<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT-OF 1934 FOR THE QUARTERLY PERIOD ENDED September 30, 1998
------------------
[_] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _______ TO _______
Commission file number 0-17951
Cortex Pharmaceuticals, Inc.
(Exact name of small business issuer as specified in its charter)
Delaware 33-0303583
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
15241 Barranca Parkway, Irvine, California, 92618
(Address of principal executive offices, including zip code)
(949) 727-3157
(Issuer's telephone number)
NOT APPLICABLE
----------------------------------
(Former name, former address and former fiscal year,
if changed since last year)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 [_]
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date.
12,425,967 shares of Common Stock as of November 4, 1998
<PAGE>
CORTEX PHARMACEUTICALS, INC.
INDEX
Page Number
-----------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets - September 30, 1998 and June 30, 1998.........3
Statements of Operations - Three months ended
September 30, 1998 and 1997; and period from
inception (February 10, 1987) through September 30, 1998......4
Statements of Cash Flows - Three months ended
September 30, 1998 and 1997 and period from
inception (February 10, 1987) through September 30, 1998......5
Notes to Financial Statements.................................7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations;
Plan of Operation.............................................8
PART II. OTHER INFORMATION
Item 3. Defaults on Senior Securities................................12
Item 6. Exhibits and Reports on Form 8-K.............................12
SIGNATURES................................................................13
Page 2 of 13
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Cortex Pharmaceuticals, Inc.
(A development stage enterprise)
Balance Sheets
<TABLE>
<CAPTION>
(Unaudited) (Note)
September 30, 1998 June 30, 1998
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 1,099,420 $ 2,124,008
Other current assets 29,002 71,566
------------ ------------
Total current assets 1,128,422 2,195,574
Furniture, equipment and leasehold improvements, net 605,392 655,419
Other 23,853 23,853
------------ ------------
$ 1,757,667 $ 2,874,846
============ ============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 465,942 $ 408,047
Accrued dividends 26,775 26,775
Accrued wages, salaries and related expenses 60,853 62,475
------------ ------------
Total current liabilities 553,570 497,297
Note payable to Alkermes, Inc. 961,159 948,253
Redeemable preferred stock:
Series A convertible preferred stock, $0.001
par value; $10,000 per share liquidation
preference; shares authorized: 400; shares
issued and outstanding: 250 2,460,450 2,460,450
Stockholders' equity:
9% cumulative convertible preferred stock, $0.001
par value; $1.00 per share liquidation preference;
shares authorized: 1,250,000; shares issued and
outstanding: 35,000 35,000 35,000
Series B convertible preferred stock, $0.001 par value;
$0.6667 per share liquidation preference; shares
authorized: 3,200,000; shares issued and
outstanding: 150,000 86,810 86,810
Common stock, $0.001 par value; shares authorized:
20,000,000; shares issued and outstanding:
10,237,126 10,237 10,237
Additional paid-in capital 36,276,202 36,276,202
Deficit accumulated during the development stage (38,625,761) (37,439,403)
------------ ------------
Total stockholders' equity (2,217,512) (1,031,154)
------------ ------------
$ 1,757,667 $ 2,874,846
============ ============
</TABLE>
See accompanying notes.
Note: The balance sheet as of June 30, 1998 has been derived from the audited
financial statements at that date.
Page 3 of 13
<PAGE>
Cortex Pharmaceuticals, Inc.
(A development stage enterprise)
Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Period from
inception
Three months ended (February 10,
September 30, 1987) through
------------------------- September 30,
1998 1997 1998
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
Research and license revenue $ -- $ -- $ 3,730,000
Grant revenue -- -- 94,717
----------- ----------- ------------
Total revenues -- -- 3,824,717
Operating expenses:
Research and development expenses 839,281 947,737 27,192,143
General and administrative expenses 354,693 439,258 13,698,941
Settlement with Alkermes, Inc. -- -- 1,227,977
----------- ----------- ------------
Total operating expenses 1,193,974 1,386,995 42,119,061
----------- ----------- ------------
Loss from operations (1,193,974) (1,386,995) (38,294,344)
Interest income, net 7,616 79,590 1,700,422
----------- ----------- ------------
Net loss $(1,186,358) $(1,307,405) $(36,593,922)
=========== =========== ============
Weighted average common shares outstanding 10,237,126 9,397,510
=========== ===========
Net loss per share $ (0.12) $ (0.14)
=========== ===========
</TABLE>
See accompanying notes.
