UNITED STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-K
ý ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2002
OR
o TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 000-25571
|
AXONYX INC. |
||
|
(Exact name of small business issuer in its charter) |
||
|
|
|
|
|
NEVADA |
|
86-0883978 |
|
(State or other
jurisdiction of |
|
(I.R.S. Employer |
|
|
|
|
|
500 Seventh Avenue, 10th Floor, New York, New York |
|
10018 |
|
(Address of principal executive offices) |
|
(Zip Code) |
|
|
|
|
|
Issuer’s telephone number, including area code (212) 645-7704 |
||
|
|
||
|
Securities registered under Section 12(b) of the Exchange Act: |
||
|
Title of each class |
|
Name of each exchange on which registered |
Securities registered under Section 12(g) of the Exchange Act:
COMMON STOCK $0.001 PAR VALUE
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o
Indicate by check mark whether registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). o Yes ý No
The registrant estimates that the aggregate market value of its Common Stock on March 25, 2003, based on the closing price shown on the Nasdaq SmallCap Market on that date, held by its non-affiliates was approximately $21,597,587.
The number of shares of Common Stock, par value $0.001, of the Registrant outstanding as of March 25, 2003, was 23,733,613 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Not applicable.
PART I
Item 1. Business.
TABLE OF CONTENTS
D. |
Competition |
E. |
Government Regulation |
F. |
Strategic Alliances |
G. |
Marketing and Sales |
H. |
Patents, Trademarks, and Copyrights |
I. |
Employees |
A. Axonyx – Introduction, Business Strategy
Axonyx is a biopharmaceutical company engaged in the business of acquiring and developing novel post-discovery central nervous system drug candidates, primarily in areas of memory and cognition. We acquire patent rights to central nervous system pharmaceutical compounds we believe may have significant potential market impact and work to advance the compounds through pre-clinical and clinical development towards regulatory approval. We have acquired worldwide exclusive patent rights to three main classes of therapeutic compounds designed for the treatment of Alzheimer’s disease (AD), Mild Cognitive Impairment, and related diseases. We have acquired patent rights to a class of potential therapeutic compounds designed for the treatment of prion related diseases, which are degenerative diseases of the brain that are thought to be caused by an infectious protein called a prion. Prion is a contraction of the descriptive term, proteinaceous infectious proteins. Prions, unlike viruses, bacteria and fungi, have no DNA and consist only of protein. Such diseases include Creutzfeldt Jakob Disease, new variant in humans, Bovine Spongiform Encephalopathy (BSE or Mad Cow Disease) in cows, and Scrapies disease in sheep. We licensed these patent rights from New York University and, via a sublicense, from the National Institutes of Health/National Institute on Aging. We also have co-inventorship rights to a therapeutic compound named Posiphen designed for the treatment of Alzheimer’s disease.
We out-source all of our preclinical and clinical research and development, utilizing contracting research organizations, or CROs, and sponsored research arrangements. We have contracted with several CROs to undertake the pre-clinical and clinical development of Phenserine. We have entered into a License Agreement with Applied Research Systems ARS Holding N.V. (ARS), a subsidiary of Serono International, S.A. (Serono), a Swiss biopharmaceutical company, under which ARS is undertaking research on certain of our licensed technologies. We received an up-front fee, and may receive milestone payments and royalties, under the License Agreement.
2
Our long term business strategy is to: (1) identify, acquire and exploit rights to new technologies and compounds relating to AD and other neurological disorders; (2) enhance the value of those assets through further out-sourced research and development, specifically preclinical and clinical testing towards regulatory approval; (3) market our drugs through licensing agreements with major pharmaceutical companies; and (4) work to develop promising compounds utilizing contract research organizations and collaborations with third parties, and through corporate ventures with companies such as Serono International, S.A., a subsidiary of which signed a License Agreement with Axonyx in September 2000.
Considering the commercialization infrastructure necessary to effectively market our drug products, we seek joint ventures or collaborations with other pharmaceutical companies, both domestically and outside the United States. We intend to develop other corporate partnerships with established and well capitalized pharmaceutical companies who will be responsible for all or part of the pre-clinical and/or clinical development of our compounds and for their potential production, commercialization and marketing. Under such arrangements, we expect to receive certain up-front and sub-licensing fees, milestone payments, and royalties on drug product sales. However, we cannot assure you we will be successful in establishing these relationships. We do not currently maintain any laboratory or research premises.
Our current business strategy is to concentrate our financial resources primarily on the further clinical development of Phenserine, an inhibitor of acetylcholinesterase, that is our lead drug candidate for the treatment of AD. Acetylcholinesterase is an enzyme in the synapse that degrades the neurotransmitter acetylcholine in the brain and other tissues of the body. Acetylcholine is a chemical substance that sends signals between nerve cells, called neurotransmission, and is therefore called a neurotransmitter. Neurotransmitters are secreted by neurons, or nerve cells, into the space between neurons called the synapse. Acetylcholine is a primary neurotransmitter in the brain, and is associated with memory and cognition.
We are planning to initiate a Phase IIb clinical trial that will evaluate the effects of Phenserine on the levels of beta-amyloid precursor protein and beta amyloid in the plasma and cerebrospinal fluid of AD patients. The beta amyloid protein is one of more than a dozen types of amyloid proteins found in the body. Beta amyloid is derived from the beta-amyloid precursor protein but normally present in the brain of healthy individuals in small quantities. Beta-amyloid, derived from the beta-amyloid precursor protein, is over-produced in AD and Down’s Syndrome. In AD, the beta-amyloid protein undergoes a conformational change, aggregates and is deposited as insoluble fibrils in amyloid plaques in the brain. The beta-amyloid precursor protein, known as beta-APP, is encoded on chromosome 21 and is present in the cell wall of numerous cells within the body including nerve cells of the brain. Beta-amyloid protein is derived from this larger protein. We are also planning to undertake a Phase III potentially pivotal clinical trial to further examine the safety and efficacy of Phenserine.
