Table ofContents

 

 

 

**United States**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**FORM 10-Q**

 

**(Mark One)**

 

**x****      QUARTERLY REPORT PURSUANT TO SECTION 13 OR15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

 

**For the quarterly period ended September 30,2009**

 

**Or**

 

**o****         TRANSITION REPORT PURSUANT TO SECTION 13OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934**

 

**For the transition period from             to             **

 

**Commission File Number: 000-51708**

 

**Redpoint Bio Corporation**

(Exact name of Registrant as specified in its charter)

 

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

 

**7 Graphics Drive, Ewing, New Jersey08628**

(Address of principal executive offices) (Zip Code)

 

**(609) 637-9700**

(Registrant’s Telephone Number, Including Area Code)

 

 

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

 

Indicate by check mark whether the registrant (1) hasfiled all reports required to be filed by Section 13 or 15(d) of theSecurities Exchange Act of 1934 during the preceding 12 months (or for suchshorter period that the registrant was required to file such reports), and (2) hasbeen subject to such filing requirements for the past 90days.  Yes x No o

 

Indicate by check mark whether the registrant hassubmitted electronically and posted on its corporate Web site, if any, everyInteractive Data File required to be submitted and posted pursuant to Rule 405of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (orfor such shorter period that the registrant was required to submit and postsuch files).  Yes o No o

 

Indicateby check mark whether the registrant is a large accelerated filer, anaccelerated filer, a non-accelerated filer, or a smaller reporting company. Seedefinitions of “large accelerated filer,” “accelerated filer,” and “smallerreporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

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

 

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

 

The number of shares of the registrant’s common stockoutstanding as of November 11, 2009 was 79,838,693.

 

 

 

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**REDPOINT BIO CORPORATION**

 

**TABLE OF CONTENTS**

 
| ** **        | ** **                                                                                  | **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 | 14       |
|              |                                                                                        |     |
| ITEM 3.           | QUANTITATIVE  AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                 | 20       |
|              |                                                                                        |     |
| ITEM 4T.          | CONTROLS AND  PROCEDURES                                                                    | 20       |
|              |                                                                                        |     |
| **PART II:** | **OTHER INFORMATION**                                                                       | 21       |
|              |                                                                                        |     |
| ITEM 1.           | LEGAL PROCEEDINGS                                                                           | 21       |
|              |                                                                                        |     |
| ITEM 1A.          | RISK FACTORS                                                                                | 21       |
|              |                                                                                        |     |
| ITEM 2.           | UNREGISTERED  SALES OF EQUITY SECURITIES AND USE OF PROCEEDS                                | 38       |
|              |                                                                                        |     |
| ITEM 3.           | DEFAULTS  UPON SENIOR SECURITIES                                                            | 38       |
|              |                                                                                        |     |
| ITEM 6.           | EXHIBITS                                                                                    | 38       |
|              |                                                                                        |     |
| SIGNATURES        |                                                                                        | 39       |

 

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**PART I.  FINANCIALINFORMATION.**

 

**ITEM 1.  FINANCIALSTATEMENTS.**

 

