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| IRBS.OB > SEC Filings for IRBS.OB > Form 10-Q on 16-Nov-2009 | All Recent SEC Filings |
16-Nov-2009
Quarterly Report
Special Note Regarding Forward-looking Statements
Some of the statements under "Risk Factors" and elsewhere in this Quarterly Report on Form 10-Q constitute forward-looking statements. All statements other than historical facts contained in this report, including statements regarding our future financial position and revenues, capital expenditures, cash flows, business strategy and plans and objectives of management for future operations, are forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance, or achievements expressed or implied by such forward-looking statements. Such factors include, among other things, those described under "Risk Factors" and elsewhere in this Quarterly Report on Form 10-Q and in the "Risk Factors" section of our annual report on SEC Form 10-K filed with the Securities and Exchange Commission on March 31, 2009 and as amended on April 30, 2009.
In some cases, you can identify forward-looking statements by terminology such as "may," "will," "should," "could," "expects," "plans," "intends," "anticipates," "believes," "estimates," "predicts," "potential" or "continue" or the negative of such terms or other comparable terminology.
Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of such statements. We are under no duty to update any of the forward-looking statements after the date of this report.
The following information should be read in conjunction with the financial statements and the notes thereto. The analysis set forth below is provided pursuant to applicable Securities and Exchange Commission regulations and is not intended to serve as a basis for projections of future events.
Overview
IR BioSciences Holdings, Inc. is a development-stage biotechnology company. Through our wholly-owned subsidiary ImmuneRegen BioSciences, Inc., we are engaged in the research and development of potential drug candidates, Homspera® and its derivatives, Radilex® and Viprovex®. Although containing the identical active ingredient Homspera, we defined Radilex and Viprovex as derivatives of Homspera due to the potential difference in formulations and indications for use. Our goals include developing these potential drug candidates to be used as possible countermeasures for homeland security threats, including radiological, chemical and biological agents, and to meet the commercial need for similar beneficial effects in conditions such as radiation therapy, influenza, anthrax and potentially other microbial ailments. We have discovered activities of Homspera that may potentially open additional commercialization opportunities in areas such as human adult stem cell stimulation, vaccine adjuvants, which stimulate the immune system above that of a stand-alone vaccine, and wound healing.
Our patents, patent applications and continued research are partially derived from discoveries made during research studies related to the function of Substance P, which is found in the body and has a large number of actions. These studies were funded by the Air Force Office of Scientific Research (AFOSR) in the early 1990s and were conducted by research scientists, including our co-founders Drs. Mark Witten and David Harris. In the course of research on Substance P, scientists created a number of synthetic analogues, structural derivatives with slight chemical differences, for study. One of these, which we have named Homspera, is the basis for our drug development efforts and our intellectual property. All of our research and development efforts are at the pre-clinical stage and Homspera has only undergone exploratory studies to evaluate its biological activity in small animals. There can be no assurance that our interpretation of study results will prove to be accurate after further testing, and our beliefs regarding the potential uses of our drug candidates may never materialize.
Our current focus is to develop Homspera for regenerating or strengthening the human immune system, in part, through stimulating human adult stem cells. It is the belief of our management that the stem cell activity exhibited by Homspera underlies some of the effects previously reported in potential applications like treatment for radiation exposure and infectious diseases using Homspera derivatives Radilex and Viprovex, respectively, which are described below. Recent studies have evaluated the effects of Homspera on human adult stem cell activity. Additionally, ongoing studies are being performed to evaluate the efficacy of Homspera as a potential product to increase the healing rate of wounds. One aspect of this evaluation is to consider the impact of Homspera on the mechanisms and pathology of fibrosis, which is associated with scar formation, pulmonary injury and can occur following exposure to ionizing radiation (gamma rays or x-rays).
We are researching Radilex for use as a potential treatment for acute exposure to radiation. We believe that a commercial market may exist for the use of Radilex as it relates to the amelioration of certain side effects of cancer treatments, whether chemotherapy or radiotherapy.