In addition to the Phenserine clinical program, we are sponsoring pre-clinical research relating to an assay method for screening drug candidates for Alzheimer’s disease. Pursuant to a sublicense agreement with ARS, ARS is undertaking research and development concerning the development of (1) compounds called Amyloid Inhibitory Peptides, or AIPs, which may prevent and reverse the formation of amyloid plaques in AD (amyloid plaques are amyloid proteins
3
involved in AD and other diseases of amyloidosis that aggregate into insoluble fibrils that are deposited in amyloid plaques in the brains of Alzheimer’s patients), and (2) a pharmaceutical compound for prion-related diseases. Given sufficient financial resources, we may, in the future, sponsor further pre-clinical development of Tolserine, another acetylcholinesterase inhibitor, one or more of our butyrylcholinesterase inhibitors, and initiate pre-clinical development of Posiphen, a compound that appears to decrease the formation of the beta-amyloid precursor protein with potential applications in the treatment of AD. Butyrylcholinesterase is an enzyme that is normally found widely in the body. Its function in the central nervous system remains to be fully understood. Amongst other roles, it degrades acetylcholine, a primary neurotransmitter in the brain. Butyrylcholinesterase is found in high concentration in the plaques taken from individuals who have died from AD. This enzyme also functions to degrade a number of drugs and natural products and is involved in their elimination from the body.
On May 2, 2000, ARS, a subsidiary of Serono, exercised its right to license certain of our patent rights under the Development Agreement and Right to License signed with us in May of 1999. Under that agreement, ARS paid us a $250,000 non-refundable fee for the right to license. Pursuant to the resulting License Agreement, which became effective on September 15, 2000, ARS acquired exclusive worldwide patent rights to our AIP and Prion Inhibitory Peptide, or PIP, technologies. Through the sublicense, Serono is conducting research and development work on the PIPs, designed for the diagnosis and treatment of prion diseases such as Bovine Spongiform Encephalopathy (also known as Mad Cow Disease) and the human form of the disease, Creutzfeldt Jakob Disease, new variant. In conjunction with the signing of the License Agreement with ARS, we generated $1.5 million of revenue in the form of an up-front license fee. We may generate additional revenues from ARS if they reach certain development milestones concerning the licensed compounds or other products and related intellectual property, although such milestone payments may not occur in fiscal year 2003 or at all. We cannot assure you that licensed compounds or products will reach any particular stage of development requiring a milestone payment, that licensed compounds or products will ever reach the market and give rise to royalty payments, or that additional revenues from patent licensing will be generated.
In December 2000 Axonyx incorporated Axonyx Europe BV, a wholly owned subsidiary, in the Netherlands. Gosse B. Bruinsma, M.D., currently the Chief Operating Officer and Treasurer of Axonyx, was appointed the President of Axonyx Europe BV. Axonyx Europe explores out-licensing opportunities for Axonyx’s licensed technologies in Europe and other areas outside the United States, facilitates communication with Axonyx’s European shareholders, and is assisting in organizing and administering our current and planned clinical research in Europe and future potential pre-clinical and clinical studies there. Axonyx Europe has established a Scientific Advisory Board to assist in clinical protocol design as well as the identification of novel CNS technology and products for potential licensing.
Our executive offices are located at 500 Seventh Avenue, 10th Floor, New York, New York 10018, telephone number (212) 645-7704. We also maintain offices at 1001 4th Avenue Plaza, Suite 3228, Seattle, Washington 98154, telephone number (206) 340-0211. Axonyx Europe BV has its registered office at Bilderdijkstraat 9, 2311 XD Leiden, The Netherlands, telephone number (31) 71 589 3463.
4
Axonyx’s fiscal year end is December 31.
Axonyx was incorporated in Nevada on July 29, 1997.
B. Axonyx Drug Development Programs
General
We are currently focusing on the clinical development of our lead acetylcholinesterase inhibitor, Phenserine. In addition, we are sponsoring pre-clinical research on an assay method for screening drug candidates for Alzheimer’s disease being developed at Monash University in Australia.
In the process of prioritizing our utilization of financial resources for drug development, we have decided not to exercise our option to acquire patent rights to Gilatide and related analog compounds, potential pharmaceutical compounds designed to enhance memory and cognition. Consequently, the sponsored research program at Thomas Jefferson University was terminated.
Through our sublicense with ARS, a subsidiary of Serono International, S.A., ARS is conducting research at Serono research facilities on compounds called Amyloid Inhibitory Peptides (AIPs) which may prevent and reverse the formation of amyloid plaques in AD. ARS, at Serono research facilities, is also conducting research on compounds called Prion Inhibitory Peptides (PIPs) designed for the diagnosis and treatment of prion diseases such as Bovine Spongiform Encephalopathy (also known as Mad Cow Disease) and the human form of the disease, Creutzfeldt Jakob Disease, new variant.
Given sufficient financial resources, we may, in the future, sponsor further pre-clinical development of: (1) one or more butyrylcholinesterase inhibitors which will be chosen from a series of selectively acting compounds, the best studied of which are Phenethylnorcymserine (PENC) and Bisnorcymserine, (2) Tolserine, another acetylcholinesterase inhibitor, and (3) initiate pre-clinical development of Posiphen, a compound that appears to decrease the formation of the beta-amyloid precursor protein with potential applications in the treatment of AD.
Each of the AD-targeted classes of compounds in our portfolio has a different therapeutic mechanism of action and represents innovative platform technology from which additional potential therapeutic and diagnostic agents could be developed.
5
Our AD-targeted approaches include the following, which are described in more detail below:
(1) Phenserine, an inhibitor of acetylcholinesterase and beta-amyloid precursor protein, our lead drug candidate, and Tolserine, another follow-on acetylcholinesterase inhibitor;
(2) a butyrylcholinesterase inhibitor which will be chosen from a series of selectively acting compounds;
(3) Posiphen, a compound that decreases the formation of beta-amyloid precursor protein;
(4) through our sublicense with ARS, a subsidiary of Serono, compounds called Amyloid Inhibitory Peptides (AIPs) which may prevent and reverse the formation of amyloid plaques in AD.
