Somaxon Pharmaceuticals Inc. (SOMX) filed Quarterly Report for the period ended 2009-09-30.
Somaxon Pharmaceuticals Inc. is a specialty pharmaceutical company focused on the in-licensing and development of proprietary product candidates for the treatment of diseases and disorders in the fields of psychiatry and neurology. Somaxon's lead product candidate SILENOR is in Phase III clinical trials for the treatment of insomnia Somaxon Pharmaceuticals Inc. has a market cap of $48.7 million; its shares were traded at around $2.07 .
Highlight of Business Operations:
We are a development stage company and have incurred significant net losses since our inception. As of September 30, 2009, we had an accumulated deficit of $176.1 million. We expect our accumulated deficit to continue to increase as we seek FDA approval of Silenor, seek to commercialize Silenor and potentially pursue development of other product candidates. In July 2009, we completed a private placement of 5.1 million shares of our common stock at a price of $1.05 per share and seven-year warrants to purchase up to 5.1 million additional shares of our common stock, exercisable in cash or by net exercise at a price of $1.155 per share, for aggregate gross proceeds of $6.0 million and net proceeds of $5.7 million. We believe, based on our current operating plan, that our cash, cash equivalents and marketable securities as of September 30, 2009 will be sufficient to fund our operations through the expected duration of the FDA’s review of our resubmission of the Silenor NDA and through the second quarter of 2010. We will need to obtain additional funds to finance our operations beyond that point, or if our operating plan is modified to accelerate commercialization activities relating to Silenor. We intend to obtain any additional funding we require through strategic relationships, public or private equity or debt financings, assigning receivables or royalty rights, or other arrangements and cannot assure that such funding will be available on reasonable terms, or at all. Additional equity financing may be dilutive to stockholders, and debt financing, if available, may involve restrictive covenants. If we are unsuccessful in our efforts to maintain sufficient financial resources, including by raising additional funds when needed, we may be required to reduce or curtail our operations and costs, and we may be unable to continue as a going concern.
In June 2009, we completed a one-time stock option exchange program for employees and directors as of March 1, 2009. Under the program, eligible participants were able to elect to exchange all of their stock options having exercise prices above $1.00 for the grant of a lesser number of replacement awards having an exercise price of the greater of $1.00 or the closing price of our common stock on the Nasdaq Stock Market on June 9, 2009. The participants received two new options for every three options tendered for exchange. All of the eligible participants tendered some or all of their stock options for exchange. In total, 4,320,000 stock options were tendered in exchange for 2,880,000 replacement awards. The exercise price of the replacement awards was $1.23 per share, which was the closing price of our common stock on June 9, 2009. One-third of the replacement awards were vested upon grant and the remainder of the replacement stock options will vest, subject to the participant’s continued service, in equal monthly installments over the following two year period such that all the awards will be fully vested in June 2011.
In May 2008, we entered into a loan agreement with Silicon Valley Bank and Oxford Finance Corporation under which we borrowed $15.0 million, less debt issuance costs of $0.2 million, for net proceeds of $14.8 million. In connection with entering the loan agreement, we issued warrants to purchase an aggregate amount of 239,000 shares of common stock at an exercise price of $4.385 per share. In March 2009, we repaid the entire remaining $13.7 million principal amount of the loan, together with the final payment of $0.6 million required under the loan agreement. As part of the repayment, we issued to Oxford Finance Corporation 200,000 warrants to purchase common stock having a ten-year term and an exercise price of $0.25 per share, which the lenders agreed to accept in lieu of the $0.9 million prepayment penalty required under the loan agreement. We no longer have any obligations under the loan agreement.
We have incurred significant net operating losses to date. As of December 31, 2008, we had federal net operating loss carryforwards of $132.4 million and California net operating loss carryforwards of $129.6 million. Federal net operating loss carryforwards begin to expire 20 years after being generated and California net operating loss carryforwards begin to expire ten years after being generated. We also have research and development credits as of December 31, 2008 of $4.1 million for federal purposes and $1.9 million for California purposes. Federal research and development credits begin to expire 20 years after being generated and California research and development credits do not expire. We have fully reserved our net operating loss carryforwards and research and development credits until such time that it is more likely than not that they will be realized.
Pursuant to Sections 382 and 383 of the Internal Revenue Code, annual use of our net operating loss carryforwards and tax credits may be limited in the event a cumulative change in ownership of more than 50% occurs within a three-year period. We determined that such an ownership change occurred as of June 30, 2005 due to various stock issuances used to finance our development activities. This ownership change resulted in limitations on the utilization of tax attributes, including net operating loss carryforwards and tax credits. We estimate that $0.3 million of our California net operating loss carryforwards were effectively eliminated. Additionally, $18.3 million of our federal net operating loss carryforwards, $17.3 million of our state net operating loss carryforwards and $0.9 million of our federal research and development credits were subject to the Section 382 limitation. A portion of the limited net operating loss carryforwards becomes available for use each year. At December 31, 2008, we estimate that $8.6 million of our federal net operating loss carryforwards and $7.7 million of our state net operating loss carryforwards remain limited. Net operating loss carryforwards and research and development credits generated subsequent to the ownership change are currently not subject to limitations, but could be limited in the future if additional ownership changes occur. As of November 2, 2009, we have not updated our Section 382 analysis, which was completed in conjunction with our initial public offering in December 2005.
License fees decreased $1.2 million primarily due to the termination of our license agreement with BioTie for nalmefene in March 2009. Pursuant to the termination agreement, BioTie paid us a $1.0 million termination fee which we included as a reduction of license fees. In addition, during the third quarter of 2008, we paid $0.2 million under a license arrangement for the exclusive rights to purchase a certain ingredient used in our formulation for Silenor. We were also obligated to make immaterial annual payments to the University of Miami pertaining to our nalmefene program. In June 2009, we exercised our contractual right to terminate our license agreement with the University of Miami, resulting in no further obligations under our nalmefene program.
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