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** **

 

 

**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 March 31, 2009** |
| ** **                                              | ** ** | ** ** |
| **Or**                                                  |
| ** **                                              | ** ** | ** ** |
| **o**                                                   | ** ** | **TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF  THE SECURITIES EXCHANGE ACT OF 1934** |

 

**For thetransition period from             to**

 

**CommissionFile Number:  000-51708**

 

**Redpoint Bio Corporation**

(Exact name of Registrant asspecified in its charter)

 

| **Delaware**                     | ** ** | **22-3393959**                        |
|----------------------------------|------------|---------------------------------------|
| (State or other  jurisdiction of |       | (I.R.S. Employer  Identification No.) |
| incorporation or  organization)  |       |                                  |

 

**7 GraphicsDrive, Ewing, New Jersey 08628**

(Address of principalexecutive offices) (Zip Code)

 

**(609)637-9700**

(Registrant’s TelephoneNumber, Including Area Code)

 

 

(Former Name, Former Addressand Former Fiscal Year, If Changed Since Last Report)

 

Indicate by check mark whetherthe registrant (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding 12months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements forthe past 90 days. Yes  x  No o

 

Indicate bycheck mark whether the registrant has submitted electronically and posted onits corporate Web site, if any, every Interactive Data File required to besubmitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 ofthis chapter) during the preceding 12 months (or for such shorter period thatthe registrant was required to submit and post suchfiles). Yes  o No o

 

Indicate by check mark whether the registrant is alarge accelerated filer, an accelerated filer, a non-accelerated filer, or asmaller reporting company. See definitions of “large accelerated filer,” “acceleratedfiler,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.(Check one):

 
| Large accelerated filer o                      |   | Accelerated filer o          |
|------------------------------------------------|--------|-----------------------------------|
|                                           |   |                              |
| Non-accelerated filer o                        |   | Smaller reporting  company x |
| (Do not check if a smaller  reporting company) |   |                              |

 

Indicate by check markwhether the registrant is a shell company (as defined in Rule 12b-2 of theExchange Act). Yes  o   No  x

 

The number of shares of theregistrant’s common stock outstanding as of May 13, 2009 was 79,495,870.

 

 

 

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**REDPOINTBIO CORPORATION**

 

**TABLE OFCONTENTS**

 
| ** **        | ** **                                                                                  | **Page** |
|-------------------|---------------------------------------------------------------------------------------------|----------|
| **PART I:**  | **FINANCIAL INFORMATION**                                                                   | 1        |
|              |                                                                                        |     |
| ITEM  1.          | FINANCIAL  STATEMENTS (unaudited):                                                          | 1        |
|              |                                                                                        |     |
|              | Balance Sheets                                                                              | 1        |
|              |                                                                                        |     |
|              | Statements of Operations                                                                    | 2        |
|              |                                                                                        |     |
|              | Statements of Cash  Flows                                                                   | 3        |
|              |                                                                                        |     |
|              | Notes to Financial Statements                                                               | 4        |
|              |                                                                                        |     |
| ITEM 2.           | MANAGEMENT’S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 12       |
|              |                                                                                        |     |
| ITEM 3.           | QUANTITATIVE  AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                 | 16       |
|              |                                                                                        |     |
| ITEM 4T.          | CONTROLS AND PROCEDURES                                                                     | 17       |
|              |                                                                                        |     |
| **PART II:** | **OTHER INFORMATION**                                                                       | 17       |
|              |                                                                                        |     |
| ITEM 1.           | LEGAL PROCEEDINGS                                                                           | 17       |
|              |                                                                                        |     |
| ITEM 1A.          | RISK FACTORS                                                                                | 17       |
|              |                                                                                        |     |
| ITEM 2.           | UNREGISTERED  SALES OF EQUITY SECURITIES AND USE OF PROCEEDS                                | 32       |
|              |                                                                                        |     |
| ITEM 3.           | DEFAULTS  UPON SENIOR SECURITIES                                                            | 32       |
|              |                                                                                        |     |
| ITEM  6.          | EXHIBITS                                                                                    | 33       |
|              |                                                                                        |     |
| SIGNATURES        |                                                                                        |     |

 

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**PART I.FINANCIAL INFORMATION.**

 

**ITEM 1.  FINANCIAL STATEMENTS.**

 

**REDPOINTBIO CORPORATION(A DEVELOPMENT-STAGE ENTERPRISE)**

**BALANCE SHEETS**

**(UNAUDITED)**

 
| ** **                                                                                                                                                                                               | ** ** | **December 31,** | ** ** | **March 31,** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|--------------------|------------|
| ** **                                                                                                                                                                                               | ** ** | **2008**              | ** ** | **2009**           | ** ** |
| **Assets**                                                                                                                                                                                               |       |                  |       |               |       |
| Current assets:                                                                                                                                                                                          |       |                  |       |               |       |
| Cash and cash equivalents                                                                                                                                                                                |       | $                     | 3,130,561  |               | $          | 3,246,112 |   |
| Marketable securities                                                                                                                                                                                    |       | 11,296,952            |       | 8,888,963          |       |
| Accounts receivable                                                                                                                                                                                      |       | 139,095               |       | 383,521            |       |
| Prepaid expenses and other current assets                                                                                                                                                                |       | 313,456               |       | 244,513            |       |
| Total current assets                                                                                                                                                                                     |       | 14,880,064            |       | 12,763,109         |       |
| Property and equipment, net                                                                                                                                                                              |       | 1,240,514             |       | 1,100,060          |       |
| Other assets                                                                                                                                                                                             |       | 321,978               |       | 312,990            |       |
| Total assets                                                                                                                                                                                             |       | $                     | 16,442,556 |               | $          | 14,176,159 |   |
| **Liabilities and Stockholders’  Equity**                                                                                                                                                           |       |                  |       |               |       |
| Current liabilities:                                                                                                                                                                                     |       |                  |       |               |       |
| Current portion of long-term debt                                                                                                                                                                        |       | $                     | 519,155    |               | $          | 457,287 |   |
| Accounts payable                                                                                                                                                                                         |       | 877,642               |       | 807,345            |       |
| Accrued expenses                                                                                                                                                                                         |       | 305,580               |       | 300,329            |       |
| Accrued compensation                                                                                                                                                                                     |       | 15,610                |       | 404,541            |       |
| Deferred revenue                                                                                                                                                                                         |       | 371,320               |       | 557,154            |       |
| Total current liabilities                                                                                                                                                                                |       | 2,089,307             |       | 2,526,656          |       |
| Long-term debt                                                                                                                                                                                           |       | 1,147,952             |       | 1,058,614          |       |
| Deferred revenue                                                                                                                                                                                         |       | 278,582               |       | —             |       |
| Total liabilities                                                                                                                                                                                        |       | 3,515,841             |       | 3,585,270          |       |
| Commitments (Note 9)                                                                                                                                                                                     |       |                  |       |               |       |
| Stockholders’ equity:                                                                                                                                                                               |       |                  |       |               |       |
| Preferred stock; 10,000,000 shares authorized, $0.0001 par value,  none issued                                                                                                                           |       | —                |       | —             |       |
| Common stock; authorized 150,000,000 shares; $0.0001 par value,  issued and outstanding 79,495,870 shares at December 31, 2008 and issued  and outstanding 79,495,870 shares at March 31, 2009 |       | 7,950                 |       | 7,950              |       |
| Additional paid-in-capital                                                                                                                                                                               |       | 55,371,501            |       | 55,599,435         |       |
| Deficit accumulated during development stage                                                                                                                                                             |       | (42,517,290           | )          | (45,035,693        | )          |
| Accumulated other comprehensive income                                                                                                                                                                   |       | 64,554                |       | 19,197             |       |
| Total stockholders’ equity                                                                                                                                                                          |       | 12,926,715            |       | 10,590,889         |       |
| Total liabilities and stockholders’ equity                                                                                                                                                          |       | $                     | 16,442,556 |               | $          | 14,176,159 |   |

 

See accompanying notes to the unauditedfinancial statements.

 

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**REDPOINTBIO CORPORATION(A DEVELOPMENT-STAGE ENTERPRISE)**

**STATEMENTS OF OPERATIONS**

**(UNAUDITED**)

 
| ** **                                  | ** ** | **Three Months Ended  March 31, 2009,** | ** ** | **August 16,  1995 (Inception) to** | ** ** |
|---------------------------------------------|------------|--------------------------------------------------------|------------|----------------------------------------------------|------------|
| ** **                                  | ** ** | **2008**                                               | ** ** | **2009**                                           | ** ** | **March 31, 2009** | ** ** |
| Research and grant revenue                  |       | $                                                      | 908,605    |                                               | $          | 1,058,741 |   | $ | 11,520,315 |   |
| Operating expenses:                         |       |                                                   |       |                                               |       |   |   |
| Research and development                    |       | 1,985,713                                              |       | 1,921,491                                          |       | 30,359,218 |   |
| General and administrative                  |       | 1,632,203                                              |       | 1,659,265                                          |       | 21,861,176 |   |
| Total operating expenses                    |       | 3,617,916                                              |       | 3,580,756                                          |       | 52,220,394 |   |
| Operating loss                              |       | (2,709,311                                             | )          | (2,522,015                                         | )          | (40,700,079 | ) |
| Interest income                             |       | 232,725                                                |       | 55,661                                             |       | 1,574,239 |   |
| Interest expense                            |       | (15,283                                                | )          | (52,049                                            | )          | (3,482,942 | ) |
| Loss before income taxes                    |       | (2,491,869                                             | )          | (2,518,403                                         | )          | (42,608,782 | ) |
| Income tax benefit                          |       | —                                                 |       | —                                             |       | 985,978 |   |
| Net loss                                    |       | (2,491,869                                             | )          | (2,518,403                                         | )          | $ | (41,622,804 | ) |
| Basic and diluted net loss per common share |       | $                                                      | (0.03      | )                                                  | $          | (0.03 | ) |   |   |
| Weighted average of shares outstanding      |       | 79,319,299                                             |       | 79,495,870                                         |       |   |   |

 

See accompanying notes to the unauditedfinancial statements.

 

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**REDPOINTBIO CORPORATION**

**(ADEVELOPMENT-STAGE ENTERPRISE)**

**STATEMENTS OF CASH FLOWS**

**(UNAUDITED)**

 
| ** **                                                                   | ** ** | **Three Months Ended March 31,** | ** ** | **August 16, 1995  (Inception) to** | ** ** |
|------------------------------------------------------------------------------|------------|------------------------------------------------------|------------|----------------------------------------------------|------------|
| ** **                                                                   | ** ** | **2008**                                             | ** ** | **2009**                                           | ** ** | **March 31, 2009** | ** ** |
| Cash flows from operating activities:                                        |       |                                                 |       |                                               |       |   |   |
| Net loss                                                                     |       | $                                                    | (2,491,869 | )                                                  | $          | (2,518,403 | ) | $ | (41,622,804 | ) |
| Adjustments to reconcile net loss to net cash used in operating  activities: |       |                                                 |       |                                               |       |   |   |
| Depreciation                                                                 |       | 153,256                                              |       | 144,817                                            |       | 2,278,653 |   |
| Amortization of discounts and premiums on marketable securities              |       | (112,613                                             | )          | (17,102                                            | )          | (502,202 | ) |
| Options, warrants and stock issued for services and dilution  provisions     |       | 195,149                                              |       | 227,934                                            |       | 3,689,218 |   |
| Beneficial conversion feature                                                |       | —                                               |       | —                                             |       | 1,228,565 |   |
| Amortization of discount on convertible notes                                |       | —                                               |       | —                                             |       | 899,935 |   |
| Amortization of deferred financing costs                                     |       | 7,519                                                |       | 4,700                                              |       | 149,474 |   |
| Debt inducement charge                                                       |       | —                                               |       | —                                             |       | 361,598 |   |
| Interest expense on convertible notes                                        |       | —                                               |       | —                                             |       | 136,075 |   |
| Changes in assets and liabilities:                                           |       |                                                 |       |                                               |       |   |   |
| Accounts receivable                                                          |       | 50,114                                               |       | (244,426                                           | )          | (383,521 | ) |
| Prepaid expenses and other assets                                            |       | 108,882                                              |       | 73,231                                             |       | (818,281 | ) |
| Accounts payable                                                             |       | 190,833                                              |       | (63,667                                            | )          | 1,114,344 |   |
| Accrued expenses and accrued compensation                                    |       | (404,452                                             | )          | 383,680                                            |       | 836,480 |   |
| Deferred revenue                                                             |       | 748,589                                              |       | (92,748                                            | )          | 557,154 |   |
| Net cash used in operating activities                                        |       | (1,554,592                                           | )          | (2,101,984                                         | )          | (32,075,312 | ) |
| Cash flows from investing activities:                                        |       |                                                 |       |                                               |       |   |   |
| Maturity and sales of marketable securities                                  |       | 10,496,993                                           |       | 4,900,000                                          |       | 37,646,994 |   |
| Purchases of marketable securities                                           |       | (8,860,739                                           | )          | (2,520,266                                         | )          | (46,014,559 | ) |
| Purchases of property and equipment                                          |       | (208,774                                             | )          | (10,993                                            | )          | (3,377,273 | ) |
| Net cash provided by (used in) investing activities                          |       | 1,427,480                                            |       | 2,368,741                                          |       | (11,744,838 | ) |
| Cash flows from financing activities:                                        |       |                                                 |       |                                               |       |   |   |
| Net proceeds from issuance of long-term debt                                 |       | —                                               |       | —                                             |       | 3,614,710 |   |
| Net proceeds from convertible notes                                          |       | —                                               |       | —                                             |       | 5,253,811 |   |
| Repayment of debt                                                            |       | (137,807                                             | )          | (151,206                                           | )          | (2,151,266 | ) |
| Net proceeds from issuance of preferred stock                                |       | —                                               |       | —                                             |       | 11,883,447 |   |
| Net proceeds from issuance of common stock and warrants                      |       | —                                               |       | —                                             |       | 28,624,603 |   |
| Proceeds from exercise of common stock options and warrants                  |       | 32,533                                               |       | —                                             |       | 124,078 |   |
| Common stock reacquired                                                      |       | —                                               |       | —                                             |       | (283,121 | ) |
| Net cash (used in) provided by financing activities                          |       | (105,274                                             | )          | (151,206                                           | )          | 47,066,262 |   |
| Net (decrease) increase in cash and cash equivalents                         |       | (232,386                                             | )          | 115,551                                            |       | 3,246,112 |   |
| Cash and cash equivalents, beginning of period                               |       | 5,798,997                                            |       | 3,130,561                                          |       | — |   |
| Cash and cash equivalents, end of period                                     |       | $                                                    | 5,557,611  |                                               | $          | 3,246,112 |   | $ | 3,246,112 |   |
| Supplemental cash flow disclosures:                                          |       |                                                 |       |                                               |       |   |   |
| Noncash investing and financing activities:                                  |       |                                                 |       |                                               |       |   |   |
| Property and equipment included in accounts payable                          |       | $                                                    | 18,780     |                                               | $          | (6,630 | ) | $ | 1,457 |   |
| Conversion of notes payable and accrued interest to preferred stock          |       | —                                               |       | —                                             |       | 1,446,395 |   |
| Conversion of notes payable and accrued interest to common stock             |       | —                                               |       | —                                             |       | 3,896,001 |   |
| Conversion of preferred and junior preferred stock to common stock           |       | —                                               |       | —                                             |       | 16,940,297 |   |
| Accretion of preferred stock                                                 |       | —                                               |       | —                                             |       | 3,248,857 |   |
| Warrants issued in connection with notes payable                             |       | —                                               |       | —                                             |       | 1,258,642 |   |
| Cash paid for interest                                                       |       | 14,526                                               |       | 48,106                                             |       | 548,233 |   |

 

See accompanying notes to the unauditedfinancial statements.

 

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**REDPOINTBIO CORPORATION**

**(ADEVELOPMENT-STAGE ENTERPRISE)**

**NOTES TO FINANCIAL STATEMENTS**

**(UNAUDITED)**

 

**1.****                         ****Description of the Business,Basis of Presentation, and Liquidity**

 

*Description*

 

 Redpoint Bio Corporation (“Redpoint” or the “Company”)is leveraging recent discoveries in the molecular biology of taste to discoverand develop novel taste modulators for the food, beverage and pharmaceuticalindustries.  Redpoint’s food and beverageprogram is focused on identifying novel flavor modifiers that improve the tasteof existing ingredients, enabling the development of better-tasting, lesscostly, and more healthful foods and beverages. The Company’s uniqueunderstanding of the biology of taste and its relationship to metabolicprocesses, satiety, and diabetes impact both the development of healthier foodsand, potentially, new approaches to the treatment of diabetes and obesity.  In addition, the Company has a program aimedat suppressing the bitterness of oral medicines, enabling the development ofnovel formulations with improved acceptance and compliance across a broad rangeof dosage forms and therapeutic applications. Redpoint’s research in diabetes and obesity stems from the observationthat taste signaling in the gastrointestinal tract is involved in importanthormone secretion processes enabling the Company to leverage its research onlingual taste modulation to important therapeutic applications.