Despite the fact that we cannot assure you that the technologies and pharmaceutical compounds that we are developing will ultimately prove to be profitable, we will be required to continue to spend substantial capital on research and development in the foreseeable future in order to enhance our proprietary pharmaceutical portfolio, and to seek to acquire new potential products. New technologies and/or pharmaceutical compounds in the field of AD, Mild Cognitive Impairment, related diseases associated with cognitive impairment, and prion related diseases by other entities could adversely affect the future marketability of our proprietary products. Consequently, we will need to continue our funding of research and development of new technologies and pharmaceutical compounds in order to remain competitive. In fiscal years 2000, 2001 and 2002, we spent $1,635,000, $3,298,000, and $2,610,000 respectively, on sponsored and contract research and development activities associated with our technologies and pharmaceutical compounds.
Alzheimer’s Disease Overview
Alzheimer’s disease is a degenerative brain disease that, with individual variations, advances from memory lapses to confusion, personality and behavior changes, communication problems and impaired judgment. Over time, AD patients become increasingly unable to care for themselves, and the disease eventually leads to death. It is estimated that more than 4 million Americans and 12 million people worldwide suffer from AD. Risk factors for the disease include age and family history. According to the Alzheimer’s Association, the disease affects one in 10 persons over 65 and half of those over 85 years old are affected by the disease.
While scientists are not completely certain of the specific causes of Alzheimer’s, scientific discoveries have identified important hallmarks of the disease. Two schools of thought in the scientific community have been historically divided between those that believe that the neurofibrillary tangles composed of tau protein within the nerve cells are responsible for the disease and those that believe that the senile plaques composed of beta-amyloid protein are the cause. Both neurofibrillary tangles within brain nerve cells and extracellular senile plaques in the cholinergic pathways of the brain have been linked to the death of nerve cells in AD patients. Recent research indicates that a disruption or an abnormality in beta-amyloid metabolism and the formation of amyloid plaques are most likely to be the primary causes of AD.
6
According to the most widely accepted theory concerning the cause of AD, there are two important events leading to the formation of beta-amyloid plaques. The first event involves the abnormal processing of the beta-amyloid precursor protein (beta-APP). In AD, beta-APP is sequentially cleaved into pieces by two enzymes, creating protein fragments, one of which is the beta-amyloid peptide. The second key event is the conversion of beta-amyloid into insoluble beta-sheets that aggregate to form insoluble fibrous masses (fibrils). These fibrils are deposited as part of the neurotoxic amyloid plaques that appear to cause the death of neurons in the brain. The beta-amyloid protein is a protein normally found in the brain that is over-produced in AD and is considered the toxic agent responsible for neuronal cell death. There are a number of strategies for preventing the formation of these amyloid plaques: (1) preventing the formation of beta-amyloid through the inhibition of the processing of its parent molecule, beta - APP, (2) inhibiting the enzymes that cleave the beta-APP, (3) removing beta-amyloid from the brain or preventing its aggregation into plaques, and (4) the dis-assembly of the existing amyloid plaques.
Alzheimer’s disease is characterized by increasing cognitive impairment and progressive loss of memory. These impairments are caused, over time, by a loss of neurons of the cholinergic system of the brain and a loss of cortically-projecting neurons that connect the mid-brain with the cortical areas in the forebrain, particularly affecting brain areas associated with memory and learning. The cholinergic system is also called the parasympathetic nervous system; it is involved in nerve transmission related tomemory and cognition, as well as the involuntary functioning of major organs such as the heart, lungs and gastrointestinal system. Cortically-projecting neurons are the nerve cells that connect the mid-brain to the cortical areas in the front part of the brain where nerve cells involved in memory and cognition are concentrated. In AD, the loss of these connecting nerve cells result in a reduction in the amount of the neurotransmitter acetylcholine, and the loss of mental capacity or cognition.
Under normal healthy conditions, the neurotransmitter acetylcholine is produced by cholinergic neurons and released to carry messages to other cells, then broken down for reuse. The production and transmission of signals across neurons by acetylcholine is responsible, at least in part, for our memory, learning and cognitive functions. Having caused a signal to be passed from one neuron to the next, acetylcholine is subsequently broken down by an enzyme called acetylcholinesterase. In AD, the loss of these cholinergic neurons results in the decreased synthesis and availability of acetylcholine. By inhibiting acetylcholinesterase, the amount of available acetylcholine to carry messages between surviving neurons is increased, leading to improvements in memory and cognition.
Recent research suggests that for specific nerve pathways within the brain of AD patients the presence of the enzyme butyrylcholinesterase increases relative to acetylcholinesterase. Normally these two enzymes coexist throughout the body, with acetylcholinesterase predominating in degrading acetylcholine. Butyrylcholinesterase is additionally found in many other body tissues and functions to degrade a number of drugs such as codeine. In the brain of AD patients, as acetylcholinesterase levels gradually fall there is a parallel increase in butyrylcholinesterase levels in specific nerve pathways within the cortex and the hippocampus, areas associated with AD. Like acetylcholinesterase, butyrylcholinesterase degrades acetylcholine at the synaptic gap between neurons, decreasing the availability of this key
7
neurotransmitter. Research in cell culture studies indicates that the increase in butyrylcholinesterase activity amplifies the toxicity of beta amyloid. This enzyme was identified as a target for inhibition in AD as it also terminates the action of the neurotransmitter acetylcholine in specific nerve pathways in regions of the brain associated with AD and is found in high concentration in amyloid plaques in the brains of AD patients.
