10-Q 1 tv505453_10q.htm 10-Q

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

(Mark One)

 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2018 

 

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:   333-172647

 

 

 

Neurotrope, Inc.

(Exact name of registrant as specified in its charter)

 

Nevada 46-3522381
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

 

1185 Avenue of the Americas, 3rd Floor

New York, New York 10036

(973) 242-0005

(Registrant’s telephone number, including area code)

 

(Former name, former address and former fiscal year, if changed since last report)

 

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 every Interactive Data File required to be submitted 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 such files).  Yes x  No ¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ¨ Accelerated filer ¨
Non-accelerated filer x Smaller reporting company x
    Emerging growth company ¨

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ¨

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes ¨ No x

 

As of October 28, 2018, there were 7,909,693 shares of the registrant’s common stock, $0.0001 par value per share, issued and outstanding.

 

 

 

 

 

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

 

Certain statements in this report contain or may contain forward-looking statements. These statements, identified by words such as “plan,” “anticipate,” “believe,” “estimate,” “should,” “expect” and similar expressions, include our expectations and objectives regarding our future financial position, operating results and business strategy. These statements are subject to known and unknown risks, uncertainties and other factors which may cause actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. These forward-looking statements were based on various factors and were derived utilizing numerous assumptions and other factors that could cause our actual results to differ materially from those in the forward-looking statements. These factors include, but are not limited to, our inability to obtain adequate financing, the significant length of time associated with drug development and related insufficient cash flows and resulting illiquidity, our patent portfolio, our inability to expand our business, significant government regulation of pharmaceuticals and the healthcare industry, lack of product diversification, availability of our raw materials, existing or increased competition, stock volatility and illiquidity, and the our failure to implement our business plans or strategies. Most of these factors are difficult to predict accurately and are generally beyond our control. You should consider the areas of risk described in connection with any forward-looking statements that may be made herein. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. Readers should carefully review this report in its entirety, including but not limited to our financial statements and the notes thereto and the risks described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2017, filed with the Securities and Exchange Commission (the “SEC”). We advise you to carefully review the reports and documents we file from time to time with the SEC, particularly our quarterly reports on Form 10-Q and our current reports on Form 8-K. Except for our ongoing obligations to disclose material information under the Federal securities laws, we undertake no obligation to publicly release any revisions to any forward-looking statements, to report events or to report the occurrence of unanticipated events.

 

OTHER INFORMATION

 

When used in this report, the terms, “we,” the “Company,” “our,” and “us” refer to Neurotrope, Inc., a Nevada corporation (formerly BlueFlash Communications, Inc., a Florida corporation) and its consolidated subsidiary Neurotrope BioScience, Inc. (“Neurotrope BioScience”).

 

 

 

 

TABLE OF CONTENTS

 

      Page
No.
  PART I – FINANCIAL INFORMATION    
       
Item 1. Condensed Consolidated Financial Statements (Unaudited)   3
  Condensed Consolidated Balance Sheets as of September 30, 2018 and December 31, 2017   3
  Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2018 and 2017   4
  Condensed Consolidated Statement of Changes in Shareholders’ Equity for the nine months ended September 30, 2018   5
  Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2018 and 2017   6
  Notes to Condensed Consolidated Financial Statements   7
       
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.   14
       
Item 3. Quantitative and Qualitative Disclosures About Market Risk.   26
       
Item 4. Controls and Procedures.   27
       
  PART II – OTHER INFORMATION   28
       
Item 1. Legal Proceedings.   28
       
Item 1A. Risk Factors.   28
       
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.   29
       
Item 3. Defaults Upon Senior Securities.   29
       
Item 4. Mine Safety Disclosures.   29
       
Item 5. Other Information.   29
       
Item 6. Exhibits.   30
       
  Signatures.   31

 

 2 

 

 

PART I

FINANCIAL INFORMATION

 

Item 1. Financial Statements.

 

Neurotrope, Inc and Subsidiary

Condensed Consolidated Balance Sheets

 

(Unaudited)

 

   September 30
2018
   December 31,
2017
 
         
ASSETS          
           
CURRENT ASSETS          
Cash and cash equivalents  $9,743,377   $16,113,150 
Prepaid expenses   1,231,906    310,437 
           
TOTAL CURRENT ASSETS   10,975,283    16,423,587 
           
Fixed assets, net of accumulated depreciation   21,325    20,655 
           
TOTAL ASSETS  $10,996,608   $16,444,242 
           
LIABILITIES AND SHAREHOLDERS’ EQUITY          
           
CURRENT LIABILITIES          
Accounts payable  $1,484,490   $1,240,033 
Accounts payable - related party   112,900    - 
Accrued expenses   89,001    268,250 
Accrued expenses - related party   25,000    50,000 
           
TOTAL CURRENT LIABILITIES   1,711,391    1,558,283 
           
Commitments and contingencies          
           
SHAREHOLDERS’ EQUITY          
Common stock - 150,000,000 shares authorized, $.0001 par value; 7,909,693 shares issued and outstanding at September 30, 2018; 7,895,859 shares issued and outstanding at December 31, 2017   791    790 
Additional paid-in capital   79,224,775    77,544,976 
Accumulated deficit   (69,940,349)   (62,659,807)
           
TOTAL SHAREHOLDERS’ EQUITY   9,285,217    14,885,959 
           
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY  $10,996,608   $16,444,242 

 

See accompanying notes to condensed consolidated financial statements.

 

 3 

 

 

Neurotrope, Inc. and Subsidiary

Condensed Consolidated Statements of Operations

 

(Unaudited)

 

   Nine Months Ended
September 30,
2018
   Nine Months Ended
September 30,
2017
   Three Months Ended
September 30,
2018
   Three Months Ended
September 30,
2017
 
                 
OPERATING EXPENSES:                    
Research and development - related party  $225,793   $164,619   $62,900   $75,431 
Research and development   2,450,566    3,662,589    1,674,387    744,618 
General and administrative - related party   37,500    26,918    12,500    12,500 
General and administrative   2,980,105    3,833,962    904,729    1,252,962 
Stock based compensation - related party   235,434    100,758    60,498    33,955 
Stock-based compensation   1,439,939    581,664    487,738    197,146 
                     
TOTAL OPERATING EXPENSES   7,369,337    8,370,510    3,202,752    2,316,612 
                     
OTHER INCOME (EXPENSE):                    
Loss on abandonment of fixed assets   -    (34,274)   -    - 
Gain on settlement of lease obligation   -    53,599    -    - 
Interest income   88,795    46,755    33,398    20,298 
                     
Net loss before income taxes   (7,280,542)   (8,304,430)   (3,169,354)   (2,296,314)
                     
Provision for income taxes   -    -    -    - 
                     
Net loss  $(7,280,542)  $(8,304,430)  $(3,169,354)  $(2,296,314)
                     
PER SHARE DATA:                    
                     
Basic and diluted loss per common share  $(0.92)  $(1.08)  $(0.40)  $(0.29)
                     
Basic and diluted weighted average common shares outstanding   7,906,800    7,674,600    7,909,600    7,894,400 

 

See accompanying notes to condensed consolidated financial statements.

 

 4 

 

 

Neurotrope, Inc. and Subsidiary

Condensed Consolidated Statement of Changes in Shareholders’ Equity

 

(Unaudited)

 

   Common Stock   Additional
Paid-In
   Accumulated     
   Shares   Amount   Capital   Deficit   Total 
                     
Balance January 1, 2018   7,895,859   $790   $77,544,976   $(62,659,807)  $14,885,959 
                          
Exercise of common stock warrants   13,834    1    4,426    -    4,427 
                          
Stock based compensation   -    -    1,675,373    -    1,675,373 
                          
Net loss   -    -    -    (7,280,542)   (7,280,542)
                          
Balance September 30, 2018   7,909,693   $791   $79,224,775   $(69,940,349)   $ 9,285,217 

 

 See accompanying notes to condensed consolidated financial statements.

 

 5 

 

 

Neurotrope, Inc. and Subsidiary

Condensed Consolidated Statements of Cash Flows

 

(Unaudited)

 

   Nine Months Ended
September 30, 2018
   Nine Months Ended
September 30, 2017
 
CASH FLOWS FROM OPERATING ACTIVITIES          
Net loss  $(7,280,542)  $(8,304,430)
Adjustments to reconcile net loss to net cash used by operating activities          
Stock based compensation   1,675,373    682,422 
Consulting services paid by issuance of common stock   -    121,645 
Depreciation expense   2,516    3,176 
Loss on abandonment of fixed assets   -    34,274 
Change in assets and liabilities          
Increase in prepaid expenses   (921,469)   (292,718)
(Increase) decrease in accounts payable   244,457    (549,727)
Increase in accounts payable - related party   112,900    - 
Decrease in accrued expenses   (179,249)   (140,717)
Decrease in accrued expenses - related party   (25,000)   (4,609)
Total adjustments   909,528    (146,254)
           
Net Cash Used in Operating Activities   (6,371,014)    (8,450,684)
           
CASH FLOWS FROM INVESTING ACTIVITIES          
           
Purchase of property and equipment   (3,186)   (3,585)
           
CASH FLOWS FROM FINANCING ACTIVITIES          
Proceeds from exercise of common stock warrants   4,427    1,331,265 
           
Net Cash Provided by Financing Activities   4,427    1,331,265 
           
NET DECREASE IN CASH   (6,369,773)   (7,123,004)
           
CASH AT BEGINNING OF PERIOD   16,113,150    25,773,533 
           
CASH AT END OF PERIOD  $9,743,377   $18,650,529 

 

See accompanying notes to condensed consolidated financial statements.

 

 6 

 

 

NEUROTROPE, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

Note 1 – Organization and Nature of Planned Business:

 

Business

 

Neurotrope BioScience was incorporated in Delaware on October 31, 2012. Neurotrope BioScience was formed to advance new therapeutic and diagnostic technologies in the field of neurodegenerative disease, primarily Alzheimer’s disease (“AD”). Neurotrope BioScience is collaborating with Cognitive Research Enterprises, Inc. (formerly known as the Blanchette Rockefeller Neurosciences Institute, or BRNI) (“CRE”), a related party, in this process. The exclusive rights to certain technology were licensed by CRE to the Company on February 28, 2013 (see Note 4).

 

Liquidity

 

As of October 28, 2018, the Company had approximately $9.5 million in cash and cash equivalents. The Company expects that its existing capital resources will be sufficient to support its projected operating requirements into the beginning of November 2019, including the continuing development of bryostatin, our novel drug targeting the activation of PKC epsilon, through our ongoing follow-on clinical study (estimated revised total cost $7.3 million - see Note 3). $5.3 million for the ongoing confirmatory clinical trial is anticipated to be paid over the next nine to 12 months, with a total of approximately $4.2 million for general corporate and working capital purposes spread over the next approximately 13 months. The Company’s ability to fund operations past November of 2019 is dependent upon the Company’s ability to obtain additional financing through equity and/or debt financing arrangements and grant funding. There can be no assurances that additional financing will be available on acceptable terms to the Company, or at all. If any material unforeseen contingencies were to arise during the next twelve months, the Company could be required to implement cost reduction strategies or curtail operations if the Company is unable to obtain additional financing to meet obligations as they come due.

