form10-q.htm
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
____________________
FORM
10-Q
____________________
x
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934.
|
For
the quarterly period ended March 31, 2010
OR
¨ TRANSITION REPORT PURSUANT TO SECTION
13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934.
For
the transition period from
to .
Commission
File Number: 001-31982
____________________
SCOLR
Pharma, Inc.
(Exact
name of registrant as specified in its charter)
____________________
Delaware
|
91-1689591
|
(State
or other jurisdiction of
incorporation
or organization)
|
(I.R.S.
Employer
Identification
No.)
|
19204
North Creek Parkway, Suite 100, Bothell, Washington 98011
(Address
of principal executive offices)
425-368-1050
(Registrant’s
telephone number, including area code)
_____________
Indicate
by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 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 x No ¨
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).
Yes ¨ No ¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer, or a smaller reporting company
(as defined in Rule 12b-2 of the Exchange Act).
Large
accelerated filer o
|
Accelerated
filer o
|
Non-accelerated
filer o (Do not check if
a smaller reporting company)
|
Smaller
reporting company x
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act) Yes ¨ No x
Indicate
the number of shares outstanding of each of the issuer’s classes of common
stock, as of the latest practicable date.
Title
|
Shares
outstanding as of April 23, 2010
|
Common
Stock, par value $0.001
|
49,572,555 |
SCOLR
Pharma, Inc.
FORM
10-Q
For
the Quarterly Period Ended March 31, 2010
Table
of Contents
PART
I: Financial Information
|
|
|
|
Item
1. Financial Statements
|
4
|
|
|
Condensed
Balance Sheets at March 31, 2010 (unaudited), and December 31,
2009
|
4
|
|
|
Condensed
Statements of Operations for the three-month periods ended March 31, 2010,
and March 31, 2009, (unaudited)
|
5
|
|
|
Condensed
Statements of Cash Flows for the three-month periods ended March 31, 2010,
and March 31, 2009, (unaudited)
|
6
|
|
|
Notes
to Financial Statements (unaudited)
|
7
|
|
|
Item
2. Management’s Discussion and Analysis of Financial Condition and Results
of Operations
|
11
|
|
|
Item
4. Controls and Procedures
|
15
|
|
|
PART
II: Other Information
|
15
|
|
|
Item
1. Legal Proceedings
|
15
|
|
|
Item
1A. Risk Factors
|
15
|
|
|
Item
2. Unregistered Sales of Equity Securities and Use of
Proceeds
|
15
|
|
|
Item
6. Exhibits
|
16
|
|
|
Signatures
|
17
|
SCOLR
Pharma, Inc.
(In
thousands)
|
|
March
31,
2010
(Unaudited)
|
|
|
December 31,
2009
|
|
ASSETS
|
|
|
|
|
|
|
Current
Assets
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
3,965
|
|
|
$
|
1,176
|
|
Accounts
receivable
|
|
|
145
|
|
|
|
269
|
|
Prepaid
expenses and other assets
|
|
|
297
|
|
|
|
228
|
|
Total
current assets
|
|
|
4,407
|
|
|
|
1,673
|
|
|
|
|
|
|
|
|
|
|
Property
and Equipment — net of accumulated depreciation of $1,309 and $1,272,
respectively
|
|
|
400
|
|
|
|
435
|
|
Intangible
assets — net of accumulated amortization of $531 and $514,
respectively
|
|
|
755
|
|
|
|
565
|
|
Restricted
cash
|
|
|
383
|
|
|
|
438
|
|
|
|
$
|
5,945
|
|
|
$
|
3,111
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
Current
Liabilities
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
117
|
|
|
$
|
47
|
|
Accrued
liabilities
|
|
|
396
|
|
|
|
640
|
|
Deferred
revenue
|
|
|
—
|
|
|
|
25
|
|
Total
current liabilities
|
|
|
513
|
|
|
|
712
|
|
|
|
|
|
|
|
|
|
|
Deferred
rent
|
|
|
188
|
|
|
|
198
|
|
Total
liabilities
|
|
|
701
|
|
|
|
910
|
|
|
|
|
|
|
|
|
|
|
Commitments
and Contingencies – (Note 8)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’
Equity
|
|
|
|
|
|
|
|
|
Preferred
stock, authorized 5,000,000 shares, $.01 par value, none issued or
outstanding
|
|
|
—
|
|
|
|
—
|
|
Common
stock, authorized 100,000,000 shares, $.001 par value 49,572,555 and
41,098,270 issued and outstanding as of March 31, 2010, and
December 31, 2009, respectively
|
|
|
51
|
|
|
|
41
|
|
Additional
paid-in capital
|
|
|
76,698
|
|
|
|
72,832
|
|
Accumulated
deficit
|
|
|
(71,505
|
)
|
|
|
(70,672
|
)
|
Total
stockholders’ equity
|
|
|
5,244
|
|
|
|
2,201
|
|
|
|
$
|
5,945
|
|
|
$
|
3,111
|
|
The
accompanying notes are an integral part of these financial
statements.
SCOLR
Pharma, Inc.