 

*Basis of Presentation*

 

The accompanying unaudited financial statements of the Company havebeen prepared in accordance with generally accepted accounting principles forinterim financial information and pursuant to the rules and regulations ofthe Securities and Exchange Commission, referred to herein as the SEC.Accordingly, they do not include all of the information and footnotes requiredby generally accepted accounting principles for complete financial statements.

 

In the opinion of management, all adjustments (consisting of normalrecurring adjustments) considered necessary for a fair presentation have beenincluded (See Note 2 for discussion of the impact of the Reverse Merger (asdefined below)).  Operating results for the three months ended March 31,2009 are not necessarily indicative of the results that may be expected for theyear ending December 31, 2009.

 

For further information, refer to the 2008 financial statements andfootnotes thereto of Redpoint included in the Company’s financial statementsincluded in the Company’s Annual Report on Form 10-K for the year ended December 31,2008.

 

*Liquidity*

 

During the last year, the Company made only limited progress towardsachieving its scientific and business goals. Although our continued researchand development efforts have led us to certain advances within our tastetechnology platform, and we are beginning to understand how our technologyplatform plays a role in treating metabolic disorders such as diabetes andobesity, since December 2007 we have not entered into any new fundedcorporate collaborations other than an expanded feasibility agreement withSchering-Plough Corporation.  Redpointwas also unable to renew its one year research agreement with The Coca-ColaCompany and our agreement with Givaudan was terminated on May 1, 2009 (seenote 7).  Givaudan cited the fact thatcertain collaboration objectives had not been achieved during the collaborationas its reasoning for terminating the Agreement. Furthermore, we recognize the current difficult financing environmentthat has significantly impacted the biotechnology sector and required theCompany to seek ways to conserve cash. Consequently, in February 2009, weannounced a restructuring which reduced our workforce by approximately 33%, andwe may need to make further reductions in our expenses. In addition, in November 2008,the Company retained Burrill & Company to advise us on strategicalternatives. We believe that our current capital resources should besufficient to meet our operating and capital requirements at least through May 2010.

 

We expect that substantially all of our cash-inflows for theforeseeable future will come from future corporate collaborations, licenseagreements and interest earned on the proceeds from our sales of marketablesecurities.  We are subject to thoserisks associated with any biotechnology company that has substantialexpenditures for research and development. There can be no assurance that ourresearch and development projects will be successful, that products developedwill obtain necessary regulatory approval, or that any approved product will becommercially viable. In addition, we operate in an environment of rapidtechnological change and we are largely dependent on the services of ouremployees and consultants. The stock market in general has recently experiencedlarge price and volume fluctuations and the market price of our common stockhas experienced significant volatility.  For us to fund our operations andto commercially develop our products, additional equity and/or debt financingwill be required. There is no assurance that such financing will be availableto us as needed and as a result, we may need to pursue other strategicalternatives.

 

The Company is subject to those risks associated with any biotechnologycompany that has substantial expenditures for research and development. Therecan be no assurance that the Company’s research and development projects willbe successful, that products developed will obtain necessary regulatoryapproval, or that any approved product will be commercially viable. Inaddition, the Company operates in an environment of rapid technological changeand is largely dependent on the services of its employees and consultants. Forthe Company to fund its operations and to commercially develop its products,additional equity and/or debt financing will be required. There is no assurancethat such financing will be available to the Company as needed.

 

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**2.****                         ****Reverse Triangular Merger,Financing and Reincorporation Merger**

 

*Completionof Merger*

 

Robcor Properties, Inc., a Florida corporation (“Robcor”), and itsnewly-formed subsidiary, Robcor Acquisition Corp., a Delaware corporation (“MergerSub”) entered into an Agreement and Plan of Merger (the “Merger Agreement”),dated as of March 12, 2007, by and among, Redpoint, formerly aprivately-held Delaware corporation, on the one hand, and Robcor, Merger Sub, RobcorLLC, a Kentucky limited liability company and wholly-owned subsidiary of Robcor(“Robcor LLC”) and Halter Financial Investments, L.P., a Texas limitedpartnership (“Halter”), and Michael Heitz (“Heitz”), as stockholders of Robcor,on the other hand.  Pursuant to the Merger Agreement, Merger Sub, whichRobcor had incorporated in the state of Delaware for the purpose of completingthe transaction, merged into Redpoint (the “Reverse Merger”) on March 12,2007 (the “Closing” or the “Closing Date”) with Redpoint continuing as thesurviving entity in the Reverse Merger.  As a result of the ReverseMerger, Redpoint became a wholly-owned subsidiary of Robcor.  Inconnection with the Reverse Merger, each share of capital stock of Redpoint wasconverted into 2.7820 shares of common stock of Robcor and all of Redpoint’sconvertible promissory notes were converted into shares of common stock ofRobcor.

 

Redpoint was deemed to have been the accounting acquirer in the ReverseMerger.  Accordingly, the financial statements of the Company presentedreflect the historical results of Redpoint prior to the Reverse Merger, and ofthe combined entities following the Reverse Merger, and do not include thehistorical financial results of Robcor prior to the consummation of the ReverseMerger.  In connection with the Reverse Merger, Redpoint issued 1,391,000shares of common stock to Robcor shareholders which have been treated asissuance costs in connection with Private Placement.

 

*PrivatePlacement*

 

Concurrently with the completion of the Reverse Merger, Robcor received$17.2 million in net proceeds from the initial closing of a private placementof approximately 24.7 million shares of common stock at a price of $0.81 pershare, and warrants to purchase approximately 6.2 million shares of Robcorcommon stock at an exercise price of $1.35 per share (the “Private Placement”).  Theinitial closing of the Private Placement occurred on March 12, 2007,concurrently with the completion of the Reverse Merger.

 

In connection with the Private Placement, Redpoint engaged twoplacement agents which were issued five-year warrants to buy approximately 2.0million shares of Robcor common stock equal to 10% of the number of shares ofcommon stock sold in the Private Placement at an exercise price of $0.97 pershare; provided, however, no warrants were issued to the placement agents withrespect to shares and warrants sold to existing Redpoint stockholders.

 

On April 6, 2007, Robcor sold an additional 16.1 million shares ofcommon stock and warrants to purchase 4.0 million shares of common stockwhich resulted in net proceeds of approximately $11.4 million.  Inconnection with the April closing, warrants to purchase an additional 1.6million shares of common stock were issued to the placement agents.

 

*ReincorporationMerger*

 

On June 15, 2007, Robcor was merged with and into Redpoint, itswholly-owned subsidiary, with Redpoint being the surviving corporation pursuantto the Agreement and Plan of Merger dated May 3, 2007.  As a resultof the merger, the Company’s state of incorporation changed from Florida toDelaware.

 

In connection with the reincorporation merger, the authorized number ofshares of common stock was decreased from 1,000,000,000 shares of common stock,no par value per share, to 150,000,000 shares of common stock, $0.0001 parvalue per share, and the authorized number of shares of preferred stock wasdecreased from 20,000,000 shares of preferred stock, no par value per share, to10,000,000 shares of preferred stock, $0.0001 par value per share.  TheCompany’s share data and capital stock have been retrospectively adjusted forall periods presented to reflect the reincorporation merger.

 

In addition, the maximum number of shares of common stock reserved forissuance under the Company’s 2007 Omnibus Equity Compensation Plan wasincreased from 13,511,562 to 17,644,267 shares.

 

**3.****                         ****Summary of SignificantAccounting Policies**

 

***(a)*****        *****Use ofEstimates***

 

The preparation of financial statements in conformity with U.S.generally accepted accounting principles requires management to make estimatesand assumptions that affect the reported amounts of assets and liabilities anddisclosure of contingent assets and liabilities at the date of the financialstatements and the reported amounts of revenues and expenses during thereporting 

 

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period.Actual results could differ from such estimates.  Illiquid credit markets, volatile equity, anddeclines in consumer spending have combined to increase the uncertaintyinherent in such estimates and assumptions. As future events and their effects cannot be determined with precision,actual results could differ significantly from these estimates.  Changes in those estimates resulting fromcontinuing changes in the economic environment will be reflected in thefinancial statements in those future periods.

 

***(b)*****        *****Cash andCash Equivalents***

 

The Company considers all highly liquid investments that havematurities of three months or less when acquired to be cash equivalents.

 

***(c)*****         *****MarketableSecurities***

 

Marketable securities include investments in debt securities havingoriginal maturities of greater than three months. These marketable securitiesare treated for financial reporting purposes as available-for-sale and as suchare reported at their fair market values. Unrealized gains and losses have beenrecorded as a separate component of stockholders’ equity. All realized gainsand losses are recorded in the results of operations.  The Company’s marketable securities arereported at fair value on the balance sheet based on quoted prices in activemarkets for identical assets.

 

***(d)*****        *****Concentrationsof Credit Risk***

 

Financial instruments that potentially subject the Company toconcentrations of credit risk consist of cash equivalents and marketablesecurities. The Company has established guidelines relating to diversificationand maturities that allows the Company to manage risk.

 

***(e)*****         *****RevenueRecognition***

 

Revenue from corporate collaborations and licensing agreements consistsof up-front fees, research and development funding, and milestone payments.

 

*License Fees and Multiple ElementArrangements*

 

Non-refundable upfront fees are recognized as revenue when (i) wehave a contractual right to receive such payment, (ii) the contract priceis fixed or determinable, (iii) the collection of the resulting receivableis reasonably assured, and (iv) we have no further performance obligationsunder the license agreement.

 

Multiple element arrangements are analyzed to determine whether thedeliverables, which often include license and performance obligations, such asresearch and development services, can be separated or whether they must beaccounted for as a single unit of accounting in accordance with Emerging IssuesTask Force (EITF) Issue No. 00-21, *Accountingfor Revenue Arrangements with Multiple Deliverables*. If the fairvalue of the undelivered performance obligations can be determined, suchobligations would then be accounted for separately as performed. However, ifthe elements are considered to either (i) not have stand-alone value, or (ii) havestandalone value but the fair value of any of the undelivered performanceobligations cannot be determined, the arrangement would then be accounted foras a single unit of accounting and all of the payments recognized as revenueover the estimated period of when the performance obligations areperformed.  Whenever we determine that an arrangement should be accountedfor as a single unit of accounting, we must determine the period over which theperformance obligations will be performed and revenue will be recognized.Significant management judgment is required in determining the period overwhich we are expected to complete our performance obligations under anarrangement.

 

*Substantive Milestone Payments*

 

Our collaboration agreementsmay also contain substantive milestone payments that are recognized uponachievement of the milestone only if all of the following conditions are met:

 

·                  the milestone payments are non-refundable;

 

·                  achievement of the milestone involves adegree of risk and was not reasonably assured at the inception of thearrangement;

 

·                  substantive effort is involved in achievingthe milestone;

 

·                  a reasonable amount of time passes betweenthe up-front license payment and the first milestone payment as well as betweeneach subsequent milestone payment; and

 

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·                  the amount of the milestone payment isreasonable in relation to the effort expended or the risk associated withachievement of the milestone.

 

Determination as to whether a payment meets the aforementionedconditions involves management’s judgment. If any of these conditions are notmet, the resulting payment would not be considered a substantive milestone, andtherefore the resulting payment would be considered part of the considerationfor the single unit of accounting and be recognized as revenue as suchperformance obligations are performed.

 

*Reimbursement of Research andDevelopment Costs*

 

Reimbursement of research and development costs is recognized asrevenue, provided the provisions of EITF Issue No. 99-19, *Reporting Revenue Gross as a Principal Versus Net asan Agent*, are met, the amounts are fixed and determinable, andcollection of the related receivable is reasonably assured.

 

***(f)*****           *****Propertyand Equipment***

 

Property and equipment are recorded at cost and depreciated on astraight-line basis over their estimated useful lives. The Company uses a lifeof four to five years for laboratory equipment, three to seven years for officeequipment and furniture, and the lesser of the useful life or the remaininglife of the underlying facility lease for leasehold improvements. Expendituresfor repairs and maintenance are charged to expense as incurred, while majorrenewals and betterments are capitalized. Upon disposition of assets, the costand related accumulated depreciation are removed from the accounts and anyresulting gain or loss is included in the Statements of Operations.

 

***(g)*****        *****Researchand Development***

 

Research and development costs, including those incurred in relation tothe Company’s collaborative agreements, are charged to expense as incurred.These expenses include internal research and development as well as amountspaid to third parties to conduct research on the Company’s behalf. Costsincurred in obtaining technology licenses are charged immediately to researchand development expense if the technology licensed has not reachedtechnological feasibility and has no alternative future uses.

 

***(h)*****        *****Impairmentof Long-Lived Assets***

 

In accordance with Statement of Financial Accounting Standards (SFAS) No. 144,*Accounting for the Impairment or Disposal ofLong-Lived Assets*, long-lived assets, such as property andequipment, are reviewed for impairment whenever events or changes incircumstances indicate that the carrying amount of an asset may not be recoverable.Recoverability of assets to be held and used is measured by a comparison of thecarrying amount of an asset to the estimated undiscounted future cash flowsexpected to be generated by the asset. If the carrying amount of an assetexceeds its estimated future cash flows, then an impairment charge isrecognized in the amount by which the carrying amount of the asset exceeds thefair value of the asset.  The Company has not recorded any impairmentcharges pursuant to SFAS No. 144.

 

***(i)******           ******IncomeTaxes***

 

Income taxes are accounted for under the asset-and-liability method.Deferred tax assets and liabilities are recognized for the future taxconsequences attributable to differences between the financial statementcarrying amounts of existing assets and liabilities and their respective taxbases and operating loss and tax credit carryforwards. Deferred tax assets andliabilities are measured using enacted tax rates expected to apply to taxableincome in the years in which those temporary differences are expected to berecovered or settled. The effect on deferred tax assets and liabilities of achange in tax rates is recognized in income in the period that includes theenactment date.

 

***(j)******           ******Stock-BasedCompensation***

 

Effective January 1, 2006, the Company adopted SFAS No. 123(revised 2004), *Share-Based Payment*(SFAS 123R) using the prospective method of adoption. UnderSFAS 123R, the Company recognizes compensation cost for awards toemployees and nonemployee board members based on the grant-date fair value of stock-basedawards over the period during which an award holder is required to provideservice in exchange for the award. No compensation cost is recognized forawards for which the award holder does not render the requisite service.

 

The fair value of stock options is determined using the Black Scholesoption-pricing model and is recognized as expense over the requisite serviceperiod using the straight-line method.

 

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To satisfy the exercise of options, the Company plans to issue newshares rather than purchase shares on the open market.

 

***(k)*****        *****Net Lossper Common Share***

 

Basic net loss per common share is computed in accordance with SFAS No. 128,*Earnings per Share*, by dividingthe net loss allocable to common stockholders by the weighted average number ofshares of common stock outstanding for the period. Diluted net loss per commonshare is computed by dividing net loss allocable to common stockholders by thesum of the weighted-average number of common shares outstanding for the periodand the number of additional shares that would have been outstanding ifdilutive potential common shares had been issued.  Stock options and warrants to purchase anaggregate of 25,153,466 and 24,682,307 common shares were excluded from ourcomputation of diluted net loss per common share for the three months ended March 31,2009 and 2008, respectively.  In allperiods presented, our diluted net loss per common share is equal to basic netloss per common share because giving effect in the computation of diluted netloss per common share to the exercise of outstanding options and warrants wouldhave been antidilutive.

 

***(l)*****           *****Fair Valueof Financial Instruments***

 

The fair value of our financial instruments is the amount for which theinstrument could be exchanged in a current transaction between willing parties.As of December 31, 2008 and March 31, 2009, the carrying values ofcash and cash equivalents, accounts receivable, prepaid expenses and othercurrent assets, accounts payable, accrued expenses, and accrued compensationequaled or approximated their respective fair values because of the shortduration of these instruments. In addition, we believe the carrying value ofour debt instruments, which do not have readily ascertainable market values,approximate their fair values, given that the interest rates on outstandingborrowings approximate market rates.