The treatment of people with AD is a multi billion-dollar industry in the United States alone and constitutes an extremely large and continually expanding potential market with an unmet therapeutic need. Currently there are four drugs that have beenapproved in the United States that provide at best marginal symptomatic relief for one aspect of AD, inhibition of acetylcholinesterase: Cognex® (developed by Warner Lambert), Aricept® (Pfizer and Eisai), Exelon® (Novartis) and Reminyl® (Johnson & Johnson). One of the Axonyx compounds, Phenserine, an acetylcholinesterase inhibitor, has shown in preclinical and clinical studies a therapeutic and safety profile potentially superior to Aricept®, the leading product currently on the market. Unlike Aricept, Phenserine has demonstrated, in pre-clinical testing utilizing transgenic mice, the ability to inhibit the formation of beta-APP and to reduce levels of the beta-amyloid peptide, the primary component of amyloid plaques. In data from Phase II clinical trials, Phenserine showed that the incidence of adverse events in mild to moderate AD patients on their maintenance dose of Phenserine was generally less than Aricept (based on the FDA approved patient packaging insert for Aricept). Axonyx’s butyrylcholinesterase inhibitor drug candidates attack the disease in other potentially effective ways, representing a potentially new platform technology for the treatment of AD.
Given the complexity of the disease, and uncertainty concerning the specific mechanisms causing AD, it appears likely that a “cocktail approach” to treating the disease will be utilized in the future. We believe that safe and effective drugs could be prescribed together in order to attack the disease from different approaches.
In addition to inhibiting key enzymes associated with the neural transmission of acetylcholine in preclinical studies conducted by the NIA, the acetylcholinesterase inhibitor Phenserine and our butyrylcholinesterase inhibitors appear to have the ability to inhibit the formation of beta-APP and to reduce levels of the beta-amyloid peptide, the primary component of amyloid plaques. In animal studies, both types of compounds have been shown to improve cognitive performance.
Phenserine: An Inhibitor of Acetylcholinesterase and Beta-Amyloid Precursor Protein (Beta-APP) Formation
Our most advanced compound, Phenserine, is designed to selectively inhibit acetylcholinesterase, the enzyme primarily responsible for degrading acetylcholine at the synaptic gap between neurons, thus increasing the availability of this neurotransmitter. Phenserine has been shown to be a potent and selective inhibitor of this enzyme in the rat brain and increases memory and learning over a wide therapeutic range in aged rats without causing toxic side effects. The compound readily enters the brain, has minimal activity in other organs outside the brain, and has a long duration of action. In preclinical studies, Phenserine was shown to have a brain to blood ratio of 10:1. Increasing the concentration of the active drug agent in the
8
brain versus the rest of the body maximizes the effects of the drug while potentially reducing peripherally mediated side effects.
Phenserine also has the unusual ability to inhibit the formation of the beta-amyloid precursor protein (beta-APP), a large protein that is the source of the neurotoxic peptide, beta amyloid. By inhibiting the formation of beta-APP, Phenserine can decrease the presence of the soluble beta amyloid protein that is potentially deposited in the brain as amyloid plaques, apparently causing eventual neuronal cell death. These studies were conducted at laboratories at the NIA in human neuroblastoma cell cultures and in vivo in rodents. Studies in human neuroblastoma cell lines showed that the compound reduces the formation of beta-amyloid peptide. Neuroblastoma cell cultures are a type of cell derived from the human brain that can be grown in containers in the lab (in vitro) where they are able to reproduce and carry out many activities as if they were residing in the brain, including the synthesis and secretion of proteins such as the beta-amyloid protein which, in the human brain, can form plaques. A neuroblastoma cell culture is used to study brain cell function in a simple in vitro system, which allows testing of the ability of drugs to prevent the formation of the beta-amyloid precursor protein and secretion of beta amyloid. Additional animal studies using the transgenic mouse have confirmed these findings. The transgenic mouse is a bio-engineered animal that mimics hallmark pathologic changes that occur in the human AD brain. These results suggest that Phenserine may have the ability to slow the progression of AD in addition to providing symptomatic relief for the cognitive changes.
In December 1999, we initiated Phase I human clinical trials for Phenserine utilizing healthy elderly patients at a U.S. research center. These Phase I safety and tolerance trials involving both single and multiple dosing were successfully completed in September 2000.
In October 2001, we completed a Phase II proof-of-concept clinical trial with Phenserine utilizing AD patients. This Phase II proof-of-concept trial was designed to determine the drug’s safety and possibly a trend toward efficacy in patients exhibiting mild to moderate AD. The trial included 72 patients, with 48 patients receiving two daily doses of the drug and 24 patients received a placebo. The safety results from the trial substantiated Phase I results indicating that the drug is safe and well tolerated. There was a low incidence of side effects associated with the digestive tract, with 8.5% of patients receiving the drug reporting nausea and 2.1% reporting vomiting. Dizziness, reported by 17% of the patients receiving the larger dose of the drug, was the side effect reported most often. Although the trial was not of the duration necessary and did not include the number of patients required to detect statistically significant clinical improvement in efficacy, nevertheless certain memory tests showed statistically significant results while other tests showed a trend towards statistical significance.
We anticipate initiating two related Phenserine clinical trials in 2003. The first is a randomized placebo-controlled double-blind Phase IIb trial that will evaluate the effects of two different dosages of Phenserine given for a six month period on the levels of the beta-amyloid precursor protein (beta-APP) and beta amyloid in the plasma and cerebrospinal fluid of 75 mild to moderate Alzheimer’s disease patients. This Phase IIb trial is intended to substantiate in vitro and in vivo preclinical data that has consistently shown that Phenserine can reduce the levels of beta-APP and beta amyloid, and differentiate Phenserine from the acetylcholinesterase inhibitors
9
currently on the market. It is believed by many that one of the key underlying pathological processes in Alzheimer’s disease is associated with the amyloid cascade and inhibition of this process could potentially modify Alzheimer’s disease progression. Patients in this trial will also undergo testing with the standard memory and cognition tests recommended by the United States FDA and European regulatory authorities. As the protocol for this Phase IIb trial includes examining the safety and efficacy of two dosages of Phenserine over a six month period, it will be part of the planned Phase III clinical trial for Phenserine described below. This Phase IIb trial, to be undertaken at several facilities in Europe, is anticipated to be initiated in the second quarter of 2003. We have contracted with JSW Research, an Austrian contracting research organization to undertake this trial. Other CROs will provide program management, program quality assurance and quality control service, manage and analyze the data associated with this clinical trial program.