Page 4 of 13
<PAGE>
Cortex Pharmaceuticals, Inc.
(A development stage enterprise)
Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Period from
inception
Three months ended (February 10,
September 30, 1987) through
-------------------------- September 30,
1998 1997 1998
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(1,186,358) $(1,307,405) $(36,593,922)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 52,607 48,103 1,561,348
Settlement with Alkermes, Inc. -- -- 1,227,977
Changes in operating assets/liabilities:
Accounts payable and accrued expenses 56,273 (259,052) 526,795
Accrued interest on U.S. government securities -- (1,499) (171,238)
Other current assets 42,564 (8,758) (29,002)
Interest receivable from former officer -- (19,274)
Realized loss on sale of U.S. government securities -- -- 54,317
Stock option compensation expense -- -- 555,809
Stock issued for services -- -- 28,750
Reduction in note receivable from former
officer--compensation expense -- -- 22,600
Changes in other assets and other liabilities 12,906 14,443 201,903
----------- ----------- ------------
Net cash used in operating activities (1,022,008) (1,514,168) (32,633,937)
----------- ----------- ------------
Cash flows from investing activities:
U.S. government securities--available-for-sale--
Purchases -- (1,000,056) (38,823,738)
Proceeds from sales -- -- 38,940,820
Purchase of fixed assets (2,580) (18,525) (2,138,216)
Sale of fixed assets -- -- 10,988
Decrease (increase) in--
Other assets -- -- (39,870)
Note receivable from former officer -- -- (100,000)
----------- ----------- ------------
Net cash used in investing activities (2,580) (1,018,581) (2,150,016)
----------- ----------- ------------
Cash flows from financing activities:
Proceeds from issuance of 9% preferred stock -- -- 1,076,588
Redemption of 9% preferred stock -- -- (63,750)
Payment of 9% preferred stock dividends -- -- (110,250)
Proceeds from issuance of Series B
convertible preferred stock -- -- 1,841,108
Proceeds from issuance of Series C
convertible preferred stock -- -- 3,576,543
Proceeds from issuance of Series D
convertible preferred stock -- -- 3,719,636
Proceeds from issuance of Series A
convertible preferred stock -- -- 3,936,720
Proceeds from issuance of common stock -- -- 21,922,418
Proceeds from subordinated convertible note -- -- 208,333
Principal payments on note payable to Alkermes, Inc. -- -- (200,000)
Principal payments on capitalized leases -- (1,499) (23,973)
----------- ----------- ------------
Net cash provided by (used in) financing activities -- (1,499) 35,883,373
----------- ----------- ------------
Increase (decrease) in cash and cash equivalents (1,024,588) (2,534,248) 1,099,420
Cash and cash equivalents, beginning of period 2,124,008 7,568,803 --
----------- ----------- ------------
Cash and cash equivalents, end of period $ 1,099,420 $ 5,034,555 $ 1,099,420
=========== =========== ============
</TABLE>
See accompanying notes.
(Continued ...)
Page 5 of 13
<PAGE>
Cortex Pharmaceuticals, Inc.
(A development stage enterprise)
Statements of Cash Flows
(Unaudited, Continued)
<TABLE>
<CAPTION>
Period from
inception
Three months ended (February 10,
September 30, 1987) through
------------------------- September 30,
1998 1997 1998
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Supplemental schedule of non-cash investing
and financing activities:
Accretion of preferred stock $ -- $ -- $ 139,674
Conversion of 9% preferred stock to common stock -- 125,625 1,437,311
Conversion of Series B preferred stock to common stock -- -- 1,754,273
Conversion of Series C preferred stock to common stock -- -- 3,439,890
Conversion of Series D preferred stock to common stock -- -- 3,719,636
Conversion of Series A preferred stock to common stock -- 127,943 3,719,636
Capital lease obligation incurred to lease equipment -- -- 23,973
</TABLE>
See accompanying notes.