(In
thousands, except per share amounts)
(Unaudited)
|
|
Three
months ended
March
31,
|
|
|
|
2010
|
|
|
2009
|
|
Revenues
|
|
|
|
|
|
|
Licensing
fees
|
|
$
|
25
|
|
|
$
|
—
|
|
Royalty
income
|
|
|
141
|
|
|
|
172
|
|
Total
revenues
|
|
|
166
|
|
|
|
172
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses
|
|
|
|
|
|
|
|
|
Marketing
and selling
|
|
|
36
|
|
|
|
107
|
|
Research
and development
|
|
|
340
|
|
|
|
822
|
|
General
and administrative
|
|
|
624
|
|
|
|
1,154
|
|
Total
operating expenses
|
|
|
1,000
|
|
|
|
2,083
|
|
Loss
from operations
|
|
|
(834
|
)
|
|
|
(1,911
|
)
|
|
|
|
|
|
|
|
|
|
Other
income (expense)
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
1
|
|
|
|
9
|
|
Interest
expense
|
|
|
—
|
|
|
|
(2
|
)
|
Total
other income
|
|
|
1
|
|
|
|
7
|
|
Net
loss
|
|
$
|
(833
|
)
|
|
$
|
(1,904
|
)
|
Net
loss per share, basic and diluted
|
|
$
|
(0.02
|
)
|
|
$
|
(0.05
|
)
|
Shares
used in computing basic and diluted net (loss) income per
share
|
|
|
43,140,968
|
|
|
|
41,098,270
|
|
The
accompanying notes are an integral part of these financial
statements.
SCOLR
Pharma, Inc.
(In
thousands, unaudited)
|
|
Three
months ended
March
31,
|
|
|
|
2010
|
|
|
2009
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(833
|
)
|
|
$
|
(1,904
|
)
|
Reconciliation
of net loss to net cash used in operating activities
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
64
|
|
|
|
101
|
|
Write-off
of intangible assets
|
|
|
11
|
|
|
|
77
|
|
Share-based
compensation for employee services
|
|
|
64
|
|
|
|
355
|
|
Increase
(decrease) in cash resulting from changes in assets and
liabilities
|
|
|
|
|
|
|
|
|
Accounts
and other receivables
|
|
|
125
|
|
|
|
14
|
|
Prepaid
expenses and other current assets
|
|
|
(73
|
)
|
|
|
67
|
|
Accounts
payable and accrued expenses
|
|
|
(82
|
)
|
|
|
(297
|
)
|
Deferred
revenue
|
|
|
(25
|
)
|
|
|
—
|
|
Net
cash used in operating activities
|
|
|
(749
|
)
|
|
|
(1,587
|
)
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
Purchase
of equipment and furniture
|
|
|
(3
|
)
|
|
|
(89
|
)
|
Proceeds
from insurance settlement
|
|
|
—
|
|
|
|
85
|
|
Patent
and technology rights payments
|
|
|
(226
|
)
|
|
|
(37
|
)
|
Restricted
cash
|
|
|
54
|
|
|
|
—
|
|
Net
cash used by investing activities
|
|
|
(175
|
)
|
|
|
(41
|
)
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
Payments
on term loan
|
|
|
—
|
|
|
|
(21
|
)
|
Net
proceeds from issuance of common stock options and
warrants
|
|
|
3,713
|
|
|
|
—
|
|
Net
provided (cash used) by financing activities
|
|
|
3,713
|
|
|
|
(21
|
)
|
Net
increase (decrease) in cash
|
|
|
2,789
|
|
|
|
(1,649
|
)
|
Cash
at beginning of period
|
|
|
1,176
|
|
|
|
6,363
|
|
Cash
at end of period
|
|
$
|
3,965
|
|
|
$
|
4,714
|
|
Cash
paid during the period for interest
|
|
$
|
—
|
|
|
$
|
2
|
|
Issuance
of warrants in connection with equity offering
|
|
$
|
689
|
|
|
$
|
—
|
|
The
accompanying notes are an integral part of these financial
statements.
SCOLR
Pharma, Inc.
Note
1 — Financial Statements
The
unaudited financial statements of SCOLR Pharma, Inc. (the “Company,” “we,”
“our”) have been prepared in accordance with accounting principles generally
accepted in the United States of America for interim financial reporting and
pursuant to the rules and regulations of the Securities and Exchange Commission.
In the opinion of management, the financial information includes all normal and
recurring adjustments that the Company considers necessary for a fair
presentation of the financial position at such dates and the results of
operations and cash flows for the periods then ended. The balance sheet at
December 31, 2009 has been derived from the audited financial statements at
that date. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with accounting principles generally
accepted in the United States of America have been condensed or omitted pursuant
to Security and Exchange Commission ( “SEC”) rules and regulations on quarterly
reporting. The results of operations for interim periods are not necessarily
indicative of the results to be expected for the entire fiscal year ending
December 31, 2010. The accompanying unaudited financial statements and
related notes should be read in conjunction with the audited financial
statements and the Form 10-K for the Company’s fiscal year ended
December 31, 2009.
Use
of Estimates
The
preparation of financial statements in accordance with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements, and the reported amounts of revenues and expenses
during the reporting period. Estimates are used for, but not limited to those
used in revenue recognition, the determination of the allowance for doubtful
accounts, depreciable lives of assets, estimates and assumptions used in the
determination of fair value of stock options and warrants, including share-based
compensation expense, and deferred tax valuation allowances. Future events and
their effects cannot be determined with certainty. Accordingly, the accounting
estimates require the exercise of judgment. The accounting estimates used in the
preparation of the financial statements may change as new events occur, as more
experience is acquired, as additional information is obtained and as the
Company’s operating environment changes. Actual results could differ from those
estimates.
Note
2 — New Accounting Pronouncements
In
October 2009, the FASB issued ASU 2010-13, Multiple Deliverable Revenue
Arrangements. ASU 2009-13 provides principles and application guidance on
whether multiple deliverables exist, how the arrangement should be separated,
and the consideration allocated. This standard shall be applied prospectively
for revenue arrangements entered into or materially modified in fiscal years
beginning on or after June 15, 2010, with earlier application permitted.
Alternatively, an entity may elect to adopt this standard on a retrospective
basis. The Company is currently assessing the impact of ASU 2010-13 on our
financial statements. Adoption of this standard is not expected to have a
material impact to the financial statements.