Based on the encouraging Phase II clinical results, we believe that a Phase III development program is warranted. In preparation for Phase III clinical trials, we are completing pre-clinical tests on the final drug formulation of Phenserine, undertaking the scale up of production of the final formulation to meet NDA manufacturing and commercialization requirements, finalizing drug stability studies, and designing the protocols for the Phase III clinical trial program, which will be submitted to U.S. and European regulatory authorities. We have contracted with contracting research organizations to complete this work. NOTOX Safety and Environmental Research B.V. of Holland has been awarded an approximately $1.25 million contract to conduct a pre-clinical carcinogenicity study, that began in October 2002, and is expected to be completed in the first quarter of 2005. Other CROs are conducting Phase I clinical bioavailability trials expected to be completed in May 2003, and shelf life testing on the final formulation of Phenserine. During 2002, Rhodia Chirex, an active pharmaceutical ingredient, or API, manufacturer, was engaged to develop and manufacture Phenserine drug product.
The second trial that we are currently planning is designed to potentially be one of the pivotal Phase III trials for the NDA submission in the USA and its equivalent in Europe. This randomized double-blind placebo-controlled trial will be conducted at multiple centers throughout Europe. It will examine the safety and efficacy of two dosages of Phenserine given for a six-month period in mild to moderate Alzheimer’s disease patients. The ability of Phenserine to improve memory and cognition will be measured by the standard ADAS-cog and CIBIC-plus efficacy endpoints, which are recommended by the FDA as well as the ADCS-ADL to meet European regulatory requirements. This Phase III trial will recruit up to 375 patients (including the 75 patients from the Phase IIb trial above). It is expected that JSW Research would also undertake the running of this clinical trial for us, with other CROs providing the program management and program quality assurance and quality control service, data management and analysis with regard to the clinical trial. We anticipate initiating this clinical trial in the second quarter of 2003.
The biological and safety profile of Phenserine based on preclinical and clinical data suggests that this drug candidate should be considered for treatment of individuals with mild cognitive impairment and for age associated memory impairment. We intend to explore the opportunities for developing Phenserine for these indications if the ongoing human clinical
10
trials continue to generate results that are consistent with the preclinical findings. The other compounds in our portfolio may also be considered for treatment of mild cognitive impairment and related indications if they show the necessary efficacy and tolerability profile.
Sponsored Research Program: Alzheimer’s Disease Assay Method Development Program
Effective September 1, 2002, we entered into a Research Agreement and a Consulting Agreement with David Henry Small, Ph.D., and an Intellectual Property Assignment Agreement with David Henry Small, Ph.D., Marie-Isabel Aquilar, Ph.D., Supundi Subasinghe (“Assignment Agreement”). Each of these agreements relate to the development of an assay method for the rapid screening of potential drug candidates for the treatment of Alzheimer’s Disease. The Research Agreement funds a research project concerning further development of the assay method under the guidance of Dr. Small for a three year period commencing October 1, 2002, for Australian $90,000 per year. The research project pursuant to the Research Agreement is being undertaken by Dr. Small at Monash University in Clayton, Australia.
Under the Assignment Agreement Dr. Small and two other co-inventors have assigned a patent application concerning the assay method in return for revenue sharing upon commercialization of the assay method. Under the Consulting Agreement with Dr. Small, we engaged Dr. Small for a three year period for Australian $20,000 per year and a grant of stock options for consulting services related to the development of the assay method.
The assay method that is the subject of the patent application and the sponsored research project is a process targeted at identifying early biochemical events associated with beta-amyloid toxicity. The accumulation of beta-amyloid in the brain is one of the key biochemical events in Alzheimer’s disease. Dr. Small’s research with this process confirmed the central role of beta-amyloid binding as a key pathological event in nerve cell membrane damage. Data from pre-clinical in vitro studies undertaken in Dr. Small’s laboratory has shown that there is a strong correlation between the binding of beta-amyloid to cell membranes and the resulting cell damage. The assay method process is based on a technique known as “surface plasmon resonance”. The assay method can be used to further the discovery of potential Alzheimer’s disease drug candidates that have a specific action on the damage caused by beta-amyloid.
Other Compounds in the Axonyx Drug Portfolio
There are other potential pharmaceutical compounds that we have patents rights to that may be further developed in the future, given sufficient financial resources.
Other Acetylcholinesterase Inhibitors
We are assessing the properties of other potent inhibitors of acetylcholinesterase such as Tolserine, that may ultimately prove to have certain additional advantages for use in AD, and Thiatolserine, a compound which has characteristics that may be suitable for development as a transdermal agent, one that is absorbed through a patch placed on the skin.
11
Inhibitors of Butyrylcholinesterase and Beta-Amyloid Precursor Protein (Beta-APP) Formation
Our butyrylcholinesterase inhibitor compounds are designed to selectively inhibit butyrylcholinesterase, an enzyme similar to acetylcholinesterase. Normally these two enzymes coexist throughout the body, with acetylcholinesterase predominating in degrading acetylcholine. In the brain of AD patients, as acetylcholinesterase levels gradually fall, there is a concomitant increase in burytylcholinesterase levels in specific nerve pathways within the cortex and the hippocampus, areas associated with AD. Like acetycholinesterase, butyrylcholinesterase degrades acetylcholine at the synaptic gap between neurons, decreasing the availability of this key neurotransmitter. Research indicates that the increase in butyrylcholinesterase activity in the brains of AD patients amplifies the toxicity of beta amyloid. This enzyme was identified as a target for inhibition in AD as it also terminates the action of the neurotransmitter acetylcholine in specific nerve pathways in regions of the brain associated with AD and is found in high concentration in amyloid plaques in the brains of AD patients. Our butyrylcholinesterase inhibitor compounds act to counter butyrylcholinesterase, thus enhancing the availability of acetylcholine, improving memory and cognition. Inhibition of butyrylcholinesterase may also reduce any increased toxicity of beta amyloid caused by the presence of butyrylcholinesterase in amyloid plaques.
