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CytRx Corp. Reports Operating Results (10-Q)

August 07, 2009 | About:

CytRx Corp. (NASDAQ:CYTR) filed Quarterly Report for the period ended 2009-06-30.

CYTRX CORP. is engaged in the development and commercialization of pharmaceutical related products and services including human therapeutics focused on high-value critical- care therapies. CytRx Corp. has a market cap of $93.3 million; its shares were traded at around $1 with and P/S ratio of 14.9.

Highlight of Business Operations:

In August 2006, we received approximately $24.3 million in proceeds from the privately-funded ALS Charitable Remainder Trust (“ALSCRT”) in exchange for the commitment to continue research and development of arimoclomol and other potential treatments for ALS and a one percent royalty in the worldwide sales of arimoclomol. Under the arrangement, we retain the rights to any products or intellectual property funded by the arrangement and the proceeds of the transaction are non-refundable. The ALSCRT has no obligation to provide any further funding to us. We have concluded that due to the research and development components of the transaction that it is properly accounted for under Statement of Financial Accounting Standards No. 68, Research and Development Arrangements. Accordingly, we have recorded the value received under the arrangement as deferred service revenue and will recognize service revenue using the proportional performance method of revenue recognition, meaning that service revenue is recognized on a dollar-for-dollar basis for each dollar of expense incurred for the research and development of arimoclomol and other potential ALS treatments. We believe that this method best approximates the efforts expended related to the services provided. We adjust our estimates of expense incurred for this research and development on a quarterly basis. For the three-month and six-month periods ended June 30, 2009 and 2008, we recognized approximately $1.0 million, $1.7 million, $2.4 million and $3.9 million, respectively, of service revenue related to this transaction. Any significant change in ALS related research and development expense in any particular quarterly or annual period will result in a change in the recognition of revenue for that period and consequently affect the comparability or revenue from period to period.

At June 30, 2009, we had cash and cash equivalents of approximately $6.9 million, short-term investments of $11.0 million and held 6,268,881 shares of restricted common stock of RXi Pharmaceuticals Corporation (“RXi”) with a market value of $28.5 million based upon the closing price of the RXi common stock on that date. On July 27, 2009, we raised approximately $18.3 million, net of fees and expenses, in a registered direct offering. Management believes that our current cash on hand, together with our short term investments and shares in RXi, will be sufficient to fund normal operations for the foreseeable future. Our expenditures were estimated prior to our recent financing transaction, and the actual numbers will vary as a result of the impact of the financing on our corporate plans. For example, our estimated expenditures do not yet include estimates for planned clinical development of INNO-206. The estimate is based, in part, upon our currently projected expenditures for the remainder of 2009 and the first six months of 2010 of approximately $9.5 million, which includes approximately $3.1 million for our clinical program for tamibarotene, approximately $0.1 million for our clinical program for INNO-406, approximately $0.1 million for our activities for arimoclomol, approximately $1.2 million for operating our clinical programs, and approximately $5.0 million for other general and administrative expenses. These projected expenditures are also based upon numerous other assumptions and subject to many uncertainties, and actual expenditures may be significantly different from these projections.

We recognized $1.0 million and $2.4 million of revenue for the three-month and six-month periods ended June 30, 2009, respectively, and $1.7 million and $3.9 million, respectively, for the same periods in 2008. These revenues relate to our $24.3 million sale to the ALSCRT of a one percent royalty interest in worldwide sales of arimoclomol in August 2006. All future licensing fees under our current licensing agreements are dependent upon successful development milestones being achieved by the licensor. During 2009, we do not anticipate receiving any significant licensing fees. Pursuant to an amendment signed between us and the beneficiary of the ALSCRT on August 6, 2009, we were released from all restrictions on the use of any proceeds previously paid to us in connection with the arrangement. As a result, we will recognize $6.9 million as service revenue in the third quarter of 2009, which represents the remaining deferred revenue or the previously un-recognized portion of the value received.

Research and development expenses incurred during the three-month and six-month periods ended June 30, 2009 relate to our various development programs. Research and development expenses for the six-month period ended June 30, 2008 also included RXi s expenses of approximately $0.6 million for the months of January and February 2008. In the three-month period ended June 30, 2009, our development costs associated with our program for arimoclomol in ALS were $0.4 million, the costs of our program for tamibarotene were $0.2 million, and the cost of operations in our research laboratory were $0.7 million. We also had a small recovery of our iroxanadine development costs of $0.3 million.

As compensation to members of RXi s scientific advisory board and our consultants, and in connection with the acquisition of technology, we and RXi sometimes issue shares of common stock, stock options and warrants to purchase shares of common stock. For financial statement purposes, we value these shares of common stock, stock options, and warrants at the fair value of the common stock, stock options or warrants granted, or the services received, whichever is more reliably measurable. The value of the non-employee option grants are marked to market using the Black-Scholes option-pricing model and most of the compensation expense recognized or recovered during the period is adjusted accordingly. This resulted in a recovery of expenses of $0 and approximately $0.2 million respectively, in the three-month and six-month periods ended June 30, 2008. We recorded $0.2 million and $0.4 million of employee stock option expense both during the three-month and six-month periods ended June 30, 2009 and 2008.

General and administrative expenses include all administrative salaries and general corporate expenses, including legal expenses associated with the prosecution of our intellectual property. Our general and administrative expenses, excluding stock option expense, non-cash expenses and depreciation expense, were $1.5 million and $3.6 million for the three-month and six-month periods ended June 30, 2009, respectively, as compared to $2.2 million and $5.8 million during the same periods in 2008. General and administrative expenses decreased by $0.7 million in the second quarter of 2009 as compared to 2008, primarily as a result of a reduction of personnel in 2009 compared to 2008. Additionally, there was a reduction in professional fees of approximately $0.3 million in 2009 as compared to the comparable period in 2008.

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