We are researching Viprovex for potential use in treatments of exposure to biological agents, such as infectious diseases, which include influenza and anthrax. We believe that potential commercial opportunities may exist for the treatment of seasonal influenza and other viral or bacterial infections, either as a stand-alone drug or as an adjuvant to other existing drugs. We believe that Viprovex, if adequately developed, may be used in potential applications for sale to governments for the treatment of exposure to anthrax and pandemic influenza. In addition, ongoing studies are being performed to evaluate the efficacy of Viprovex as a vaccine adjuvant to enhance immune response to a given dose of vaccine for either prophylactic protection, such as influenza, or therapy, such as cancer.
To date we have submitted an Investigational New Drug application (IND) for Homspera to the U.S. Food and Drug Administration (FDA) for the treatment of Idiopathic Pulmonary Fibrosis. We have also submitted preliminary study data to the FDA and have been issued two Pre-Investigational New Drug (PIND) numbers, one for the potential use of Radilex in the treatment of acute radiation syndrome (PIND 63,255) and the other for the potential use of Viprovex in the treatment of avian influenza (PIND 73,709). We have evaluated and/or contracted with a number of FDA regulatory consultants to assist us in our preparation and submission of an IND application, a necessary prerequisite to human clinical studies, which can only follow after the FDA's allowance of our IND.
We have filed patent applications directed to various methods of using and compositions comprising Substance P analogues. As of September 30, 2009, we owned approximately 15 issued patents, including two issued U.S. patents and thirteen issued foreign patents. Also as of September 30, 2009 we had approximately 52 pending patent applications, including approximately 16 pending U.S. patent applications and approximately 36 pending foreign patent applications. All inventions embodied in these applications and issued patents have been assigned to the company by the inventors. In addition, we have entered into a license agreement with the University of Pittsburgh whereby we have licensed the University's ownership interest to a patent that was jointly filed with the University of Pittsburgh.
Our potential drug candidates, Homspera, Radilex and Viprovex, are at pre-clinical stages of development and may not be shown to be safe or effective in humans and may never receive regulatory approval. Neither Homspera, Radilex nor Viprovex have been tested in humans. There is no guarantee that regulatory authorities will ever permit human testing of Homspera, Radilex, Viprovex or any other potential products derived from Homspera. Even if such testing is permitted, neither Homspera, Radilex, Viprovex or any other potential drug candidates, if any, derived from Homspera may be successfully developed or shown to be safe or effective in humans.
The results of our pre-clinical studies and clinical trials may not be indicative of future clinical trial results. A commitment of substantial resources to conduct time-consuming research, pre-clinical studies and clinical trials will be required if we are to develop any commercial applications using Homspera or any derivatives thereof. It is possible that partnerships and/or licensing agreements will not develop during the preclinical and/or clinical stages of development, if at all. Delays in planned patient enrollment in our future clinical trials may result in increased costs, program delays or both. None of our potential technologies may prove to be safe or effective in clinical trials. Approval of the FDA, or other regulatory approvals, including export license permissions, may not be obtained and even if successfully developed and approved, our potential applications may not achieve market acceptance. Any potential applications resulting from our programs may not be successfully developed or commercially available for a number of years, if at all.
To date, we have not obtained regulatory approval for, or commercialized any applications, using Homspera or any of its derivatives. We have incurred significant losses since our inception and we expect to incur annual losses for at least the next three years as we continue with our drug research and development efforts.
Results of Operations for the Three Month Periods Ended September 30, 2009 and September 30, 2008
Revenue
We have not generated any revenues from operations from our inception.
Costs and Expenses
From our inception through September 30, 2009, we have incurred losses of $28,490,998. These expenses were associated principally with equity-based compensation to employees and consultants, product development costs and professional services and interest expense.
For the three months ending September 30, 2009, Sales, General and Administrative expenses ("SG&A") were $743,383, a decrease of $1,033,325, or approximately 58%, compared to SG&A expenses of $1,776,708 during the three months ended September 30, 2008. The decrease is mostly due to lower costs for legal and accounting expenses, lower payroll and related expenses, lower research and development expenses and lower non-cash compensation. For the three months ended September 30, 2009, this amount consisted primarily of research and development costs of $134,164, payroll and related expenses of $216,829, legal and accounting fees of $135,034, consulting and professional fees of $89,795 and non-cash compensation of $61,920.
