Arrowhead Research Corporation is a publicly-traded nanotechnology company commercializing new technologies in the areas of life sciences electronics and energy. Arrowhead is building value for shareholders through the progress of majority owned subsidiaries founded on nanotechnologies originally developed at universities. The company works closely with universities to source early stage deals and to generate rights to intellectual property covering promising new nanotechnologies. Currently Arrowhead has four subsidiaries commercializing nanotech products and applications including anti-cancer drugs RNAi therapeutics carbon-based electronics and compound semiconductor materials. Arrowhead Research Corp. has a market cap of $37.35 million; its shares were traded at around $0.79 with and P/S ratio of 28.73.
Highlight of Business Operations:During the three months ended December 31, 2008, Calando raised $2.5 million from qualified investors through the sale of senior unsecured convertible promissory notes (New Notes), plus Arrowhead participated by buying an additional $200,000 of the New Notes and agreeing to subordinate principal and interest on Arrowheads approximately $5.3 million of demand notes to the New Notes. The New Notes have a two-year maturity and bear 10% interest compounded annually. Unpaid principal on the New Notes and accrued but unpaid interest is convertible into common stock of Calando at a conversion price of $0.576647 per share, subject to adjustment, at any time in the sole discretion of the holder. In the event of a defined sale event, holders of New Notes have other exchange and conversion options.
During the three months ended December 31, 2008, Unidym raised $2 million from the sale of Series C-1 Preferred Stock to TEL Ventures. The sale of these securities was associated with Unidyms entry into a Security Agreement granting TEL a security interest in Unidyms physical and intellectual property (the Collateral), which, however, excludes Unidyms rights under the Rice license and shares of Ensysce Biosciences, Inc. The Subscription Agreement provides TEL with two put options. TEL may exercise the first put option if Unidym fails to enter into a Joint Development Agreement with TEL by June 30, 2009. In that case, Unidym must buy back TELs Unidym shares for $2 million before March 2010. TEL may exercise the second put option if Unidym fails to meet certain cash requirements by June 30, 2009. Those requirements would be met if Unidym raises $7 million through any combination of a sale of its equity; the sale or license of some or all of its assets and businesses including positions in Ensysce Biosciences, Nexeon MedSystems or Nanocondution; or sales of products. Only if TEL exercises this put option between June 30 and July 31, 2009 shall Unidym be obligated to repurchase the Series C-1 Preferred Stock for $2.4 million within ten days notification of exercise. In the event of a default under the Security Agreement, (e.g. inability to pay either of the put options, bankruptcy, admission of inability to pay its bills), TEL can take possession of the Collateral and keep the net proceeds of any sale thereof.
In connection with this consolidation of operations, Unidym estimates aggregate charges of approximately $300,000 to $500,000 will be incurred over the next 120 days, which consist of employee-related expenses, costs related to the cessation of use of the current facility, sublease of the second facility, and relocation expense. The Company expects to save over $1.0 million in the aggregate in operating expenses in remainder of the fiscal year ending September 30, 2009 through the consolidation plan. Capital expenditures related to installation of Unidyms carbon nanotube production capability in Northern California are projected to amount to approximately $500,000.
The Company generated revenues of $701,723 and $402,861 for the three-month periods ended December 31, 2008, and 2007, respectively. The revenue for the three months ended December 31, 2008 consist of $450,000 from license fees from Unidym technology, $85,233 in grants to Unidym to fund research and $166,490 from sales and delivery of carbon nanotubes by Unidym. The prior year revenues consist of $191,016 in grants to Unidym to fund research and $211,845 from sales and delivery of carbon nanotubes by Unidym.
Calandos cash consumed by operations was approximately $3.3 million in the first quarter. Calando incurred expenses related to the ongoing clinical trials for its two clinical candidates, IT-101 and CALAA-01, as well as significant non-recurring preclinical expenses related to its next clinical candidate, CALAA-02. These expenses include payments for clinical consulting, clinical trial maintenance, and manufacturing costs of the components for CALAA-02 totaling $2.3 million. The combination of these activities resulted in approximately $1.9 of additional expense for consulting, outside lab, and contract services in the first three months of this fiscal year compared to the prior year. Expenses incurred in the first quarter include salary expenses of approximately $500,000, general and administrative expenses of approximately $300,000. Calando has stopped work on other preclinical candidates and has reduced headcount subsequent to quarter end. Calando raised $2.5 million in debt financing with accredited investors, plus $200,000 from Arrowhead during the quarter and is actively pursuing partnership and licensing discussions with other pharmaceutical and biotech companies. Continued clinical and preclinical development of Calandos drug candidates will depend on the cash resources available to Calando. If Calando is unsuccessful in obtaining sufficient capital to fund its operations, further development of Calandos products may have to be slowed, interrupted or ceased altogether.
Unidyms cash consumed by operations was approximately $3.4 million in the first quarter. Unidym continued business development efforts sampling films to customers in the touch panel and LCD industries and continuing its joint development with Samsung. Product development efforts were focused on carbon nanotube inks and films as well as improving its processes for high quality carbon nanotube production. In December, Unidym took aggressive steps to reduce its cash consumption beginning in the quarter. Reductions in management headcount made during the quarter included the CFO, CTO, VP of Finance, Corporate Controller, Vice President of Sales and Marketing, Vice President of Business Development and Plant Controller position. The CEO was terminated in December 2008 and executive management responsibility was delegated by the Unidym board to Arrowhead personnel. In addition, several employees at Unidyms Texas facilities were put on unpaid furlough in November 2009 and terminated in December 2009. Subsequent to quarter end, the decision was made to close Unidyms Texas facility and most of the remaining employees were terminated. Expenses incurred in the quarter include approximately $1.3 million in salaries and related expenses, approximately $1.3 million in research and development expenses, and approximately $800,000 in general, administrative and consulting expenses. Expenses are expected to decrease in the coming quarters as the streamlining measures take effect. It is expected that the closure of the Texas plant will result in significant savings that will be partially offset by near term close down costs estimated at $300,000 to $500,000 and build out of carbon nanotube production capability in Northern California estimated at $500,000. Unidym raised $2 million in equity financing in during the quarter and obtained $700,000 through the sale of its equity interest in Ensyce, a spinoff focused on therapeutic uses of carbon nanotubes. Unidym is seeking additional capital to continue to fund development of its products. The pace of development in fiscal 2009 will depend on the cash resources available to Unidym. If Unidym is unsuccessful in obtaining sufficient capital to fund its operations, further development of Unidyms products may have to be slowed, interrupted or ceased altogether.
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