Page 6 of 13
<PAGE>
Cortex Pharmaceuticals, Inc.
(A development stage enterprise)
Notes to Financial Statements
Period from inception (February 10, 1987) through September 30, 1998
(Unaudited)
Note 1 - Basis of Presentation
The accompanying unaudited condensed financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and the instructions to Form 10-QSB and Item 310(b) of Regulation S-
B. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting only of
normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three-month period ended September 30,
1998 are not necessarily indicative of the results that may be expected for the
year ending June 30, 1999. For further information, refer to the financial
statements and notes thereto included in the Company's 1998 Annual Report on
Form 10-KSB.
Note 2 - Development Stage Enterprise
From inception (February 10, 1987) through September 30, 1998, the Company has
generated only modest operating revenues and has incurred losses aggregating
$36,594,000. As of September 30, 1998, the Company had working capital of
$575,000. This amount is expected to enable the Company to maintain its planned
operations through calendar 1998. Continued operation beyond that time will
require additional capital. Over the longer term, successful completion of the
Company's development program and its transition, ultimately, to attaining
profitable operations is dependent upon obtaining additional financing adequate
to fulfill its research and development activities and achieving a level of
revenues adequate to support the Company's cost structure. There can be no
assurance that the Company will be successful in these areas. To supplement its
existing resources, the Company is likely to raise additional capital through
the sale of debt or equity. There can be no assurance that such capital will be
available on favorable terms, or at all. If additional funds are raised by
issuing equity securities, dilution to existing stockholders is likely to
result.
The Company is seeking collaborative or other arrangements with larger
pharmaceutical companies, under which such companies would provide additional
capital to the Company in exchange for exclusive or non-exclusive license or
other rights to certain of the technologies and products the Company is
developing. Competition for corporate partnering with major pharmaceutical
companies is intense, with a large number of biopharmaceutical companies
attempting to arrive at such arrangements. Accordingly, although the Company is
presently engaged in discussions with a number of candidate companies, there is
no assurance that an agreement will arise from these discussions in a timely
manner, or at all, or that an agreement that may arise from these discussions
will successfully reduce the Company's immediate or longer-term funding
requirements.
Page 7 of 13
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations; Plan of Operation
The following discussion and analysis should be read in conjunction with the
Financial Statements and Notes thereto appearing elsewhere in this report and
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations; Plan of Operation" presented in the Company's 1998 Annual Report on
Form 10-KSB.
Introductory Note
This Quarterly Report on Form 10-QSB contains certain forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934 and the Company intends that such forward
looking statements be subject to the safe harbors created thereby. These
forward-looking statements relate to (i) future research plans, expenditures and
results, (ii) potential collaborative arrangements, (iii) the potential utility
of the Company's proposed products and (iv) the need for, and availability of,
additional financing.
The forward-looking statements included herein are based on current
expectations, which involve a number of risks and uncertainties and assumptions
regarding the Company's business and technology. These assumptions involve
judgments with respect to, among other things, future scientific, economic and
competitive conditions, and future business decisions, all of which are
difficult or impossible to predict accurately and many of which are beyond the
control of the Company. Although the Company believes that the assumptions
underlying the forward-looking statements are reasonable, any of the assumptions
could prove inaccurate and, therefore, there can be no assurance that the
results contemplated in forward-looking statements will be realized and actual
results may differ materially. In light of the significant uncertainties
inherent in the forward-looking information included herein, the inclusion of
such information should not be regarded as a representation by the Company or
any other person that the objectives or plans of the Company will be achieved.