At the
March 31, 2010 meeting, the FASB ratified Emerging Issues Task Force (EITF)
Issue No. 08-9, “Milestone Method of Revenue Recognition” (Issue
08-9). The Accounting Standards Update resulting from Issue 08-9 amends ASC
605-28.1 The Task Force concluded that the milestone method is a valid
application of the proportional performance model when applied to research or
development arrangements. Accordingly, the consensus states that an entity can
make an accounting policy election to recognize a payment that is contingent
upon the achievement of a substantive milestone in its entirety in the period in
which the milestone is achieved. The milestone method is not required and is not
the only acceptable method of revenue recognition for milestone payments.
The guidance in Issue 08-9 is effective for fiscal years, and interim
periods within those years, beginning on or after 15 June 2010, and may be
applied: prospectively to milestones achieved after the adoption date, or
retrospectively for all periods presented. The Company currently does not have
any revenue contracts with milestone arrangements.
Note
3 – Accounts Receivable
At March
31, 2010, accounts receivable consisted of royalty receivables from Controlled
Delivery Technology (CDT)-based product sales.
Note
4 – Financing
On March
12, 2010, the Company completed a private placement of units consisting of one
share of the Company’s common stock, and a common stock purchase warrant, which
entitles the holder to purchase one-fifth of one share of common
stock. An aggregate of 8,260,000 shares of its common stock and
warrants to purchase an aggregate of 1,652,000 shares of its common stock were
sold. The units were sold at a purchase price of $0.50 per
unit. Taglich Brothers, Inc., a related party, acted as placement agent
for the offering. Mr. Michael N. Taglich, a member of the Company’s board of
directors, is the president and a principal shareholder of Taglich Brothers.
Net proceeds of the offering were approximately $3.7 million after
placement agent fees of approximately $289,100, expenses of registration, and
other direct and incremental offering costs. Taglich Brothers was also issued a
warrant to purchase 578,200 shares of the Company’s common stock. The
warrants sold in the offering and those issued to Taglich Brothers are
identical, have an exercise price of $0.75 per full share of common stock, and
are exercisable beginning six months from the warrant issuance date for a period
of five years. The fair value of the warrants is estimated at $0.31
using the Black-Scholes option-pricing model. The Black-Scholes valuation was
based on the following assumptions: volatility of 86.57%; term of five years;
risk-free interest rate of 2.39%; and 0% dividend yield.
The
Company filed a shelf registration statement in the amount of $40 million which
was declared effective by the SEC on November 25, 2008 under which it may offer
from time-to-time, one or more offerings of securities up to an aggregate public
offering price of $40 million. We expect to register the common stock and common
stock underlying warrants sold in our March 2010 financing using the shelf
registration statement. Following such registration, we expect there will be
approximately $29.5 million of securities available for registration under our
shelf. The Company has received notice from the NYSE Amex
Equities Exchange (“NYSE Amex,” “the Exchange”) that it is not in compliance
with continued listing requirements. Its inability to maintain listing of its
common stock on the NYSE Amex may further limit its ability to access the
capital markets.
Note
5 — Liquidity
The
Company incurred a net loss of approximately $833,000 for the three months ended
March 31, 2010, and used cash from operations of approximately $749,000. Cash
flows used by investing activities during the three months ended March 31, 2010
of $175,000, include $226,000 in patent and trademark related expenditures plus
$3,000 used for equipment purchases. These amounts were offset by a $54,000
decrease in restricted cash which was used to reduce the monthly rent
obligation. Cash flows from investing activities for the period ended March 31,
2009 represent proceeds from an insurance settlement of $85,000 and $89,000 used
to purchase research and development equipment. Cash flows provided by
financing activities for the period ended March 31, 2010, represents the net
proceeds of $3.7 million from the March 2010 equity offering. Cash flows from
financing activities for the period ended March 31, 2009 reflects payments on
term loan of $21,000 through April 2009, at which time the loan was paid
off.
The
Company had approximately $4.0 million in cash and cash equivalents, and
$383,000 in restricted cash, related to its facility lease, as of March 31,
2010. The Company is investing its cash and cash equivalents in
government-backed securities. These securities have quoted prices in active
markets.
The
Company has deferred all significant expenditures on its development projects,
including the actual use study required by the Food and Drug Administration (the
“FDA”) as a prerequisite to submission of its regulatory application for
ibuprofen, pending additional financing, revenues or partnership
support. Without continuing revenues or funding from a partnership or
collaboration agreement, the Company may not be able to complete development of
its lead projects.
The
Company’s capital resources are limited and operations to date have been funded
primarily with the proceeds from equity financings, royalty payments, and
collaborative research agreements. The Company is pursuing additional sources of
financing that could involve strategic transactions, including mergers and
business combinations, new partnerships as well as opportunities to expand
product sales and other options. However, there are significant uncertainties as
to the Company’s ability to access potential sources of capital. The Company may
not be able to enter any strategic transaction or collaboration on terms
acceptable to it, or at all, due to conditions in the pharmaceutical industry or
in the economy in general. Competition for such arrangements is intense, with
many specialty pharmaceutical companies attempting to secure alliances with more
established pharmaceutical or consumer products companies.
The
financial statements have been prepared assuming the Company will continue as a
going concern and do not include any adjustments to reflect the possible future
effects on the recoverability and classification of assets and liabilities that
may result from the outcome of this uncertainty. If unforeseen events arise and
the Company is unsuccessful in generating additional revenues or raising
additional funds, it will be necessary to substantially reduce the Company’s
operations to preserve capital or otherwise wind up its business. If the Company
is forced to reduce or cease operations it may trigger additional obligations,
including contractual severance obligations aggregating as
much as
$690,000. In addition, the Company may be forced to liquidate assets at reduced
levels should it develop immediate liquidity requirements. There can
be no assurance that additional financing will be available on favorable terms
or at all.
Note
6 — Operating Lease
The Company entered into a sublease
agreement with an unaffiliated third party on March 12, 2010 for approximately
850 square feet of lab and office space. The sublease agreement provides for
monthly rent of $1,600 and expires on March 15, 2011. Rental deposit and last
month’s rent totaling $3,200 was paid at the time the agreement was signed.