**REDPOINT BIO CORPORATION**

**(A DEVELOPMENT-STAGE ENTERPRISE)**

**BALANCESHEETS**

**(UNAUDITED)**

 
| ** **                                                                                                                                                                                                    | ** ** | **December 31,** | ** ** | **September 30,** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|------------------------|------------|
| ** **                                                                                                                                                                                                    | ** ** | **2008**              | ** ** | **2009**               | ** ** |
| **Assets**                                                                                                                                                                                                    |       |                  |       |                   |       |
| Current  assets:                                                                                                                                                                                              |       |                  |       |                   |       |
| Cash  and cash equivalents                                                                                                                                                                                    |       | $                     | 3,130,561  |                   | $          | 6,956,770 |   |
| Marketable  securities                                                                                                                                                                                        |       | 11,296,952            |       | 500,000                |       |
| Accounts  receivable                                                                                                                                                                                          |       | 139,095               |       | —                 |       |
| Prepaid  expenses and other current assets                                                                                                                                                                    |       | 313,456               |       | 315,997                |       |
| Total  current assets                                                                                                                                                                                         |       | 14,880,064            |       | 7,772,767              |       |
| Property  and equipment, net                                                                                                                                                                                  |       | 1,240,514             |       | 835,931                |       |
| Other  assets                                                                                                                                                                                                 |       | 321,978               |       | 314,495                |       |
| Total  assets                                                                                                                                                                                                 |       | $                     | 16,442,556 |                   | $          | 8,923,193 |   |
| **Liabilities  and Stockholders’ Equity**                                                                                                                                                                |       |                  |       |                   |       |
| Current  liabilities:                                                                                                                                                                                         |       |                  |       |                   |       |
| Current  portion of long-term debt                                                                                                                                                                            |       | $                     | 519,155    |                   | $          | 386,902 |   |
| Accounts  payable                                                                                                                                                                                             |       | 877,642               |       | 651,264                |       |
| Accrued  expenses                                                                                                                                                                                             |       | 305,580               |       | 219,263                |       |
| Accrued  compensation                                                                                                                                                                                         |       | 15,610                |       | 334,660                |       |
| Deferred  revenue                                                                                                                                                                                             |       | 371,320               |       | —                 |       |
| Total  current liabilities                                                                                                                                                                                    |       | 2,089,307             |       | 1,592,089              |       |
| Long-term  debt                                                                                                                                                                                               |       | 1,147,952             |       | 871,644                |       |
| Deferred  revenue                                                                                                                                                                                             |       | 278,582               |       | —                 |       |
| Total  liabilities                                                                                                                                                                                            |       | 3,515,841             |       | 2,463,733              |       |
| 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 79,838,693 shares at September 30, 2009 |       | 7,950                 |       | 7,984                  |       |
| Additional  paid-in-capital                                                                                                                                                                                   |       | 55,371,501            |       | 55,956,363             |       |
| Deficit  accumulated during development stage                                                                                                                                                                 |       | (42,517,290           | )          | (49,505,060            | )          |
| Accumulated  other comprehensive income                                                                                                                                                                       |       | 64,554                |       | 173                    |       |
| Total  stockholders’ equity                                                                                                                                                                              |       | 12,926,715            |       | 6,459,460              |       |
| Total  liabilities and stockholders’ equity                                                                                                                                                              |       | $                     | 16,442,556 |                   | $          | 8,923,193 |   |

 

See accompanying notes to the unaudited financialstatements.

 

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**REDPOINT BIO CORPORATION**

**(A DEVELOPMENT-STAGE ENTERPRISE)**

**STATEMENTSOF OPERATIONS**

**(UNAUDITED)**

 
| ** **                                   | ** ** | **Three Months Ended   September 30,** | ** ** | **Nine Months Ended   September 30,** | ** ** | **August 16,  1995 (Inception) to** | ** ** |
|----------------------------------------------|------------|------------------------------------------------------------|------------|-----------------------------------------------------------|------------|----------------------------------------------------|------------|
| ** **                                   | ** ** | **2008**                                                   | ** ** | **2009**                                                  | ** ** | **2008**                                           | ** ** | **2009** | ** ** | **September 30, 2009** | ** ** |
| Research  and grant revenue                  |       | $                                                          | 1,057,174  |                                                      | $          | —                                             |       | $ | 2,997,084 |   | $ | 1,868,428 |   | $ | 12,330,002 |   |
| Operating  expenses:                         |       |                                                       |       |                                                      |       |                                               |       |   |   |   |   |
| Research  and development                    |       | 2,366,007                                                  |       | 1,192,348                                                 |       | 6,524,573                                          |       | 4,599,425 |   | 33,037,152 |   |
| General  and administrative                  |       | 1,395,604                                                  |       | 1,176,584                                                 |       | 4,615,517                                          |       | 4,202,706 |   | 24,404,617 |   |
| Total  operating expenses                    |       | 3,761,611                                                  |       | 2,368,932                                                 |       | 11,140,090                                         |       | 8,802,131 |   | 57,441,769 |   |
| Operating  loss                              |       | (2,704,437                                                 | )          | (2,368,932                                                | )          | (8,143,006                                         | )          | (6,933,703 | ) | (45,111,767 | ) |
| Interest  income                             |       | 107,708                                                    |       | 23,534                                                    |       | 487,828                                            |       | 125,726 |   | 1,644,304 |   |
| Interest  expense                            |       | (12,414                                                    | )          | (61,246                                                   | )          | (40,134                                            | )          | (179,793 | ) | (3,610,686 | ) |
| Loss  before income taxes                    |       | (2,609,143                                                 | )          | (2,406,644                                                | )          | (7,695,312                                         | )          | (6,987,770 | ) | (47,078,149 | ) |
| Income  tax benefit                          |       | —                                                     |       | —                                                    |       | —                                             |       | — |   | 985,978 |   |
| Net  loss                                    |       | (2,609,143                                                 | )          | (2,406,644                                                | )          | (7,695,312                                         | )          | (6,987,770 | ) | $ | (46,092,171 | ) |
| Basic  and diluted net loss per common share |       | $                                                          | (0.03      | )                                                         | $          | (0.03                                              | )          | $ | (0.10 | ) | $ | (0.09 | ) |   |   |
| Weighted  average of shares outstanding      |       | 79,495,870                                                 |       | 79,768,912                                                |       | 79,426,078                                         |       | 79,587,884 |   |   |   |

 

See accompanying notes to the unaudited financialstatements.