 

We expect to require additional capital in order to pursue additional development projects in addition to our current confirmatory AD clinical trial. Additional funding may not be available to us on acceptable terms, or at all. If we are unable to access additional funds when needed, or if we incur unforeseen additional material costs or expenses during the next 12 months, we may not be able to pursue development of such other product candidates. If so, we could be required to delay, scale back or eliminate some or all of our existing or additional contemplated development programs and operations. Any additional equity financing, if available, may not be available on favorable terms, would most likely be significantly dilutive to our current stockholders and debt financing, if available, may involve restrictive covenants. If we are able to access funds through collaborative or licensing arrangements, we may be required to relinquish rights to some of our technologies or product candidates that we would otherwise seek to develop or commercialize on our own, on terms that are not favorable to us. Our ability to access capital when needed is not assured and, if not achieved on a timely basis, will materially harm our business, financial condition and results of operations.

 

Basis of Presentation

 

Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP) have been condensed or omitted. However, the Company believes that the disclosures included in these financial statements are adequate to make the information presented not misleading. The unaudited condensed consolidated financial statements included in this document have been prepared on the same basis as the annual consolidated financial statements, and in our opinion reflect all adjustments, which include normal recurring adjustments necessary for a fair presentation in accordance with GAAP and SEC regulations for interim financial statements. The results for the nine months ended September 30, 2018 are not necessarily indicative of the results that the Company will have for any subsequent period. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes to those statements for the year ended December 31, 2017 included in our Annual Report on Form 10-K.

 

 7 

 

 

Note 2 – Summary of Significant Accounting Policies:

 

Use of Estimates:

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 

  

Cash and Cash Equivalents:

 

The Company considers all highly liquid temporary cash investments with an original maturity of three months or less when purchased to be cash equivalents. At September 30, 2018, the Company’s cash balances exceed the current insured amounts under the Federal Deposit Insurance Corporation.

 

Property and Equipment:

 

Property and equipment is capitalized and depreciated on a straight line basis over the estimated useful life of the asset, which is deemed to be between three and ten years.  

  

Research and Development Costs:

 

All research and development costs, including costs to maintain or expand the Company’s patent portfolio licensed from CRE that do not meet the criteria for capitalization are expensed when incurred. FASB ASC Topic 730 requires companies involved in research and development activities to capitalize non-refundable advance payments for such services pursuant to contractual arrangements because the right to receive those services represents an economic benefit. Such capitalized advances will be expensed when the services occur and the economic benefit is realized. There were no capitalized research and development services at September 30, 2018 and December 31, 2017.

 

Loss Per Share:

 

Basic loss per common share amounts are based on weighted average number of common shares outstanding. Diluted loss per share amounts are based on the weighted average number of common shares outstanding, plus the incremental shares that would have been outstanding upon the assumed exercise of all potentially dilutive stock options and warrants subject to anti-dilution limitations. All such potentially dilutive instruments were anti-dilutive as of September 30, 2018 and 2017, which were approximately 6.5 million shares and 5.8 million shares, respectively.

  

Income Taxes:

 

Income taxes are provided for the tax effects of transactions reported in the financial statements and consist of taxes currently due and deferred taxes. Deferred taxes are recognized for differences between the basis of assets and liabilities for financial statement and income tax purposes and the tax effects of net operating loss and other carryforwards. The deferred tax assets and liabilities represent the future tax consequences of those differences and carryforwards, which will either be taxable or deductible when the related assets, liabilities or carryforwards are recovered or settled. Deferred tax assets are reduced by a valuation allowance when, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized.

 

 8 

 

 

The Company applies the provisions of FASB ASC 740-10, Accounting for Uncertain Tax Positions, which clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The standard also provides guidance on de-recognition, classification, interest and penalties, and accounting in interim periods, disclosure and transitions. 

 

The Company has concluded that there are no significant uncertain tax positions requiring recognition in the accompanying financial statements. The tax period that is subject to examination by major tax jurisdictions is generally three years from the date of filing.

  

Under Section 382 of the Internal Revenue Code of 1986, as amended, changes in the Company's ownership may limit the amount of its net operating loss carryforwards that could be utilized annually to offset future taxable income, if any. This limitation would generally apply in the event of a cumulative change in ownership of the Company of more than 50% within a three-year period. The Company has not performed a study to assess whether an ownership change for purposes of Section 382 has occurred, or whether there have been multiple ownership changes since the Company's inception, due to the significant costs and complexities associated with such study.

  

Risks and Uncertainties:

 

The Company operates in an industry that is subject to rapid technological change, intense competition and significant government regulation. The Company’s operations are subject to significant risk and uncertainties including financial, operational, technological, regulatory and other risk. Such factors include, but are not necessarily limited to, the results of clinical testing and trial activities, the ability to obtain regulatory approval, the ability to obtain favorable licensing, manufacturing or other agreements for its product candidates and the ability to raise capital to achieve strategic objectives. 

 

Stock Compensation:

 

The Company accounts for stock-based awards to employees in accordance with applicable accounting principles, which requires compensation expense related to share-based transactions, including employee stock options, to be measured and recognized in the financial statements based on a determination of the fair value of the stock options. The grant date fair value is determined using the Black-Scholes-Merton (“Black-Scholes”) pricing model. Employee stock option expense is recognized over the employee’s requisite service period (generally the vesting period of the equity grant). The Company’s option pricing model requires the input of highly subjective assumptions, including the volatility and expected term. Any changes in these highly subjective assumptions significantly impact stock-based compensation expense.

   

Options awarded to purchase shares of common stock issued to non-employees in exchange for services are accounted for as variable awards in accordance with applicable accounting principles. Such options are revalued using the Black-Scholes option pricing model until the entire award vests. 

       

Note 3 – Collaborative Agreements:

 

Stanford License Agreements

 

On May 12, 2014, the Company entered into a license agreement (the “Stanford Agreement”) with The Board of Trustees of The Leland Stanford Junior University (“Stanford”), pursuant to which Stanford has granted to the Company a revenue-bearing, world-wide right and exclusive license, with the right to grant sublicenses (on certain conditions), under certain patent rights and related technology for the use of bryostatin structural derivatives, known as “bryologs,” for use in the treatment of central nervous system disorders, lysosomal storage diseases, stroke, cardio protection and traumatic brain injury, for the life of the licensed patents. We are required by the Stanford Agreement to use commercially reasonable efforts to develop, manufacture and sell products (“Licensed Products”) in the Licensed Field of Use (as defined in the Stanford Agreement). In addition, we must meet specific diligence milestones, and upon meeting such milestones, make specific milestone payments to Stanford. We will also pay Stanford royalties on net sales, if any, of Licensed Products (as defined in the Stanford Agreement). 

 

 9 

 

 

On January 19, 2017, the Company entered into a second license agreement with Stanford, pursuant to which Stanford has granted to the Company a revenue-bearing, world-wide right and exclusive license, with the right to grant sublicenses (on certain conditions), under certain patent rights and related technology for the use of “Bryostatin Compounds and Methods of Preparing the Same,” or synthesized bryostatin, for use in the treatment of neurological diseases, cognitive dysfunction and psychiatric disorders, for the life of the licensed patents. The Company paid Stanford $70,000 upon executing the license and is obligated to pay an additional $10,000 annually as a license maintenance fee. In addition, based upon certain milestones, the Company will be obligated to pay up to an additional $2.1 million and between 1.5% and 4.5% royalty payments on certain revenues generated by the Company relating to the licensed technology. The Company has made all required annual maintenance payments.

  

Mt. Sinai License Agreement

 

On July 14, 2014, Neurotrope BioScience entered into an Exclusive License Agreement (the “Mount Sinai Agreement”) with the Icahn School of Medicine at Mount Sinai (“Mount Sinai”). Pursuant to the Mount Sinai Agreement, Mount Sinai granted Neurotrope BioScience (a) a revenue-bearing, world-wide right and exclusive license, with the right to grant sublicenses (on certain conditions), under Mount Sinai’s interest in certain joint patents held by the Company and Mount Sinai (the “Joint Patents”) as well as in certain results and data (the “Data Package”) and (b) a non-exclusive license, with the right to grant sublicenses on certain conditions, to certain technical information, both relating to the diagnostic, prophylactic or therapeutic use for treating diseases or disorders in humans relying on activation of Protein Kinase C Epsilon (“PKCε”), which includes Niemann-Pick Disease (the “Mount Sinai Field of Use”). The Mount Sinai Agreement allows Neurotrope BioScience to research, discover, develop, make, have made, use, have used, import, lease, sell, have sold and offer certain products, processes or methods that are covered by valid claims of Mount Sinai’s interest in the Joint Patents or an Orphan Drug Designation Application covering the Data Package (“Mount Sinai Licensed Products”) in the Mount Sinai Field of Use (as such terms are defined in the Mount Sinai Agreement).

   

Clinical Trial Services Agreements

  

On May 4, 2018, Neurotrope BioScience executed a new Services Agreement (the “New Services Agreement”) with Worldwide Clinical Trials (“WCT”). The New Services Agreement relates to services for Neurotrope BioScience’s Phase 2 confirmatory clinical study assessing the safety, tolerability and efficacy of bryostatin in the treatment of moderately severe to severe AD (the “Study”). Pursuant to the terms of the Services Agreement, WCT is providing services to target enrollment of approximately one hundred (100) Study subjects. The total estimated budget for the services, including pass-through costs, drug supply and other statistical analyses, is approximately $7.3 million based upon the progress of the Study. Of the total estimated Study costs, as of September 30, 2018, the Company has incurred approximately $2.0 million in expenses of which WCT has been paid a total of approximately $1.8 million and approximately $200,000 has been paid to other trial-related vendors and consultants. Of the $1.8 million paid to WCT, $1.2 million was for prepaid deposits and $600,000 in progress payments. The Company has utilized $400,000 of the prepaid deposits, leaving a balance included in prepaid expenses of approximately $800,000.

 

As of October 29, 2018, the Company is ahead of plan for its current clinical Study, having enrolled 37 patients into the dosing phase. Contracts have been finalized with 28 clinical sites that will participate in the Study.

 

This confirmatory clinical trial will be conducted pursuant to an amendment to the Company’s existing Investigational New Drug Application (“IND”).

 

Also, in connection with the execution of the New Services Agreement, Neurotrope BioScience received consent pursuant to its CRE License Agreement (see Note 4 below).