Sublease payments received are recorded in Research and Development expense as
an offset to rent expense.
Note
7 — Income Taxes
The
Company continues to maintain a valuation allowance for the full amount of the
net deferred tax asset balance associated with its net operating losses as
sufficient uncertainty exists regarding its ability to realize such tax assets
in the future. The Company expects the amount of the net deferred tax asset
balance and full valuation allowance to increase in future periods as it incurs
future net operating losses. There were no unrecognized tax benefits as of March
31, 2010 or December 31, 2009. The Company does not anticipate any significant
changes to its unrecognized tax benefits within the next twelve
months.
Note
8—Future Commitments
The
Company has certain material agreements with its manufacturing and testing
vendors related to its ongoing clinical trial work associated with its drug
delivery technology. Contract amounts are paid based on materials used and on a
work performed basis. Generally, the Company has the right to terminate these
agreements upon 30 days notice and would be responsible for services and
materials and related costs incurred prior to termination.
Note
9—Technical Rights, Patent License and Royalty Agreements
Chrono
Nutraceuticals, LLC.
On
November 20, 2009, the Company entered into a license agreement with Chrono
Nutraceuticals LLC, a newly formed Arizona limited liability company ("Chrono"),
providing Chrono with exclusive rights in Canada to manufacture and sell four
extended release dietary supplements using the Company’s proprietary CDT drug
delivery platform. In addition, the Company granted Chrono the rights to
manufacture and sell two of such products in the United States on a nonexclusive
basis.
Under the
terms of the license agreement, Chrono paid an initial fee of $25,000 and agreed
to pay an additional $87,500 that became due on January 31, 2010. Chrono has
failed to deliver the additional payment of $87,500 and has advised us that
payment of this additional amount will be delayed pending resolution of internal
financial issues. The Company has terminated the license agreement
and is evaluating its remedies with respect to the owed amounts. The initial
$25,000 fee is not refundable and was recorded as revenue in March
2010.
NUPRIN®
trademark
On March
11, 2010, the Company purchased from Advanced Healthcare Distributors, LLC, all
of ADC’s right, title, and interest in and to the NUPRIN® trademark worldwide,
excluding Canada. The Company paid $180,000 in cash for these rights to the
NUPRIN® trademark. The trademark is being amortized over ten years.
Note
10— NYSE Amex Equities Exchange Listing
On June
25, 2009 the Company received notice from the Exchange that it was not in
compliance with Section 1003(a)(iii) of the NYSE Amex Company Guide (the
“Company Guide”) with stockholders' equity of less than $6 million and losses
from continuing operations and net losses in its five most recent fiscal
years. As allowed by Exchange rules, the Company submitted a plan of
compliance on July 29, 2009, advising the Exchange of action it has taken and
will take, to regain compliance with Section 1003(a)(iii) of the Company Guide
by December 27, 2010. In September 2009, the Exchange approved the Company’s
plan to regain compliance with the continued listing standard set forth in
Section 1003(a)(iii) of the NYSE Amex Company Guide within the specified
timeframes indicated by the Exchange. However, NYSE Amex LLC simultaneously
issued a notice that the Company does not meet the continued listing standard
set forth in Section 1003(a)(iv) of the NYSE Amex Company Guide because, based
on the Exchange’s review of the Company’s Form 10-Q for the period
ending June 30, 2009, the Company has sustained losses which
are so
substantial in relation to its overall operations or its existing financial
resources, or its financial condition has become so impaired that it appears
questionable, in the opinion of the Exchange, as to whether the Company will be
able to continue operations and/or meet its obligations as they
mature.
On
October 15, 2009, the Company submitted additional information to the Exchange
to address how it planned to regain compliance with section 1003(a)(iv) of the
Company Guide by March 15, 2010. On November 25, 2009, the Company received
notice that the Exchange had accepted the Company’s plan of compliance with
respect to its deficiency with the Exchange’s continued listing standard set
forth in Section 1003(a)(iv) of the Company Guide. On April 13, 2010, the
Company received notice from the Exchange that the Company had resolved the
continued listing deficiency with respect to Section 1003(a)(iv) of the Company
Guide referenced in the September 15, 2009 notice from the Exchange. The
Exchange noted that its staff will continue to monitor the Company for
compliance. If the Company is able to demonstrate compliance for two consecutive
quarters, the Exchange will deem the monitoring period with respect to Section
1003(a)(iv) of the Company Guide to be ended. If not, the Exchange staff will
continue to monitor the Company with respect to Section 1003(a)(iv) of the
Company Guide through December 27, 2010.
In
addition, on November 23, 2009, the Company received a separate notice from the
Exchange stating that the Company does not meet the continued listing standard
set forth in Section 1003(a)(ii) of the Company Guide because it had
stockholders’ equity of less than $4 million and losses from continuing
operations in three of its four most recent fiscal years. By the
aforementioned letter dated June 25, 2009, the Exchange had previously advised
the Company that it was not in compliance with Section 1003(a)(iii) of the
Company Guide because it had stockholders’ equity of less than $6 million and
losses from continuing operations and net losses in its five most recent fiscal
years. On September 15, 2009, the Exchange notified the Company that
it had accepted the Company’s plan that would bring it into compliance with the
continued listing requirements and granted the Company an extension until
December 27, 2010 to regain compliance with Section 1003(a)(iii) of the Company
Guide. Due to the higher stockholders’ equity requirement of Section
1003(a)(iii), the Company was not required to submit an additional plan of
compliance in connection with the deficiency relating to the $4,000,000
stockholders’ equity standard.
The
Company may be subject to delisting proceedings if the Company is not in
compliance with the continued listing standards within the appropriate time
period, or if the Company does not make progress consistent with the Compliance
Plan during the plan period, then the Exchange may initiate delisting
proceedings.