Several of the butyrylcholinesterase inhibitor drug candidates in our drug portfolio, including Cymserine, Phenethylnorcymserine (PENC) and Bisnorcymserine, have been studied extensively in preclinical studies and have been found to have many of the characteristics desirable for use in AD. Like Phenserine, these compounds have a dual mechanism of action in that, in addition to inhibiting the butyrylcholinesterase enzyme, they also inhibit the formation of beta-APP in cell culture, and in rats. These preclinical findings indicate that these butyrylcholinesterase inhibitor compounds may have an important role in preventing the formation of amyloid plaques in AD, in addition to its inhibition of butyrylcholinesterase. The compounds readily enter the brain, they have a long duration of action and are highly active in improving memory and learning in the aged rat. If we have sufficient resources in the future, we will select one of these butyrylcholinesterase inhibitor compounds for development based on the strength of their patent protection and the relative advantages of the compounds in preclinical studies. Currently it appears that Bisnorcymserine has several advantages over the other compounds in preclinical results. Bisnorcymserine appears to be the most potent butyrylcholinesterase inhibitors in our patent portfolio, has a 100-fold selectivity over acetylcholinesterase, behavoiral work shows it to improve memory in rodent models, and it reduces beta-APP in tissue cultures. Bisnorcymserine has three potential uses: (1) as an inhibitor of butyrylcholinesterase, (2) as an inhibitor of the production of beta-APP, thus inhibiting the formation of amyloid plaques, and (3) as an early diagnostic marker. Using PENC, we have successfully developed a manufacturing process that could serve as a model for the scale up process to produce sufficient quantities of Bisnorcymserine for further preclinical studies.
12
Posiphen
On March 22, 2002, we filed a provisional patent application resulting from a collaboration between Gosse B. Bruinsma, M.D. of Axonyx and Dr. Nigel Greig of the NIH/NIA, on a co-inventorship basis, covering a method for treating patients with Alzheimer’s disease and other cognitive disorders with Posiphen, a potential pharmaceutical compound that is the positive isomer of Phenserine. Posiphen, unlike Phenserine, is not an acetylcholinesterase inhibitor. Posiphen’s mechanism of action results in decreases in the formation of the beta-amyloid precursor protein through RNA translational inhibition We own this patent application jointly with the NIH\NIA. Depending on the availability of financial resources, we may pursue pre-clinical testing of Posiphen.
C. Out-Licensed Technology
We signed a License Agreement with Applied Research Systems ARS Holding N.V. (ARS), a wholly owned subsidiary of Serono International, S.A. (Serono) effective September 15, 2000. Serono is a Swiss-based biotechnology company listed on the NYSE. Under the License Agreement, we granted an exclusive, worldwide sublicense of our patent rights and know-how regarding the development and marketing of the Amyloid Inhibitory Peptide and the Prion Inhibitory Peptide technology, the licensed products, to ARS. We will receive milestone payments upon the occurrence of certain events in the development of the Licensed Products and royalty payments upon the sale of products resulting from the licensed technology. In addition, ARS paid us a nonrefundable and noncreditable up-front license fee in the amount of $1.5 million. We could receive milestone payments from ARS in an aggregate amount of $14 million if the licensed product involved is a patented product covered by the sub-licensed patents and patent applications achieve health registration approval. The amount of aggregate milestone payments through health registration approval would be $7 million if the licensed product involved was developed by Serono during the term of our Development Agreement with ARS.
Amyloid Inhibitory Peptides (AIPs)
In Alzheimer’s disease the conversion of beta-amyloid protein into insoluble beta-sheets that aggregate to form insoluble fibrous masses (fibrils) is a key event that leads eventually to neuronal cell death in the brains of AD patients. These fibrils are deposited as part of the neurotoxic amyloid plaques that appear to cause the death of neurons in the brain. The beta-amyloid protein is a protein normally found in the brain that is over-produced in Alzheimer’s disease.
The AIPs, also referred to as beta-sheet breaker peptides, have been designed to block the aggregation of beta-amyloid in a competitive manner by binding to the beta-sheet form of the amyloid protein, thus preventing the formation of amyloid plaques in the brain. The beta-sheet breaker peptide is a molecule composed of naturally occurring amino acids, the building blocks of proteins, that is designed to bind to and prevent the conversion of the normal form of protein to the misshapen form that forms plaques.
In experiments in vitro and in vivo at labs at NYU with one of the AIPs, the compound inhibited the formation of amyloid fibrils, caused disassembly of preformed fibrils and prevented neuronal cell death in cell culture. In a rat model of amyloidosis, an AIP reduced beta-amyloid
13
protein deposition and significantly blocked the formation of amyloid fibrils. In addition, one of the AIPs has been shown to cause a significant reduction of established amyloid deposits in the brains of rats. These results indicate the potential for a drug based on the AIP technology to prevent the formation of the amyloid plaques, and to treat AD patients who already have amyloid plaques. Thus, the AIPs may not only prevent the formation of amyloid plaques in but also disassemble existing amyloid plaques.
Ongoing preclinical development of compounds based on the AIPs is being undertaken by ARS, through Serono, at the Serono Pharmaceutical Research Institute in Geneva, Switzerland. Scientists at Serono are developing a formulation of the AIP compound which are expected to enter human clinical trials in 2003.
Prion Inhibitory Peptides (PIPs)
There is increasing evidence that prions are the infectious agents that cause Bovine Spongiform Encephalopathy (BSE), Creutzfeldt-Jakob Disease, new variant (nvCJD) and possibly other prion-related diseases. These diseases have caused grave concern in Europe and the U.S. because of the potential for their transmission to humans through the meat supply. These fatal neurodegenerative disorders are characterized by spongiform degeneration of the brain and, in many cases, by deposits of prions into plaques. The infectivity of prions is believed to be associated with an abnormal folding of the prion protein. This folding involves a conversion of the alpha-helical form to the beta-sheet form that can be deposited in plaques in the brain.