 

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**REDPOINT BIO CORPORATION**

**(A DEVELOPMENT-STAGE ENTERPRISE)**

**STATEMENTSOF CASH FLOWS**

**(UNAUDITED)**

 
| ** **                                                                   | ** ** | **Nine Months Ended  September 30,** | ** ** | **August 16, 1995  (Inception) to  September 30,** | ** ** |
|------------------------------------------------------------------------------|------------|-----------------------------------------------------|------------|------------------------------------------------------------------------|------------|
| ** **                                                                   | ** ** | **2008**                                            | ** ** | **2009**                                                               | ** ** | **2009** | ** ** |
| Cash  flows from operating activities:                                       |       |                                                |       |                                                                   |       |   |   |
| Net  loss                                                                    |       | $                                                   | (7,695,312 | )                                                                      | $          | (6,987,770 | ) | $ | (46,092,171 | ) |
| Adjustments  to reconcile net loss to net cash used in operating activities: |       |                                                |       |                                                                   |       |   |   |
| Depreciation                                                                 |       | 477,339                                             |       | 410,435                                                                |       | 2,544,271 |   |
| Amortization  of discounts and premiums on marketable securities             |       | (266,461                                            | )          | 11,619                                                                 |       | (473,481 | ) |
| Options,  warrants and stock issued for services and dilution provisions     |       | 648,035                                             |       | 533,472                                                                |       | 3,994,756 |   |
| Beneficial  conversion feature                                               |       | —                                              |       | —                                                                 |       | 1,228,565 |   |
| Amortization  of discount on convertible notes                               |       | —                                              |       | —                                                                 |       | 899,935 |   |
| Amortization  of deferred financing costs                                    |       | 5,793                                               |       | 12,965                                                                 |       | 157,739 |   |
| Debt  inducement charge                                                      |       | —                                              |       | —                                                                 |       | 361,598 |   |
| Interest  expense on convertible notes                                       |       | —                                              |       | —                                                                 |       | 136,075 |   |
| Changes  in assets and liabilities:                                          |       |                                                |       |                                                                   |       |   |   |
| Accounts  receivable                                                         |       | (52,943                                             | )          | 139,095                                                                |       | — |   |
| Prepaid  expenses and other assets                                           |       | 122,232                                             |       | (8,023                                                                 | )          | (899,535 | ) |
| Accounts  payable                                                            |       | 286,963                                             |       | (218,291                                                               | )          | 959,720 |   |
| Accrued  expenses and accrued compensation                                   |       | (26,153                                             | )          | 232,733                                                                |       | 685,533 |   |
| Deferred  revenue                                                            |       | 335,005                                             |       | (649,902                                                               | )          | — |   |
| Net  cash used in operating activities                                       |       | (6,165,502                                          | )          | (6,523,667                                                             | )          | (36,496,995 | ) |
| Cash  flows from investing activities:                                       |       |                                                |       |                                                                   |       |   |   |
| Maturity  and sale of marketable securities                                  |       | 21,496,994                                          |       | 13,740,000                                                             |       | 46,486,994 |   |
| Purchases  of marketable securities                                          |       | (16,209,801                                         | )          | (3,019,048                                                             | )          | (46,513,341 | ) |
| Purchases  of property and equipment                                         |       | (520,759                                            | )          | (13,939                                                                | )          | (3,380,219 | ) |
| Net  cash provided by (used in) investing activities                         |       | 4,766,434                                           |       | 10,707,013                                                             |       | (3,406,566 | ) |
| Cash  flows from financing activities:                                       |       |                                                |       |                                                                   |       |   |   |
| Proceeds  from issuance of long-term debt                                    |       | 1,511,873                                           |       | —                                                                 |       | 3,614,710 |   |
| Net  proceeds from convertible notes                                         |       | —                                              |       | —                                                                 |       | 5,253,811 |   |
| Repayment  of debt                                                           |       | (363,708                                            | )          | (408,561                                                               | )          | (2,408,621 | ) |
| 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                 |       | 40,782                                              |       | 51,424                                                                 |       | 175,502 |   |
| Common  stock reacquired                                                     |       | —                                              |       | —                                                                 |       | (283,121 | ) |
| Net  cash provided by (used in) financing activities                         |       | 1,188,947                                           |       | (357,137                                                               | )          | 46,860,331 |   |
| Net  increase (decrease) in cash and cash equivalents                        |       | (210,121                                            | )          | 3,826,209                                                              |       | 6,956,770 |   |
| Cash  and cash equivalents, beginning of period                              |       | 5,789,997                                           |       | 3,130,561                                                              |       | — |   |
| Cash  and cash equivalents, end of period                                    |       | $                                                   | 5,579,876  |                                                                   | $          | 6,956,770 |   | $ | 6,956,770 |   |
| Supplemental  cash flow disclosures:                                         |       |                                                |       |                                                                   |       |   |   |
| Noncash  investing and financing activities:                                 |       |                                                |       |                                                                   |       |   |   |
| Property  and equipment included in accounts payable                         |       | $                                                   | 24,531     |                                                                   | $          | — |   | $ | — |   |
| 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                                                      |       | 34,700                                              |       | 132,880                                                                |       | 633,007 |   |