The
Company’s stock trading symbol will remain DDD on NYSE Amex; but will continue
to include an indicator (.BC) as an extension to signify noncompliance with the
continued listing standards. The .BC indicator will remain as an extension on
the trading symbol until the Company has regained compliance with all applicable
continued listing standards.
Note
11 — Warrants
During
the three months ended March 31, 2010, there were no warrants exercised. The
Company had the following warrants to purchase common stock outstanding at March
31, 2010:
Issue
Date
|
|
Issued
Warrants
|
|
|
Exercise
Price
|
|
Term
|
|
Outstanding
Warrants
|
|
Expiration
Date
|
September 30, 2002
|
|
|
750,000
|
|
|
$
|
0.50
|
|
10 years
|
|
|
750,000
|
|
September 30, 2012
|
April
21, 2006
|
|
|
11,000
|
|
|
|
7.50
|
|
5
years
|
|
|
11,000
|
|
April
20, 2011
|
December
4, 2007
|
|
|
1,390,550
|
|
|
|
2.10
|
|
5
years
|
|
|
1,390,550
|
|
December
3, 2012
|
March
12, 2010
|
|
|
2,230,200
|
|
|
|
0.75
|
|
5
years
|
|
|
2,230,200
|
|
March
11, 2015
|
Grand
Total
|
|
|
4,381,750
|
|
|
|
|
|
|
|
|
4,381,750
|
|
|
Each
warrant entitles the holder to purchase one share of common stock at the
exercise price.
Note
12 — Share-Based Compensation
During
the three-month period ended March 31, 2010, the Company did not grant any
options to purchase shares of its common stock or restricted stock.
On
January 4, 2010, the Company issued 214,285 shares of common stock to Dr. Bruce
Morra, the Company’s former President and Chief Executive Officer, in accordance
with the terms of Dr. Morra’s employment agreement with the Company dated as of
January 30, 2009. A liability of approximately $103,000 was recorded at December
31, 2009 for the fair value of these shares as the award was subject to the
availability of a sufficient number of shares
under the
2004 Plan at the date the shares were to be issued. During the
three-month period ended March 31, 2010, additional compensation expense for
these shares of approximately $3,200 was recorded in general and administration
expense, reflecting the change in fair value of these shares from December 31,
2009 to the date of issuance.
The
following tables set forth the aggregate share-based compensation expense
resulting from equity incentive awards issued to the Company’s employees and to
non-employees for services rendered that is recorded in the Company’s results of
operations for the period ended:
|
|
Three
Months Ended
March
31,
|
|
Functions
|
|
2010
|
|
|
2009
|
|
Marketing
and selling
|
|
$
|
—
|
|
|
$
|
8
|
|
Research
and development
|
|
|
15
|
|
|
|
82
|
|
General
and administrative
|
|
|
49
|
|
|
|
265
|
|
Total
|
|
$
|
64
|
|
|
$
|
355
|
|
Note
13 — Net Loss Per Share Applicable to Common Stockholders
Basic net
income (loss) per common share is calculated based on the weighted-average
number of shares of the Company’s common stock outstanding during the period.
Diluted net income (loss) per common share is calculated based on the
weighted-average number of shares of our common stock outstanding and other
dilutive securities outstanding during the period. The potential dilutive shares
of the Company’s common stock resulting from the assumed exercise of outstanding
stock options, and the assumed exercise of the warrants are determined under the
treasury stock method. Diluted net income (loss) per share includes the effect
of potential issuances of common stock, except when the effect is anti-dilutive.
Shares used in the computation of net income (loss) per common share were
49,572,555 and 41,098,270 for the three months ended March 31, 2010 and 2009
respectively.
For the
three month period ending March 31, 2010, the weighted average number of diluted
shares does not include potential issuances of common shares which are
anti-dilutive. The following potential common shares were not included in the
calculation of diluted net loss per share for these periods in 2010 and 2009 as
the effect would have been anti-dilutive.
|
|
2010
|
|
|
2009
|
|
Assumed
exercise of stock options
|
|
|
4,946,419
|
|
|
|
4,915,525
|
|
Assumed
conversion of warrants
|
|
|
4,381,750
|
|
|
|
2,226,550
|
|
Total
|
|
|
9,328,169
|
|
|
|
7,142,075
|
|
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations.
|
The
following discussion and analysis should be read in conjunction with the
financial statements, including the notes thereto, appearing in Item 1 of
Part I of this quarterly report and in our 2009 annual report on Form
10-K.
This
report includes forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. When used in this report, the words
“anticipate,” “believe,” “estimate,” “may,” “intend,” “expect,” and similar
expressions identify certain of such forward-looking statements. Although we
believe that our plans, intentions and expectations reflected in such
forward-looking statements are reasonable, we can give no assurance that such
plans, intentions or expectations will be achieved. Actual result, performance
or achievements could differ materially from historical results or those
contemplated, expressed or implied by the forward-looking statements contained
in this report.
Important
factors that could cause actual results to differ materially from our
forward-looking statements are set forth in this report in Item 1A of Part
II, and are detailed from time to time in our periodic reports filed with the
SEC. We undertake no obligation to update any forward-looking statements,
whether as a result of new information, future events or otherwise.
Overview
We are a
specialty pharmaceutical company. Our corporate objective is to combine our
formulation experience and knowledge with our proprietary and patented
Controlled Delivery Technology (CDT®) platforms to develop novel pharmaceutical,
OTC, and nutritional products. Our CDT platforms are based on multiple issued
and pending patents and other intellectual property for the programmed release
or enhanced performance of active pharmaceutical ingredients and nutritional
products.
