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CytRx Reports Increased Q2 Net Loss on Zero Revenues as Firm Deals with Various Setbacks


CytRx reported this week its financial results for the second quarter, posting higher net loss on surging expenses and a complete drop-off of revenues.

Meanwhile, the company continues to deal with a number of potentially damaging issues including a clinical hold on its phase II small-molecule treatment for amyotrophic lateral sclerosis, a potential delisting from the Nasdaq exchange, the need to secure additional capital, and two lawsuits filed last month against President and CEO Steven Kriegsman.

The company also said it has enough cash to last about one more year.

For the second quarter, CytRx's revenues fell to zero from $228,164 generated in the year-ago quarter. The revenues in the second-quarter 2004 were associated with the out-licensing of a sickle-cell disease drug and vaccine delivery technology (see RNAi News, 10/31/2003).

Meanwhile, the company's net loss jumped to $4.5 million, or $0.08 per share, from $4.1 million, or $0.12 per share, in the second quarter 2004.

Driving the increase in net loss during the quarter was a surge in research and development spending, which jumped to $2.9 million from $1.4 million the year before. CytRx attributed the greater R&D costs to higher R&D expenses at its CytRx Laboratories subsidiary, which is developing both small molecule and RNAi-based drugs for metabolic disorders, and preparations for a phase II trial of its small-molecule ALS drug arimoclomol.

The lawsuits allege that Kriegsman "knew adverse non-public information about the business of AuthentiDate" and that he "participated in the issuance of false and/or misleading statements." The suit notes that Kriegsman sold 10,000 shares of the company for proceeds of $175,700 between September 2003 and July 2005.

CytRx acquired arimoclomol, along with a number of other earlier-stage drug candidates, from Hungary-based drug company Biorex Research & Development late last year (see RNAi News, 10/8/2004). While CytRx was an early mover in the RNAi drugs field and has maintained that its RNAi programs continue to be active, the company has in recent months been focusing more on developing this small molecule therapeutic, as well as a phase I DNA vaccine for HIV.

Kriegsman recently told RNAi News that CytRx's efforts on both small molecules and RNAi reflect the company's efforts to establish a "balanced program" (see RNAi News, 5/20/2005). However, those efforts, however, hit a snag earlier this summer when the company announced that the US Food and Drug Administration had put a hold on a proposed phase II study of arimoclomol.

According to CytRx, the FDA wants existing clinical data on bimoclomol, a drug related to arimoclomol, as well as the addition of specific clinical tests to the suspended study's protocols. The company has said that it expects to resume the clinical trial before the end of the year.

In a filing with the US Securities and Exchange Commission, CytRx noted that it anticipates the phase II arimoclomol study to cost about $9 million over a period of 18 to 24 months, and that study-related expenses could increase should US regulators require the firm to generate additional pre-clinical or clinical data on the drug.

As of June 30, CytRx had cash and short-term investments totaling roughly $15.8 million. The company said in the SEC filing that these funds should be sufficient to support its operations "into the second quarter of 2006," at which time the company "will be required to obtain significant additional funding."

In January, CytRx closed a private equity financing deal under which it issued approximately 17.3 million shares of its stock to institutional investors for gross proceeds of $21.3 million, putting a value on the company's stock of about $1.23 a share. CytRx also issued the investors warrants to buy another 8.7 million shares at $2 each.

However, CytRx's prospects for raising additional funds are murky with its stock trading below $1 since April and its receipt of a delisting notice from the Nasdaq in June. According to CytRx, it has until Dec. 5 to bring its stock price back up to a minimum of $1 for at least 10 consecutive trading days.

Further adding to CytRx's woes is President and CEO Kriegsman's involvement in two related lawsuits filed last month by shareholders of AuthentiDate, a company involved in security software technology, document imaging software products, and systems integration services and products. Kriegsman was a director of the company between 1997 and 2004.

The suits, filed in the US District Court for the Southern District of New York, name 13 AuthentiDate executives and directors, including Kriegsman, as defendants. They allege that the defendants "caused or allowed AuthentiDate to issue materially false or misleading statements regarding the company's business and prospects, specifically about revenues to be derived from an agreement with the US Postal Service. These statements caused AuthentiDate stock to trade at artificially inflated levels, including as high as $18.69 per share in January 2004."

The suits further claim that when AuthentiDate announced in May that it had failed to finalize a deal with the US Postal Service in May, its stock dropped 84 percent to $2.94 a share.

The lawsuits allege that Kriegsman "knew adverse non-public information about the business of AuthentiDate" and that he "participated in the issuance of false and/or misleading statements." The suit notes that Kriegsman sold 10,000 shares of the company for proceeds of $175,700 between September 2003 and July 2005.

Kriegsman was unavailable for comment as of press time.

— Doug Macron ([email protected])

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