 

***(m)*****     *****RecentAccounting Pronouncements***

 

In September 2006, the Financial Accounting Standard Board (“FASB”)issued Statement of Financial Accounting Standards (“SFAS”) No. 157, *Fair Value Measurements* (“SFAS No. 157”). SFAS No. 157 defines fair value, establishes a framework for measuring fairvalue and expands disclosures on fair value measurements.  We adopted SFASNo. 157 on January 1, 2008, as required for our financial assets andfinancial liabilities.  However, the FASBdeferred the effective date of SFAS No. 157 for one year as it relates to fairvalue measurement requirements for nonfinancial assets and nonfinancialliabilities that are not recognized or disclosed at fair value on a recurringbasis.  We adopted these remainingprovisions of SFAS No. 157 on January 1, 2009.  The adoption of SFAS No. 157 did nothave a material impact on our financial statements.

 

***(n)******        ******ComprehensiveLoss***

 

We apply SFAS No. 130, *ReportingComprehensive Income*.  This statement requires theclassification of items of other comprehensive income (loss) by their natureand disclosure of the accumulated balance of other comprehensive income (loss)separately from accumulated deficit and additional paid-in capital in thestockholders’ equity section of our balance sheet.  Other comprehensiveincome (loss) consisted of unrealized gains and losses on marketable securitiesfor the three months ended March 31, 2009.  For the three monthsended March 31, 2009 and 2008, comprehensive loss was:

 
| ** **                             | ** ** | **Three Months Ended  March 31,** | ** ** |
|----------------------------------------|------------|--------------------------------------------------|------------|
| ** **                             | ** ** | **2008**                                         | ** ** | **2009** | ** ** |
| Net loss                               |       | $                                                | (2,491,869 | ) | $ | (2,518,403 | ) |
| Other comprehensive income (loss) |       | 65,276                                           |       | (45,357 | ) |
| Comprehensive income (loss)            |       | $                                                | (2,426,593 | ) | $ | (2,563,760 | ) |

 

**4.****                         ****Debt** — **Master Security Agreements**

 

In February 2005,the Company entered into a Master Security Agreement with a finance companythat provided for borrowings up to $3,200,000, subject to certain conditions,through December 2005. During 2005, the Company borrowed $2,001,810 underthe Master Security Agreement in order to finance the purchase of laboratoryand office equipment. Amounts borrowed are evidenced with promissory notes andare repayable in equal monthly payments, over 36 to 48 months, and arecollateralized by the purchased equipment. The notes bear interest at ratesvarying between 9.4% and 10.4%.  As of December 31,2008 and March 31, 2009, $187,577 and $115,553, respectively, wasoutstanding under the Master Security Agreement.

 

In connection withthe borrowings under the Master Security Agreement, the Company issued thefinance company warrants to purchase 53,039 shares of the Company’s commonstock at an exercise price of $0.75 per share. The estimated fair value of the 

 

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warrants of $30,074,determined using the Black-Scholes option-pricing model, was accounted for asdeferred financing costs and is being amortized to interest expense over theremaining term of the notes.

 

In September 2008, theCompany entered into a Loan and Security Agreement with another finance companythat provided for borrowings of up to $2,000,000 to be used for the purchase ofcertain equipment and for working capital purposes.  During 2008, the Company borrowed $1,556,357 underthe Loan and Security Agreement.  As of December 31,2008 and March 31, 2009, $1,479,530 and $1,400,348, respectively wasoutstanding under the Loan and Security Agreement. Amounts borrowed areevidenced with a promissory note, are repayable in equal monthly payments over48 months, and are collateralized by the purchased equipment.  The note bears interest of 12.1%**. **The Loan and Security Agreement containscertain provisions, including a material adverse change clause (as defined inthe Loan and Security Agreement) which restricts the Company’s ability to borrow additional money and alsoenables the finance company to request full repayment of the loan if such achange has occurred.  As of March 31,2009, the Company was in compliance with these provisions.

 

Thescheduled maturities of long-term debt outstanding at March 31, 2009 areas follows:

 
| 2009                 |   | 367,949   |            |
|----------------------|--------|-----------|-----------------|
| 2010                 |   | 374,110   |            |
| 2011                 |   | 422,100   |            |
| 2012                 |   | 351,742   |            |
|                 |   | 1,515,901 |            |
| Less current portion |   | (457,287  | )               |
|                 |   | $         |  1,058,614 |   |
|                      |        |           |                 |  |

 

Interest expense on notes payable for the three months ended March 31,2008 and 2009, was $13,403 and $47,350, respectively.

 

**5.****                         ****Marketable Securities**

 

The following is a summaryof available-for-sale securities:

 
| ** **                            | ** ** | ** **              | ** ** | **Gross Unrealized** | ** ** | ** ** | ** ** |
|---------------------------------------|------------|-------------------------|------------|---------------------------|------------|------------|------------|
| **As of December 31, 2008** | ** ** | **Amortized Cost** | ** ** | **Gains**                 | ** ** | **Losses** | ** ** | **Fair Value** | ** ** |
| Corporate commercial paper            |       | $                       | 4,125,301  |                      | $          | 24,185     |       | $ | — |   | $ | 4,149,486 |   |
| Government-sponsored enterprise debt  |       | 6,597,497               |       | 40,440                    |       | —     |       | 6,637,937 |   |
| United States treasury notes          |       | 509,600                 |       | —                    |       | (71        | )          | 509,529 |   |
|                                  |       |                    |       |                      |       |       |       |   |   |
| Total                                 |       | $                       | 11,232,398 |                      | $          | 64,625     |       | $ | (71 | ) | $ | 11,296,952 |   |

 
| ** **                              | ** ** | ** **              | ** ** | **Gross Unrealized** | ** ** | ** ** | ** ** |
|-----------------------------------------|------------|-------------------------|------------|---------------------------|------------|------------|------------|
| **As of March 31, 2009** | ** ** | **Amortized Cost** | ** ** | **Gains**                 | ** ** | **Losses** | ** ** | **Fair Value** | ** ** |
| Corporate debt securities               |       | $                       | 1,992,150  |                      | $          | 6,913      |       | $ | — |   | $ | 1,999,063 |   |
| Government-sponsored enterprise debt    |       | 6,373,776               |       | 13,566                    |       | (1,252     | )          | 6,386,090 |   |
| United States treasury notes            |       | 503,840                 |       | —                    |       | (30        | )          | 503,810 |   |
|                                    |       |                    |       |                      |       |       |       |   |   |
| Total                                   |       | $                       | 8,869,766  |                      | $          | 20,479     |       | $ | (1,282 | ) | $ | 8,888,963 |   |

 

As of March 31, 2009, all available-for-sale securities maturewithin one year. During the three months ended March 31, 2008 and 2009,amortization of discounts and premiums related to marketable securitiesresulted in income of $112,613 and $17,102, respectively.

 

**6.****                         ****Stockholders’ Equity**

 

***(a)******        ******CommonStock***

 

The Company was party to a number of agreements that provided fordilution protection to certain investors.  In connection with the ReverseMerger and closing of the Private Placement, the Company issued approximately2.0 million shares of common stock to a founder and shareholder of the Companyas a result of such anti-dilution protection.  During 2007, the Companyrecorded a charge of $1.6 million to research and development expensesrelated to the issuance of such shares of common stock, which represents thefair value of these shares.  As of March 31,2009, none of the Company’s existing agreements contain dilution protectionprovisions.

 

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***(b)******        ******Warrants***

 

As of March 31, 2009,the Company had the following warrants to purchase Common Stock outstanding:

 
| **Number of shares** | ** ** | **Exercise price** | ** ** | **Expiration** | ** **                  |
|--------------------------------|------------|-------------------------|------------|----------------|-----------------------------|
|                           |       |                    |       |           |                        |
| 53,039                         |       | $                       | 0.75       |           | February-December 2012 |   |
|                           |       |                    |       |           |                        |
| 6,182,287                      |       | $                       | 1.35       |           | March 2010             |   |
|                           |       |                    |       |           |                        |
| 4,015,059                      |       | $                       | 1.35       |           | April 2010             |   |
|                           |       |                    |       |           |                        |
| 3,574,906                      |       | $                       | 0.97       |           | April 2012             |   |

 

***(c)******         ******StockOption Plans***

 

In November 2003, the Company adopted the 2003 Stock IncentivePlan, as amended (the “2003 Plan”), that authorized the Company to grant up to6,523,790 shares of Common Stock to eligible employees, directors, andconsultants to the Company in the form of restricted stock and stock options.The amount and terms of grants were determined by the board of directors. Theterm of the options could have been up to 10 years, and options wereexercisable in cash or as otherwise determined by the board of directors.Generally, options vested 25% upon the first anniversary of the date of grantand ratably each month thereafter through the fourth anniversary of the date ofgrant.

 

On March 12, 2007, the Company adopted the Redpoint Bio Corporation2007 Omnibus Equity Compensation Plan (“2007 Plan”), which provided for theissuance of up to 13,511,562 shares of common stock, subject to adjustment incertain circumstances. In connection with the adoption of the 2007 Plan, the2003 Plan merged with and into the 2007 Plan and no additional grants may bemade thereafter under the 2003 Plan.  Outstanding grants under the 2003Plan will continue in effect in accordance with their terms as in effect beforeMarch 12, 2007 and the shares with respect to outstanding grants under the2003 Plan will be issued or transferred under the 2007 Plan.  The 2007Plan is now the Company’s only plan in effect.

 

On April 20, 2007, the Company approved an amendment to the 2007Plan, which increased the maximum number of shares of common stock reserved forissuance under the 2007 Plan by an additional 4,132,705 shares from 13,511,562to 17,644,267 shares of common stock.

 

The following is a summaryof stock option activity under the Plan during the three months ended March 31,2009:

 
| ** **                            | ** ** | ** **         | ** ** | ** **              | ** ** | **Weighted-**   | ** ** | ** **    | ** ** |
|---------------------------------------|------------|--------------------|------------|-------------------------|------------|-----------------|------------|---------------|------------|
| ** **                            | ** ** | ** **         | ** ** | **Weighted-**           | ** ** | **average**     | ** ** | ** **    | ** ** |
| ** **                            | ** ** | **Number of** | ** ** | **average**             | ** ** | **contractual** | ** ** | **Intrinsic** | ** ** |
| ** **                            | ** ** | **shares**         | ** ** | **exercise price** | ** ** | **term**        | ** ** | **Value**     | ** ** |
| Outstanding at December 31, 2008 |       | 11,022,016         |       | $                       | 0.52       |            |       |          |       |   |
| Granted                               |       | 930,000            |       | 0.07                    |       |            |       |          |       |
| Exercised                             |       | —             |       | —                  |       |            |       |          |       |
| Forfeited                             |       | (623,841           | )          | 0.72                    |       |            |       |          |       |
| Outstanding at March 31, 2009    |       | 11,328,175         |       | $                       | 0.47       |            | 6.85       |          | $          | 18,600 |   |
|                                       |            |                    |            |                         |            |                 |            |               |            |  |  |

 

All options granted to date have exercise prices equal to the fairvalue of the underlying common stock on the date of grant. Prior to theeffectiveness of the registration statement on Form S-1, which occurred onJuly 20, 2007, all options were granted with an exercise price equal tothe estimated fair value of the underlying common stock as determined by theboard of directors. Subsequent to that date, all options have been granted withan exercise price equal to the most recent trading price of the Company’scommon stock on the date of grant. As of March 31, 2009, there were5,592,097 shares of common stock available for grant under the 2007 Plan.

 

The per-share weighted average fair value of options granted during thethree months ended March 31, 2008 and 2009 was estimated at $0.42 and $0.05,respectively, on the date of grant using the Black-Scholes option-pricingmodel.

 

The Company recognized $195,149 and $227,934 of compensation expensepursuant to SFAS 123R for the three months ended March 31, 2008 and2009, respectively. As of March 31, 2009, there was approximately$1.4 million of unrecognized compensation expense related to unvestedstock options granted to employees and non-employee directors, which isexpected to be recognized over a weighted average period of 2.1 years.

 

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***(d)******        ******RegistrationRights***

 

On June 5, 2007, the Company filed a “resale” registrationstatement with the SEC covering all shares of common stock issued in thePrivate Placement and in connection with the Reverse Merger, including sharesof common stock into which certain warrants are exercisable.  Suchregistration statement was declared effective on July 20, 2007.  TheCompany will use its best efforts to maintain its effectiveness until such timeas all securities registered under the registration statement have been sold orare otherwise able to be sold under Rule 144 of the Securities Act withoutregard to volume limitations, whichever is earlier.

 

**7.****                         ****Research and DevelopmentCollaboration**

 

*Givaudan*.     In March 2007, the Company entered intoa Joint Research and Development and License Agreement (the “Givaudan Agreement”)with Givaudan Schweiz AG, a Swiss company (“Givaudan”) for the development andcommercialization of compounds that enhance sweetness or savory sensation, aswell as compounds that block or desensitize bitter taste for use in the foodand beverage industry.  In considerationof the Company’s agreement to conduct research and develop compounds and grantexclusive licenses and other rights to Givaudan, Redpoint received an upfrontpayment of $1,300,000 and Givaudan provided research funding to the Companyover the term of the Agreement.  On April 2,2009, the Company announced that Givaudan would be terminating the Agreement,effective as of May 1, 2009, and that Givaudan reserved its rights underthe Agreement with respect to certain collaboration compounds.  The upfront payment of $1,300,000 was beingrecognized as revenue on a straight-line basis over the initial term of the GivaudanAgreement.  During the three months ended March 31, 2008 and 2009,the Company recognized approximately $93,000 and $93,000, respectively, ofrevenue attributable to the amortization of the upfront fee and approximately$614,000 and $812,000 of revenue from research funding, respectively. As of March 31,2009 the remaining unamortized portion of the upfront payment was approximately$557,000 and will be recognized as revenue during the quarter ending June 30,2009, as a result of the termination.

 

*Coca-Cola*.     In December 2007, the Company enteredinto a research agreement (the “Coca-Cola Agreement”) with The Coca-ColaCompany for the development of certain technology for use in soft drinks andnon-alcoholic beverages. The initial term of the Coca-Cola Agreement was for12 months, subject to extension upon mutual agreement of theparties.  The agreement expired by its terms in December of2008.  Pursuant to the Coca-Cola Agreement, during the three months ended March 31,2008, the Company recognized approximately $202,000 of revenue from researchfunding.

 

**8.Restructuring**

 

During the quarter ended March 31,2009, the Company announced a restructuring which reduced its workforce byapproximately 33%. In connection with the restructuring, the Company incurredseverance costs of $376,394 which are included in general and administrativeexpenses on the accompanying statements of operations for the three monthsended March 31, 2009. The Company had the following accrual related toseverance which is included in accrued compensation on the accompanying balancesheet as of March 31, 2009:

 
| ** **             | ** ** | **December 31,  2008** | ** ** | **2009 Expense** | ** ** | **2009 Payments** | ** ** | **March 31, 2009** | ** ** |
|------------------------|------------|-----------------------------|------------|------------------|------------|-------------------|------------|-------------------------|------------|
| Severance and benefits |       | $                           |       |             | $          | 376,394           |       | $                       | (138,210   | ) | $ | 238,184 |   |
|                   |       | $                           |       |             | $          | 376,394           |       | $                       | (138,210   | ) | $ | 238,184 |   |

 

**9.Commitments**

 

***Leases***

 

Futureminimum lease payments as of March 31, 2009 are as follows:

 
| **Year Ending December 31,** | ** ** | **Amount** | ** ** |
|-----------------------------------|------------|------------|------------|
| 2009                              |       | $          | 651,000    |   |
| 2010                              |       | 833,000    |       |
| 2011                              |       | 840,000    |       |
| 2012                              |       | 846,000    |       |
| 2013                              |       | 852,  000  |       |
| Thereafter                        |       | 2,887,000  |       |
|                              |       | $          | 6,909,000  |   |

 

InOctober 2006, the Company paid a $250,000 deposit for its new facilitywhich has been recorded in other assets on the accompanying balance sheet.

 

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| **ITEM 2.** | ** ** | **MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION  AND RESULTS OF OPERATIONS** |
|-------------|------------|-------------------------------------------------------------------------------------------------|

 

**CautionaryNote Regarding Forward-Looking Statements**

 

The Securities and Exchange Commission, referred to herein as the SEC,encourages companies to disclose forward-looking information so that investorscan better understand a company’s future prospects and make informed investmentdecisions.  Certain statements that we may make from time to time,including, without limitation, statements contained in this Quarterly Report onForm 10-Q, referred to herein as the Quarterly Report, constitute “forward-lookingstatements” within the meaning of the Private Securities Litigation Reform Actof 1995.  These statements may be made directly in this Quarterly Report,and they may also be made a part of this Quarterly Report by reference to otherdocuments filed with the SEC, which is known as “incorporation by reference.”