We have
developed multiple private label controlled release nutritional products
incorporating our CDT platforms that are sold by national retailers. In October
2005, we entered into a strategic alliance with a subsidiary of Perrigo Company
for the manufacture, marketing, distribution, sale and use of certain dietary
supplement products in the United States. We receive royalty payments
based on a percentage of Perrigo’s net profits derived from the sales of
products covered by our agreement. We have developed additional nutritional
products and are seeking to expand sales of nutritional products through
additional channels in the United States, as well as in Canada, Europe and other
markets.
We are seeking to take advantage of
an opportunity to provide our novel extended release dietary supplements to the
market via direct sales efforts to numerous national retailers. This
distribution channel is anticipated to provide higher contribution margins as
compared to royalty revenues from a partnership. We have commercial
relationships with sales and marketing brokers, contract manufacturing and
distribution firms, in order to support these direct sales efforts.
Our lead product candidate is a
CDT-based extended release formulation of ibuprofen, an analgesic typically used
for the treatment of pain, fever and inflammation. In November 2008, we
successfully completed our pivotal Phase III trial to evaluate the safety and
efficacy of our 12 hour CDT 600 mg extended release ibuprofen for the OTC
market. There are currently no extended release formulations of ibuprofen
approved for use in North America. In addition, our first Abbreviated New Drug
Application, or ANDA, for our 12 hour pseudoephedrine product was accepted by
the FDA in September 2008. The application is currently under review and we
anticipate approval later in 2010. We believe our formulation will offer
attractive tablet size and cost saving opportunities when compared to similar
tablets already on the market.
We expect our operating losses to
decline and cash flows to improve as we advance the direct sales of nutritional
products and Nuprin immediate release ibuprofen. We actively manage our
liquidity by limiting the clinical and development expenses to our ibuprofen and
pseudoephedrine lead products. We have deferred all significant expenditures on
our development projects, including the actual use study required by the FDA as
a prerequisite to submission of our regulatory application for ibuprofen,
pending additional financing, revenues or partnership support. Without
additional revenues or funding, the Company does not expect to be able to
complete development of its lead projects.
We may need to raise additional
capital to fund operations, continue research and development projects, and
commercialize our products. We may not be able to secure additional financing on
favorable terms, or at all. If we are unable to obtain necessary additional
financing, our business will be adversely affected.
Critical
Accounting Policies and Estimates
Since
December 31, 2009, none of our critical accounting policies, or our
application thereof, as more fully described in our annual report on Form 10-K
for the year ended December 31, 2009, has significantly changed. However,
as the nature and scope of our business operations mature, certain of our
accounting policies and estimates may become more critical. You should
understand that generally accepted accounting principles require management to
make estimates and assumptions that affect the amounts of assets and liabilities
or contingent assets and liabilities at the date of our financial statements, as
well as the amounts of revenues and expenses during the periods covered by our
financial statements. The actual amounts of these items could differ materially
from these estimates.
New
Accounting Pronouncements
In
October 2009, the FASB issued ASU 2010-13, Multiple Deliverable Revenue
Arrangements. ASU 2009-13 provides principles and application guidance on
whether multiple deliverables exist, how the arrangement should be separated,
and the consideration allocated. This standard shall be applied prospectively
for revenue arrangements entered into or materially modified in fiscal years
beginning on or after June 15, 2010, with earlier application permitted.
Alternatively, an entity may elect to adopt this standard on a retrospective
basis. The Company is currently assessing the impact of ASU 2010-13 on our
financial statements. Adoption of this standard is not expected to have a
material impact to the financial statements.
At the March 31, 2010 meeting, the FASB
ratified Emerging Issues Task Force (EITF) Issue No. 08-9, “Milestone Method of
Revenue Recognition” (Issue 08-9). The Accounting Standards Update resulting
from Issue 08-9 amends ASC 605-28.1 the Task Force concluded that the milestone
method is a valid application of the proportional performance model when applied
to research or development arrangements. Accordingly, the consensus states that
an entity can make an accounting policy election to recognize a payment that is
contingent upon the achievement of a substantive milestone in its entirety in
the period in which the milestone is achieved. The milestone method is not
required and is not the only acceptable method of revenue recognition for
milestone payments. The guidance in Issue 08-9 is effective for fiscal
years, and interim periods within those years, beginning on or after 15 June
2010, and
may
be applied: prospectively to milestones achieved after the adoption date, or
retrospectively for all periods presented. The Company currently does not have
any revenue contracts with milestone arrangements.
Results
of Operations
Comparison
of the Three Months Ended March 31, 2010 and 2009
Revenues
Total
revenues, which consist of licensing fees and royalty revenue from our
collaboration agreements, decreased 3%, or $6,000 to $166,000 for the three
months ended March 31, 2010, compared to $172,000 for the same period in 2009.
This decrease is a result of a $31,000 decrease in royalty revenue from sales of
our nutritional products by Perrigo. Royalty payments are based on Perrigo’s net
profits from the sale of CDT-based products. The decline in royalty
revenue was off-set by an increase in licensing fees attributable to our
terminated agreement with Chrono Nutraceuticals, LLC.
Under the
terms of our license agreement with Chrono, Chrono paid an initial fee of
$25,000 and agreed to pay an additional $87,500 that became due on January 31,
2010. Chrono has failed to deliver the additional payment of $87,500 and has
advised us that payment of this additional amount will be delayed pending
resolution of internal financial issues. We have terminated our
license agreement with Chrono and we are evaluating our remedies with respect to
the owed amounts. The initial $25,000 fee is not refundable and was recorded as
licensing fees in March 2010.
Operating
Expenses
Marketing
and Selling Expenses
Marketing
and selling expenses decreased 66%, or $71,000 to $36,000 for the three months
ended March 31, 2010, compared to $107,000 for the same period in 2009. Of this
reduction in expense, $25,000 is due to a reduction in personnel and $42,000
reflects the impact of lower advertising and tradeshow expenses.