 

 10 

 

 

Nemours Agreement

 

On September 5, 2018, the Company announced a collaboration with The Nemours / Alfred I. duPont Hospital for Children (“Nemours”), a premier U.S. children’s hospital, to initiate a clinical trial in children with Fragile X Syndrome (“Fragile X”). The planned protocol for the pilot open-label trial will dose Fragile X patients from 8 to less than 18 years of age, using a dosing regimen similar to that being tested in AD patients. In addition to the primary objective of safety and tolerability, measurements will be made of working memory, language and other functional aspects such as anxiety, repetitive behavior, executive functioning, and social behavior. The total estimated cost of this proposed trial to the Company is approximately $100,000.

 

Note 4 – Related Party Transactions and Licensing / Research Agreements:

 

James Gottlieb, a director of the Company, serves as a director of CRE, and Shana Phares, also a director of the Company, serves as President and Chief Executive Officer of CRE. CRE is a stockholder of a corporation, Neuroscience Research Ventures, Inc. (“NRVI”), which owned 3.6% of the Company's outstanding common stock as of September 30, 2018.

 

Effective October 31, 2012, Neurotrope BioScience executed a Technology License and Services Agreement (the “TLSA”) with CRE, a related party, and NRV II, LLC (“NRV II”), another affiliate of CRE, which was amended by Amendment No. 1 to the TLSA as of August 21, 2013. As of February 4, 2015, the parties entered into an Amended and Restated Technology License and Services Agreement (the “CRE License Agreement”). The CRE License Agreement provides research services and has granted Neurotrope BioScience the exclusive and nontransferable world-wide, royalty-bearing right, with a right to sublicense (in accordance with the terms and conditions described below), under CRE’s and NRV II’s respective right, title and interest in and to certain patents and technology owned by CRE or licensed to NRV II by CRE as of or subsequent to October 31, 2012, to develop, use, manufacture, market, offer for sale, sell, distribute, import and export certain products or services for therapeutic applications for AD and other cognitive dysfunctions in humans or animals (the “Field of Use”). Additionally, the TLSA specifies that all patents that issue from a certain patent application shall constitute licensed patents and all trade secrets, know-how and other confidential information claimed by such patents constitute licensed technology under the CRE License. The CRE License Agreement terminates on the later of the date (a) the last of the licensed patent expires, is abandoned, or is declared unenforceable or invalid or (b) the last of the intellectual property enters the public domain. After the initial Series A Stock financing, the CRE License Agreement required Neurotrope BioScience to enter into scope of work agreements with CRE as the preferred service provider for any research and development services or other related scientific assistance and support services. 

     

In addition, the CRE License Agreement requires the Company to pay CRE a “Fixed Research Fee” of $1 million per year for five years, commencing on the date that the Company completes a Series B Preferred Stock financing resulting in proceeds of at least $25,000,000 (the “Series B Financing”). This Fixed Research Fee is not yet due. The CRE License Agreement also requires the payment of royalties ranging between 2% and 5% of the Company’s revenues generated from the licensed patents and other intellectual property, dependent upon the percentage ownership that NRVI holds in the Company. Under the CRE License Agreement, the Company was required to prepay royalty fees at a rate of 5% of all investor funds raised in the Series A or Series B Stock financings or any subsequent rounds of financing prior to a public offering, less commissions.

 

On November 12, 2015, Neurotrope BioScience, CRE, and NRV II entered into an amendment (the “Amendment”) to the TLSA pursuant to which CRE granted rights in certain technology to Neurotrope BioScience. Under the Amendment, the “Advances on Future Royalties” section of the TLSA was amended and restated to (i) eliminate the requirement that Neurotrope BioScience pay CRE prepaid royalties equal to five percent (5%) of financing proceeds received by Neurotrope BioScience in any financing prior to a public offering, and (ii) provide that Neurotrope BioScience will deliver to CRE, following each closing pursuant to a certain securities purchase agreement, an amount equal to 2.5% of the Post-PA Fees Proceeds received at such closing. In addition, the Amendment provides that on or prior to December 31, 2016, Neurotrope Bioscience shall deliver to CRE an amount equal to 2.5% of the aggregate Post-PA Fee Proceeds received at the closings. Each payment would constitute an advance royalty payment to CRE and will be offset (with no interest) against the amount of future royalty obligations payable until such time that the amount of such future royalty obligations equals in full the amount of the advance royalty payments made. “Post-PA Fee Proceeds” means the gross proceeds received, less all amounts paid to the placement agent(s), in relation to such gross proceeds. No other expenses of Neurotrope Bioscience shall be subtracted from the gross proceeds to determine the “Post-PA Fee Proceeds.” As of December 31, 2017, the Company has paid its entire obligation of $1,166,666 resulting from this Amendment.

 

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Note 5 – Stock Options:

  

Option Grants

   

The following is a summary of stock option activity under the stock option plans for the nine months ended September 30, 2018:

 

           Weighted-     
           Average     
       Weighted-   Remaining   Aggregate 
       Average   Contractual   Intrinsic 
   Number of   Exercise   Term   Value 
   Shares   Price   (Years)   (in thousands) 
Options outstanding at January 1, 2018   1,345,835   $20.10    8.8      
Options granted   180,000   $9.70           
Less options forfeited   (101,874)  $16.98           
Less options expired/cancelled   -   $-           
Less options exercised   -   $-           
Options outstanding at September 30, 2018   1,423,961   $19.01    8.3   $208.8 
Options exercisable at September 30, 2018   862,298   $22.33    7.9   $120.8 

  

During July 2018, the Company granted stock options to purchase an aggregate of 110,000 shares of the Company’s common stock to the five members of the Company’s newly-formed Scientific Advisory Board. The stock options have exercise prices of $10.19 and $10.23 per share and an expiration date that is ten years from the date of issuance. Options to purchase 90,000 shares of common stock vest in equal installments on the first, second and third anniversary of the date of issuance; options to purchase the remaining 20,000 shares of common stock vest quarterly over a three-year period.

 

As of September 30, 2018, there was approximately $3.6 million of total unrecognized compensation costs related to unvested stock options. These costs are expected to be recognized over a weighted average period of 2.2 years.

  

The Company used the Black-Scholes valuation model to calculate the fair value of stock options. The fair value of stock options issued for the nine months ended September 30, 2018 was estimated at the grant date using the following weighted average assumptions: Dividend yield 0%; Expected term 10 years; Volatility 91.0%; Risk-free interest rate 2.86%; and grant date stock price of $9.70. The weighted average grant date fair value of options granted for the nine months ended September 30, 2018 is $8.48 per share.

  

The total stock option-based compensation recorded as operating expense was $1,675,373 and $682,422 for the nine months ended September 30, 2018 and 2017, respectively.

 

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Note 6 – Common Stock Warrants:

 

The following is a summary of common stock warrant activity for the nine months ended September 30, 2018: 

 

   Number
of shares
 
Warrants outstanding January 1, 2018   5,115,274 
Warrants exercised   (13,834)
Warrants outstanding September 30, 2018   5,101,440 

 

As of September 30, 2018, the Company’s warrants by exercise price were as follows: 147,606 warrants exercisable at $0.32, 382,887 warrants exercisable at $6.40, 3,751,033 warrants exercisable at $12.80 and 819,914 warrants exercisable at $32.00.

  

Note 7 – Contingencies

 

Since May 17, 2017, two purported class action lawsuits were commenced in the United States District Court for the Southern District of New York (the “NY Litigation”).  On August 10, 2017, the lawsuits were consolidated and Plaintiffs filed their Amended Consolidated Complaint on October 9, 2017.  The Amended Consolidated Complaint named as defendants the Company, its former Chief Executive Officer and its co-founder and President/Chief Scientific Officer.  The lawsuit alleged violations of the Securities Exchange Act of 1934, as amended, in connection with allegedly false and misleading statements made by the Company in certain press releases and in its Annual Report on Form 10-K relating to the results stemming from our Phase 2 clinical trial for bryostatin.  Plaintiffs sought, among other things, damages for purchasers of the Company’s securities between January 7, 2016 and July 18, 2017.

  

On November 21, 2017, the Company and the other named defendants filed a motion to dismiss all of the claims (the “Motion”).  On June 4, 2018 the Court granted the Motion and dismissed with prejudice the NY Litigation.  Plaintiffs’ time to appeal the Court’s decision expired on July 5, 2018. 

 

Additionally, on August 3, 2017 a derivative action was filed against the Company and all members of the Board of Directors at that time.  The lawsuit alleged that the Board of Directors breached its fiduciary duty by making misleading statements and omitting information pertaining to the results of the Company’s Phase 2 clinical trials for bryostatin.  The Company and the Board of Directors reached an agreement with counsel for the Plaintiff to stay this action pending a decision by the Court in the NY Litigation.  On July 24, 2018, after reviewing the decision in the NY Litigation, Plaintiff voluntarily dismissed the derivative action. 

 

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and the related notes appearing elsewhere in this report. In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those discussed below. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in the section titled “Risk Factors” included elsewhere in this report and our annual report filed on Form 10-K for the year ended December 31, 2017.

 

On August 23, 2013, our wholly-owned subsidiary, Neurotrope Acquisition, Inc., a corporation formed in the State of Nevada on August 15, 2013 merged with and into Neurotrope BioScience. Neurotrope BioScience was the surviving corporation in the Reverse Merger and became Neurotrope, Inc.’s wholly-owned subsidiary. As the result of the Reverse Merger, the Company’s business changed from engaging in the business of providing software solutions to deliver geo-location targeted coupon advertising to mobile internet devices, to the biotechnology business, including the development of a drug candidate called bryostatin for the treatment of Alzheimer’s disease (“AD”).

 

The following discussion highlights our results of operations and the principal factors that have affected our financial condition as well as our liquidity and capital resources for the periods described, and provides information that management believes is relevant for an assessment and understanding of the statements of financial condition and results of operations presented herein. The following discussion and analysis are based on the audited financial statements contained in this report, which we have prepared in accordance with United States generally accepted accounting principles. You should read the discussion and analysis together with such financial statements and the related notes thereto.

 

Basis of Presentation

 

The unaudited financial statements for the fiscal quarters ended September 30, 2018 and 2017 include a summary of our significant accounting policies and should be read in conjunction with the discussion below and our financial statements and related notes included elsewhere in this annual report. In the opinion of management, all material adjustments necessary to present fairly the results of operations for such periods have been included in the financial statements. All such adjustments are of a normal recurring nature.