 

Words such as “may,” “anticipate,” “estimate,” “expects,” “projects,” “intends,”“plans,” “believes” and words and terms of similar substance used in connectionwith any discussion of future operating or financial performance, identifyforward-looking statements.  All forward-looking statements are management’spresent expectations of future events and are subject to a number of risks anduncertainties that could cause actual results to differ materially from thosedescribed in the forward-looking statements.  These risks anduncertainties include, among other things:

 

·                  our need for additional capital to fund thecurrent level of our research and development programs, our inability tofurther identify, develop and achieve commercial success for new products andtechnologies;

 

·                  the possibility of delays in the research anddevelopment necessary to select drug development candidates and delays inclinical trials;

 

·                  challenges that we may face relating to theintroduction of compounds that we may discover as food ingredients;

 

·                  the risk that clinical trials may not resultin marketable products;

 

·                  the risk that we may be unable tosuccessfully finance and secure regulatory approval of and market our drugcandidates;

 

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·                  our dependence upon food, ingredient andpharmaceutical and biotechnology collaborations;

 

·                  the levels and timing of payments under ourcollaborative agreement;

 

·                  uncertainties about our ability to obtain newcorporate collaborations and acquire new technologies on satisfactory terms, ifat all;

 

·                  the development of competing diagnostic and therapeuticproducts;

 

·                  our ability to protect our proprietarytechnologies;

 

·                  patent-infringement claims;

 

·                  risks of new, changing and competitivetechnologies and regulations in the United States and internationally; and

 

·                  other factors discussed under the headingItem 1A “Risk Factors” in this Quarterly Report.

 

In light of these assumptions, risks and uncertainties, the results andevents discussed in the forward-looking statements contained in this QuarterlyReport or in any document incorporated by reference might not occur.  Youare cautioned not to place undue reliance on forward-looking statements, whichspeak only as of the date of this Quarterly Report or the date of the documentincorporated by reference in this Quarterly Report.  We are not under anyobligation, and we expressly disclaim any obligation, to update or alter anyforward-looking statements, whether as a result of new information, futureevents or otherwise, except as may be required by applicable law.  Allsubsequent forward-looking statements attributable to Redpoint, or to anyperson authorized to act on our behalf are expressly qualified in theirentirety by the cautionary statements contained or referred to in this section.

 

**Overview**

 

Redpoint Bio is a development stage biotechnology company leveragingrecent discoveries in the molecular biology of taste to discover and developnovel taste modulators for the food, beverage and pharmaceutical industries.Our food and beverage program is focused on identifying novel flavor modifiersthat improve the taste of existing ingredients, enabling the development ofbetter-tasting, less costly, and more healthful foods and beverages. We believethat our unique understanding of the biology of taste and its relationship tometabolic processes, satiety, and diabetes impact both the development ofhealthier foods and, potentially, new approaches to the treatment of diabetesand obesity. In addition, we have a program aimed at suppressing the bitternessof oral medicines, enabling the development of novel formulations with improvedacceptance and compliance across a broad range of dosage forms and therapeuticapplications. Our research in diabetes and obesity stems from the observationthat taste signaling in the gastrointestinal tract is involved in importanthormone secretion processes enabling us to leverage our research on lingualtaste modulation to important therapeutic applications.

 

Since its inception in 1995, Redpoint has incurred losses and negativecash flows from operations, and such losses have continued subsequent to March 31,2009. As of March 31, 2009, Redpoint had an accumulated deficit of $45.0million and anticipates incurring additional losses for the foreseeable future.We expect to spend significant resources over the next several years to enhanceour technologies and to fund research and development of our pipeline ofpotential products.  We have not yetdeveloped any products that are commercially available.

 

Through March 31, 2009, our revenue has come solely from corporatecollaborations, license agreements, and government grants. In order to achieveprofitability, we must continue to develop products and technologies that canbe commercialized by us or through existing and future collaborations.

 

On March 12, 2007, we completed the first closing of our privateplacement of shares of common stock and warrants to purchase shares of commonstock raising approximately $17.2 million of net proceeds. On April 6,2007, we completed the final closing of the private placement raising anadditional $11.4 million of net proceeds, bringing the total privateplacement net proceeds to $28.6 million.

 

In March 2007, we entered into a Joint Research and Developmentand License Agreement with Givaudan Schweiz AG for the development andcommercialization of compounds that enhance sweetness or savory sensation, aswell as compounds that block or desensitize bitter taste for use in the foodand beverage industry.  Under the termsof the agreement, Redpoint and Givaudan were collaborating exclusively witheach other to discover and develop compounds that act primarily through themodulation of the TRPm5 channel. In consideration of the Company’s agreement toconduct research and develop compounds and grant exclusive licenses and otherrights to Givaudan, Redpoint received an upfront payment of $1.3 million andGivaudan provided research funding to the Company over the term of theAgreement.  On April 2, 2009, theCompany announced that Givaudan would be terminating the

 

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Agreement,effective as of May 1, 2009, and that Givaudan reserved its rights underthe Agreement with respect to certain collaboration compounds. Givaudan cited thefact that certain collaboration objectives had not been achieved during thecollaboration as its reasoning for terminating the Agreement. Through March 31,2009, including the upfront fee, we received $6.4 million in research anddevelopment funding.

 

In December 2007, we entered into a one year research agreementwith The Coca-Cola Company, referred to herein as Coca-Cola, for thedevelopment of certain technology for use in soft drinks and othernon-alcoholic beverages. In consideration of our agreement to conduct researchfor the development of certain technology and grant exclusive licenses andother rights, Coca-Cola paid us approximately $0.9 million. The agreementexpired by its terms in December of 2008.

 

During the last year, the Company made only limited progress towardsachieving its scientific and business goals. Although our continued researchand development efforts have led us to certain advances within our tastetechnology platform, and we are beginning to understand how our technology platformplays a role in treating metabolic disorders such as diabetes and obesity,since December 2007 we have not entered into any new funded corporatecollaborations other than an expanded feasibility agreement withSchering-Plough Corporation. Redpoint was also unable to renew its one yearresearch agreement with The Coca-Cola Company and our agreement with Givaudanended on May 1, 2009.  Furthermore,we recognize the current difficult financing environment that has significantlyimpacted the biotechnology sector and required the Company to seek ways toconserve cash. Consequently, in February 2009, we announced arestructuring which reduced our workforce by approximately 33% and we may needto make further reductions in our expenses. In addition, in November 2008,the Company retained Burrill & Company to advise us on strategicalternatives.

 

Our initial programs focused on modulation of the TRPm5 ion channel, akey signaling element in taste sensation, in order to discover novel compoundsthat modulate the taste of food, beverage, and pharmaceutical products. We alsobelieve that the TRPm5 ion channel may be an attractive target for theidentification and development of a new diabetes or obesity therapeuticcompound. A growing body of scientific research suggests that the tastepathways that we have been investigating are also found as part of anutrient-sensing system located in the gastrointestinal tract. This could leadto potential opportunities for the discovery of new diabetes or obesitytherapeutics. We have recently initiated a program designed to leverage theresearch we have already conducted on taste modulators to further explore thisopportunity.

 

**Revenue**

 

To date, our revenue has come solely fromcorporate collaborations, licensing agreements and government grants. Since ourinception, we have undertaken research projects for which we were the recipientof several Small Business Innovative Research, or SBIR, Awards. The SBIR Awardswere sponsored by the National Institutes of Health. The last SBIR relatedresearch project was completed in 2004.

 

To leverage our technology, in March 2007,we entered into the Givaudan Agreement where we were collaborating exclusivelywith each other to discover and develop Enhancer Compounds and Bitter BlockerCompounds that act primarily through the modulation of the TRPm5 channel.  The agreement with Givaudan was terminated byGivaudan on May 1, 2009.  Also, in December 2007,we entered into a one year research agreement with Coca-Cola for thedevelopment of certain technology for use in soft drinks and othernon-alcoholic beverages. The agreement with Coca-Cola expired by its terms in December 2008.  In November 2008, we announced that wehad signed an agreement to collaborate with Schering Corporation, a subsidiaryof Schering-Plough Corporation, in the area of taste science research forpharmaceutical applications. This expanded feasibility agreement builds uponthe successful completion of a previous research study between the parties.

 

We may also partner with other majoringredient suppliers, or food and beverage companies, to develop andcommercialize taste enhancers that act through a variety of other newlydiscovered mechanisms of taste sensation in exchange for technology accessfees, research funding, product development milestones, and product royalties.In addition, we may form partnerships with pharmaceutical companies to developand market liquid and innovative pharmaceutical formulations in exchange fortechnology access fees, research funding, product development milestones andproduct royalties.  We are also seekingcollaborations with major pharmaceutical companies for the further developmentand optimization of our compounds for therapeutic applications in diabetes andobesity.

 

Any failure to maintain or establishlicensing or collaboration arrangements on favorable terms could adverselyaffect our business prospects, financial condition or ability to develop andcommercialize our product candidates.

 

**Research and Development**

 

Our research and development expenses consist primarily of internalcosts associated with our taste modulator and diabetes/obesity researchprograms as well as amounts paid to third parties to conduct research on ourbehalf. Our internal research and development costs are comprised of salariesand related benefits, facilities and depreciation on laboratory equipment,compound acquisition costs and research supplies. We charge research anddevelopment costs to operations as incurred.

 

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**General and Administrative**

 

Our general and administrative expenses consist primarily of salariesand related benefit expenses for business development, financial, legal andother administrative functions. In addition, we incur external costs forprofessional fees for legal, patent and accounting services.

 

**Results of Operations**

 

***Three MonthsEnded March 31, 2009 Compared to Three Months Ended March 31, 2008***

 

*Research and Grant Revenue*.  For the three months ended March 31,2009, we recorded revenue of $1.1 million, which included$0.9 million from our Givaudan Agreement, which began on March 27,2007, for the development and commercialization of compounds that enhancesweetness or savory sensation as well as compounds that block or desensitizebitter taste for use in the food and beverage industry.  The revenues from Givaudan include$0.1 million attributable to the upfront fee which was being recognized asrevenue over the initial 3.5 year term of the agreement and $0.8 millionof research funding.  On April 2,2009, we announced that Givaudan would be terminating the Givaudan Agreement,effective as of May 1, 2009.  As of March 31,2009 the remaining unamortized portion of the upfront payment was approximately$0.6 million and will be recognized as revenue during the quarter ending June 30,2009 as a result of the termination.  Theremaining $0.2 million of revenue was from other agreements including a feasibilityresearch program we conducted with Schering-Plough Corporation in the area oftaste science research for pharmaceutical applications. For the three monthsended March 31, 2008, we recorded revenue of $0.9 million, whichincluded $0.7 million from our Givaudan Agreement, including$0.1 million attributable to the upfront fee and $0.6 million ofresearch funding. The remaining $0.2 million of revenue was from thecommencement of our Coca-Cola Agreement, which began on December 13, 2007,for the development of certain technology for use in soft drinks andnon-alcoholic beverages and which expired by its terms in December of2008. Now that the Givaudan Agreement has been terminated, the Company does nothave any current sources of revenue.

 

*Research and Development Expenses*.  Our research and development expenseswere $1.9 million for the three months ended March 31, 2009 comparedto $2.0 million for the three months ended March 31, 2008.  Ourresearch and development expenses consist primarily of internal costsassociated with our taste modulator and diabetes research programs as well asamounts paid to third parties to conduct research on our behalf.  Our internal research and development costsare comprised of salaries and related benefits, facilities and depreciation onlaboratory equipment, compound acquisition costs and research supplies.

 

*General and Administrative Expenses*.  Our general and administrativeexpenses were $1.7 million for the three months ended March 31, 2009compared to $1.6 million for the three months ended March 31,2008.  During the three months ended March 31,2009 we recognized costs associated with our restructuring of approximately$0.4 million which was partially offset by reduced expenditures associated withpatent, investor relations and other professional fees.

 

*Interest Income*.  Interest income was $0.1 million forthe three months ended March 31, 2009 compared to $0.2 million duringthe three months ended March 31, 2008.

 

*Interest Expense*.  Interest expense was $0.1 million forthe three months ended March 31, 2009 compared to a nominal amount for thethree months ended March 31, 2008. In September 2008, we entered intoa Loan and Security Agreement in which we are authorized to borrow up to$2.0 million for the purchase of certain equipment, a portion of theproceeds which may be used for general corporate working capital purposes. Asof March 31, 2009, we have borrowed approximately $1.5 millionpursuant to the Loan and Security Agreement.

 

**Liquidity and Capital Resources**

 

At March 31, 2009, we had cash, cashequivalents and marketable securities of $12.1 million and working capital of$10.2 million. Since inception, we have used $32.1 million of cash tofund our operating activities and $3.4 million for capital expenditures.Through March 31, 2009, we have funded substantially all of our operationsand capital expenditures through private placements of equity and convertibledebt securities totaling $45.8  million, cash received from corporatecollaborations totaling $9.9 million, government grants totaling $1.8million, and capital equipment financing totaling $3.6 million.

 

In September 2008, weentered into a Loan and Security Agreement in which we are authorized to borrowup to $2.0 million for the purchase of certain equipment, a portion of theproceeds which may be used for general corporate working capital purposes. Asof March 31, 2009, we have borrowed approximately $1.5 millionpursuant to the Loan and Security Agreement, of which approximately$1.0 million was for equipment previously purchased and approximately$0.5 million was for general working capital.

 

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On March 12, 2007, we completed the first closing of our PrivatePlacement of shares of common stock and warrants to purchase shares of commonstock raising approximately $17.2 million of net proceeds. On April 6,2007 we completed the final closing of our Private Placement raising anadditional $11.4 million of net proceeds, bringing the total privateplacement net proceeds to $28.6 million.

 

During the last year, the Company made only limited progress towardsachieving its scientific and business goals. Although our continued researchand development efforts have led us to certain advances within our tastetechnology platform, and we are beginning to understand how our technologyplatform plays a role in treating metabolic disorders such as diabetes andobesity, since December 2007 we have not entered into any new fundedcorporate collaborations other than an expanded feasibility agreement withSchering-Plough Corporation.  Redpointwas also unable to renew its one year research agreement with The Coca-ColaCompany and our agreement with Givaudan was terminated on May 1,2009.  Furthermore, we recognize thecurrent difficult financing environment that has significantly impacted thebiotechnology sector and required the Company to seek ways to conserve cash.Consequently, in February 2009, we announced a restructuring which reducedour workforce by approximately 33%, and we may need to make further reductionsin our expenses. In addition, the Company retained Burrill & Companyto advise us on strategic alternatives. We believe that our current capitalresources should be sufficient to meet our operating and capital requirementsat least through May 2010.

 

We expect that substantially all of our cash-inflows for theforeseeable future will come from future corporate collaborations, licenseagreements and interest earned on the proceeds from our sales of marketablesecurities.  We are subject to thoserisks associated with any biotechnology company that has substantialexpenditures for research and development. There can be no assurance that ourresearch and development projects will be successful, that products developedwill obtain necessary regulatory approval, or that any approved product will becommercially viable. In addition, we operate in an environment of rapid technologicalchange and we are largely dependent on the services of our employees andconsultants. The stock market in general has recently experienced large priceand volume fluctuations and the market price of our common stock hasexperienced significant volatility.  For us to fund our operations and tocommercially develop our products, additional equity and/or debt financing willbe required. There is no assurance that such financing will be available to usas needed and as a result, we may need to pursue other strategic alternatives.