Results of Operations
From inception (February 10, 1987) through September 30, 1998, the Company's
revenue has consisted of (i) $3,730,000 of license fees and research and
development funding, (ii) net interest income aggregating $1,700,000, and (iii)
$95,000 of grant revenue.
From inception (February 10, 1987) through September 30, 1998, the Company has
sustained losses aggregating $36,594,000. Continuing losses are anticipated over
the next several years, as the Company's ongoing operating expenses for
preclinical research and early clinical development will only be offset, if at
all, by licensing revenues under planned strategic alliances with larger
pharmaceutical companies that the Company is seeking for the later stages of
clinical development, manufacturing and marketing of its products. The nature
and timing of payments to Cortex under these planned strategic alliances, if and
as entered into, is likely to significantly affect the Company's operations, and
to produce substantial period-to-period fluctuation in reported financial
results. Over the longer term, the Company will be dependent upon successful
commercial development of its products by its prospective partners to attain
profitable operations from product royalties or other revenues based on product
sales.
Page 8 of 13
<PAGE>
The net loss for the three-month period ended September 30, 1998 of $1,186,000
compares with a net loss of $1,307,000 for the corresponding prior year period.
Research and development expenses decreased from $948,000 to $839,000, or by
$109,000 (11%), during the three-month period ended September 30, 1998 compared
to the corresponding prior year period. The decrease was principally due to
higher outlays for clinical expenses in the prior year period, in connection
with commenced Phase I/IIa human clinical testing of Ampalex(R). The decrease
also reflects reduced salary expenses due to a decrease in scientific employees,
partially offset by increased spending for sponsored research and technology
access payments.
General and administrative expenses decreased from $439,000 to $355,000, or by
$84,000 (19%) for the three-month period ended September 30, 1998 compared to
the corresponding prior year period. The decrease includes savings from a
reduction in administrative employees and lower spending for outside consulting.
The Company believes that inflation and changing prices have not had a material
impact on its ongoing operations to date.
Plan of Operations; Liquidity and Capital Resources
CORTEX has funded its organizational and research and development activities to
date primarily from the issuance of equity securities, with net proceeds from
inception (February 10, 1987) through September 30, 1998 aggregating $36
million. An additional $3.6 million in research and license payments was
received from Alkermes in 1992 and 1993 in connection with a development and
license agreement with that firm. Net interest income from inception through
September 30, 1998 was $1.7 million.
As of September 30, 1998, the Company had cash, cash equivalents and short-term
investments totaling $1.1 million and working capital of $575,000. In
comparison, as of June 30, 1998, the Company had cash, cash equivalents and
short-term investments of $2.1 million and working capital of $1.7 million. The
decreases represent amounts required to fund operating losses.
Cortex anticipates that its existing cash, cash equivalents and short-term
investments will be sufficient to satisfy its capital requirements through
calendar 1998, assuming modest levels of operational restraint. Additional funds
will be required to continue operations beyond that time.
The Company leases approximately 30,000 square feet of research laboratory,
office and expansion space under an operating lease that expires May 31, 1999,
with an additional five-year option at 95% of the then fair market rental rate.
The commitments under the lease agreement for the year ending June 30, 1999
total $222,000. From inception (February 10, 1987) through September 30, 1998,
net expenditures for furniture, equipment and leasehold improvements aggregated
$2.1 million.
In connection with the settlement in October 1995 of a license dispute with
Alkermes, the Company issued to Alkermes a $1,000,000 three-year promissory note
accruing interest semi-annually at the then federal funds rate. The Company also
agreed to pay Alkermes a graduated royalty on calpain inhibitor development
proceeds, as defined and subject to certain limitations. In February 1998, the
terms of the note were restructured to include a principal payment of $200,000
upon signing of the restructuring agreement. The balance
Page 9 of 13
<PAGE>
of the note and accrued interest are payable in October 1999 or upon the
consummation of a corporate partnership between Cortex and a larger
pharmaceutical company, whichever is earlier.