The Company expects SG&A to remain flat during the coming twelve months.
Financing Cost
Financing costs were $31,250 for the three months ended September 30, 2009, with no increase compared to financing costs of $31,250 during the three months ended September 30, 2008. The Company deposited cash in the amount of $250,000 held in escrow pursuant to the Securities Purchase Agreements with YA Global Investments, L.P. that were entered into in January 2008 and June 2008, of which $175,000 was placed into escrow on January 3, 2008 and an additional $75,000 was placed into escrow on June 12, 2008. These funds are amortized on a straight-line basis over a 24 month period. Prior to December 31, 2008, these costs were captured in SG&A expenses.
The Company expects no significant increase to financing costs during the coming twelve months.
Interest Expense (net)
Interest expense (net) was $543,122 for the three months ended September 30, 2009, an increase of $337,317 or approximately 164% compared to interest expense of $205,805 for the three months ended September 30, 2008. Interest expense increased during the three months ended September 30, 2009 due to interest costs relating to a subsequent securities purchase agreement with YA Global Investments in June 2008 and a securities purchase agreement with a group of funds represented by Brencourt Advisors in August 2008.
The Company expects interest expense to remain flat during the coming quarters.
Net Loss
Our net loss for the three months ended September 30, 2009 was $3,024,156 or $0.23 per share, an increase of $1,010,393 or approximately 50% compared to a net loss of $2,013,763 for the three months ended September 30, 2008. In addition to the year over year variances described above, the increase in net loss was primarily due to a loss in the three month period ending September 30, 2009 of $1,706,401 which was due to the change in value of the equity-linked financial instruments as mandated by ASC Accounting for Derivative Instruments and Hedging. (See Note 5 of the Notes to condensed consolidated financial statements, September 30, 2009 - Derivative Liabilities).
Results of Operations for the Nine Month Periods Ended September 30, 2009 and September 30, 2008
Revenue
We have not generated any revenues from operations from our inception.
Costs and Expenses
For the nine months ending September 30, 2009, Sales, General and Administrative expenses ("SG&A") were $2,408,251, a decrease of $1,263,001, or approximately 34%, compared to SG&A expenses of $3,671,252 during the nine months ended September 30, 2008, mostly due to lower costs for: research and development; consulting and professional fees; legal and accounting; non-cash compensation; and, and payroll and related expenses. For the nine months ended September 30, 2009, this amount consisted primarily of research and development costs of $482,584, payroll and related expenses of $741,300, legal and accounting fees of $534,121, consulting and professional fees of $217,011, insurance costs of $112,472, travel and entertainment expenses of $82,806, public relations and marketing expenses of $25,398 and facilities expenses of $70,721.
Financing Cost
Financing costs were $93,750 for the nine months ended September 30, 2009, a 37% decrease compared to financing costs of $148,125 during the nine months ended September 30, 2008. The decrease is primarily due to legal and associated closing costs for the Securities Purchase Agreements with YA Global incurred in the first nine months of 2008. Further, the Company deposited cash in the amount of $250,000 held in escrow pursuant to the Securities Purchase Agreements with YA Global Investments, L.P. that were entered into in January 2008 and June 2008, of which $175,000 was placed into escrow on January 3, 2008 and an additional $75,000 was placed into escrow on June 12, 2008. These funds are amortized on a straight-line basis over a 24 month period. Prior to December 31, 2008, these costs were captured in SG&A expenses.
The Company expects no significant increase to financing costs from current levels, during the coming twelve months.
Interest Expense (net)
Interest expense (net) was $1,608,880 for the nine months ended September 30, 2009, an increase of $1,298,600 or approximately 418% compared to interest expense of $310,280 for the nine months ended September 30, 2008. Interest expense increased during the nine months ended September 30, 2009 due to interest costs relating to the securities purchase agreement with YA Global Investments, L.P. in first quarter of 2008 and a subsequent securities purchase agreement with YA Global Investments in June 2008 and a securities purchase agreement with a group of funds represented by Brencourt Advisors in August 2008.
The Company expects interest expense to remain flat during the coming quarters.