 

**Summary of Contractual Obligations**

 

Thefollowing table summarizes our obligations to make future payments under ourcurrent contractual obligations as of March 31, 2009:

 
| ** **       | ** ** | **Payments Due by Period** | ** **      |
|------------------|------------|----------------------------|-----------------|
| ** **       | ** ** | **Total**                  | ** **      | **2009** | ** ** | **2010-2011** | ** ** | **2012-2013** | ** ** | **Thereafter** | ** ** |
| Operating leases |       | $                          | 6,909,000       |   | $ | 651,000 |   | $ | 1,673,000 |   | $ | 1,698,000 |   | $ | 2,887,000 |   |
| Long-term debt   |       | 1,516,000                  |            | 368,000 |   | 796,000 |   | 352,000 |   | — |   |
| License payments |       | 275,000                    |            | 25,000 |   | 50,000 |   | 50,000 |   | 150,000 |   |
|             |       | $                          |  8,700,000 |   | $ | 1,044,000 |   | $ | 2,519,000 |   | $ | 2,100,000 |   | $ | 3,037,000 |   |

 

**Critical Accounting Policies**

 

Our discussion and analysis of our financial condition and results ofoperations are based on our financial statements, which have been prepared inaccordance with U.S. generally accepted accounting principles, or GAAP. Thepreparation of these financial statements requires us to make estimates andjudgments that affect the reported amounts of assets, liabilities, thedisclosure of contingent assets and liabilities at the date of the financial statements,and reported amount of revenue and expenses during the reporting period. On anongoing basis, we evaluate our judgments and estimates, including those relatedto revenue recognition, long-lived assets, accrued liabilities, share-basedpayments and income taxes. We base our judgment and estimates on historicalexperience and various other factors that we believe to be reasonable under thecircumstances, the results of which form the basis for making judgments aboutthe carrying values of assets and liabilities. Actual results may differ fromthese estimates under different assumptions or conditions.  A moredetailed review of our critical accounting policies is contained in our AnnualReport on Form 10-K filed with the Securities and Exchange Commission forthe year ended December 31, 2008.  During the quarter ended March 31,2009, there have been no material changes in our critical accounting policies.

 

**ITEM 3.****                 ****QUANTITATIVE AND QUALITATIVEDISCLOSURES ABOUT MARKET RISK**

 

Our carrying values of cash and cash equivalents, marketablesecurities, accounts receivable, accounts payable, accrued expenses and debtare a reasonable approximation of their fair value. The estimated fair valuesof financial instruments have been determined by us using available marketinformation and appropriate valuation methodologies.

 

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We have not entered into and do not expect to enter into, financialinstruments for trading or hedging purposes.  We do not currentlyanticipate entering into interest rate swaps and/or similar instruments. We have no material currency exchange risk exposure as of March 31,2009.  Our primary market risk exposure with regard to financialinstruments is to changes in interest rates, which would impact interest incomeearned on such instruments. A one percent change (100 basis points) in interestrates on our investments would have impacted interest income by approximately$0.1 million for the three months ended March 31, 2009.

 

**ITEM 4T.****                              ****CONTROLS AND PROCEDURES**

 

Our management, with the participation of our chiefexecutive officer and chief financial officer, evaluated the effectiveness ofour disclosure controls and procedures (as defined in Rules 13a-15(e) and15d-15(e) under the Exchange Act) as of March 31, 2009. Based on thisevaluation, our chief executive officer and chief financial officer concludedthat, as of March 31, 2009, our disclosure controls and procedures were (1) effectivein that they were designed to ensure that material information relating to us,including our consolidated subsidiaries, is made known to our chief executiveofficer and chief financial officer by others within those entities, asappropriate, to allow timely decisions regarding required disclosures, and (2) effectivein that they provide reasonable assurance that information required to bedisclosed by us in our reports that we file or submit under the Exchange Act isrecorded, processed, summarized and reported within the time periods specifiedin the SEC’s rules and forms.

 

No changes in our internal control over financialreporting (as defined in Rules 13a-15(f) and 15d-15(f) under theExchange Act) occurred during the fiscal quarter ended March 31, 2009 thathave materially affected, or are reasonably likely to materially affect, ourinternal control over financial reporting.

 

**PART II.  OTHERINFORMATION**

 

**ITEM 1.****                 ****LEGAL PROCEEDINGS**

 

The Company’s management knows of no material existing or pending legalproceedings or claims against the Company, nor is the Company involved as aplaintiff in any material proceeding or pending litigation.  To theCompany’s knowledge, no director, officer or affiliate of the Company, and noowner of record or beneficial owner of more than five percent (5%) of theCompany’s securities, or any associate of any such director, officer orsecurity holder is a party adverse to the Company or has a material interestadverse to the Company in reference to pending litigation.

 

**ITEM 1A.****              ****RISK FACTORS**

 

*You should carefully consider the following risks andall of the other information set forth in this Quarterly Report before decidingto invest in shares of our common stock. The risks described below are not theonly ones facing us. Additional risks not presently known to us or that wecurrently deem immaterial may also impair our business operations.*

 

*If any of the following risks actually occurs, ourbusiness, financial condition or results of operations would likelysuffer.  In such case, the market priceof our common stock would likely decline due to the occurrence of any of theserisks, and you may lose all or part of your investment.*

 

**Risks Related To Our Business andOur Industry**

 

***Redpoint is a development-stage company. We have incurred losses sinceinception and expect to incur additional net losses for at least the nextseveral years.***

 

Since our inception we have incurred significant losses and negativecash flows from operations. As of March 31, 2009, we had an accumulateddeficit of $45.0 million, and anticipate incurring additional losses forthe foreseeable future. We expect to spend significant resources over the nextseveral years to enhance our technologies and to fund research and developmentof our pipeline of potential products. We have not generated significantrevenues in any particular year since our inception. To date, substantially allof our revenue has been derived from corporate collaborations, licenseagreements, and government grants. In order to achieve profitability, we mustdevelop products and technologies that can be commercialized by us or throughfuture collaborations. Our ability to generate revenues and become profitablewill depend on our ability, alone or with potential collaborators, to timely,efficiently and successfully complete the development of our productcandidates, which may include conducting pre-clinical and clinical tests,obtaining necessary regulatory approvals, and manufacturing and marketing ourproduct candidates. There can be no assurance that any such events will occuror that we will ever become profitable. Even if we do achieve profitability, wecannot predict the level of such profitability. If we sustain losses over anextended period of time, we may be unable to continue our business.

 

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***We will need substantial additional funding to develop our products andfor our future operations. If we are unable to obtain the funds necessary to doso, we may be required to delay, scale back or eliminate our productdevelopment or may be unable to continue our business.***

 

The development of ourproduct candidates will require a commitment of substantial funds to conductthe costly and time-consuming research, which may include pre-clinical andclinical testing, necessary to obtain regulatory approvals and bring ourproducts to market. We believe that our current capital resources should besufficient to meet our operating and capital requirements at least through May 2010.Our future requirements will depend on many factors, including:

 

·      the progress of our research and development programs,including our ability to discover and develop taste enhancers and aversivetaste blockers;

 

·      our ability, or our partners’ ability and willingness,to formulate these taste enhancers and aversive taste blockers into food,beverage and pharmaceutical products;

 

·      our ability to discover and develop new diabetes orobesity therapeutic compounds;

 

·      the cost of prosecuting, defending and enforcingpatent claims and other intellectual property rights;

 

·      the progress, scope and results of our pre-clinicaland clinical testing of any future pharmaceutical products;

 

·      the time and cost involved in obtaining regulatoryapprovals;

 

·      the cost of manufacturing our product candidates;

 

·      competing technological and market developments; and

 

·      our ability to establish and maintain collaborativeand other arrangements with third parties to assist in bringing our products tomarket and the cost of such arrangements.

 

There can be no assurance that we will not need additional capitalsooner than currently anticipated.

 

We will need to raise substantial additional capital to fund our futureoperations. We cannot be certain that additional financing will be available onacceptable terms, or at all. In recent years, it has been difficult forcompanies to raise capital due to a variety of factors, which may or may notcontinue. To the extent we raise additional capital through the sale of equitysecurities, the ownership position of our existing stockholders could be substantiallydiluted. If additional funds are raised through the issuance of preferred stockor debt securities, these securities are likely to have rights, preferences andprivileges senior to our common stock. Fluctuating interest rates could alsoincrease the costs of any debt financing we may obtain.

 

Failure to successfully address ongoing liquidity requirements willhave a material adverse effect on our business. If we are unable to obtainadditional capital on acceptable terms when needed, we may be required to takeactions that harm our business and our ability to achieve cash flow in thefuture, including possibly the surrender of our rights to some technologies orproduct opportunities, delaying our clinical trials or curtailing or ceasingoperations.

 

***We are an early stage company and currently have no products availablefor sale, license or use. Our product candidates require additional research,development, testing, expert reviews and/or and regulatory approvals beforemarketing. We may be unable to develop, obtain regulatory approval or marketany of our product candidates. If our product candidates are delayed or fail,our financial condition will be negatively affected, and we may have to curtailor cease our operations.***

 

We are in the early stage ofproduct development and we are dependent on new discoveries. We currently donot sell or license any products to third parties and do not expect to have anyproducts commercially available for several years, if at all. You must evaluateus in light of the uncertainties and complexities affecting an early stagebiotechnology company. Our product candidates require additional research anddevelopment, pre-clinical testing, clinical testing (for our pharmaceuticalproducts) and regulatory review and/or approvals clearances before marketing.There are many reasons that our product candidates may fail or not advance tocommercialization, including the possibility that:

 

·      our product candidates may be ineffective, unsafe orassociated with unacceptable side effects;

 

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·      our product candidates may fail to receive thenecessary regulatory approvals or otherwise fail to meet applicable regulatorystandards;

 

·      experts may not agree that our food product candidatesare generally recognized as safe;

 

·      our product candidates may be too expensive todevelop, manufacture or market;

 

·      other parties may hold or acquire proprietary rightsthat could prevent us or our potential collaborators from developing ormarketing our product candidates;

 

·      physicians, patients, third-party payers or themedical community in general may not accept or use our contemplatedpharmaceutical products;

 

·      our potential collaborators may withdraw support foror otherwise impair the development and commercialization of our productcandidates; or

 

·      others may develop equivalent or superior products.

 

In addition, we may not succeed in developing taste enhancers andaversive taste blockers with the appropriate attributes required for use insuccessful commercial products. Successful taste enhancers and aversive tasteblockers require, among other things, appropriate biological activity,including the correct taste enhancer and aversive taste blocker properties forthe product application, an acceptable safety profile, including lack oftoxicity or allergenicity, and appropriate physical or chemical properties,including relative levels of stability, volatility and resistance to heat.Successful taste enhancers and aversive taste blockers must also becost-efficient. We may not be able to develop taste enhancers and aversivetaste blockers that meet these criteria.

 

If our product candidates are delayed or we fail to successfullydevelop and commercialize our product candidates, our financial condition maybe negatively affected, and we may have to curtail or cease our operations.

 

***We may not successfully establish and maintain collaborative andlicensing arrangements, which could adversely affect our ability to develop andcommercialize our product candidates.***

 

A key element of our food and beverage strategy is to commercialize ourtaste enhancers through product discovery and development collaborations withmajor ingredient suppliers and/or end users. Our pharmaceutical strategydepends on establishing collaborations and licensing agreements with majorpharmaceutical, over-the-counter and generic companies. We may not be able tomaintain or expand these licenses and collaborations or establish additionallicensing and collaboration arrangements necessary to develop and commercializeour product candidates. For example, we were unable to renew our one yearresearch agreement with The Coca-Cola Company and our agreement with Givaudanended on May 1, 2009.  Even if weare able to maintain or establish licensing or collaboration arrangements,these arrangements may not be on favorable terms and may contain provisionsthat will restrict our ability to develop, test and market our productcandidates. Any failure to maintain or establish licensing or collaborationarrangements on favorable terms could adversely affect our business prospects,financial condition or ability to develop and commercialize our productcandidates.

 

We expect to rely at least in part on third party collaborators toperform a number of activities relating to the development andcommercialization of our product candidates, including the manufacturing ofproduct materials, the design and conduct of clinical trials for ourpharmaceutical formulations, and potentially the obtaining of regulatoryapprovals and marketing and distribution of any successfully developedproducts. Our collaborative partners may also have or acquire rights to controlaspects of our product development and clinical programs. As a result, we maynot be able to conduct these programs in the manner or on the time schedule wecurrently contemplate. In addition, if any of these collaborative partnerswithdraw support for our programs or product candidates or otherwise impairtheir development, our business could be negatively affected. To the extent weundertake any of these activities internally, our expenses may increase.

 

In addition, our success depends on the performance of ourcollaborators of their responsibilities under these arrangements. Somepotential collaborators may not perform their obligations in a timely fashionor in a manner satisfactory to us. Because such agreements may be exclusive, wemay not be able to enter into a collaboration agreement with any other companycovering the same product field during the applicable collaborative period. Inaddition, our collaborators’ competitors may not wish to do business with us atall due to our relationship with our collaborators. If we are unable to enterinto additional product discovery and development collaborations or maintainour existing arrangements, our ability to sustain or expand our business willbe significantly diminished.

 

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***If we or our collaborators are unable to obtain and maintain the GRASdetermination or regulatory approval required before any taste enhancers oraversive taste blockers can be incorporated into products that are sold, wewould be unable to commercialize our taste enhancers and aversive tasteblockers and our business would be adversely affected.***

 

In the United States, the development, sale and incorporation of ourtaste enhancers and aversive taste blockers into products are subject toregulation by the FDA, and in some instances, other government bodies. Obtainingand maintaining a GRAS determination or regulatory approval is typically costlyand can take many years.

 

Depending on the amount or intended use of a particular taste enhanceror aversive taste blocker added to a product and the number of product categoriesin which the flavor or flavor enhancer will be incorporated, specific testing,safety assessment protocols, and regulatory processes must be satisfied beforewe or our collaborators can commercially market and sell products containingany taste enhancers and aversive taste blockers that we may discover. A keyelement of our strategy is to develop flavors and flavor enhancers that will beevaluated by the FEMA (Flavor and Extracts Manufacturers Association) GRASPanel, which we expect will take 18 to 24 months and which is lessexpensive than the alternative of filing a food additive petition with the FDA,which can take eight years or more. The FEMA GRAS review process may takelonger than 24 months and cost more than we currently anticipate if additionalsafety studies are requested by the FEMA GRAS Panel or are necessary to explainunexpected safety study findings. There is a risk that one or more of ourproduct candidates may not qualify for a FEMA GRAS determination. This mayoccur for a variety of reasons, including the taste enhancer’s or aversivetaste blocker’s intended use, the amount of the taste enhancer or aversivetaste blocker intended to be added to packaged foods and beverages, the numberof product categories in which the taste enhancers or aversive taste blockerswill be incorporated, whether the taste enhancer imparts sweetness, the safetyprofile of the taste enhancers or aversive taste blockers and the FEMA GRASPanel’s interpretation of the safety data. Even if we obtain a GRAS determinationwith respect to a taste enhancer or aversive taste blocker, the FDA has theability to challenge such determination, which could materially adverselyaffect our ability to market products on schedule or at all. In the event thata particular taste enhancer or aversive taste blocker does not qualify for aFEMA GRAS determination, we may be required to pursue a lengthy FDA approvalprocess to reach the U.S. market, or dedicate our development efforts toalternative compounds, which would further delay commercialization. Inaddition, laws, regulations or FDA practice governing the regulatory approvalprocess, the availability of the GRAS determination process or the manufactureor labeling of such products, may change in a manner that could adverselyaffect our ability to commercialize products on schedule or at all.

 

Sales of our taste enhancers and aversive taste blockers outside of theUnited States will be subject to foreign regulatory requirements. In mostcases, whether or not a GRAS determination or FDA approval has been obtained,approval of a product by the comparable regulatory authorities of foreigncountries must still be obtained prior to manufacturing or marketing theproduct in those countries. A GRAS determination or FDA approval in the UnitedStates or in any other jurisdiction does not ensure approval in otherjurisdictions because the requirements from jurisdiction to jurisdiction mayvary widely. Obtaining foreign approvals could result in significant delays,difficulties and costs for us and require additional safety studies andadditional expenses. If we fail to comply with these regulatory requirements orto obtain and maintain required approvals, our ability to generate revenue willbe diminished.

 

We and our collaborators may not be successful in overcoming theseregulatory hurdles, which could result in product launch delays, unanticipatedexpenses, termination of collaborations, and flavors and flavor enhancers notbeing approved for incorporation into consumer products. These consequenceswould have a material adverse effect on our business financial condition andresults of operations.

 

***Even if we or our collaborators receive a GRAS determination orregulatory approval and incorporate our taste enhancers or aversive taste blockersinto products, those products may never be commercially successful.***

 

Even if we discover anddevelop taste enhancers and aversive taste blockers that obtain the necessaryGRAS determination or regulatory approval, our success depends to a significantdegree upon the commercial success of packaged food and beverage products andpharmaceutical products incorporating those taste enhancers or aversive tasteblockers. If these products fail to achieve or subsequently maintain marketacceptance or commercial viability, our business would be significantly harmedbecause our royalty revenue is dependent upon consumer sales of these products.In addition we could be unable to maintain our existing collaborations orattract new product discovery and development collaborators. Many factors mayaffect the market acceptance and commercial success of any potential productsincorporating taste enhancers or aversive taste blockers that we may discover,including:

 

·      health concerns, whether actual or perceived, or unfavorablepublicity regarding our taste enhancers and aversive taste blockers or those ofour competitors;

 

·      the timing of market entry as compared to competitiveproducts;

 

·      the rate of adoption of products by our collaboratorsand other companies in the flavor industry; and

 

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·      any product labeling that may be required by the FDAor other United States or foreign regulatory agencies for productsincorporating our taste enhancers and aversive taste blockers.