 

See accompanying notes to the unaudited financialstatements.

 

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

**NOTES TOFINANCIAL STATEMENTS**

**(UNAUDITED)**

 

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

 

*Description*

 

Redpoint Bio Corporation (“Redpoint” or the “Company”) is leveragingrecent discoveries in the molecular biology of taste to discover and developnovel taste modulators for the food and beverage industries.  Redpoint’sfood and beverage program is focused on identifying novel flavor modifiers thatimprove the taste of existing ingredients, enabling the development ofbetter-tasting, less costly, and more healthful foods and beverages. TheCompany’s 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.  Redpoint’s research in diabetes and obesity stems from theobservation that taste signaling in the gastrointestinal tract is involved inimportant hormone secretion processes enabling the Company to leverage itsresearch on lingual 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 and nine months ended September 30,2009 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 Annual Report on Form 10-Kfor the year ended December 31, 2008.

 

*Liquidity*

 

Our continued research and development efforts have led us to certainadvances within our taste technology platform, including our recentannouncement concerning the identification of RP44, an all-natural sweetnessenhancer, and we are beginning to understand how our technology platform playsa role in treating metabolic disorders such as diabetes and obesity. However, since December 2007, we have not entered into any new fundedcorporate collaborations other than an expanded feasibility agreement withSchering Corporation, a subsidiary of Schering-Plough Corporation, in the areaof taste science research for pharmaceutical applications.  We arecurrently not pursuing our research program in this area.  Redpoint wasalso unable to renew its one year research agreement with The Coca-Cola Companyand our agreement with Givaudan was terminated on May 1, 2009 (seenote 7).  Givaudan cited the fact that certain collaborationobjectives had not been achieved during the collaboration as its reasoning forterminating the Agreement.  Furthermore, we recognize the currentdifficult 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 reduced our workforceby approximately 33%.  In May 2009, we further reduced our workforceto bring our number of employees to 14. We may need to make further reductionsin our expenses.  We currently have 12full time employees.  We are currently not pursuing our research programaimed at suppressing the bitterness of oral medicines. 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 requirements through November 2010.

 

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We expect that substantially all of our cash-inflows for theforeseeable future will come from future corporate collaborations and futurelicense agreements.  There can be no assurance that we will enter into anyfuture corporate collaborations or future license agreements.  We aresubject to those risks associated with any biotechnology company that hassubstantial expenditures for research and development. There can be noassurance that our research and development projects will be successful, thatproducts developed will obtain necessary regulatory approval, or that anyapproved product will be commercially viable. In addition, we operate in anenvironment of rapid technological change and we are largely dependent on theservices of our employees and consultants. The stock market in general hasrecently experienced large price and volume fluctuations and the market priceof our common stock has experienced significant volatility.  For us tofund our operations and to commercially develop our products, additional equityand/or debt financing will be required. There is no assurance that suchfinancing will be available to us as needed and as a result, we may need topursue other strategic alternatives.

 

**2.****                                     ****ReverseTriangular Merger, Financing and Reincorporation Merger**

 

*Completion of 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,Robcor LLC, a Kentucky limited liability company and wholly-owned subsidiary ofRobcor (“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 Reverse Merger,Redpoint became a wholly-owned subsidiary of Robcor.  In connection withthe Reverse Merger, each share of capital stock of Redpoint was converted into2.7820 shares of common stock of Robcor and all of Redpoint’s convertiblepromissory notes were converted into shares of common stock of Robcor.