ARS, through its sublicense with Axonyx, is developing, at Serono facilities, a series of Prion Inhibitory Peptides, or PIPs, that interact in vitro with the normal form of the prion to prevent its conversion to the abnormal form, and to interact with the abnormal form to cause it to revert to a normal prion. In earlier research at NYU, incubation of the PIPs with toxic prions taken from BSE and nvCJD infected cows caused a reversion of the toxic prions to the normal form. These findings suggest a strategy for designing diagnostics and therapeutic treatments for prion related diseases.
Ongoing preclinical development of compounds based on the PIPs is being undertaken by ARS, through Serono, at the Serono Pharmaceutical Research Institute in Geneva, Switzerland.
D. Competition
We compete with many large pharmaceutical companies that are developing and marketing drug compounds similar to those being developed by us, especially in the area of acetylcholinesterase inhibitors. Many large pharmaceutical companies and smaller biotechnology companies have well funded research departments concentrating on therapeutic approaches to AD. We expect substantial competition from these companies as they develop different and/or novel approaches to the treatment of AD. Some of these approaches may directly compete with the compounds that we are currently or are considering developing.
14
In the intense competitive environment that is the pharmaceutical industry, those companies that complete clinical trials, obtain regulatory approval and commercialize their drug products first will enjoy competitive advantages. We believe that the compounds covered by our patent rights have characteristics that may enable them, if fully developed, to have a market impact.
A number of major pharmaceutical companies have programs to develop drugs for the treatment of Alzheimer’s disease. Many of these drugs are acetylcholinesterase inhibitors. Warner-Lambert (Cognex®), Eisai/Pfizer (Aricept®), Novartis (Exelon®) and, most recently, Johnson & Johnson (Reminyl®), have marketed compounds of this type in the United States. Cognex® was effectively removed from the market in 1998 due to severe side effects and Aricept currently dominates the market with over $1 billion in U.S. sales in 2002. Several other pharmaceutical companies have acetylcholinesterase inhibitors in human clinical trials.
Two biotechnology companies have drugs in clinical trials that are based on a beta-amyloid approach to the treatment of AD. In addition, two small biotechnology companies appear to be pursuing preclinical studies on the amyloid inhibitory peptide approach similar in scope and direction as that of our sub-licensee Serono. Another company is developing ways to inhibit plaque deposition by interfering with the transporter molecules that carry beta-amyloid from the cell membrane, where it is produced from APP, to the cell exterior where the amyloid plaques are formed. Several pharmaceutical companies are working on compounds designed to block the secretase enzymes involved in beta-APP processing. Elan Pharmaceuticals, the California based subsidiary of the Elan Corporation of Dublin, Ireland, has developed a vaccine designed to cause the immune system to mount antibodies against the amyloid proteins that make up amyloid plaques. This vaccine showed efficacy in genetically altered mice but Phase II human clinical trials were suspended by Elan due to the incidence of side effects in some patients.
In the area of butyrylcholinesterase inhibition, Novartis’ drug Exelon® is a dual inhibitor of both acetylcholinesterase and butyrylcholinesterase.
Many other pharmaceutical companies are developing pharmaceutical compounds for the treatment of AD or other memory or cognition impairments based on other therapeutic approaches to the disease. These drugs could become competitors for, or have additive, synergistic clinical effects with one or more of our AD targeted drug candidates. Examples of those competitive approaches include pharmaceutical compounds designed to stimulate glutamate receptors involved in memory and learning, target nicotinic and muscarinic receptors to increase the release of certain neurotransmitters, activate nerve regeneration, magnify the signals reaching aging neurons from other brain cells, and to modulate GABA (a neurotransmitter) receptors.
In the field of prions, and prion-related diseases, one company, Prionics, A.G., of Zurich, Switzerland, has a diagnostic test for animal use that is approved in Europe. Prionics is also researching the treatment of nvCJD in humans. Two other companies have veterinary diagnostic tests for Bovine Spongiform Encephalopathy (BSE) approved in the European Union and two additional companies are developing such diagnostic tests.
15
E. Government Regulation
Regulation by governmental authorities in the United States and foreign countries is an important factor in the development, manufacture and marketing of our proposed products. It is expected that all of our products will require regulatory approval by governmental agencies prior to their commercialization. Human therapeutic products are subject to rigorous preclinical and clinical testing and other approval procedures by the Food and Drug Administration (FDA) and similar regulatory agencies in foreign countries.
Preclinical testing is conducted on animals in the laboratory to evaluate the potential efficacy and the safety of a potential pharmaceutical product. The results of these studies are submitted to the FDA as a part of an Investigational New Drug (IND) application, which must be approved before clinical testing in humans can begin. Typically, the clinical evaluation process involves three phases. In Phase I, clinical trials are conducted with a small number of human subjects to determine the early safety profile, the pattern of drug distribution and metabolism. In Phase II, clinical trials are conducted with groups of patients afflicted with a specific disease to determine preliminary evidence of efficacy, the optimal dosages, and more extensive evidence of safety. In Phase III, large scale, multi-center, comparative clinical trials are conducted with patients afflicted with a target disease in order to provide enough data to demonstrate the efficacy and safety required by the FDA.
The FDA requires that all pre-clinical and clinical testing, as well as manufacturing of drug product, meet certain Good Practices guidelines, including Good Manufacturing Processes, Good Laboratory Practices and Good Clinical Practices. These guidelines are designed to ensure formal training, standard operating procedures, independent performance checks and measures, the accuracy, consistency, validity and completeness of the particular activity. In our case, contracting research organizations, or CROs, and academic or other sponsored research laboratories that we utilize for our pre-clinical and clinical research, as well as API, or active pharmaceutical ingredient manufacturing of pure drug product, must comply with these guidelines. Our contracted manufacturers, sponsored research labs and CROs undertake to adhere to Good Manufacturing Processes, Good Laboratory Practices and Good Clinical Practices. We select only CROs that have a record of adherence to those standards and have internal quality assurance and control functions in place to ensure such adherence. However, no assurance can be given that these CROs will in fact completely adhere to the relevant standards in their work for us.
The results of the preclinical and clinical testing are submitted to the FDA in the form of a New Drug Application (NDA) for approval to commence commercial sales. In responding to an NDA, the FDA may grant marketing approval, request additional information, or deny the application if the FDA determines that the application does not satisfy its regulatory approval criteria. We cannot assure you that approvals will be granted on a timely basis, if at all. Similar regulatory procedures are in place in countries outside the United States.
