstFire Convertible Note financing in July 2020 and net
proceeds of $63,750 from the EMA Convertible Note financing in July 2020. For
the nine months ended September 30, 2019, financing activities consisted of the
borrowings on convertible notes with warrants of $353,500 and the financing with
a short term note of $71,068 in connection with the new directors and officers
insurance policy as well as other insurance policies. Principal Commitments Employment Agreements See Note 8. Commitments and Contingencies – Significant Agreements and Contracts
– Employment Agreements to our condensed consolidated financial statements
at
September 30, 2020.
University of Illinois 2014 Exclusive License AgreementSee Note 8. Commitments and Contingencies – Significant Agreements and Contracts – University of Illinois 2014 Exclusive License Agreement to our condensed consolidated financial statements at September 30, 2019.UWM Research Foundation Patent License AgreementSee Note 8. Commitments and Contingencies – Significant Agreements and Contracts – UWMRF Patent License Agreement to our condensed consolidated financial statement at September 30, 2020. A table setting forth the Company’s principal cash obligations and commitments
for the next five fiscal years as of September 30, 2020, aggregating $3,230,470,
is set forth in Note 8. Commitments and Contingencies – Summary of Principal
Cash Obligations and Commitments
Off-Balance Sheet ArrangementsAt September 30, 2020, the Company did not have any transactions, obligations or relationships that could be considered off-balance sheet arrangements.© Edgar Online, source Glimpses Source: https://www.marketscreener.com/quote/stock/RESPIRERX-PHARMACEUTICALS-111313448/news/RESPIRERX-PHARMACEUTICALS-MANAGEMENT-S-DISCUSSION-AND-ANALYSIS-OF-FINANCIAL-CONDITION-AND-RESULTS-31851954/

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