 

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 the Private Placement.

 

*Private Placement*

 

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.

 

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*Reincorporation Merger*

 

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.****                                     ****Summaryof Significant Accounting Policies**

 

***(a)******                                  Useof Estimates***

 

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 period. Actual results could differ from such estimates. Illiquid credit markets, volatile equity, and declines in consumer spendinghave combined to increase the uncertainty inherent in such estimates andassumptions.  As future events and their effects cannot be determined withprecision, actual results could differ significantly from theseestimates.  Changes in those estimates resulting from continuing changesin the economic environment will be reflected in the financial statements inthose future periods.

 

***(b)******                                  Cashand Cash Equivalents***

 

The Company considers all highly liquid investments that havematurities of three months or less when acquired to be cash equivalents. As of September 30, 2009, cash and cash equivalents include amountsinvested in money markets and government-sponsored enterprise debt securities.

 

***(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’smarketable securities are reported at fair value on the balance sheet based onquoted prices in active markets 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.

 

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*License Fees and Multiple Element Arrangements*

 

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. If the fair value of the undeliveredperformance obligations can be determined, such obligations would then beaccounted for separately as performed. However, if the elements are consideredto either (i) not have stand-alone value, or (ii) have standalonevalue but the fair value of any of the undelivered performance obligationscannot be determined, the arrangement would then be accounted for as a singleunit of accounting and all of the payments recognized as revenue over theestimated period of when the performance obligations are performed. Whenever we determine that an arrangement should be accounted for as a singleunit of accounting, we must determine the period over which the performanceobligations will be performed and revenue will be recognized. Significantmanagement judgment is required in determining the period over which we areexpected to complete our performance obligations under an arrangement.

 

*Substantive Milestone Payments*

 

Our collaboration agreements may also containsubstantive milestone payments that are recognized upon achievement of themilestone only if all of the following conditions are met:

 

·                   themilestone payments are non-refundable;

 

·                  achievementof the milestone involves a degree of risk and was not reasonably assured atthe inception of the arrangement;

 

·                  substantiveeffort is involved in achieving the milestone;

 

·                  areasonable amount of time passes between the up-front license payment and thefirst milestone payment as well as between each subsequent milestone payment;and

 

·                  theamount of the milestone payment is reasonable in relation to the effortexpended or the risk associated with achievement 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 and Development Costs*

 

Reimbursement of research and development costs is recognized asrevenue, provided the amounts are fixed and determinable, and collection of therelated 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.

 

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

 

Research and development costs, including those incurred in relation tothe Company’s collaborative agreements, are charged to expense as incurred. Theseexpenses include internal research and development as well as amounts paid tothird parties to conduct research on the Company’s behalf. Costs incurred inobtaining technology licenses are charged immediately to research anddevelopment expense if the technology licensed has not reached technologicalfeasibility and has no alternative future uses.

 

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

 

We review long-lived assets, such as property and equipment, forimpairment whenever events or changes in circumstances indicate that thecarrying amount of an asset may not be recoverable. Recoverability of assets tobe held and used is measured by a comparison of the carrying amount of an assetto the estimated undiscounted future cash flows expected to be generated by theasset. If the carrying amount of an asset exceeds its estimated future cashflows, then an impairment charge is recognized in the amount by which thecarrying amount of the asset exceeds the fair value of the asset.  TheCompany has not recorded any impairment charges pursuant to our review oflong-lived assets.

 

***(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***

 

The Company recognizes compensation cost for stock-based awards toemployees and nonemployee board members based on the grant-date fair value ofthe awards 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.

 

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

 

***(k)******                                  NetLoss per Common Share***

 

Basic net loss per common share is computed by dividing the net lossallocable to common stockholders by the weighted average number of shares ofcommon stock outstanding for the period. Diluted net loss per common share iscomputed by dividing net loss allocable to common stockholders by the sum ofthe weighted-average number of common shares outstanding for the period and thenumber of additional shares that would have been outstanding if dilutivepotential common shares had been issued.  Stock options and warrants to purchasean aggregate of 22,903,360 and 24,787,307, common shares were excluded from ourcomputation of diluted net loss per common share for the three and nine monthsended September 30, 2009 and 2008, respectively.  In all periodspresented, our diluted net loss per common share is equal to basic net loss percommon share because giving effect in the computation of diluted net loss percommon share to the exercise of outstanding options and warrants would havebeen antidilutive.