Net Loss
Our net loss for the nine months ended September 30, 2009 was $7,193,842 or $0.55 per share, an increase of $3,064,185 or approximately 74% compared to a net loss of $4,129,657 for the nine months ended September 30, 2008. In addition to the year over year variances described above, the increase in net loss was primarily due to a loss in the nine month period ending September 30, 2009 of $3,082,961 which was due to the change in value of the equity-linked financial instruments as mandated by ASC Accounting for Derivative Instruments and Hedging. (See Note 5 of the Notes to condensed consolidated financial statements, September 30, 2009 - Derivative Liabilities).
Going Concern
Our independent certified public accountants have stated in their report included in our annual report on SEC Form 10-K filed with the Securities and Exchange Commission on March 31, 2009 and as amended on April 30, 2009 that we have incurred a net loss and negative cash flows from operations of $5,807,353 and $4,769,496, respectively, for the year ended December 31, 2008. This loss, in addition to a lack of operational history, raises substantial doubt about our ability to continue as a going concern. We currently have sufficient working capital to fund operations through December 2009. In the absence of significant revenue and profits, and since we do not expect to generate significant revenues in the foreseeable future, we, in order to fund future operations, will be completely dependent on additional debt and equity financing arrangements. There is no assurance that any financing will be sufficient to fund our capital expenditures, working capital and other cash requirements beyond December 2009. No assurance can be given that any such additional funding will be available or that, if available, can be obtained on terms favorable to us. If we are unable to raise needed funds on acceptable terms, we will not be able to develop or enhance our products, take advantage of future opportunities or respond to competitive pressures or unanticipated requirements. A material shortage of capital will require us to take drastic steps such as reducing our level of operations, disposing of selected assets or seeking an acquisition partner. If cash is insufficient, we will not be able to continue operations.
The Company expects losses to increase during the coming twelve months. The Company does not expect to begin to generate revenue in the coming twelve months, and our costs are likely to increase as continue our research and development efforts on our early, pre-clinical stage products and build out our corporate infrastructure.
Plan of Operations
We expect to continue to incur operating losses for the foreseeable future, primarily due to our continued research and development activities attributable to Radilex, Viprovex and any other proposed product, if any, derived from Homspera and general and administrative activities.
The preliminary results of our pre-clinical studies using Homspera, Radilex and Viprovex may not be indicative of results that will be obtained from subsequent studies or from more extensive trials. Further, our pre-clinical or clinical trials may not be successful, and we may not be able to obtain the required regulatory approvals in a timely fashion, or at all.
Product Research and Development
We incurred expenses of $134,164 and $482,584 for the three and nine month periods ended September 30, 2009 in research and development activities related to the development of Homspera, Radilex and Viprovex versus expenses of $361,773 and $788,145 for the three and nine months ended September 30, 2008. From our inception in October 2002, we have spent $3,339,301 on research and development activities. These costs only include the manufacture and delivery of our drug by third party manufacturers and payments to contract research organizations and consultants for consulting related to our studies and costs of performing such studies. Significant costs relating to research and development, such as compensation for Dr. Siegel, have been classified in officers' salaries for consistency of financial reporting.
We anticipate that during the next 12 months we will decrease our research and development spending to a total of approximately $500,000 in an effort to further develop Radilex and Viprovex. This research and development cost estimate includes additional animal pharmacology studies, formulation and animal safety/toxicity studies. If we receive additional funds, through investment funding, licensing agreements or grants, we expect we will increase our research and development spending above this level.
We believe that initial revenues, if any, will likely be generated through partnerships, alliances and/or licensing agreements with pharmaceutical or biotechnology companies. Our focus during the next 12 months will be to identify those companies which we believe may have an interest in our proposed products and attempt to negotiate arrangements for potential partnerships, alliances and/or licensing arrangements. Alliances between pharmaceutical and biotechnology companies can take a variety of organizational forms and involve many different payment structures such as upfront payments, milestone payments, equity injections and royalty payments. To date, we have not entered into discussions with and have no agreements or arrangements with any such companies. Even if we are successful in entering into such a partnership or alliance or licensing our technology, we anticipate that the earliest we may begin to generate revenues from operations would be calendar year 2010. There is no assurance that we will ever be successful in reaching such agreements or ever generate revenues from operations.