 

***We may experience delays in clinical trials and regulatory approvalrelating to our products that could adversely affect our financial results andour commercial prospects for our pharmaceutical products.***

 

Our pharmaceutical strategy is to incorporate our taste enhancers andaversive taste blockers into proprietary formulations of medicines thatpotentially offer improved acceptability and compliance, thus enhancingefficacy and possibly providing broader indications or patient populations. Inaddition to the GRAS regulatory or other requirements for our taste enhancersand aversive taste blockers, we will also require FDA 505(b)(2) regulatoryapprovals of any novel pharmaceutical formulations that we develop with altereddelivery characteristics. In addition, any uses of our taste modulators that wedevelop as drugs acting to modulate incretin secretion with potential utilityas therapeutic agents for diabetes or obesity, will be subject to full FDA505(b)(1) safety testing and clinical trials proving therapeutic efficacyas required to develop an NDA. In either case, we may be required to conductclinical trials to demonstrate safety and efficacy of our product candidates.For product candidates that advance to clinical testing, we cannot be certainthat we or a collaborator will successfully complete the clinical trialsnecessary to receive regulatory product approvals. These processes are lengthyand expensive.

 

We intend to seek approval for our novel pharmaceutical formulationsthrough the FDA 505(b)(2) approval process. If we are unable to approveour pharmaceutical formulations through the 505(b)(2) process, we may berequired to pursue the more expensive and time consuming 505(b)(1) approvalprocess. Section 505(b) of the Federal Food, Drug, and Cosmetic Actdescribes two types of NDA applications that an applicant may submit forapproval of innovator medicines. The first type of NDA, described undersection 505(b)(1), consists of a full report of investigations of safetyand effectiveness conducted by or for the applicant or for which the applicanthas the right of reference for the information. The second type of NDA,described under section 505(b)(2), consists of a full report ofinvestigations of safety and effectiveness where at least some portion of theinformation submitted for approval comes from sources other than studiesperformed or sponsored by the applicant. Drugs that may be approved via the505(b)(2) process include drugs that have the same active ingredients aspreviously approved products, but now are formulated in a different deliverymechanism or other new dosage forms or with different indications. The basisfor the 505(b)(2) application is that there already is a certain amount ofinformation that is known about the active ingredient. As such, repeating allthe clinical studies required for a 505(b)(1) application would besignificantly more expensive and time consuming than the 505(b)(2) process.

 

To obtain regulatory approvals, we must, among other requirements,complete clinical trials showing that our products are safe and effective for aparticular indication. Under the 505(b)(2) approval process, although wemay not have performed some of the studies ourselves, we must submit clinicaland non-clinical data to demonstrate the medication is safe and effective. Wealso must be able to provide data and information, including bioavailability orcomparative bioavailability studies, to establish sufficiently theappropriateness of relying on material without the right of reference.

 

We do not know when clinical trials for our products will commence orwhether we will complete any of our clinical trials on schedule or at all.There can be no assurance that clinical trials will in fact demonstrate thatour products are safe or effective.

 

Additionally, we may not be able to find acceptable patients or mayexperience delays in enrolling patients for our clinical trials. The FDA or wemay suspend our clinical trials at any time if either believes that we areexposing the subjects participating in the trials to unacceptable health risks.The FDA or institutional review boards and/or institutional biosafetycommittees at the medical institutions and healthcare facilities where we seekto sponsor clinical trials may not permit a trial to proceed or may suspend anytrial indefinitely if they find deficiencies in the conduct of the trials.

 

Product development costs to us and our potential collaborators will increaseif we have delays in testing or approvals or if we need to perform more orlarger clinical trials than planned. We expect to continue to rely on thirdparty clinical investigators at medical institutions and healthcare facilitiesto conduct our clinical trials, and, as a result, we may face additionaldelaying factors outside our control. Significant delays may adversely affectour financial results and the commercial prospects for our product candidatesand delay our ability to become profitable.

 

***If our pharmaceutical product candidates, including any productcandidates we may develop under our early stage diabetes program, do notsuccessfully complete the clinical trial process, we will not be able to marketthem. Even successful clinical trials may not result in a marketable productand may not be entirely indicative of a product’s safety or efficacy.***

 

Many factors, known and unknown, can adversely affect clinical trialsand the ability to evaluate a product’s efficacy. During the course of treatment,patients can die or suffer other adverse events for reasons that may or may notbe related to the proposed product being tested. Even if unrelated to ourproduct, certain events can nevertheless adversely impact our clinical trials.As a result, our ability to ultimately develop and market the products andobtain revenues would suffer.

 

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Even promising results in pre-clinical studies and initial clinicaltrials do not ensure successful results in later clinical trials, which testbroader human use of our products. Many companies in our industry have sufferedsignificant setbacks in advanced clinical trials, despite promising results inearlier trials. Even successful clinical trials may not result in a marketableproduct or be indicative of the efficacy or safety of a product. Many factorsor variables could affect the results of clinical trials and cause them toappear more promising than they may otherwise be. Product candidates thatsuccessfully complete clinical trials could ultimately be found to be unsafe orineffective.

 

In addition, our ability tocomplete clinical trials depends on many factors, including obtaining adequateclinical supplies and having a sufficient rate of patient recruitment. Forexample, patient recruitment is a function of many factors, including:

 

·      the size of the patient population;

 

·      the proximity of patients to clinical sites;

 

·      the eligibility criteria for the trial;

 

·      the perceptions of investigators and patientsregarding safety; and

 

·      the availability of other treatment options.

 

Even if patients are successfully recruited, we cannot be sure thatthey will complete the treatment process. Delays in patient enrollment ortreatment in clinical trials may result in increased costs, program delays orboth.

 

With respect to markets in other countries, we or a partner will alsobe subject to regulatory requirements governing clinical trials in thosecountries. Even if we complete clinical trials, we may not be able to submit amarketing application. If we submit an application, the regulatory authoritiesmay not review or approve it in a timely manner, if at all.

 

***Because we cannot predict whether or when we will obtain regulatoryapproval to commercialize our pharmaceutical product candidates, we cannotpredict the timing of any future revenue from these product candidates.***

 

We cannot commercialize any of our pharmaceutical product candidates togenerate revenue until the appropriate regulatory authorities have reviewed andapproved the applications for our product candidates. We cannot assure you thatthe regulatory agencies will complete their review processes in a timely manneror that we will obtain regulatory approval for any product candidate we or ourpotential collaborators develop. Satisfaction of regulatory requirementstypically takes many years, is dependent upon the type, complexity and noveltyof the product and requires the expenditure of substantial resources.Regulatory approval processes outside the United States include all or many ofthe risks associated with the FDA approval process and potentially others aswell. In addition, we may experience delays or rejections based upon additionalgovernment regulation from future legislation or administrative action orchanges in FDA policy, or the policies of other relevant governmental ornongovernmental entities during the period of product development, pre-clinicaland clinical trials and FDA regulatory review.

 

***We will rely on third parties to manufacture taste enhancers, aversivetaste blockers and pharmaceutical product candidates. There can be no guaranteethat we can obtain sufficient and acceptable quantities of our taste enhancersor aversive taste blockers or pharmaceutical product candidates on acceptableterms, which may delay or impair our ability to develop, test and market suchproducts.***

 

Our business strategy relies on third parties to manufacture andproduce our taste enhancers and aversive taste blockers and pharmaceuticalproduct candidates in accordance with good manufacturing practices establishedby the FDA, or similar regulations in other countries. Our taste enhancers andaversive taste blockers and pharmaceutical product candidates may be incompetition with other products for access to these facilities and may besubject to delays in manufacture if third parties give other products greaterpriority than our product candidates. These third parties also may not deliversufficient quantities of our taste enhancers and aversive taste blockers andpharmaceutical product candidates, manufacture our taste enhancers and aversivetaste blockers and pharmaceutical product candidates in accordance withspecifications, or comply with applicable government regulations. Additionally,if the manufactured products fail to perform as specified, our business andreputation could be severely impacted.

 

We expect to enter into manufacturing agreements for the production ofproduct materials. If any manufacturing agreement is terminated or any thirdparty collaborator experiences a significant problem that could result in adelay or interruption in the supply of product materials to us, there are veryfew contract manufacturers who currently have the capability to produce ourtaste enhancers and aversive taste blockers and pharmaceutical productcandidates on acceptable terms, or on a timely and cost-effective basis. There 

 

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canbe no assurance that manufacturers on whom we will depend will be able tosuccessfully produce our taste enhancers and aversive taste blockers andpharmaceutical product candidates on acceptable terms, or on a timely orcost-effective basis. There can also be no assurance that manufacturers will beable to manufacture our products in accordance with our product specifications,or will meet FDA or other requirements. We must have sufficient and acceptablequantities of our product materials to conduct our clinical trials and tomarket our product candidates, if and when such products have been approved bythe FDA for marketing. If we are unable to obtain sufficient and acceptablequantities of our product material, we may be required to delay the clinicaltesting and marketing of our products.

 

***If we do not comply with applicable regulatory requirements in themanufacture and distribution of our product candidates, we may incur penaltiesthat may inhibit our ability to commercialize our products and adversely affectour revenue.***

 

Our failure or the failure of our potential collaborators or thirdparty manufacturers to comply with applicable FDA or other regulatoryrequirements including manufacturing, quality control, labeling, safetysurveillance, promoting and reporting may result in criminal prosecution, civilpenalties, recall or seizure of our products, total or partial suspension ofproduction or an injunction, as well as other regulatory action against ourproduct candidates or us. Discovery of previously unknown problems with aproduct, supplier, manufacturer or facility may result in restrictions on thesale of our products, including a withdrawal of such products from the market.The occurrence of any of these events would negatively impact our business andresults of operations.

 

***If we are unable to create and maintain sales, marketing anddistribution capabilities or enter into agreements with third parties toperform those functions, we will not be able to commercialize our productcandidates.***

 

We currently have no sales, marketing or distribution capabilities.Therefore, to commercialize our product candidates, if and when such productshave been approved and are ready for marketing, we expect to collaborate withthird parties to perform these functions. We have no experience in developing,training or managing a sales force and will incur substantial additionalexpenses if we decide to market any of our future products directly. Developinga marketing and sales force is also time consuming and could delay launch ofour future products. In addition, we will compete with many companies thatcurrently have extensive and well-funded marketing and sales operations. Ourmarketing and sales efforts may be unable to compete successfully against thesecompanies.

 

***Many potential competitors, including those who have greater resourcesand experience than we do, may develop products or technologies that make oursobsolete or noncompetitive.***

 

We believe our taste technology approach is applicable to a wide rangeof food, beverage and pharmaceutical products representing many and diversecompetitive companies and approaches. The life sciences and other technologyindustries are characterized by rapid technological change, and the area ofsensory or taste research is a rapidly evolving field. Our future success willdepend on our ability to maintain a competitive position with respect totechnological advances. Technological developments by others may result in ourtaste enhancers or aversive taste blockers and technologies, as well as ourpharmaceutical formulations, becoming obsolete.

 

We face substantial competition from companies pursuing thecommercialization of products and services relevant to taste using variousmethods for the discovery of taste enhancers and aversive taste blockers. Thesecompetitors include leading flavor companies, such as International Flavors &Fragrances Inc., Givaudan SA, Symrise and Firmenich. Senomyx isprincipally focused in the area of taste enhancement for food products and usesa high throughput screening technology and synthetic chemistry to discover novelflavor enhancers, which it licenses to end users in the food industry. Senomyxwas initially focused on sweetness and savory flavor enhancers, but is now alsodeveloping programs to discover bitter blockers for food and pharmaceuticalproducts. During the last 2 years, Senomyx has announced success atdeveloping sweetener enhancers for both sucrose and sucralose, although thesehave not yet reached the marketplace. Nutrinova, a German ingredients company,is also developing a biotechnology approach to finding novel taste enhancers incollaboration with the German Biotechnology Research and Information Network.We currently compete and will continue to compete in the future with thesecompanies in collaborating with and selling flavor products and technologies tomanufacturers of packaged food and beverage products.

 

We also face substantial competition from a number of companies in thepharmaceutical formulations industry. Taste masking has a long history in thepharmaceutical industry. A traditional method of taste masking forpharmaceutical products is to mix the active pharmaceutical ingredient withflavorings and sugar syrup to mask unpleasant taste. This approach is mostcommonly used for pediatric liquid formulations as well as many over-the-countercough-cold remedies. FlavorRx supplies flavors at drug store pharmacies thatcan be compounded by the pharmacist to make certain liquid formulations morepalatable. In the pharmaceutical sector there are a number of drug deliverycompanies that have developed proprietary taste masking technologies thatinclude both traditional and novel pharmaceutical approaches. These competingtechnologies and companies include but are not limited to OraSolv® andDuraSolv® from CIMA Labs (a Cephalon company), MicroCaps® and Liquitard® fromEurand, FlavorTechTM, LiquetteTM and MicroMaskTM from KV Pharmaceuticals, EnVel®from Catalent, CEFORM from Biovail and WOWTab® from 

 

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Astellas.Virtually all of these approaches including OralSolv, DuraSolv, MicroCap,Liquitard, CEFORM, EnVel and the technology used in Zydis products utilize aphysical approach to sequester the active drug substance away from the tastereceptors on the tongue. These include coating the drug, micro encapsulation,immobilization, use of cyclodextran carriers, or stabilization of the drug in amicellar or insoluble phase, as the principle means of taste masking.

 

We also face substantial competition with respect or our diabetesprogram. Type 2 diabetes is a disease characterized by persistenthyperglycemia due to the body’s inability to produce enough or respond toinsulin, a hormone regulating the absorption of sugar. Most treatments, outsideof insulin replacement, focus on correcting high blood sugar by eitherstimulating the pancreas to produce more insulin, enhancing tissue sensitivityto insulin, or by inhibiting the production and release of glucose from the liver.There are many drugs currently available for treating diabetes and metabolicdisease, either alone or in combination with other drugs. There are severalclasses of anti-diabetic treatments, either orally available or injectable,including insulin, GLP-1 receptor agonists, sulfonylureas, DPP-IV inhibitors,PPAR agonists, and biguanides. Many of these drugs exhibit not only limitedefficacy, but are also associated with less than desired tolerability andsignificant mechanism-based side effects. Several new classes of anti-diabetictreatments have recently been developed, including incretin mimetics such asExendin-4, a GLP-1 mimetic, which enhance glucose-dependent insulin secretionby the pancreatic beta-cell and slows gastric emptying, and DPP-IV inhibitorswhich work by preventing the inactivation of endogenous GLP-1. Additionally,new mechanisms such as GPR119 receptor agonists are being developed asglucose-dependent insulin and GLP-1 secretagogues expected to lowerpostprandial glucose and reduce weight gain.

 

If successful, our core diabetes program will face competition. Themajor competitors to TPRM5 modulators would likely include several new classesof anti-diabetic treatments, including the incretin mimetic Byetta® (marketedby Eli Lilly and Company and Amylin Pharmaceuticals), DPP-IV inhibitors(including JanuviaTM marketed by Merck & Co., Inc.),and GPR119 receptor agonists, currently in development by Metabolex, Inc.,OSI Pharmaceuticals, GlaxoSmithKline, and Arena Pharmaceuticals, Inc./Johnson &Johnson.

 

Many of these companies have substantially greater capital resources,research and development resources and experience, manufacturing capabilities,regulatory expertise, sales and marketing resources, established relationshipswith consumer products companies and production facilities.

 

We may in the future face competition from life sciences and othertechnology companies and other commercial enterprises. These entities engage aswe do in biotechnology, biology or chemistry and could apply this technology tothe discovery and development of taste enhancers and aversive taste blockersand new formulations of pharmaceutical products. We cannot guarantee thatproducts developed as a result of our competitors’ existing or futurecollaborations will not compete with our taste enhancers and aversive tasteblockers and new pharmaceutical formulations.