Research
and Development Expenses
Research
and development expenses decreased 59%, or $482,000 to $340,000 for the three
months ended March 31, 2010, compared to $822,000 for the same period in 2009.
Our deferral of development activities on certain projects pending additional
funding resulted in an approximately $142,000 reduction in
expenses. Research and development related legal expenses decreased
approximately $66,000 due to lower abandonment projects. In addition, personnel
related expenses and non-cash share based compensation decreased approximately
$203,000 and $66,000, respectively due to personnel reductions. These decreases
were offset by an increase in repairs and maintenance expense due to the
recognition in 2009 of the receipt of an $85,000 insurance settlement for a
broken tablet press.
General
and Administrative Expenses
General
and administrative expenses decreased 46%, or $530,000 to $624,000 for the three
months ended March 31, 2010, compared to approximately $1.2 million for the same
period in 2009, primarily due to lower personnel related costs, non-cash share
based compensation expense, insurance premiums, and director and shareholder
relations expense. Personnel related expenses decreased $267,000 due to a
reduction in the number of employees and non-cash share based compensation
expense decreased $217,000 due to a lower number of stock options and shares
granted during the three months ended March 31, 2010. Insurance premiums
decreased $22,000 due to lower rates, legal expense decreased $16,000 due to a
reduction in legal matters, and director and shareholder relations expense
decreased $15,000 due to a decrease in the number of directors.
Other
Income (Expense), Net
Other
income decreased 86%, or $6,000 to $1,000 for the three months ended March 31,
2010, compared to $7,000 for the comparable period in 2009. This decrease was
due to a decrease in interest income attributable to lower cash balances in
January and February 2010.
Net
Loss
Net loss
decreased $1.1 million to $833,000 for the three months ended March 31, 2010,
compared to $1.9 million for the same period in 2009. The decreased net loss
reflects lower operating expenses.
Liquidity
and Capital Resources
We had
approximately $4.0 million in cash and cash equivalents, and $383,000 in
restricted cash as of March 31, 2010. Based on our current operating plan, we
anticipate that our existing cash and cash equivalents, together with expected
royalties from third parties, will be sufficient to fund our operations into the
second half of 2011, assuming we do not trigger additional obligations, and
unless unforeseen events arise that negatively impact our liquidity. In the
event we are unsuccessful in generating additional revenues or raising
additional funds, it will be necessary to substantially reduce our operations to
preserve capital.
Our
current operating strategy is to actively manage our liquidity by limiting
clinical and development expenses to our ibuprofen and pseudoephedrine lead
products, and reducing our general administrative and other operating expenses
while also supporting additional marketing and distribution of our nutritional
products. We have deferred all significant expenditures on our development
projects, including the actual use study required by the FDA as a prerequisite
to submission of our regulatory application for ibuprofen, pending additional
financing or partnership support. Without continuing revenues or additional
funding, we would not be able to complete development of our new products. In
addition, we have reduced our marketing and general and administrative expenses
and continue to evaluate opportunities to reduce operating
expenses.
Our
capital resources are very limited and operations to date have been funded
primarily with the proceeds from equity financings, royalty payments, and
collaborative research agreements. We are pursuing additional sources of
financing that could involve strategic transactions, including mergers and
business combinations, new collaborations, as well as opportunities to expand
product sales and other options. However, there are significant uncertainties as
to our ability to increase revenues or access potential sources of capital. We
may not be able to enter any collaboration on terms acceptable to us, or at all,
due to conditions in the pharmaceutical industry or in the economy in general.
Competition for such arrangements is intense, with many biopharmaceutical
companies attempting to secure alliances with more established pharmaceutical or
consumer products companies. Although we have been engaged in discussions with
potential partners, there is no assurance that any agreements will result from
these discussions in a timely manner, or at all, or that
revenues generated from such an agreement will offset operating
expenses to enable us to meet our short term funding requirements.
In
addition to our efforts to enter into alliances and licensing agreements, we
plan to continue to seek access to the capital markets to fund our operations.
We filed a shelf registration statement in the amount of $40 million which was
declared effective by the Securities and Exchange Commission on November 25,
2008. Under the shelf registration statement we may offer from time-to-time, one
or more offerings of securities up to an aggregate public offering price of $40
million. However, the financial markets have been very difficult for companies
at our development stage and financial condition and financing may not be
available on favorable terms or at all. Additionally, we have received notice
from the NYSE Amex that we are not in compliance with continued listing
requirements. While we have provided the NYSE Amex with a plan to regain
compliance with applicable listing standards, our inability to maintain listing
our common stock on the NYSE Amex may further limit our ability to access the
capital markets. Delisting from NYSE Amex could also have other negative
results, including the potential loss of confidence by suppliers and employees,
the loss of institutional investor interest and fewer business development
opportunities. Any issuance of additional securities would be extremely dilutive
to the Company’s existing stockholders.
Our
failure to increase revenues or raise capital, including financial support from
partnerships or other collaborations, would materially adversely affect our
business, financial condition and results of operations, and could force us to
reduce or cease operations, which may trigger additional obligations aggregating
as much as $690,000.
Cash flows from operating
activities—Net cash used in operating activities for the three months
ended March 31, 2010 was approximately $749,000 compared to $1.6 million for the
three months ended March 31, 2009. The reduction in cash flows used in operating
activities reflects the impact of substantially lower operating expenses for the
three months ended March 31, 2010 compared with the same period in
2009.
Cash flows from investing
activities—Cash flows used in investing activities of $175,000 during the
three months ended March 31, 2010 primarily represent approximately $226,000
paid for patent rights, offset by a $54,000 reduction in our restricted cash
balance used to reduce our lease obligation. Cash flows used in investing
activities
for the
three months ended March 31, 2009 primarily represent the purchase of a new
tablet press from the proceeds of an insurance settlement related to our
facility move and $37,000 in payments for patent rights.