As of September 30, 1998, Cortex had 35,000 outstanding shares of 9% cumulative
convertible preferred stock, which accrue cumulative semi-annual dividends at an
annual rate of $0.09 per share. To conserve capital for operations, the Company
has elected not to distribute the dividends that have accrued since 1989.
Accrued and unpaid dividends as of September 30, 1998 were $26,775.
In the event that the Company is able to obtain sufficient financing, over the
next twelve months the Company plans to complete current Phase I/IIa clinical
studies on its Ampakine compounds. Commitments for external preclinical and
Phase I/IIa clinical studies involve a twelve-month expenditure of approximately
$325,000. The Company is also committed to an additional $700,000 of funding for
sponsored research in academic laboratories. Neither significant investments in
plant or equipment nor increases to staffing levels are contemplated under
current spending plans for the upcoming fiscal year. As of September 30, 1998,
Cortex had 18 full-time employees.
The Company's common stock has traded on the Nasdaq SmallCap Market since 1989.
Listing standards for the Nasdaq SmallCap Market include a net tangible asset,
market capitalization or net income test. As of September 30, 1998, the Company
had net tangible assets of approximately $243,000, which does not meet the
current listing standards. The Company received a notice of noncompliance from
Nasdaq in October 1998. In response, the Company submitted a plan for achieving
compliance through a combination of prospective corporate partners and
investors. If Nasdaq does not accept the Company's plan for compliance or if the
Company fails to satisfy the listing standards on a continuous basis, the
Company's common stock will no longer be eligible for listing on the Nasdaq
SmallCap Market. In such event, the liquidity of the Company's common stock is
likely to be impaired and its trading price reduced. In addition, in such event,
the holders of the Company's Series A Preferred Stock may require the Company to
redeem their shares for cash. It is unlikely that the Company would be able to
satisfy such a redemption request.
The Company may raise additional capital through the sale of debt or equity
securities. Given the current adverse market conditions for biopharmaceutical
companies, if the Company proceeds with a debt or equity financing, there is no
assurance that funds will be available on favorable terms, or at all. If equity
securities are issued to raise additional funds, substantial dilution to
existing shareholders is likely to result.
In order to provide for both its immediate and longer-term spending
requirements, the Company is presently seeking collaborative or other
arrangements with larger pharmaceutical companies. Under these agreements, it is
intended that such companies would provide additional capital to the Company in
exchange for exclusive or non-exclusive license or other rights to certain of
the technologies and products the Company is developing. Competition for such
arrangements is intense, however, with a large number of biopharmaceutical
companies attempting to secure alliances with more established pharmaceutical
companies. Although the Company has for some time been engaged in discussions
with candidate companies, there is no assurance that an agreement or agreements
will arise from these discussions in a timely manner, or at all, or that
revenues that may be generated thereby will offset operating expenses
sufficiently to reduce the Company's immediate and longer-term funding
requirements.
The Company's proposed products are in the preclinical or early clinical stage
of development and will require significant further research, development,
clinical testing and regulatory clearances. They are subject to the risks of
failure inherent in the development of products based on innovative
technologies. These risks include the possibilities that any or all of the
proposed products will be
Page 10 of 13
<PAGE>
found to be ineffective or toxic, or otherwise fail to receive necessary
regulatory clearances; that the proposed products, although effective, will be
uneconomical to market; that third parties may now or in the future hold
proprietary rights that preclude the Company from marketing them; or that third
parties will market superior or equivalent products. Accordingly, the Company is
unable to predict whether its research and development activities will result in
any commercially viable products or applications. Further, due to the extended
testing and regulatory review process required before marketing clearance can be
obtained, the Company does not expect to be able to commercialize any
therapeutic drug for at least five years, either directly or through its
prospective corporate partners or licensees. There can be no assurance that the
Company's proposed products will prove to be safe or effective or receive
regulatory approvals that are required for commercial sale.