 

Universities and public and private research institutions are alsopotential competitors. While these organizations primarily have educationalobjectives, they may develop proprietary technologies related to the sense oftaste or secure patent protection that we may need for the development of ourtechnologies and products. We may attempt to license these proprietarytechnologies, but these licenses may not be available to us on acceptableterms, if at all.

 

Our competitors, either alone or with their collaborative partners, maysucceed in developing technologies or discovering taste enhancers and aversivetaste blockers that are more effective, safer, more affordable or more easilycommercialized than ours, and our competitors may obtain intellectual propertyprotection or commercialize products sooner than we do. Developments by othersmay render our product candidates or our technologies obsolete. In addition,our current product discovery and development collaborators are not prohibitedfrom entering into research and development collaboration agreements with thirdparties in any product field. Our failure to compete effectively would have asignificant adverse effect on our business, financial condition and results ofoperations.

 

***If we are unable to attract and retain key personnel and advisors, itmay adversely affect our ability to obtain financing, pursue collaborations ordevelop our product candidates.***

 

We are highly dependent on F. Raymond Salemme, Ph.D., our ChiefExecutive Officer and President, as well as Scott Horvitz, our Chief FinancialOfficer.

 

Our future success depends on our ability to attract, retain andmotivate highly qualified management and scientific, development and commercialpersonnel and advisors. To pursue our business strategy, we will need to hireor otherwise engage qualified personnel and managers, including personnel withexpertise in discovery, development, clinical trials, government regulation,manufacturing, marketing and sales. Competition for qualified personnel isintense among companies, academic institutions and other organizations. If weare unable to attract and retain key personnel and advisors, it may negativelyaffect our ability to successfully develop, test and commercialize our productcandidates.

 

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***We use hazardous and biological materials in our business. Any claimsrelating to improper handling, storage or disposal of these materials could betime consuming and costly.***

 

Our products and processes will involve the controlled storage, use anddisposal of certain hazardous and biological materials and waste products. Weand our suppliers and other collaborators are subject to federal, state andlocal regulations governing the use, manufacture, storage, handling anddisposal of materials and waste products. Even if we and these suppliers andcollaborators comply with the standards prescribed by law and regulation, therisk of accidental contamination or injury from hazardous materials cannot becompletely eliminated. In the event of an accident, we could be held liable forany damages that result, and any liability could exceed the limits or falloutside the coverage of any insurance we may obtain and exceed our financialresources. We may not be able to maintain insurance on acceptable terms, or atall. We may incur significant costs to comply with current or futureenvironmental laws and regulations.

 

***We may be sued for product liability, which could adversely affect ourbusiness.***

 

Because our business strategy involves the development and sale byeither us or our collaborators of commercial products incorporating our tasteenhancers or aversive taste blockers, we may be sued for product liability. Wemay be held liable if any product we develop and commercialize, or any productour collaborators commercialize that incorporates any of our taste enhancers oraversive taste blockers, causes injury or is found otherwise unsuitable duringproduct testing, manufacturing, marketing, sale or consumer use. In addition,the safety studies we must perform and the FEMA GRAS determination we mustobtain prior to incorporating our taste enhancers and aversive taste blockersinto a commercial product, and the regulatory approvals required to commercializeour pharmaceutical products, will not protect us from any such liability.

 

If we and our collaborators commence sale of commercial products wewill need to obtain product liability insurance, and this insurance may beprohibitively expensive, or may not fully cover our potential liabilities.Inability to obtain sufficient insurance coverage at an acceptable cost orotherwise to protect against potential product liability claims could preventor inhibit the commercialization of products developed by us or our productdiscovery and development collaborators. We may be obligated to indemnify ourproduct discovery and development collaborators for product liability or otherlosses they incur as a result of our taste enhancers and aversive taste blockers.Any indemnification we receive from such collaborators for product liabilitythat does not arise from our taste enhancers or aversive taste blockers may notbe sufficient to satisfy our liability to injured parties. If we are sued forany injury caused by our taste enhancers or aversive taste blockers or productsincorporating our taste enhancers or aversive taste blockers or any otherproducts we develop, our liability could exceed our total assets.

 

**Risks Related To IntellectualProperty**

 

***If our product candidates are not effectively protected by valid,issued patents or if we are not otherwise able to protect our proprietaryinformation and technologies, it could harm our business.***

 

The success of ouroperations will depend in part on our ability and that of our licensors to:

 

·      obtain patent protection for our taste screeningtechnology and our taste enhancers and aversive taste blockers both in theUnited States and in other countries with substantial markets;

 

·      obtain patent protection for our pharmaceuticalformulations including those created using our taste enhancers as well as ourdiabetes and obesity therapeutic compounds;

 

·      maintain patents once obtained;

 

·      maintain trade secrets and operate without infringingupon the intellectual property rights of others; and

 

·      obtain appropriate licenses upon reasonable terms topatents or proprietary rights held by others that are necessary or useful to usin commercializing our technology, both in the United States and in othercountries with substantial markets.

 

In the event we are not adequately to protect our intellectual propertyand proprietary information, our business will be materially harmed.

 

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* *

***We may not have adequate protection for our unpatented proprietaryinformation, which could adversely affect our competitive position.***

 

In addition to patents, we will substantially rely on trade secrets,know-how, continuing technological innovations and licensing opportunities todevelop and maintain our competitive position. However, it is conceivable thatothers may independently develop substantially equivalent proprietaryinformation and techniques or otherwise gain access to our trade secrets ordisclose our technology. To protect our trade secrets, we may enter intoconfidentiality agreements with employees, consultants and potentialcollaborators. However, these agreements may not provide meaningful protectionof our trade secrets or adequate remedies in the event of unauthorized use ordisclosure of such information. Likewise, our trade secrets or know-how maybecome known through other means or be independently discovered by ourcompetitors. Any of these events could hinder us from developing orcommercializing our product candidates.

 

***Our ability to compete in the ingredient, food and beverage market andthe pharmaceutical market may decline if we do not adequately protect ourproprietary technologies.***

 

Because of the substantiallength of time and expense associated with the development of new products, we,along with the rest of the ingredient, food and beverage industry andpharmaceutical industry, place considerable importance on obtaining andmaintaining patent protection for new technologies, products and processes. Oursuccess depends in part on our ability to obtain and maintain intellectualproperty that protects our technologies, taste enhancers or aversive tasteblockers and our pharmaceutical products. Patent positions may be highlyuncertain and may involve complex legal and taste receptors, proteins, chemicalsynthesis techniques, compounds and methods for using them to modulate tastefor which we seek patent protection. No consistent pattern regarding theallowability or scope of claims in many of our pending patent applications hasemerged to date. As a result, we cannot predict the breadth of claims that willultimately be allowed in our patent applications, if any, including those wehave in-licensed or the extent to which we may enforce these claims against ourcompetitors. The degree of future protection for our proprietary rights istherefore highly uncertain and we cannot assure you that:

 

·                  we, or our Licensors, were the first to file patentapplications or to invent the subject matter claimed in patent applicationsrelating to the technologies upon which we rely;

 

·                  others will not independently develop similar oralternative technologies or duplicate any of our technologies;

 

·                  others did not publicly disclose our claimedtechnology before we conceived the subject matter included in any of our patentapplications;

 

·                  any of our patent applications will result in issuedpatents;

 

·                  any of our patent applications will not result ininterferences or disputes with third parties regarding priority of invention;

 

·                  any patents that may be issued to us, ourcollaborators or our licensors will provide a basis for commercially viableproducts or will provide us with any competitive advantages or will not bechallenged by third parties;

 

·                  we will develop additional proprietary technologiesthat are patentable;

 

·                  the patents of others will not have an adverse effecton our ability to do business; or

 

·                  new proprietary technologies from third parties,including existing licensors, will be available for licensing to us onreasonable commercial terms, if at all.

 

In addition, the legal standard for patents outside the United Statesvary greatly and in many countries intellectual property laws are undergoingreview and revision. The laws of some countries do not protect intellectualproperty rights to the same extent as domestic laws. It may be necessary oruseful for us to participate in opposition proceedings to determine thevalidity of our competitors’ patents or to defend the validity of any of our orour licensor’s future patents, which could result in substantial costs andwould divert our efforts and attention from other aspects of our business.

 

Technologies licensed to us by others, or in-licensed technologies, areimportant to our business. In particular, we depend on certain technologiesrelating to taste biology licensed from the Mount Sinai School of Medicine. Inaddition, we may in the future acquire rights to additional technologies bylicensing such rights from existing licensors or from third parties. Suchin-licenses may be 

 

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costly.Also, we do not always control the patent prosecution, maintenance orenforcement of in-licensed technologies. Accordingly, we are unable to exercisethe same degree of control over this intellectual property as we do over ourinternally developed technologies. Moreover, some of our academic institutionlicensors, collaborators and scientific advisors have rights to publish dataand information to which we have rights. If we cannot maintain theconfidentiality of our technologies and other confidential information inconnection with our collaborations, our ability to protect our proprietaryinformation or obtain patent protection in the future may be impaired, whichcould have a significant adverse effect on our business, financial conditionand results of operations.

 

***Many of the patent applications we and our licensors have filed havenot yet been substantively examined and may not result in patents being issued.***

 

Many of the patent applications filed by us and our licensors werefiled recently with the United States Patent and Trademark Office and most havenot been substantively examined and may not result in patents being issued. Itis difficult to predict whether any of our or our licensors’ applications willultimately be found to be patentable or, if so, to predict the scope of anyallowed claims. In addition, the disclosure in our or our licensors’ patentapplications, particularly in respect of the utility of our claimed inventions,may not be sufficient to meet the statutory requirements for patentability inall cases. As a result, it is difficult to predict whether any of our or ourlicensors’ applications will be allowed, or, if so, to predict the scope of anyallowed claims or the enforceability of the patents. Even if enforceable,others may be able to design around any patents or develop similar technologiesthat are not within the scope of such patents. Our and our licensors’ patentapplications may not issue as patents that will provide us with any protectionor competitive advantage.

 

***Disputes concerning the infringement or misappropriation of ourproprietary rights or the proprietary rights of others could be time consumingand extremely costly and could delay our research and development efforts.***

 

Our commercial success, if any, will be significantly harmed if weinfringe the patent rights of third parties or if we breach any license orother agreements that we have entered into with regard to our technology orbusiness.

 

We are aware of other companies and academic institutions that havebeen performing research in the areas of taste modulation and taste enhancersand aversive taste blockers. In particular, other companies and academicinstitutions have announced that they have conducted taste-receptor researchand have published data on taste receptor sequence information and tastereceptors or filed patent applications or obtained patent protection on tastemodulation or taste receptors and their uses. To the extent any of thesecompanies or academic institutions currently have, or obtain in the future,broad patent claims, such patents could block our ability to use variousaspects of our discovery and development process and might prevent us fromdeveloping or commercializing newly discovered taste enhancers and aversivetaste blockers or otherwise conducting our business. In addition, it ispossible that some of the taste enhancers or aversive taste blockers that arediscovered using our technology may not be patentable or may be covered byintellectual property of third parties.

 

With respect to third-party patent rights in the area of the TRPm5receptor specifically, we are aware of pending U.S. and foreign patentapplications by competitors and others that have claims directed to the TRPm5receptor and/or methods of using the TRPm5 receptor to identify novel tastemodulating compounds. Although these patent applications are currentlyundergoing examination by the U.S. Patent and Trademark Office, and it ispossible that they will not be granted or will not be granted with the currentclaims, it is also possible that patents will be granted on these applicationswith claims that are relevant to our current or future commercialization plans.To the extent we determine that we need a license to these or other patentsrelating to the TRPm5 receptor and are unable to obtain such licenses oncommercially reasonable terms or at all, we may be restricted in our ability tocommercialize our own TRPm5 technologies.

 

We are not currently a party to any litigation, interference,opposition, protest, reexamination or any other potentially adversegovernmental, ex parte or inter-party proceeding with regard to our patent ortrademark positions. However, the life sciences and other technology industriesare characterized by extensive litigation regarding patents and otherintellectual property rights. Many life sciences and other technology companieshave employed intellectual property litigation as a way to gain a competitiveadvantage. If we become involved in litigation, interference proceedings,oppositions, reexaminations, protests or other potentially adverse intellectualproperty proceedings as a result, for example, of alleged infringement by us ofthe rights of others or as a result of priority of invention disputes withthird parties, we might have to spend significant amounts of money, time andeffort defending our position and we may not be successful. In addition, anyclaims relating to the infringement of third-party proprietary rights orproprietary determinations, even if not meritorious, could result in costlylitigation, lengthy governmental proceedings, diversion of management’sattention and resources, or require us to enter into royalty or licenseagreements that are not advantageous to us.

 

Should any person have filed patent applications or obtained patents inthe United States that claim inventions also claimed by us, we may have toparticipate in an interference proceeding declared by U.S. Patent and TrademarkOffice to determine priority of invention and, thus, the right to a patent forthese inventions in the United States. Such a proceeding could result insubstantial cost to 

 

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useven if the outcome is favorable. Even if successful on priority grounds, aninterference action may result in loss of claims based on patentability groundsraised in the interference action. Litigation, interference proceedings orother proceedings could divert management’s time and efforts. Even unsuccessfulclaims could result in significant legal fees and other expenses, diversion ofmanagement’s time and disruption in our business. Uncertainties resulting frominitiation and continuation of any patent proceeding or related litigationcould harm our ability to compete and could have a significant adverse effecton our business, financial condition and results of operations.

 

An adverse ruling arising out of any intellectual property dispute,including an adverse decision as to the priority of our inventions, couldundercut or invalidate our intellectual property position. An adverse rulingcould also subject us to significant liability for damages, including possibletreble damages, prevent us from using technologies or developing products, orrequire us to negotiate licenses to disputed rights from third parties.Although patent and intellectual property disputes in the technology area areoften settled through licensing or similar arrangements, costs associated withthese arrangements may be substantial and could include license fees andongoing royalties. Furthermore, necessary licenses may not be available to uson satisfactory terms, if at all. Failure to obtain a license in such a casecould have a significant adverse effect on our business, financial conditionand results of operations.

 

**Risks Related to Our FluctuatingOperating Results, Possible Acquisitions and Management of Growth**

 

***We expect that our results of operations will fluctuate from period toperiod, and this fluctuation could cause our stock price to decline, causinginvestor losses.***

 

Our operating results have fluctuated in the past and are likely tovary significantly in the future based upon a number of factors, many of whichwe have little or no control over. We operate in a highly dynamic industry andfuture results could be subject to significant fluctuations. These fluctuationscould cause us to fail to meet or exceed financial expectations of securities analystsor investors, which could cause our stock price to decline rapidly andsignificantly. Revenue and expenses in future periods may be greater or lessthan revenue and expenses in the immediately preceding period or in thecomparable period of the prior year. Therefore, period-to-period comparisons ofour operating results are not necessarily a good indication of our futureperformance. Some of the factors that could cause our operating results tofluctuate include:

 

·                  our ability to discover and develop taste enhancersand aversive taste blockers;

 

·                  our ability to discover and develop newdiabetes or obesity therapeutic compounds;

 

·                  our ability or the ability of our product discoveryand development collaborators to incorporate our taste enhancers and aversivetaste blockers into packaged food and beverage products and pharmaceuticalproducts;

 

·                  our receipt of milestone payments in any particularperiod;

 

·                  the ability and willingness of collaborators tocommercialize products incorporating our taste enhancers and aversive tasteblockers on expected timelines, or at all;

 

·                  our ability to enter into product discovery anddevelopment collaborations and technology collaborations, or to extend theterms of any existing collaboration agreements, and our payment obligations,expected revenue and other terms of any other agreements of this type;

 

·                  our ability, or our collaborators’ ability, tosuccessfully satisfy all pertinent regulatory requirements;

 

·                  the demand for our future products and ourcollaborators’ products containing our taste enhancers or aversive tasteblockers; and

 

·                  general and industry specific economic conditions,which may affect our collaborators’ research and development expenditures.