We will need to generate significant revenues from product sales and or related royalties and license agreements to achieve and maintain profitability. Through September 30, 2009, we had no revenues from any product sales, royalties or licensing fees, and have not achieved profitability on a quarterly or annual basis. Our ability to achieve profitability depends upon, among other things, our ability to develop products, obtain regulatory approval for products under development and enter into agreements for product development, manufacturing and commercialization. Moreover, we may never achieve significant revenues or profitable operations from the sale of any of our potential products or technologies.
If product development or approval does not occur as scheduled, our time to reach market will be lengthened and our costs will substantially increase. Additionally, we may be requested to expand our findings to gather additional data or we may not achieve the desired results. If so, we may have to design new protocols and conduct additional studies. This will increase our costs and delay the time to market for our potential products, if any. Any of these occurrences would have a material negative impact on our business and our liquidity as it may cause us to seek additional capital sooner than expected and allow our competitors to successfully enter the market ahead of us.
If we are successful in achieving desirable results for these applications, we intend to design the protocols and begin further studies for this and other applications, when capital is available. As we have only collected preliminary data and additional studies are required, we cannot predict when, if ever, a viable treatment for these indications can be commercialized. If we do not observe significant results or we lack the capital to further the development, we may abandon such research and development efforts; thereby limiting our future potential revenues.
If we are successful in completing our studies and the results are as we anticipate, we intend to prepare and submit the necessary documentation to the FDA and other regulatory agencies for approval. If approval for Homspera, Radilex and/or Viprovex is granted, we expect to begin efforts to commercialize our product, if any, immediately thereafter, however, since we are currently in the pre-clinical stage of development, it will take an indeterminate amount of time in development before we have a marketable drug, if ever.
Off-Balance Sheet Arrangements
There were no off-balance sheet arrangements as of September 30, 2009.
Liquidity and Capital Resources
At September 30, 2009, we had current assets of $868,996 consisting of cash and cash equivalents of $786,834, and prepaid assets and other current assets of $82,162. Also, at September 30, 2009, we had current liabilities of $2,453,366 consisting of accounts payable and accrued liabilities of $728,366, notes payable of $1,500,000 and redemption option liability of $225,000. This resulted in working capital deficit of $1,584,370. During the nine months ended September 30, 2009 and 2008, we used cash in operating activities of $2,369,892 and $3,735,098, respectively. From the date of inception (October 30, 2002) to September 30, 2009, we had a net loss of $28,490,998 and used cash of $15,589,368 in operating activities. We met our cash requirements from our inception (October 30, 2002) through September 30, 2009 via the private placement of $7,889,151 of our common stock and $8,573,628 from the issuance of notes payable, net of repayments.
We currently have no revenue. There is no guarantee that our business model will be successful, or that we will be able to generate sufficient revenue to fund future operations. As a result, we expect our operations to continue to use net cash, and that we will be required to seek additional debt or equity financings during the coming quarters. Since inception, we have financed our operations through debt and equity financing. While we have raised capital to meet our working capital and financing needs in the past, additional financing is required in order to meet our current and projected cash flow deficits from operations and development of our product line.
Since our inception, we have been seeking additional third-party funding. During such time, we have retained a number of different investment banking firms to assist us in locating available funding; however, we have not yet been successful in obtaining any of the long-term funding needed to make us into a commercially viable entity. During the period from October 2002 to September 30, 2009, we were able to obtain financing of $17,557,526 from the private placements of our securities (which resulted in net proceeds to us of $16,462,779). In January 2008 we sold $2 million in secured convertible debentures which resulted in net proceeds to us of $1,815,000. In June 2008 we sold an additional $1 million of the secured convertible debentures as per the terms of the securities purchase agreement with YA Global Investments L.P. In August 2008 we sold $5 million in secured convertible debentures to a group of funds managed by Brencourt Advisors LLP. Based on our current plan of operations all of our current funding is expected to be depleted by the end of December 2009. If we are not successful in generating sufficient liquidity from operations or in raising sufficient capital resources, it would have a material adverse effect on our business, results of operations, liquidity and financial condition.
Our registered independent certified public accountants have stated in their . . .
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