Year 2000 Compliance
The Company has completed a preliminary assessment of the impact of the year
2000 as it relates to the Company's computers and operating systems. Some of the
Company's computer programs were written using two digits rather than four to
define the applicable year. As a result, those computer programs recognize a
date using "00" as the year as 1900 rather than as the year 2000. This may cause
a system failure or otherwise disrupt operations. The Company will be required
to update some of its software so that its computer systems will continue to
function properly. Completion of the upgrade is expected by June 1999, prior to
any anticipated impact on its operating systems. The associated cost is
anticipated to be less than $25,000.
The Company has not yet completed its assessment of its laboratory equipment for
Year 2000 compliance. However, the Company has initiated contact with the
manufacturers and vendors of such equipment regarding Year 2000 compliance. The
Company anticipates that any necessary replacements or upgrades would be
completed by June 1999. The Company does not expect that its Year 2000-related
expenditures with respect to its laboratory equipment will be significant.
The Company is unable to control whether its suppliers and service providers
will be Year 2000 compliant. However, the Company has initiated communications
with its significant vendors to determine the extent to which the Company's
operations may be vulnerable to a failure by those third parties to properly
address Year 2000 issues. The Company's operations may be affected to the extent
that its vendors are unable to provide services or ship products. As of yet, the
Company has not received responses from all of its significant vendors and
cannot complete its assessment of their compliance.
Although the Company expects its internal systems to be Year 2000 compliant as
described above, the Company intends to prepare a contingency plan that will
specify what it plans to do if it or its significant vendors are not Year 2000
compliant in a timely manner. The Company expects to prepare its contingency
plan in calendar year 1999 following the anticipated completion of its internal
remediation and the assessment of the compliance of the Company's significant
vendors. Management does not believe that the Year 2000 changes affecting it and
its significant vendors will have a material impact on its business, financial
condition or results of operations.
Notwithstanding the foregoing, there can be no assurances (a) that the
representations provided by its third party vendors with respect to Year 2000
compliance will be accurate, or (b) that the Company will have any recourse
against such vendors if the representations prove to be inaccurate.
Page 11 of 13
<PAGE>
Furthermore, there can be no assurances that Year 2000-related failure caused by
third parties, such as utility providers, transportation companies or others,
will not have a material adverse effect on the Company.
PART II. OTHER INFORMATION
Item 3. Defaults upon Senior Securities
In order to conserve capital for operations, the Board of Directors of the
Company elected not to distribute the semi-annual dividends that have accrued
from June 15, 1990 on the Company's 9% cumulative convertible preferred stock.
As of September 30, 1998, accrued and unpaid dividends on the 9% cumulative
convertible preferred stock were $26,775.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
Number Description
----------------------------------------------------------------------
27 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended September
30, 1998.
Page 12 of 13
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
CORTEX PHARMACEUTICALS, INC.
November 6, 1998 By: /s/ Vincent F. Simmon, Ph.D.
-----------------------------------------
Vincent F. Simmon, Ph.D.
President and Chief Executive Officer;
Acting Chief Financial Officer,
Corporate Secretary
(Principal Financial Officer)
Page 13 of 13
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AS OF SEPTEMBER 30, 1998, AND THE RELATED STATEMENTS OF OPERATIONS AND
CASH FLOWS FOR THE THREE MONTHS THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 1,099,420
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,128,422
<PP&E> 2,141,711
<DEPRECIATION> (1,536,319)
<TOTAL-ASSETS> 1,757,667
<CURRENT-LIABILITIES> 553,570
<BONDS> 961,159<F1>
2,460,450
121,810
<COMMON> 10,237
<OTHER-SE> (2,349,559)
<TOTAL-LIABILITY-AND-EQUITY> 1,757,667
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,193,974
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,906
<INCOME-PRETAX> (1,186,358)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,186,358)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,186,358)
<EPS-PRIMARY> (0.12)
<EPS-DILUTED> (0.12)
<FN>
<F1>PROMISSORY NOTE PAYABLE TO ALKERMES, INC.
</FN>
</TABLE>