 

Overview

 

We are a biopharmaceutical company with product candidates in pre-clinical and clinical development. Neurotrope BioScience began operations in October 2012. We are principally focused on developing a product platform based upon a drug candidate called bryostatin for the treatment of Alzheimer’s disease (“AD”), which is in the clinical testing stage. We are also developing bryostatin for other neurodegenerative or cognitive diseases and dysfunctions, such as Fragile X and Niemann-Pick Type C, which are in pre-clinical testing.  Neurotrope has been a party to a technology license and services agreement with the original Blanchette Rockefeller Neurosciences Institute (“BRNI”) (which has been known as Cognitive Research Enterprises, Inc. (“CRE”) since October 2016), and its affiliate NRV II, LLC, which we collectively refer to herein as “CRE,” pursuant to which we now have an exclusive non-transferable license to certain patents and technologies required to develop our proposed products.  Neurotrope BioScience was formed for the primary purpose of commercializing the technologies initially developed by BRNI for therapeutic applications for AD or other cognitive dysfunctions. These technologies have been under development by BRNI since 1999 and, until March 2013, had been financed through funding from a variety of non-investor sources (which include not-for-profit foundations, the National Institutes of Health, which is part of the U.S. Department of Health and Human Services, and individual philanthropists). From March 2013 forward, development of the licensed technology has been funded principally through Neurotrope BioScience in collaboration with CRE.

 

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Pursuant to the CRE License, Neurotrope BioScience maintained its exclusive (except as described below), non-transferable (except pursuant to the CRE License’s assignment provision), world-wide, royalty-bearing right, with a right to sublicense (in accordance with the terms and conditions described below), under CRE’s and NRV II’s respective right, title and interest in and to certain patents and technology owned by CRE or licensed to NRV II, LLC by CRE as of or subsequent to October 31, 2012 to develop, use, manufacture, market, offer for sale, sell, distribute, import and export certain products or services for therapeutic applications for AD and other cognitive dysfunctions in humans or animals (the “Field of Use”). Additionally, the CRE License specifies that all patents that issue from a certain patent application shall constitute licensed patents and all trade secrets, know-how and other confidential information claimed by such patents constitute licensed technology under the CRE License. Furthermore, on July 10, 2015 under the terms of the Statement of Work and Account Satisfaction Agreement dated February 4, 2015, Neurotrope BioScience’s rights relating to an in vitro diagnostic test system reverted to CRE and, accordingly, Neurotrope BioScience no longer has any rights under the CRE License for diagnostic applications using the CRE patent portfolio or technology. 

 

Notwithstanding the above license terms, CRE and its affiliates retain rights to use the licensed intellectual property in the Field of Use to engage in research and development and other non-commercial activities and to provide services to Neurotrope BioScience or to perform other activities in connection with the CRE License.

 

Under the CRE License, CRE is a preferred service provider in certain circumstances and Neurotrope BioScience may not enter into sublicense agreements with third parties except with CRE’s prior written consent, which consent shall not be commercially unreasonably withheld. Furthermore, the CRE License dated February 4, 2015 revises the agreement that was entered into as of October 31, 2012 and amended on August 21, 2013, in that it provides that any intellectual property developed, conceived or created in connection with a sublicense agreement that Neurotrope BioScience entered into with a third party pursuant to the terms of the CRE License will be licensed to CRE and its affiliates for any and all non-commercial purposes, on a worldwide, perpetual, non-exclusive, irrevocable, non-terminable, fully paid-up, royalty-free, transferable basis, with the right to freely sublicense such intellectual property. Previously, the agreement had provided that such intellectual property would be assigned to CRE.

 

Under the CRE License, CRE and Neurotrope BioScience will jointly own data, reports and information that is generated on or after February 28, 2013, by Neurotrope BioScience, on behalf of Neurotrope BioScience by a third party or by CRE pursuant to a statement of work that the parties enter into pursuant to the CRE License, in each case to the extent not constituting or containing any data, reports or information generated prior to such date or by CRE not pursuant to a statement of work (the “Jointly Owned Data”). CRE has agreed not to use the Jointly Owned Data inside or outside the Field of Use for any commercial purpose during the term of the CRE License or following any expiration of the CRE License other than an expiration that is the result of a breach by Neurotrope BioScience of the CRE License that caused any licensed patent to expire, become abandoned or be declared unenforceable or invalid or caused any licensed technology to enter the public domain (a “Natural Expiration”), provided, however, CRE may use the Jointly Owned Data inside or outside the Field of Use for any commercial purpose following any termination of the CRE License. Also, CRE granted Neurotrope BioScience a license during the term and following any Natural Expiration, to use certain CRE data in the Field of Use for any commercial purposes falling within the scope of the license granted to Neurotrope BioScience under the CRE License.

 

The CRE License further requires us to pay CRE (i) a fixed research fee equal to a pro rata amount of $1 million in the year during which we close on a Series B Preferred Stock financing resulting in proceeds of at least $25 million, (ii) a fixed research fee of $1 million per year for each of the five calendar years following the completion of such financing and (iii) an annual fixed research fee in an amount to be negotiated and agreed upon no later than 90 days prior to the end of the fifth calendar year following the completion of such financing to be paid with respect to each remaining calendar year during the term of the CRE License. This fixed research fee is not yet due.

 

On November 12, 2015, we entered into an amendment to the CRE License. Pursuant to the amendment, we paid an aggregate of approximately $348,000 to CRE following the closings of the Series B private placement, which constituted an advance royalty payment to CRE and will be offset (with no interest) against the amount of future royalty obligations payable until such time that the amount of such future royalty obligations equals in full the amount of the advance royalty payments made.

 

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The term of the CRE License continues until the later of the date (i) the last of the licensed patents expires, is abandoned or is declared unenforceable or invalid (in each case, determined in accordance with the CRE License) and (ii) the last of the licensed technology enters the public domain. Either party has the right to terminate the CRE License after 30 days prior notice in certain circumstances, including if either party were to materially breach any provisions of the CRE License and does not cure such material breach within 60-days from notice of such material breach from the non-breaching party, and for breaches that are capable of being cured, in the event of certain bankruptcy or insolvency proceedings.

  

Concurrently with the November 12, 2015 amendment to the CRE License, Neurotrope Bioscience entered into a Statement of Work Agreement pursuant to the CRE License Agreement (the “November 2015 SOW Agreement”). The November 2015 SOW Agreement replaced the February 2015 SOW Agreement, which was effective as of October 1, 2014 and expired on September 30, 2015.

 

Pursuant to the November 2015 SOW Agreement, Neurotrope Bioscience agreed to pay CRE $1,166,666 in service fees payable in the amount of $83,333 per month for each month from November 1, 2015 through December 31, 2016. The payments under the November 2015 SOW Agreement satisfied Neurotrope Bioscience’s obligations to reimburse CRE for any and all attorneys’ fees, translation costs, filing fees, maintenance fees, and other costs and expenses related to applying for, filing, prosecuting, and maintaining patents and applications for the licensed intellectual property incurred by CRE during the term of the November 2015 SOW Agreement (but, for the avoidance of doubt, such payments shall not satisfy any attorneys’ fees, translation costs, filing fees, maintenance fees, or other costs or expenses related to applying for, filing, prosecuting, and maintaining patents and applications for the licensed intellectual property incurred by CRE after the expiration or termination of the November 2015 SOW Agreement term), as well as any litigation costs which CRE may incur related to any of the licensed intellectual property during the November 2015 SOW Agreement term. CRE shall not commence any litigation to enforce the licensed intellectual property without the consent of Neurotrope Bioscience (which consent shall not be unreasonably withheld, delayed, or denied). In consideration for the payments made pursuant to the November 2015 SOW Agreement, CRE performed the services requested by Neurotrope Bioscience for the further development of Neurotrope’s bryostatin drug platform.

 

On July 28, 2016, CRE filed a petition for Chapter 11 Reorganization in the United States Bankruptcy Court for the Northern District of West Virginia. As part of the bankruptcy filing, CRE asked the Bankruptcy Court to reject certain executory contracts including employment agreements with a number of its researchers and other personnel, including, without limitation, Dr. Daniel Alkon, who is our President and Chief Scientific Officer and was also the former scientific director of BRNI (prior to its name change to Cognitive Research Enterprises, Inc.), and who led a team of scientists who were principally involved on behalf of BRNI in support of the CRE License. CRE has not requested that the CRE License itself be rejected. We do not believe that CRE, as a matter of law, has a right to terminate the CRE License as a result of the bankruptcy filing and have been advised by CRE’s representatives that there will be no action regarding the CRE License and that CRE intends to meet all of its obligations in support of the Company’s work. On September 23, 2016, the United States Bankruptcy Court for the Northern District of West Virginia entered an order approving the sale of a substantial amount of CRE's assets to West Virginia University (“WVU”). The Court also entered an order approving a settlement agreement between Dr. Alkon, CRE and WVU. As part of the asset sale, CRE sold the BRNI name and all derivatives to WVU. Consequently, the Board of CRE resolved on September 28, 2016 to change its name to Cognitive Research Enterprises, Inc. CRE continues to own the assets that are being licensed to us under the CRE License. We are in the process of negotiating with WVU and CRE regarding the license of certain assets that were previously returned to CRE in December 2013. Some of these assets were subsequently transferred to WVU as part of CRE’s asset sale and others were retained by CRE.

 

On May 12, 2014, we entered into a license agreement (the “Stanford Agreement”) with The Board of Trustees of the Leland Stanford Junior University (“Stanford”) pursuant to which Stanford granted us a revenue-bearing, world-wide right and exclusive license, with the right to grant sublicenses (on certain conditions), under certain patent rights and related technology for the use of bryostatin structural derivatives, known as “bryologs,” for use in the treatment of central nervous system disorders, lysosomal storage diseases, stroke, cardio protection and traumatic brain injury, for the life of the licensed patents. Pursuant to the Stanford Agreement, we paid a $60,000 license initiation fee to Stanford. We currently pay Stanford a $10,000 annual license maintenance fee, and will pay milestone payments in the aggregate amount of up to $3,700,000 upon the achievement of certain product development events commencing upon the filing of the first IND application through approval of an applicable product, as well as low single-digit royalties on net sales of the licensed products. Each party has the right to terminate the Stanford Agreement for an uncured material breach of the other party. Additionally, we may terminate the Stanford Agreement at any time upon 60 days written notice to Stanford. In January 2017, we entered into an additional license agreement with Stanford relating to an accelerated synthesis of bryostatin-1.  Pursuant to this additional license agreement, we paid a $70,000 license initiation fee to Stanford. We will pay Stanford a $10,000 annual license maintenance fee, and will pay milestone payments in the aggregate amount of up to $2,100,000 upon the achievement of certain product development events commencing upon the dosing of the first patient with synthesized bryostatin, as well as low single-digit royalties on net sales of the licensed products. Each party has the right to terminate the Stanford Agreement for an uncured material breach of the other party. Additionally, we may terminate the Stanford Agreement at any time upon 60 days written notice to Stanford. 