Cash flows from financing
activities— Cash flows from financing activities for the three months
ended March 31, 2010 primarily represent net proceeds of $3.7 million from
issuance of common stock and stock warrants in our March 2010 equity
transaction. Cash flows used by financing activities for the three months ended
March 31, 2009 primarily represent payments of $21,000 made on our term loan
through April 2009, at which time the loan was paid off.
As of
March 31, 2010, we had $3.9 million of working capital compared to $1.0 million
as of December 31, 2009. We have accumulated net losses of approximately
$71.5 million from our inception through March 31, 2010. We have currently
funded our operations primarily through the issuance of equity
securities.
Evaluation
of Disclosure Controls and Procedures
Under the
supervision and with the participation of our management, including our
principal executive officer and principal financial officer, we conducted an
evaluation of our disclosure controls and procedures, as such term is defined
under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as
amended. Based on this evaluation, our principal executive officer and our
principal financial officer concluded that our disclosure controls and
procedures were effective as of the end of the period covered by this quarterly
report.
Changes
in Internal Control Over Financial Reporting
There
have been no changes in our internal control over financial reporting during the
first quarter of fiscal 2010 that have materially affected, or are reasonably
likely to materially affect, our internal control over financial
reporting.
We are
not a party to any material litigation.
Other
than the modification to the risk factors set forth below, there has not been a
material change to the risk factors as set forth in our Annual Report on Form
10-K for the year ended December 31, 2009.
A
significant number of shares of our common stock are or will be eligible for
sale in the open market, which could drive down the market price for our common
stock and make it difficult for us to raise capital.
As of
March 31, 2010, 49,572,555 shares of our common stock were outstanding, and
there were 9,328,169 shares of our common stock issuable upon the exercise of
outstanding options and warrants. Our stockholders may experience substantial
dilution if we raise additional funds through the sale of equity securities, and
sales of a large number of shares by us or by existing stockholders could
materially decrease the market price of our common stock and make it more
difficult for us to raise additional capital through the sale of equity
securities. The risk of dilution and the resulting downward pressure on our
stock price could also encourage stockholders to engage in short sales of our
common stock. By increasing the number of shares offered for sale, material
amounts of short selling could further contribute to progressive price declines
in our common stock.
Item
2.
|
Unregistered
Sales of Equity Securities and Use of
Proceeds
|
As previously disclosed in the
Company’s Current Report on Form 8-K, filed with the Securities and Exchange
Commission on March 12, 2010, on March 15, 2010, the Company completed a private
placement of its units, consisting of one share of the Company’s common stock
and a warrant which entitles the holder to purchase one-fifth of one share of
common stock.
The
following exhibits are filed herewith:
|
|
|
|
|
|
|
Incorporated
by Reference
|
Exhibit No.
|
|
Description
|
|
Filed
Herewith
|
|
|
Form
|
|
|
Exhibit No.
|
|
File No.
|
Filing Date
|
|
10.1
|
|
Amendment
Number Three to Manufacture, License and Distribution Agreement dated
January 4, 2010, between Perrigo Company of South Carolina, Inc. and the
Company
|
|
|
|
|
|
10-K
|
|
|
|
10.41
|
|
|
3/24/2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.2
|
|
Term
Sheet dated February 16, 2010, between RedHill Biopharma Ltd. and the
Company
|
|
|
|
|
|
10-K
|
|
|
|
10.42
|
|
|
3/24/2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.3
|
|
Form
of Unit Purchase Agreement dated March 12, 2010.
|
|
|
|
|
|
|
10-K
|
|
|
|
10.43
|
|
|
3/24/2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.4
|
|
Form
of Common Stock Purchase Warrant dated March 12, 2010.
|
|
|
|
|
|
|
10-K
|
|
|
|
10.44
|
|
|
3/24/2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31.1
|
|
Certification
of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of. 2002
|
|
|
X
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31.2
|
|
Certification
of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
|
|
|
X
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32.1
|
|
Certification
of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
|
|
|
X
|
|
|
|
|
|
|
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32.2
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Certification
of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
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X
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SIGNATURES
In
accordance with the requirements of the Exchange Act, the registrant caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
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SCOLR
Pharma, Inc.
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By:
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/s/ STEPHEN
J. TURNER
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Date:
April 29, 2010
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Stephen
J. Turner
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President
and Chief Executive Officer
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(Principal
Executive Officer)
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By:
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/s/ RICHARD
M. LEVY
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Date:
April 29, 2010
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Richard
M. Levy
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Chief
Financial Officer and Vice President - Finance
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(Principal
Financial Officer)
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EXHIBIT
INDEX
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Incorporated
by Reference
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Exhibit No.
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Description
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Filed
Herewith
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Form
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Exhibit No.
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File No.
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Filing Date
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10.1
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Amendment
Number Three to Manufacture, License and Distribution Agreement dated
January 4, 2010, between Perrigo Company of South Carolina, Inc. and the
Company
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10-K
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10.41
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3/24/2010
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10.2
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Term
Sheet dated February 16, 2010, between RedHill Biopharma Ltd. and the
Company
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10-K
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10.42
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3/24/2010
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10.3
|
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Form
of Unit Purchase Agreement dated March 12, 2010.
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10-K
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10.43
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3/24/2010
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10.4
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Form
of Common Stock Purchase Warrant dated March 12, 2010.
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10-K
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|
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10.44
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3/24/2010
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31.1
|
|
Certification
of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of. 2002
|
|
|
X
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31.2
|
|
Certification
of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
|
|
|
X
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|
|
|
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|
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|
|
32.1
|
|
Certification
of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
|
|
|
X
|
|
|
|
|
|
|
|
|
|
|
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|
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|
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|
|
|
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|
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32.2
|
|
Certification
of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
|
|
|
X
|
|
|
|
|
|
|
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18