In October 2001, we completed a Phase II proof of concept human clinical trial with Phenserine utilizing AD patients at five sites in the United States. The only drug for which we
16
have filed an IND is Phenserine. Our butyrylcholinesterase inhibitor program is in preclinical development. The AIP product development is under the direction of Serono, through our arrangements with their subsidiary ARS, who has indicated that they may begin human testing in 2003.
F. Strategic Alliances
New York University
On April 1, 1997 we entered into a Research and License Agreement with New York University pursuant to which NYU granted us an exclusive worldwide license to certain patent applications covering AIPs, PIPs and related technology, and any inventions that arose out of the research project funded by us. Aggregate milestone payments under the agreement total $525,000, with an aggregate of $175,000 payable upon achieving two clinical and regulatory milestones for each of one Alzheimer’s disease treatment product, one prion treatment product and one neuro-imaging product. We must pay minimum annual royalty payments to NYU in the amount of $150,000 per year beginning in 2004, through the expiration or termination of the agreement. We also undertook to comply with a development plan annexed to the agreement, that contains deadlines by which we or our sublicensee is to achieve certain development milestones, including commencing clinical trials, for an AIP and PIP compound.
Under the Research and License Agreement, we are obligated to pay all patent filing, prosecution and maintenance costs. In addition, we paid NYU $25,000 upon signing the agreement in connection with patent expenses incurred prior to the signing of the agreement. We have the right to bring suit against any third party infringers and are responsible for all of our costs and expenses or those of NYU incurred in conjunction with such suit. If we are rewarded a recovery in our suit against a third party infringer, we may utilize such recovery to pay for our costs and expenses in bringing such action, and we must pay NYU a portion of any excess recovery over such costs and expenses. If we choose not to bring such a suit, and NYU exercises its right to do so, NYU will pay the costs and expenses of such a suit against a third party infringer. NYU has the right to reimburse itself for costs and expenses incurred in such a suit out of any sums recovered, and will pay us fifty percent of the amount of such recovery in excess of NYU’s costs and expenses.
We issued an aggregate of 600,000 shares of common stock to NYU and two scientists involved in the research upon signing of the agreement. These 600,000 shares of common stock had a fair market value of $240,000 when they were issued. In addition, we granted additional shares of common stock to NYU and the two scientists pursuant to certain anti-dilution relative to the shares issuance at a price of $0.001 per share. We issued an aggregate of 317,369 shares of common stock to NYU and the two scientists in 2000. We recorded accounting charges of $1,965,000 for the fair market value of 305,074 of the 317,369 shares deemed issued in 1999 and recorded accounting charges of $138,000 for the fair market value of final tranche of 12,295 shares issued in 2000 to complete the shares issuances to NYU and the two scientists.
In addition to royalties on future sales of products developed from the patented technologies, milestone payments and patent filing and prosecution costs, we undertook to fund
17
four years of research at the NYU School of Medicine at Dr. Frangione’s laboratory at a cost of $300,000 per year. That obligation ceased in the Fall of 2001, after we had paid an aggregate of $1,200,000. Under the agreement with NYU, we received an exclusive license to all inventions in the field arising from this research on the AIPs and PIPs. We did not receive notice from NYU that any inventions in the field arose out of the research project on the AIPs and PIPs.
The patent license terminates, on a country-by-country basis, upon expiration of the last to expire of the licensed patents (June 2015 for the United States) or eight years from the date of first commercial sale of a licensed product in such country, whichever is later. Either party can terminate the Research and License Agreement if the other party materially breaches or defaults in the performance or observance of any of the provisions of the agreement and such breach or default is not cured within 60 days or, in the case of failure to pay any amounts due under the agreement, within 30 days after giving notice by the other party specifying such breach or default, or automatically and without further action if either NYU or Axonyx discontinues its business or becomes insolvent or bankrupt. Upon termination of the agreement all rights in and to the covered patent rights shall revert to NYU and we will not be entitled to impinge on such patent rights. Termination of the agreement would not relieve either party of any obligation to the other party incurred prior to such termination. Certain provisions of the Research and License Agreement will survive and remain in full force and effect after any termination, including provisions relating to confidentiality, liability and indemnification, security for indemnification, and use of name of the other party without prior written consent except under certain circumstances.
On October 11, 2002, we signed a Fourth Amendment with New York University to the Research and License Agreement between New York University and Axonyx dated April 1, 1997. The amendment modifies the development plan annexed to the Research and License Agreement regarding deadlines by which Axonyx or our sublicensee is to achieve certain development milestones, including commencing clinical trials, for an AIP compound. The amendment extends the dates by which we or our sublicensee undertakes to meet certain development and commercialization benchmarks, including the commencement of Phase I clinical trials for an AIP compound. The amendment also modifies the terms of the milestone payment provisions of the Research and License Agreement, delays the due date for the next development plan report and contains releases and waivers of default by the university and Axonyx. NYU waived any past failures on our part to develop Licensed Products in accordance with the schedule provided in the development plan under the Research and License Agreement. ARS, a wholly owned subsidiary of Serono International, S.A., who sublicensed the patents covered by the Research and License Agreement between New York University and Axonyx, is undertaking the development and commercialization of the AIP and PIP compounds at Serono facilities in Geneva, Switzerland.
CURE, LLC, Public Health Service/National Institutes of Health
On February 27, 1997, we acquired the worldwide exclusive patent rights to Phenserine, Cymserine (a butyrylcholinesterase inhibitor), their analogs (one of a series of chemical substances of similar chemical structure) and related acetylcholinesterase and butyrylcholineserase inhibitory compounds (not including PENC or Bisnorcymserine) via a
18
sublicense with CURE, LLC, from the Public Health Service, parent agency of the National Institutes of Health\National Institute on Aging (NIH\NIA). We have periodically sponsored some of the researchers at the NIA facilities involved in fields of research related to the licensed patent rights.