 

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Following on the results of its first Phase 2 clinical trial completed in March 2015, on October 9, 2015, Neurotrope BioScience executed a Services Agreement with Worldwide Clinical Trials, Inc. (“WCT”), effective as of August 31, 2015. The Services Agreement relates to services for Neurotrope BioScience’s second Phase 2 clinical study assessing the safety, tolerability and efficacy of bryostatin in the treatment of moderately severe to severe AD (the “Study”). Pursuant to the terms of the Services Agreement, WCT was to provide services to enroll approximately 150 study subjects at approximately 30 sites across the United States. We began enrollment at the initial sites at the end of 2015, completed enrollment in November 2016, announced top-line results May 1, 2017 and announced additional data analyses on January 5, 2018. This trial was designed to administer dosing of bryostatin for up to six months for moderately severe to severe AD patients but was amended to administer dosing of bryostatin for up to three months (see details of the amendment below). Among the trial’s endpoints were the measurement of improvement in cognition, activities of daily living and behavior.

  

On July 27, 2016, we received approval of the institutional review board (“IRB”) for our amended protocol submitted on July 21, 2016 to the FDA relating to the Phase 2 clinical trial of our lead drug candidate, bryostatin-1, for the treatment of advanced AD, which amended protocol eliminated the second, exploratory, study period following the first 12 weeks of treatment. The primary objective was the assessment of safety and tolerability of bryostatin to occur at 13 weeks and that was not changed with this amendment. The secondary objective was to assess efficacy, also at week 13. Such amendment, to cut the exploratory part of the study, was made for business reasons in order to provide earlier completion of the study and for the planning of future studies. The changes to the study design were not due to any safety concerns. In the study, two doses of bryostatin, 20 μg or 40 μg, were compared to placebo. Study subjects received a total of 7 doses of the study drug over 12 weeks of treatment, followed by safety and efficacy assessments at week 13 and a final study visit at week 16. There was no second randomization for additional treatment.

 

Results of Phase 2 Clinical Trial

 

On May 1, 2017, we reported certain relevant top-line results from our Phase 2 exploratory clinical trial based on a preliminary analysis of a limited portion of the complete data set generated. A total of 147 patients were enrolled into the study; 135 patients in the mITT population and 113 in the Completer population. This study was the first repeat dose study of bryostatin-1 in patients with late stage AD (defined as a Mini Mental State Exam 2 (“MMSE-2”) of 4-15), in which two dose levels of bryostatin-1 were compared with placebo to assess safety and preliminary efficacy (p < 0.1, one-tailed) after 12 weeks of treatment. The pre-specified primary endpoint, the Severe Impairment Battery (the “SIB”) (used to evaluate cognition in severe dementia), compared each dose of bryostatin-1 with placebo at Week 13 in two sets of patients: (1) the modified intent-to-treat (the “mITT”) population, consisting of all patients who received study drug and had at least one efficacy/safety evaluation, and (2) the Completer population, consisting of those patients within the mITT population who completed the 13-week dosing protocol and cognitive assessments.

 

These announced top-line results indicated that the 20 µg dose, administered after two weekly 20 µg doses during the first two weeks and every other week thereafter, met the pre-specified primary endpoint in the Completer population, but not in the mITT population. Among the patients who completed the protocol (n = 113), the patients on the 20 µg dose at 13 weeks showed a mean increase on the SIB of 1.5 vs. a decrease in the placebo group of -1.1 (net improvement of 2.6, p < 0.07), whereas, in the mITT population, the 20 µg group had a mean increase on the SIB of 1.2 vs. a decrease in the placebo group of -0.8 (net improvement of 2.0, p < 0.134). At the pre-specified 5 week secondary endpoint, the Completer patients in the 20 µg group showed a net improvement of 4.0 SIB (p < 016), and the mITT population showed a net improvement of 3.0 (p< ,056).Unlike the 20 µg dose, there was no therapeutic signal observed with the 40 µg dose.

 

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The Alzheimer Disease Cooperative Study Activities of Daily Living Inventory Severe Impairment version (ADCS-ADL-SIV) was another pre-specified secondary endpoint. The p values for the comparisons between 20 µg and placebo for the ADCS-ADL endpoint at 13 weeks were 0.082 for the Completers and 0.104, for the mITT population.

 

Together, these initial results after preliminary analysis of this exploratory trial, indicated that bryostatin-1, at the 20 µg dose, caused sustained improvement in important functions that are impaired in patients with moderate to severe Alzheimer’s disease i.e., cognition and the ability to care for oneself. Since most of the patients in this study were already taking donepezil and/or memantine, the efficacy of bryostatin-1 was evaluated in the Top Line results over and above the standard of care therapeutics.

 

The safety profile of bryostatin-1 20 µg was minimally different from the placebo group except for a higher incidence of diarrhea and infusion reactions (11% versus 2% for diarrhea and 17% versus 6% for infusion reactions). Fewer adverse events were reported in patients in the 20 µg group, compared to the 40 µg group. Patients dosed with 20 µg had a dropout rate less than or identical to placebo, while patients dosed at 40 µg experienced poorer safety and tolerability, and had a higher dropout rate. Treatment emergent adverse events (“TEAEs”) were mostly mild or moderate in severity. TEAEs, including serious adverse events, were more common in the 40 µg group, as compared to the 20 µg and placebo groups. The mean age of patients in the study was 72 years and similar across all three treatment groups.

 

Following presentation of the top line results in July 2017 at the Alzheimer’s Association International Conference in London, a much more extensive analysis of a more complete set of the Phase 2 trial data was conducted.

  

On January 5, 2018, we announced that a post-hoc analysis of a comprehensive data set from our recent Phase 2 trial in patients with advanced Alzheimer’s disease (“AD”) found evidence of sustained improvement in cognition in patients receiving the 20 μg bryostatin regimen. In addition, patients who did not receive memantine, an approved AD treatment, as background therapy showed greater SIB improvement. These findings suggested that this investigational drug could potentially treat Alzheimer’s disease itself and help reduce and/or reverse the progression of AD, rather than only alleviate its symptoms.

 

The comprehensive follow-on analysis found that patients in the 20 μg treatment arm showed a sustained improvement in cognition over baseline compared to the placebo group at week 15 (30 days after last dose at week 11). These data were observed in the study population as a whole.

 

The follow-on analysis of the data evaluated SIB scores of patients at 15 weeks, 30 days after all dosing had been completed – a pre-specified exploratory endpoint. For the 20 μg group, patients in the mITT population (n=34) showed an overall improvement compared to controls (n=33) of 3.59 (p=0.0503) and in the Completers population (n=34) showed an overall improvement compared to controls (n=33) of 4.09 (p=0.0293). In summary, patients on the 20 μg dose showed a persistent SIB improvement 30 days after all dosing had been completed. These p-values and those below are one-tailed.

 

Additional analyses compared 20 µg dose patients who were on baseline therapy of Aricept vs. patients off Aricept. No significant differences were observed. Another analysis compared the 20 µg dose patients who were on or off baseline therapy of memantine. Post-hoc analysis comparing SIB scores in non-memantine versus memantine patients found the following:

 

·At week 15, non-memantine patients in the mITT Group treated with 20 μg (n=14) showed an SIB improvement of 5.88, while the placebo patients (n=11) showed a decline in their SIB scores of -0.05 for an overall treatment Δ of 5.93 from baseline (p=0.0576).

 

· At week 15, non-memantine patients in the Completers Group treated with 20 μg (n=14) showed an SIB improvement of 6.24, while the placebo patients (n=11) showed a decline in their SIB scores of -0.12 for an overall treatment Δ of 6.36 from baseline (p=0.0488).

 

· Patients taking memantine as background therapy in the 20 μg (n=20) and control (n=22) groups showed no improvement in SIB scores.

 

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Memantine, an NMDA receptor antagonist, is marketed under the brand names Namenda®, Namenda® XR, and Namzaric® (a combination of memantine and donepezil) for the treatment of dementia in patients with moderate-to-severe AD. It has been shown to delay cognitive decline and help reduce disease symptoms. 

 

Ongoing Confirmatory Phase 2 Clinical Trial

 

On May 4, 2018, we announced a confirmatory, 100 patient, double-blinded clinical trial for the safe, effective 20 μg dose protocol for advanced AD patients not taking memantine as background therapy to evaluate improvements in SIB scores with an increased number of patients. As such, we have again engaged WCT, in conjunction with consultants and investigators at leading academic institutions to collaborate on the design and conduct of the next trial, which began in April, 2018. During July 2018, the first patient was enrolled in this study.

 

As of October 16, 2018, the Company has signed up 28 clinical sites and has screened 82 patients. Of the total screened patients, 31 have been randomized and continue to be dosed.

 

To the extent resources permit, we intend to pursue development of selected technology platforms with indications related to the treatment of AD and other neurodegenerative disorders based on our current licensed technology and / or technologies available from third party licensors or collaborators.

 

Scientific Advisory Board

 

The Company has established a Scientific Advisory Board (“SAB”) comprised of experts in the fields of AD and other neurological diseases.

 

Scientific Advisory Board Chairperson & Members

 

Martin R. Farlow, (Chairperson) MD, Professor Emeritus in the Department of Neurology at Indiana University and co-director of the Alzheimer's Disease Center at Indiana University. Dr. Farlow received his medical degree from Indiana University School of Medicine. Following graduation, he completed an internship in Internal Medicine and a residency in Neurology. Dr. Farlow’s research focuses on clinical trials of investigational drugs for the treatment of AD and related dementias and has been the lead investigator for several major studies including tacrine, donepezil and rivastigmine.

 

Paul Coleman PhD, has been an Associate at the University of Arizona (UA) McKnight Brain Institute since 2010 and a Research Professor at the UA Biodesign Institute since 2015. In 2007, Dr. Coleman was appointed Professor Emeritus at the University of Rochester Medical Center. Since 1988, Dr. Coleman has served as Editor-in-Chief for the journal Neurobiology of Aging and is currently Editor Emeritus and an Advisory Editor. Dr. Coleman received an AB in Psychology (magna cum laude) from Tufts University and a PhD in Physiology and Psychology from the University of Rochester. Following his PhD, Dr. Coleman was supported by the National Institute of Neurological Disorders and Stroke as a Special Fellow at Johns Hopkins School of Medicine. Dr. Coleman has been a pioneering investigator of the pathologic basis of AD.

 

Daniel F. Hanley Jr. MD, has been a Professor of Neurology, Neurosurgery and Anesthesia and Critical Medicine at Johns Hopkins Medicine since 1996. He is a graduate of Williams College and received his medical degree from Cornell University Medical College. Dr. Hanley has board certification in internal medicine, neurology and psychiatry. Dr. Hanley is a leading expert on brain injury and has received more than 20 basic research grants, predominantly from the National Institute of Health.