 

***If we acquire products, technologies or other businesses, we will incura variety of costs, may have integration difficulties and may experiencenumerous other risks that could adversely affect our business.***

 

To remain competitive, we may decide to acquire additional businesses,products and technologies. We currently have no commitments or agreements withrespect to, and are not actively seeking, any material acquisitions. We havelimited experience in 

 

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identifyingacquisition targets, successfully acquiring them and integrating them into ourcurrent infrastructure. We may not be able to successfully integrate anybusinesses, products, technologies or personnel that we might acquire in thefuture without a significant expenditure of operating, financial and managementresources, if at all. In addition, future acquisitions could requiresignificant capital infusions and could involve many risks, including, but notlimited to, the following:

 

·                  we may have to issue convertible debt or equitysecurities to complete an acquisition, which would dilute our stockholders andcould adversely affect the market price of our common stock;

 

·                  an acquisition may negatively impact our results ofoperations because it may require us to incur large one-time charges toearnings, amortize or write down amounts related to goodwill and otherintangible assets, or incur or assume substantial debt or liabilities, or itmay cause adverse tax consequences, substantial depreciation or deferredcompensation charges;

 

·                  we may encounter difficulties in assimilating andintegrating the business, technologies, products, personnel or operations ofcompanies that we acquire;

 

·                  certain acquisitions may disrupt our relationship withexisting collaborators who are competitive to the acquired business;

 

·                  acquisitions may require significant capital infusionsand the acquired businesses, products or technologies may not generatesufficient revenue to offset acquisition costs;

 

·                  an acquisition may disrupt our ongoing business,divert resources, increase our expenses and distract our management;

 

·                  acquisitions may involve the entry into a geographicor business market in which we have little or no prior experience; and

 

·                  key personnel of an acquired company may decide not towork for us.

 

Any of the foregoing risks could have a significant adverse effect onour business, financial condition and results of operations.

 

***To the extent we enter markets outside of the United States, ourbusiness will be subject to political, economic, legal and social risks inthose markets, which could adversely affect our business.***

 

There are significant regulatory and legal barriers in markets outsidethe United States that we must overcome to the extent we enter or attempt toenter markets in countries other than the United States. We will be subject tothe burden of complying with a wide variety of national and local laws,including multiple and possibly overlapping and conflicting laws. We also mayexperience difficulties adapting to new cultures, business customs and legalsystems. Any sales and operations outside the United States would be subject topolitical, economic and social uncertainties including, among others:

 

·                  changes and limits in import and export controls;

 

·                  increases in custom duties and tariffs;

 

·                  changes in currency exchange rates;

 

·                  economic and political instability;

 

·                  changes in government regulations and laws;

 

·                  absence in some jurisdictions of effective laws toprotect our intellectual property rights; and

 

·                  currency transfer and other restrictions andregulations that may limit our ability to sell certain products or repatriateprofits to the United States.

 

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Any changes related to these and other factors could adversely affectour business to the extent we enter markets outside the United States.

 

***We may encounter difficulties managing our growth, which couldadversely affect our business.***

 

Our strategy includes entering into and working on simultaneous tasteenhancer and aversive taste blocker discovery and development programs acrossmultiple markets that include both the food and beverage industry and thepharmaceutical industry. We expect to continue to grow to meet our strategicobjectives. If our growth continues, it will continue to place a strain on us,our management and our resources. Our ability to effectively manage ouroperations, growth and various projects requires us to continue to improve ouroperational, financial and management controls, reporting systems andprocedures and to attract and retain sufficient numbers of talented employees.We may not be able to successfully implement these tasks on a larger scale and,accordingly, we may not achieve our research, development and commercializationgoals. If we fail to improve our operational, financial and managementinformation systems, or fail to effectively monitor or manage our new andfuture employees or our growth, our business would suffer significantly. Inaddition, no assurance can be made that we will be able to secure adequatefacilities to house our staff, conduct our research or achieve our businessobjectives.

 

***An economic downturn and adverse economic conditions may harm ourbusiness.***

 

The recent economic downturn and adverse conditions in the national andglobal markets may negatively affect our operations in the future. Our revenuesare contingent upon the expenditures of the pharmaceutical, biotech, and foodand beverage industries, and as these industries cut costs in response to theeconomic downturn, our revenues will be similarly decreased. Furthermore, whileour revenues may decrease, our costs may remain fixed, resulting in decreasedearnings.

 

**Risks Related to our Common Stock;Liquidity Risks**

 

***The sale of a significant number of our shares of common stock in thepublic market could depress the market price of common stock.***

 

The sale of a significant number of shares of our common stock in thepublic market could harm the market price of our common stock. As additionalshares of common stock have become available for resale in the public marketpursuant to the registration statement and releases of lock-up agreements, themarket supply of shares of common stock has increased, which could decrease itsmarket price. The number of shares that may be sold into the marketplacepursuant to the registration statement is significant. We believe that suchsales may severely depress the market price of our common stock. In addition,some or all of the shares of common stock may be offered from time to time inthe open market pursuant to Rule 144 (or pursuant to an additionalregistration statement, if one is effective), and these sales may also have adepressive effect on the market for the shares of common stock. In general, aperson who is deemed to be an affiliate who has held shares for a period of sixmonths may, upon filing of a notification on Form 144 with the SEC, sellinto the market common stock in an amount up to the greater of 1% of theoutstanding shares or the average weekly number of shares sold in the last fourweeks before such sale. Such sales may be repeated once each three months. Anon-affiliate holding restricted shares may sell such shares withoutrestrictions after they have been held six months, subject only to the currentpublic information requirement. After an additional six months have lapsed, anon-affiliate may sell such shares without any restrictions.

 

***The price of our common stock is expected to continue to be volatile.***

 

The market price of our common stock, and the market prices forsecurities of biotechnology companies in general, have been, and are expectedto be, highly volatile. The following factors, in addition to other riskfactors described in this Quarterly Report on Form 10-Q, and thepotentially low volume of trades in our common stock, may have a significantimpact on the market price of our common stock, some of which are beyond ourcontrol:

 

·                  announcements of technological innovations anddiscoveries by the Company or its competitors;

 

·                  developments concerning any research and development,clinical trials, manufacturing, and marketing collaborations;

 

·                  new products or services that the Company or itscompetitors offer;

 

·                  actual or anticipated variations in operating results;

 

·                  the initiation, conduct and/or outcome of intellectualproperty and/or litigation matters;

 

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·                  changes in financial estimates by securities analysts;

 

·                  conditions or trends in bio-pharmaceutical or otherhealthcare industries;

 

·                  regulatory developments in the United States and othercountries;

 

·                  changes in the economic performance and/or marketvaluations of other biotechnology and flavor companies;

 

·                  the Company’s announcement of significantacquisitions, strategic partnerships, joint ventures or capital commitments;

 

·                  additions or departures of key personnel;

 

·                  global unrest, terrorist activities, and economic andother external factors; and

 

·                  sales or other transactions involving common stock.

 

The stock market in general has recently experienced relatively largeprice and volume fluctuations. In particular, market prices of securities ofbiotechnology companies have experienced fluctuations that often have beenunrelated or disproportionate to the operating results of these companies.Continued market fluctuations could result in extreme volatility in the priceof our common stock, which could cause a decline in the value of our commonstock. Investors should also be aware that price volatility may be worse if thetrading volume of our common stock is low.

 

***We do not expect to pay cash dividends in the foreseeable future.***

 

We currently intend to retain any future earnings to finance the growthand development of our business; therefore, we do not expect to pay any cashdividends in the foreseeable future. Any future dividends will depend on ourearnings, if any, and our financial requirements.

 

***Because Redpoint became a public company as a result of the ReverseMerger and Reincorporation Merger and not through a traditional underwritteninitial public offering of securities, the Company may not attract theattention of major brokerage firms. Additionally, as a public company, we incursubstantial expenses.***

 

As a result of the Reverse Merger and Reincorporation Merger, Redpointbecame a publicly-traded company and, accordingly, will be subject to theinformation and reporting requirements of the United States securities laws.The costs to public companies of preparing and filing annual and quarterlyreports, proxy statements and other information with the SEC and furnishing auditedreports to stockholders have caused the Company’s expenses to be higher thanthey would be if it were a privately-held company. In addition, the Companywill incur substantial expenses in connection with the preparation of theregistration statement and related documents with respect to the registrationof the common stock issued in the Private Placement and the Reverse Merger.Security analysts of major brokerage firms may not provide coverage of theCompany. No assurance can be given that brokerage firms will want to conductany secondary offerings on behalf of the Company in the future.

 

***We have discretion on how we use any proceeds we receive from theexercise of warrants and options.***

 

Our management has broad discretion on how to use and spend anyproceeds we receive as a result of our security holders exercising theirwarrants and options. Our stockholders may not agree with our decision on howto use such proceeds. If we fail to spend the proceeds effectively, ourbusiness and financial condition could be harmed and we may need to seekadditional financing sooner than expected.

 

***It is not anticipated that there will be an active public market forshares of our common stock in the near term and stockholders may have to holdtheir shares of common stock for an indefinite period of time. Stockholders maybe unable to resell a large number of their shares of common stock within ashort time frame or at or above their purchase price.***

 

To have purchased shares of our common stock and warrants to purchasecommon stock in the Private Placement, an investor must have represented thatit was acquiring such shares and warrants for investment and not with a view todistribution or resale, that the investor understood that neither the commonstock nor the warrants are readily transferable and, in any event, that it mustbear the economic risk of an investment in the common stock for an indefiniteperiod of time.

 

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***If we do not comply with registration rights granted to certain holdersof our restricted securities, we may be required to pay damages to suchholders.***

 

We filed a “resale” registration statement with the SEC covering allshares of common stock issued in connection with the Private Placement,including shares of common stock into which any warrants are exercisable,within 60 days after the final closing of the Private Placement. Suchregistration statement has been declared effective by the SEC. We will use ourbest efforts to have such “resale” registration statement maintain itseffectiveness until such time as all securities registered under theregistration statement have been sold or are otherwise able to be sold under Rule 144of the Securities Act without regard to volume limitations, whichever isearlier. We cannot assure you that we will be able to obtain or maintain sucheffective registration statement.

 

***Our common stock may be considered “a penny stock” and may be difficultto sell.***

 

The SEC has adopted regulations that generally define “penny stock” tobe an equity security that has a market or exercise price of less than $5 pershare, subject to specific exemptions. Initially, the market price of ourcommon stock is likely to be less than $5 per share and therefore may bedesignated a “penny stock” under SEC rules. This designation requires anybroker or dealer selling our common stock to disclose certain information aboutthe transaction, obtain a written agreement from the investor and determinethat the investment in our common stock by the investor is a reasonablysuitable investment for such investor. These rules may restrict theability of brokers or dealers to sell our common stock and, as a result, mayaffect the ability of investors to sell their shares. In addition, unless anduntil our common stock is listed for trading on the American Stock Exchange orNASDAQ Capital Market or similar market, investors may experience a lack ofbuyers to purchase such stock or a lack of market makers to support the stockprice. Resale restrictions on transferring “penny stocks” are sometimes imposedby some states, which may make transactions in our stock more difficult and mayreduce the value of your investment.

 

***Substantial future issuances of our common stock could depress ourstock price.***

 

The market price for our common stock could decline, perhapssignificantly, as a result of issuances of a large number of shares of ourcommon stock in the public market or even the perception that such issuancescould occur. Under our Registration Rights Agreement, certain holders of our outstandingshares of our common stock and other securities have demand and Form S-3registration rights. Sales of a substantial number of these shares of commonstock, or the perception that holders of a large number of shares intend tosell their shares, could depress the market price of our common stock. Theexistence of such registration rights could also make it more difficult for usto raise funds through future offerings of our equity securities.

 

***Our stockholders may experience additional dilution upon the exerciseof warrants or options.***

 

As of the final closing of the Private Placement, we issued warrants toinvestors to acquire approximately 10.2 million shares of common stock andwarrants to the placement agents to acquire approximately 3.6 million sharesof common stock in the Private Placement. In addition, there are16.9 million shares of common stock underlying options that have been ormay be granted pursuant to the Redpoint Bio Corporation 2007 Omnibus EquityCompensation Plan. If these warrants are exercised or converted, or if theoptions are exercised, you may experience dilution in the net tangible bookvalue of our common stock.

 

***Directors and officers of the Company have a high concentration of ourcommon stock ownership.***

 

Based on the aggregate number of shares of our common stock that areoutstanding as of March 31, 2009, our officers and directors beneficiallyown approximately 11.77% of our outstanding common stock. Such a high level ofownership by such persons may have a significant effect in delaying, deferringor preventing any potential change in control of the Company. Additionally, asa result of their high level of ownership, our officers and directors might beable to strongly influence the actions of the Company’s board of directors, andthe outcome of actions brought to our stockholders for approval. Such a highlevel of ownership may adversely affect the voting and other rights of ourstockholders.

 

**ITEM 2.****                                                    ****UNREGISTERED SALES OF EQUITYSECURITIES AND USE OF PROCEEDS**

 

None.

 

**ITEM 3.****                                                    ****DEFAULTS UPON SENIORSECURITIES**

 

Not applicable.

 

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**ITEM 6.****                                                    ****EXHIBITS**

 
| **Exhibit No.** | ** ** | ** **                                                                                                                                                                                                                                                                                                   |
|----------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                 |       |                                                                                                                                                                                                                                                                                                         |
| 10.1                 |       | Separation of Employment Agreement and General  Release, by and between the Company and Robert W. Bryant, Ph.D., dated  January 9, 2009 (Incorporated by reference to Exhibit 10.1 of the  Registrant’s Current Report on Form 8-K filed with the Commission on  January 15, 2009). |
|                 |       |                                                                                                                                                                                                                                                                                                         |
| 10.2                 |       | Confidential Separation Agreement and General  Release, by and between the Company and Scott Siegel, Ph.D., dated  February 26, 2009 (Incorporated by reference to Exhibit 10.1 of the  Registrant’s Current Report on Form 8-K filed with the Commission on  March 4, 2009).       |
|                 |       |                                                                                                                                                                                                                                                                                                         |
| 31.1                 |       | Certification of principal executive officer  pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002 (filed  herewith).                                                                                                                                                                      |
|                 |       |                                                                                                                                                                                                                                                                                                         |
| 31.2                 |       | Certification of principal accounting and  financial officer pursuant to Section 302(a) of the Sarbanes-Oxley  Act of 2002 (filed herewith).                                                                                                                                                       |
|                 |       |                                                                                                                                                                                                                                                                                                         |
| 32.1                 |       | Certification of principal executive officer  pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished  herewith).                                                                                                                                                                          |
|                 |       |                                                                                                                                                                                                                                                                                                         |
| 32.2                 |       | Certification of principal accounting and  financial officer pursuant to Section 906 of the Sarbanes-Oxley Act of  2002 (furnished 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 theundersigned, thereunto duly authorized.

 
|              | REDPOINT BIO CORPORATION                         |
|-------------------|--------------------------------------------------|
|              |                                             |
| May 14, 2009 | By:                                              | /s/ F. Raymond Salemme |
|              | F. Raymond Salemme                               |
|              | President and Chief Executive Officer            |
|              | (Principal Executive Officer)                    |
|              |                                             |
| May 14, 2009 | By:                                              | /s/ Scott M. Horvitz |
|              | Scott M. Horvitz                                 |
|              | Chief Financial Officer, Treasurer and Secretary |
|              | (Principal Financial and Accounting Officer)     |

 

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**EXHIBIT INDEX**

 
| **Exhibit No.** | ** ** | ** **                                                                                                                                                                                                                                                                                                   |
|----------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                 |       |                                                                                                                                                                                                                                                                                                         |
| 10.1                 |       | Separation of Employment Agreement and General  Release, by and between the Company and Robert W. Bryant, Ph.D., dated  January 9, 2009 (Incorporated by reference to Exhibit 10.1 of the  Registrant’s Current Report on Form 8-K filed with the Commission on  January 15, 2009). |
|                 |       |                                                                                                                                                                                                                                                                                                         |
| 10.2                 |       | Confidential Separation Agreement and General  Release, by and between the Company and Scott Siegel, Ph.D., dated  February 26, 2009 (Incorporated by reference to Exhibit 10.1 of the  Registrant’s Current Report on Form 8-K filed with the Commission on  March 4, 2009).       |
|                 |       |                                                                                                                                                                                                                                                                                                         |
| 31.1                 |       | Certification of principal executive officer  pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002 (filed  herewith).                                                                                                                                                                      |
|                 |       |                                                                                                                                                                                                                                                                                                         |
| 31.2                 |       | Certification of principal accounting and  financial officer pursuant to Section 302(a) of the Sarbanes-Oxley  Act of 2002 (filed herewith).                                                                                                                                                       |
|                 |       |                                                                                                                                                                                                                                                                                                         |
| 32.1                 |       | Certification of principal executive officer  pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished  herewith).                                                                                                                                                                          |
|                 |       |                                                                                                                                                                                                                                                                                                         |
| 32.2                 |       | Certification of principal accounting and  financial officer pursuant to Section 906 of the Sarbanes-Oxley Act of  2002 (furnished herewith).                                                                                                                                                           |

 

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