 

Marwan Sabbagh, MD, is the new director of the Cleveland Clinic Lou Ruvo Center for Brain Health and he has dedicated his entire career to finding a cure for Alzheimer’s and other age-related neurodegenerative diseases.  Dr. Sabbagh earned his undergraduate degree from the University of California-Berkeley and his medical degree from the University of Arizona in Tucson. Dr. Sabbagh received his residency training in neurology at Baylor College of Medicine and completed his fellowship training in geriatric neurology and dementia under renowned AD experts, Leon Thal, M.D., and Robert Katzman, M.D., at the University of California, San Diego School of Medicine. Dr. Sabbagh is a board-certified neurologist and geriatric neurologist. Dr. Sabbagh is a leading investigator for many prominent national Alzheimer’s prevention and treatment trials, including Alzheimer immunotherapy studies.

 

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Lee Jen Wei, PhD, is a tenured Professor of Biostatistics at Harvard University since 1991. He was the co-director of the Bioinformatics Core at the Harvard School of Public Health. Dr. Wei obtained his B.S in mathematics from Fu-Jen University (Taiwan) and his PhD in statistics from the University of Wisconsin–Madison.  Dr. Wei has published many papers on monitoring drug and device safety and related topics.  The resulting procedures have been utilized for various drug and device regulatory evaluations involving safety issues. His extensive experience in quantitative science for making inferences about the drug and device safety is readily applicable to the general industry product safety issues.

 

Strategy

 

Our strategy is to efficiently utilize our licensed proprietary and patented technologies to further the development of those technologies toward commercializing a therapeutic for AD and potentially utilize these technologies to treat other neurological diseases. We may also seek to acquire, by license or otherwise, other development stage products that are consistent with our product portfolio objectives and commercialization strategy including partnering with companies that have expertise in certain therapeutic areas. In addition, we are evaluating our options to utilize technologies licensed from CRE and Mount Sinai in order to pursue therapeutics for orphan drug indications, including Fragile X Syndrome and Niemann-Pick Type C disease.

 

Through an agreement with CRE, we have the exclusive worldwide license relating to Fragile X Syndrome (“FXS”). FXS is the most common cause of inherited intellectual disability and the most common known genetic cause of autism or autism spectrum disorders. Symptoms of FXS include a range from learning disabilities to more severe cognitive or intellectual disabilities. Delays in speech and language development are common, as are a variety of physical and behavioral characteristics. FXS is caused by a “full mutation” of the FMR1 Gene. There are approximately 135,000 Fragile X Syndrome patients in the United States and a similar number in Europe. Neurotrope BioScience received support from the FRAXA Research Foundation, Inc. (“FRAXA”) to fund a pre-clinical FXS behavior study for bryostatin at FRAXA’s sponsored laboratory located at the University of Chile in Santiago, Chile. FRAXA provided full funding for a preclinical study to evaluate the behavioral effects of bryostatin-1 in an FXS mouse model. Twice weekly treatment for 13 weeks yielded statistically significant improvements in outcome measures with bryostatin compared to placebo. We have formed and are advancing our discussions with an experienced clinical advisory board to assist us with protocol development for a planned Phase 2a study in FXS patients. We seek resources to initiate the first clinical trial with bryostatin in patients with FXS. We have been granted orphan drug designation by the FDA for the use of bryostatin in the treatment of Fragile X Syndrome.

 

On September 5, 2018, the Company announced a collaboration with The Nemours / Alfred I. duPont Hospital for Children (“Nemours”), a premier U.S. children’s hospital, to initiate a clinical trial in children with Fragile X Syndrome (“Fragile X”). The planned protocol for the pilot open-label trial will dose Fragile X patients from 8 to less than 18 years of age, using a dosing regimen similar to that being tested in AD patients. In addition to the primary objective of safety and tolerability, measurements will be made of working memory, language and other functional aspects such as anxiety, repetitive behavior, executive functioning, and social behavior.

 

Use of bryostatin to treat a serious and deadly lysosomal storage disorder, Niemann-Pick Type C Disease (“NP-C”), is being explored by us in collaboration with the Icahn School of Medicine at Mount Sinai in New York City. NP-C mainly affects children who develop severe neurologic symptoms including gait disturbance and cognitive deficits early in life. There are approximately 3,500 NP-C patients in the United States and a similar number in Europe. Patients with NP-C have a gene defect that results in the loss of the “normal” NPC1 or NPC2 protein that is important for cholesterol trafficking.

 

A study was funded by several family foundations under the auspices of SOAR-NPC. This study examined the effects of various dosing regimens of bryostatin in NP-C mice over a brief treatment period. Although bryostatin showed mixed results in vivo, the SOAR study did not find encouraging results with its in vivo animal model. Another in vivo study began at the beginning of 2016, and was completed at Mt. Sinai, to evaluate the effect of bryostatin in an animal model (NPC1 mice) of Niemann-Pick Type C. Depending upon available funding, we will work towards completion of the necessary pre-clinical work in order to file and obtain FDA approval of an IND, or investigational new drug application. We are encouraged by preliminary data in the NPC1 animal model. Assuming that the pre-clinical work shows positive activity, we expect to apply for orphan drug designation for this indication.

 

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We entered into a research collaboration with the International Rett Syndrome Foundation (“Foundation”), under the Rett Syndrome.org Scout Program, funded by the Foundation, whereby bryostatin will continue to be tested using mouse models. We intend to further explore whether bryostatin will activate key synaptic growth factors that are deficient in patients suffering from Rett Syndrome.

  

We are also advancing our drug development program through a licensing agreement with Stanford regarding the synthesis of bryologs and related technology.

 

Critical Accounting Policies, Estimates, and Judgments

 

Our financial statements are prepared in accordance with accounting principles that are generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities, 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. We continually evaluate our estimates and judgments, the most critical of which are those related to accounting for equity compensation and our commitments to strategic alliance partners and the timing of the achievement of collaboration milestones. We base our estimates and judgments on historical experience and other factors that we believe to be reasonable under the circumstances. Materially different results can occur as circumstances change and additional information becomes known. Besides the estimates identified above that are considered critical, we make many other accounting estimates in preparing our financial statements and related disclosures. All estimates, whether or not deemed critical, affect reported amounts of assets, liabilities, revenues and expenses, as well as disclosures of contingent assets and liabilities. These estimates and judgments are also based on historical experience and other factors that are believed to be reasonable under the circumstances. Materially different results can occur as circumstances change and additional information becomes known, even for estimates and judgments that are not deemed critical.

  

There have been no changes in accounting policies during the nine months ended September 30, 2018.

 

Comparison of the nine months ended September 30, 2018 and September 30, 2017

 

The following table summarizes our results of operations for the nine months ended September 30, 2018 and 2017:

 

   Nine Months ended
September 30,
   Dollar     
   2018   2017   Change   % Change 
Revenue  $-   $-   $-    0%
Operating Expenses:                    
Research and development expenses – Related Party  $225,793   $164,619   $61,174    37.2%
Research and development expenses – Other  $2,450,566   $3,662,589   $(1,212,023)   (33.1)%
General and administrative expenses – Related party  $37,500   $26,918   $10,582    39.3%
General and administrative expenses – Other  $2,980,105   $3,833,962   $(853,857)   (22.3)%
Stock based compensation expenses – Related Party  $235,434   $100,758   $134,676    133.7%
Stock based compensation expenses - Other  $1,439,939   $581,664   $858,275    147.6%
Other income, net  $88,795   $66,080   $22,715    34.4%
Net loss  $7,280,542   $8,304,430   $(1,023,888)   (12.3)%

 

Revenues

 

We did not generate any revenues for the nine months ended September 30, 2018 and 2017.

 

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Operating Expenses

 

Overview

 

Total operating expenses for the nine months ended September 30, 2018 were $7,369,337 as compared to $8,370,510 for the nine months ended September 30, 2017, a decrease of approximately 12%. The decrease in total operating expenses is due primarily to the decrease in research and development expenses associated primarily with completing our Phase 2 clinical trial in AD offset by the initiation of our confirmatory Phase 2 trial and a decrease in our general and administrative expenses, offset by the increase in related party research and development expenses and an increase in stock-based compensation expenses. 

 

Research and Development Expenses

 

For the nine months ended September 30, 2018, we incurred $225,793 of research and development expenses with a related party as compared to $164,619 for the nine months ended September 30, 2017. The total amounts incurred during the nine months ended September 30, 2018 were for patent maintenance expenses versus the total amounts incurred during the nine months ended September 30, 2017 which consisted of lab testing of drug materials.

 

For the nine months ended September 30, 2018, we incurred $2,450,566 in research and development expenses with non-related parties as compared to $3,662,589 for the nine months ended September 30, 2017. These expenses were incurred pursuant to developing the potential AD therapeutic product, specifically expenses relating to the Phase 2 clinical trial for AD and products relating to orphan drug indications. Of these expenses, for the nine months ended September 30, 2018, a credit of $163,400 was reflected related to closing out our AD Phase 2 clinical trial, which was substantially completed in 2017, plus $2,407,936 incurred relating to our current confirmatory clinical trial, and related storage of drug product, $156,962 for clinical consulting services, $28,652 of amortization of prepaid licensing fees relating to the Stanford and Mount Sinai license agreements and $20,416 for development of alternative drug supply with Stanford University as compared to, for the nine months ended September 30, 2017, $2,930,179 related to conducting our AD Phase 2 clinical trials and related storage of drug product, $629,497 for clinical consulting services, $63,651 of licensing payment amortization relating to the Stanford and Mount Sinai license agreements, $18,000 for orphan drug development costs and $21,262 for development of alternative drug supply with Stanford University. We expect our research and development expenses to increase, as our resources permit, in order to advance our potential products specifically relating to conducting our next Phase 2 confirmatory clinical trial.

 

General and Administrative Expenses

 

We incurred related party general and administrative expenses totaling $37,500 for the nine months ended September 30, 2018 as compared to $26,918 for the nine months ended September 30, 2017. The amounts for the nine months ended September 30, 2018 and 2017, respectively, are attributable to director fees paid to members of the Board of Directors.

 

We incurred $2,980,105 and $3,833,962 of other general and administrative expenses for the nine months ended September 30, 2018 and 2017, respectively, a decrease of approximately 22%. Of the amounts for the nine months ended September 30, 2018, as compared to the comparable 2017 period: $1,265,331 was incurred primarily for wages, vacation pay, severance, taxes and insurance, versus $1,322,117 for the 2017 comparable period; $399,484 was incurred for ongoing legal expenses associated with ongoing obligations, regulatory compliance and litigation, versus $1,075,240 for the 2017 comparable period as the Company incurred additional expenses relating to regulatory matters, $394,524 was incurred for outside operations consulting services, as we paid certain consulting fees of $160,375 to recruiting consultants for our recent CEO executive search, versus $284,076 for the 2017 comparable period; $120,096 was incurred for travel expenses, versus $131,982 for the 2017 comparable period; $228,876 was incurred for investor relations services versus $426,578 for the 2017 comparable period which included expenses relating to announcing top-line results of our Phase 2 clinical trial; $105,992 was incurred for professional fees associated with auditing, financial, accounting and tax advisory services, versus $126,085 for the 2017 comparable period; $321,970 was incurred for insurance, with the increase primarily relating to increased coverages, versus $301,916 for the 2017 comparable period; and $143,832 was incurred for utilities, supplies, license fees, filing costs, rent, advertising and other versus $165,968 for the 2017 comparable period which included expenses associated with the listing of our common stock on the Nasdaq Capital Market. 

 

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Stock Based Compensation Expenses

 

We incurred related party non-cash expenses totaling $235,434 and $100,758 for the nine months ended September 30, 2018 and 2017, respectively. The increase is primarily attributable to newly issued stock options in late 2017.

 

We incurred $1,439,939 and $581,664 of non-related party non-cash expenses for the nine months ended September 30, 2018 and 2017, respectively. The increase for the comparable period is primarily attributable to newly issued stock options in late 2017.

 

Other Income, net

 

We earned $88,795 of interest income for the nine months ended September 30, 2018 as compared to $46,755 for the nine months ended September 30, 2017 on funds temporarily deposited in interest bearing money market accounts.  In addition, during the nine months ended September 30, 2017, we incurred a loss of $34,274 from abandonment of furniture and fixtures relating to the closing of our Newark, New Jersey Office and a gain of $53,599 upon settlement of our Newark, New Jersey lease obligation.

 

Net loss and loss per share

 

We incurred losses of $7,280,542 and $8,304,430 for the nine months ended September 30, 2018 and 2017, respectively. The decreased loss was primarily attributable to our decrease in expenses associated with our current Phase 2 clinical trial and the decrease in our general and administrative expenses, offset by the increases in stock-based compensation expense and our related party research and development activities. Earnings (losses) per common share were ($0.92) and ($1.08) for the nine months ended September 30, 2018 and 2017, respectively. The decrease in loss per share is primarily attributable to the increased weighted average common shares outstanding and the decrease in net loss.

 

The computation of diluted loss per share for the nine months ended September 30, 2018 excludes 5,101,440 warrants and options to purchase 1,423,961 shares of our common stock as they are anti-dilutive due to our net loss. For the nine months ended September 30, 2017, the computation excludes 5,115,274 warrants and options to purchase 683,235 shares of our common stock, as they are anti-dilutive due to our net loss.

 

Comparison of the three months ended September 30, 2018 and September 30, 2017

 

The following table summarizes our results of operations for the three months ended September 30, 2018 and 2017:

 

   Three Months ended
September 30,
   Dollar     
   2018   2017   Change   % Change 
Revenue  $-   $-   $-    0%
Operating Expenses:                    
Research and development expenses – Related Party  $62,900   $75,431   $(12,531)   (16.6)%
Research and development expenses – Other  $1,674,387   $744,618   $929,769    124.9%
General and administrative expenses – Related party  $12,500   $12,500   $0    0%
General and administrative expenses – Other  $904,729   $1,252,962   $(348,233)   (27.8)%
Stock based compensation expenses – Related Party  $60,498   $33,955   $26,543    78.2%
Stock based compensation expenses - Other  $487,738   $197,146   $290,592    147.4%
Other income, net  $33,398   $20,298   $13,100    64.5%
Net loss  $3,169,354   $2,296,314   $873,040    38.0%

 

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Revenues

 

We did not generate any revenues for the three months ended September 30, 2018 and 2017.

 

Operating Expenses

 

Overview

 

Total operating expenses for the three months ended September 30, 2018 were $3,202,752 as compared to $2,316,612 for the three months ended September 30, 2017, an increase of approximately 38%. The increase in total operating expenses is due primarily to the increase in research and development expenses associated primarily with initiating our confirmatory Phase 2 clinical trial in AD offset by the completion of our previous Phase 2 trial and an increase in stock-based compensation expenses offset by a decrease in our related party research and development expenses and our general and administrative expenses. 

 

Research and Development Expenses

 

For the three months ended September 30, 2018, we incurred $62,900 of research and development expenses with a related party as compared to $75,431 for the three months ended September 30, 2017. The total amounts incurred during the three months ended September 30, 2018 were for patent maintenance expenses versus the total amounts incurred during the three months ended September 30, 2017 which consisted of lab testing of drug materials.

 

For the three months ended September 30, 2018, we incurred $1,674,387 in research and development expenses with non-related parties as compared to $744,618 for the three months ended September 30, 2017. These expenses were incurred pursuant to developing the potential AD therapeutic product, specifically expenses relating to the initiation of our confirmatory Phase 2 clinical trial for AD and products relating to orphan drug indications. Of these expenses, for the three months ended September 30, 2018, $1,575,925 was incurred in connection with our current confirmatory Phase 2 clinical trial and related storage of drug product, $84,590 for clinical consulting services, $7,917 of amortization of prepaid licensing fees relating to the Stanford and Mount Sinai license agreements and $5,955 for development of alternative drug supply with Stanford University as compared to, for the three months ended September 30, 2017, $330,877 related to conducting our AD Phase 2 clinical trials and related storage of drug product, $378,279 for clinical consulting services, $23,462 of licensing payment amortization relating to the Stanford and Mount Sinai license agreements, $6,000 for orphan drug development costs and $6,000 for development of alternative drug supply with Stanford University. We expect our research and development expenses to increase, as our resources permit, in order to advance our potential products specifically relating to conducting our next Phase 2 confirmatory clinical trial.

 

General and Administrative Expenses

 

We incurred related party general and administrative expenses totaling $12,500 for the three months ended September 30, 2018 and 2017. The amounts for the three months ended September 30, 2018 and 2017, respectively, are attributable to director fees paid to members of the Board of Directors.

 

We incurred $904,729 and $1,252,962 of other general and administrative expenses for the three months ended September 30, 2018 and 2017, respectively, a decrease of approximately 28%. Of the amounts for the three months ended September 30, 2018, as compared to the comparable 2017 period: $430,158 was incurred primarily for wages, vacation pay, severance, taxes and insurance, versus $446,773 for the 2017 comparable period; $120,307 was incurred for ongoing legal expenses associated with ongoing obligations, regulatory compliance and litigation, versus $293,809 for the 2017 comparable period which included expenses relating to regulatory matters, $86,250 was incurred for outside operations consulting services, versus $88,600 for the 2017 comparable period; $29,966 was incurred for travel expenses, versus $38,490 for the 2017 comparable period; $60,690 was incurred for investor relations services versus $206,067 for the 2017 comparable period primarily relating to announcing top-line results of our Phase 2 clinical trial; $21,440 was incurred for professional fees associated with auditing, financial, accounting and tax advisory services, versus $23,330 for the 2017 comparable period; $107,761 was incurred for insurance, versus $123,443 for the 2017 comparable period, and; $48,157 was incurred for utilities, supplies, license fees, filing costs, rent, advertising and other versus $32,450 for the 2017 comparable period.  

 

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Stock Based Compensation Expenses

 

We incurred related party non-cash expenses totaling $60,498 and $33,955 for the three months ended September 30, 2018 and 2017, respectively. The increase is primarily attributable to newly issued stock options in late 2017.

 

We incurred $487,738 and $197,146 of non-related party non-cash expenses for the three months ended September 30, 2018 and 2017, respectively. The increase for the comparable period is attributable to newly issued stock options in late 2017 and the issuance of options to SAB members in July 2018.

 

Other Income, net

 

We earned $33,398 of interest income for the three months ended September 30, 2018 as compared to $20,298 for the three months ended September 30, 2017 on funds temporarily deposited in interest bearing money market accounts. 

 

Net loss and loss per share

 

We incurred losses of $3,169,354 and $2,296,314 for the three months ended September 30, 2018 and 2017, respectively. The increased loss is primarily attributable to the increase in research and development expenses associated primarily with initiating our confirmatory Phase 2 clinical trial in AD offset by the completion of our previous Phase 2 trial and an increase in stock-based compensation expenses offset by a decrease in our related party research and development expenses and our general and administrative expenses. Earnings (losses) per common share were ($0.40) and ($0.29) for the three months ended September 30, 2018 and 2017, respectively. The increase in loss per share is primarily attributable to the increase in net loss offset by an increase in weighted average common shares outstanding.

 

The computation of diluted loss per share for the three months ended September 30, 2018 excludes 5,101,440 warrants and options to purchase 1,423,961 shares of our common stock as they are anti-dilutive due to our net loss. For the three months ended September 30, 2017, the computation excludes 5,115,274 warrants and options to purchase 683,235 shares of our common stock, as they are anti-dilutive due to our net loss.

 

Financial Condition, Liquidity and Capital Resources

 

Cash and Working Capital

 

Since inception, we have incurred negative cash flows from operations. As of September 30, 2018, we had an accumulated deficit of $69,940,349 and had working capital of $9,263,892 as compared to working capital of $14,865,304 as of December 31, 2017. The $5,601,412 decrease in working capital was primarily attributable to expenditures relating to development of a potential therapeutic product and general and administrative expenses, which resulted in a net loss, excluding non-cash stock compensation expense, of $5,605,169 for the nine months ended September 30, 2018, partially offset by net proceeds from the exercise of warrants totaling $4,427.

   

Sources and Uses of Liquidity

 

Since inception, we have satisfied our operating cash requirements from the private placement of equity securities sold principally to outside investors. We expect to continue to incur expenses, resulting in losses and negative cash flows from operations, over at least the next several years as we continue to develop AD therapeutic products. We anticipate that this development will include continuing our current confirmatory clinical trial as well as new clinical trials and additional research and development expenditures.

  

   Nine Months ended
September 30,
 
   2018   2017 
Cash used in operating activities  $(6,371,014)  $(8,450,684)
Cash used in investing activities   (3,186)   (3,585)
Cash provided by financing activities   4,427    1,331,265 

 

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Net Cash Used in Operating Activities

 

Cash used in operating activities was $6,371,014 for the nine months ended September 30, 2018, compared to $8,450,684 for the nine months ended September 30, 2017. The $2,079,670 decrease primarily resulted from the decreased net loss, the funding of prepaid expenses and an increase in accounts payable and accrued expenses, for the nine months ended September 30, 2018.

 

Net Cash Used in Investing Activities

 

Net cash used in investing activities was $3,186 for the nine months ended September 30, 2018 compared to $3,585 for the nine months ended September 30 2017. The cash used in investing activities was for capital expenditures.

 

Net Cash Provided by Financing Activities

 

Net cash provided by financing activities was $4,427 for the nine months ended September 30, 2018 compared to $1,331,265 for the nine months ended September 30, 2017. The cash provided by financing activities during the nine months ended September 30, 2018 and 2017, respectively, was primarily the result of funds raised through exercise of warrants to purchase common stock from investors in our historical private placements.

 

As of October 28, 2018, we have paid a total of $2.1 million toward our current confirmatory clinical trial expenses. Approximately $1.8 million has been paid to WCT, of which $1.2 million was paid as advanced deposit payments and $600,000 represents payments of progress billings. In addition, we have paid other trial-related expenses of approximately $200,000 to other vendors and consultants.

 

As of October 28, 2018, the Company had approximately $9.5 million in cash and cash equivalents. The Company expects that its existing capital resources will be sufficient to support its projected operating requirements into the beginning of November 2019, including the continuing development of bryostatin, our novel drug targeting the activation of PKC epsilon, through our ongoing follow-on clinical study (estimated revised total cost $7.3 million - see Note 3). The Company’s ability to fund operations past November of 2019 is dependent upon the Company’s ability to obtain additional financing through equity and/or debt financing arrangements and grant funding. There can be no assurances that additional financing will be available on acceptable terms to the Company, or at all. If any material unforeseen contingencies were to arise during the next twelve months, the Company could be required to implement cost reduction strategies or curtail operations if the Company is unable to obtain additional financing to meet obligations as they come due. Funds of approximately $5.3 million are anticipated to be used to fund our confirmatory clinical study treating patients similar to those in our recently completed Phase 2 study and also to possibly initiate an open label study in Fragile X syndrome. The $5.3 million is anticipated to be paid over the next nine to 12 months, with a total of approximately $4.2 million for general corporate and working capital purposes spread over the next approximately 13 months.

 

We expect to require additional capital in order to initiate, pursue and complete clinical trials and development of bryostatin following our recently initiated confirmatory clinical trial. Additional funding may not be available to us on acceptable terms, or at all. If we are unable to access additional funds when needed, or if we incur unforeseen additional material costs or expenses during the next 12 months, we may not be able to initiate, pursue and complete all planned clinical trials or continue the development of our product candidates or we could be required to delay, scale back or eliminate some or all of our development programs and operations. Any additional equity financing, if available, may not be available on favorable terms, would most likely be significantly dilutive to our current stockholders and debt financing, if available, may involve restrictive covenants. If we are able to access funds through collaborative or licensing arrangements, we may be required to relinquish rights to some of our technologies or product candidates that we would otherwise seek to develop or commercialize on our own, on terms that are not favorable to us. Our ability to access capital when needed is not assured and, if not achieved on a timely basis, will materially harm our business, financial condition and results of operations.

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

 

Not applicable to a smaller reporting company.

 

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Item 4. Controls and Procedures.

 

Evaluation of Disclosure Controls and Procedures

 

An evaluation was performed under the supervision and with the participation of our Chief Executive Officer and our Chief Financial Officer, our principal executive officer and principal financial officer, respectively, of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report. Based on their evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are not effective due to the material weakness resulting from a limited segregation of duties among our employees with respect to our control activities. This deficiency is the result of our limited number of employees. This deficiency may affect management’s ability to determine if errors or inappropriate actions have taken place. Management is required to apply its judgment in evaluating the cost-benefit relationship of possible changes in our disclosure controls and procedures.

 

Management has implemented certain measures including additional cash controls, dual-signature procedures, and other review and approval processes by the Company’s management team. The Company intends to hire additional personnel to allow for improved financial reporting controls and segregation of duties when the Company’s operations and revenues have grown to the point of warranting such controls.

 

Changes in Internal Controls over Financial Reporting

 

There was no change in our internal controls over financial reporting that occurred during the period covered by this report, which has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.

 

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PART II

OTHER INFORMATION

 

Item 1. Legal Proceedings.

 

Since May 17, 2017, two purported class action lawsuits have been commenced in the United States District Court for the Southern District of New York (the “NY Litigation”).  On August 10, 2017, the lawsuits were consolidated and Plaintiffs filed their Amended Consolidated Complaint on October 9, 2017.  The Amended Consolidated Complaint names as defendants us, our former Chief Executive Officer and our co-founder and President/Chief Scientific Officer.  The lawsuit alleged violations of the Securities Exchange Act of 1934, as amended, in connection with allegedly false and misleading statements made by us in certain press releases and in our Annual Report on Form 10-K relating to the results stemming from our Phase 2 clinical trial for bryostatin.  Plaintiffs sought, among other things, damages for purchasers of our securities between January 7, 2016 and July 18, 2017.

 

On November 21, 2017, we and the other named defendants filed a motion to dismiss all of the claims (the “Motion”).  On June 4, 2018 the Court granted the Motion and dismissed with prejudice the NY Litigation.  Plaintiffs’ time to appeal the Court’s decision expired on July 5, 2018.

 

Additionally, on August 3, 2017 a derivative action was filed against us and all members of the Board of Directors at that time.  The lawsuit alleged that the Board of Directors breached its fiduciary duty by making misleading statements and omitting information pertaining to the results of our Phase 2 clinical trials for bryostatin.  We and the Board of Directors reached an agreement with counsel for the Plaintiff to stay this action pending a decision by the Court in the NY Litigation.  On July 24, 2018, after reviewing the decision in the NY Litigation, Plaintiff voluntarily dismissed the derivative action.   

 

Item 1A. Risk Factors.

 

An investment in shares of our common stock is highly speculative and involves a high degree of risk. We face a variety of risks that may affect our operations and financial results and many of those risks are driven by factors that we cannot control or predict. Before investing in our common stock you should carefully consider the following risks, together with the financial and other information contained in this report. If any of the following risks actually occurs, our business, prospects, financial condition and results of operations could be materially adversely affected. In that case, the trading price of our common stock would likely decline and you may lose all or a part of your investment. Only those investors who can bear the risk of loss of their entire investment should invest in our common stock.

 

Except as set forth below, there have been no material changes to our risk factors contained in our Annual Report on Form 10-K for the period ended December 31, 2017. For a further discussion of our Risk Factors, refer to the “Risk Factors” discussion contained in our Annual Report on Form 10-K.

 

Because our development activities are expected to rely heavily on sensitive and personal information, an area which is highly regulated by privacy laws, we may not be able to generate, maintain or access essential patient samples or data to continue our research and development efforts in the future on reasonable terms and conditions, which may adversely affect our business.

 

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Although we are not subject to the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), as we are neither a Covered Entity nor Business Associate (as defined in HIPAA and the Health Information Technology and Clinical Health Act (the “HITECH Act”)), we may have access to very sensitive data regarding patients whose tissue samples are used in our studies. This data will contain information that is personal in nature. The maintenance of this data is subject to certain privacy-related laws, which impose upon us administrative and financial burdens, and litigation risks. In the United States, numerous federal and state laws and regulations, including state data breach notification laws, state health information privacy laws and federal and state consumer protection laws govern the collection, use, disclosure and protection of health-related and other personal information. For instance, the rules promulgated by the Department of Health and Human Services under HIPAA create national standards to protect patients’ medical records and other personal information in the U.S. These rules require that healthcare providers and other covered entities obtain written authorizations from patients prior to disclosing protected health care information of the patient to companies. If the patient fails to execute an authorization or the authorization fails to contain all required provisions, then we will not be allowed access to the patient’s information and our research efforts can be substantially delayed. Furthermore, use of protected health information that is provided to us pursuant to a valid patient authorization is subject to the limits set forth in the authorization (i.e., for use in research and in submissions to regulatory authorities for product approvals). As such, we are required to implement policies, procedures and reasonable and appropriate security measures to protect individually identifiable health information we receive from covered entities, and to ensure such information is used only as authorized by the patient. Any violations of these rules by us could subject us to civil and criminal penalties and adverse publicity, and could harm our ability to initiate and complete clinical trials required to support regulatory applications for our product candidates. In addition, HIPAA does not replace federal, state, or other laws that may grant individuals even greater privacy protections.

 

International data protection laws and regulations may also apply to some or all of our clinical data obtained outside of the U.S. For example, in April 2016, the EU approved a new data protection regulation, known as the General Data Protection Regulation (the “GDPR”), which become effective in May 2018. The GDPR includes new operational requirements for companies that receive or process personal data of EU residents, as well as significant penalties for non-compliance. Complying with the GDPR may cause us to incur substantial operational costs or require us to change our business practices.

 

Failure to comply with data protection laws and regulations could result in government enforcement actions, which may involve civil and criminal penalties, private litigation and/or adverse publicity and could negatively affect our operating results and business. Claims that we have violated individuals' privacy rights or breached our contractual obligations, even if we are not found liable, could be expensive and time-consuming to defend and could result in adverse publicity that could harm our business.

 

We can provide no assurance that future legislation will not prevent us from generating or maintaining personal data or that patients will consent to the use of their personal information, either of which may prevent us from undertaking or publishing essential research. These burdens or risks may prove too great for us to reasonably bear, and may adversely affect our ability to achieve profitability or maintain profitably in the future.

 

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

 

There have been no unregistered sales of equity securities during the three months ended September 30, 2018.

 

Item 3. Defaults upon Senior Securities.

 

None.

 

Item 4. Mine Safety Disclosures.

 

Not applicable.

 

Item 5. Other Information.

 

Not applicable.

 

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Item 6. Exhibits.

 

Exhibit    
Number   Description
     
31.1*   Certification of the President and Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
     
31.2*   Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
     
32.1*   Certification of the President and Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
     
32.2*   Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
     
101*   The following financial information from this Quarterly Report on Form 10-Q for the period ended September 30, 2018, formatted in XBRL (Extensible Business Reporting Language): (i) the Condensed Consolidated Statements of Operations; (ii) the Condensed Consolidated Balance Sheets; (iii) the Condensed Consolidated Statements of Cash Flows; and (iv) the Notes to Consolidated Financial Statements, tagged as blocks of text.

 

* Filed herewith. 

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

  Neurotrope, Inc.
     
Date: October 30, 2018 By: /s/ Charles S. Ryan, JD, Ph.D.
    Charles S. Ryan, JD, Ph.D.
    Chief Executive Officer (principal executive officer)
     
Date: October 30, 2018 By: /s/ Robert Weinstein
    Robert Weinstein
    Chief Financial Officer, Executive Vice President, 
Secretary and Treasurer (principal financial officer)

 

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Exhibit Index

 

Exhibit    
Number   Description
     
31.1*   Certification of the President and Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
     
31.2*   Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
     
32.1*   Certification of the President and Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
     
32.2*   Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
     
101*   The following financial information from this Quarterly Report on Form 10-Q for the period ended September 30, 2018, formatted in XBRL (Extensible Business Reporting Language): (i) the Condensed Consolidated Statements of Operations; (ii) the Condensed Consolidated Balance Sheets; (iii) the Condensed Consolidated Statements of Cash Flows; and (iv) the Notes to Consolidated Financial Statements, tagged as blocks of text.

 

* Filed herewith. 

 

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