 

***(l)******                                     FairValue of 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 September 30, 2009, the carrying values 

 

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of cash and cash equivalents, accounts receivable,prepaid expenses and other current assets, accounts payable, accrued expenses,and accrued compensation equaled or approximated their respective fair valuesbecause of the short duration of these instruments. In addition, we believe thecarrying value of our debt instruments, which do not have readily ascertainablemarket values, approximate their fair values, given that the interest rates onoutstanding borrowings approximate market rates.

 

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

 

In May 2009, the Financial Accounting Standards Board (“FASB”)issued FASB Accounting Standards Codification (“ASC”) Topic 855, “*Subsequent Events,*” which establishesgeneral standards of accounting for and disclosure of events that occur afterthe balance sheet date but before the financial statements are issued or areavailable to be issued.  In particular, FASB ASC Topic 855 establishesthat companies must evaluate subsequent events through the date the financialstatements are issued, the circumstances under which a subsequent event shouldbe recognized, and the circumstances for which a subsequent event should be disclosed.It also requires companies to disclose the date through which subsequent eventsare evaluated.  The adoption of FASB ASC Topic 855 did not have a materialimpact on our interim financial statements.  We evaluated subsequentevents through November 13, 2009.

 

In June 2009, the FASB issued SFAS No. 168, “*The FASB Accounting Standards Codification and theHierarchy of Generally Accepted Accounting Principles*” (“SFAS No. 168”).SFAS No. 168 was effective for the Company beginning July 1,2009.  The Financial Accounting Standards Board Accounting StandardsCodification (the “Codification”) has officially become the single source ofauthoritative nongovernmental GAAP, superseding existing FASB, AmericanInstitute of Certified Public Accountants, Emerging Issues Task Force, andrelated accounting literature.  Only onelevel of authoritative GAAP now exists. All other accounting literature isconsidered non-authoritative. The Codification reorganizes the thousands ofGAAP pronouncements into roughly 90 accounting topics and displays them using aconsistent structure. Also included in the Codification is relevant SECguidance organized using the same topical structure in separate sections withinthe Codification.

 

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

 

We classify 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 and nine months ended September 30, 2009.  For thethree and nine months ended September 30, 2008 and 2009, comprehensiveloss was:

 
| ** **                         | ** ** | **Three Months Ended  September 30,** | ** ** | **Nine Months Ended  September 30,** | ** ** |
|------------------------------------|------------|------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                         | ** ** | **2008**                                             | ** ** | **2009**                                            | ** ** | **2008** | ** ** | **2009** | ** ** |
| Net  Loss                          |       | $                                                    | (2,609,143 | )                                                   | $          | (2,406,644 | ) | $ | (7,695,312 | ) | $ | (6,987,770 | ) |
| Other  comprehensive income (loss) |       | (714                                                 | )          | (2,450                                              | )          | (22,581 | ) | (64,381 | ) |
| Comprehensive  income (loss)       |       | $                                                    | (2,609,857 | )                                                   | $          | (2,409,094 | ) | $ | (7,717,893 | ) | $ | (7,052,151 | ) |

 

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

 

In February 2005, the Company entered into a Master SecurityAgreement with a finance company that provided for borrowings up to $3,200,000,subject to certain conditions, through December 2005. During 2005, theCompany borrowed $2,001,810 under the Master Security Agreement in order tofinance the purchase of laboratory and office equipment. Amounts borrowed areevidenced with promissory notes and are repayable in equal monthly payments,over 36 to 48 months, and are collateralized by the purchased equipment.The notes bear interest at rates varying between 9.4% and 10.4%.  As of December 31,2008 and September 30, 2009, $187,577 and $23,910, respectively, wasoutstanding under the Master Security Agreement.

 

In connection with the borrowings under the Master Security Agreement,the Company issued the finance company warrants to purchase 53,039 shares ofthe Company’s common stock at an exercise price of $0.75 per share. Theestimated fair value of the warrants of $30,074, determined using theBlack-Scholes option-pricing 

 

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model, was accounted for as deferred financing costsand is being amortized to interest expense over the remaining term of thenotes.

 

In September 2008, the Company entered into a Loan and SecurityAgreement with another finance company that provided for borrowings of up to$2,000,000 to be used for the purchase of certain equipment and for workingcapital purposes.  During 2008, the Company borrowed $1,556,357 underthe Loan and Security Agreement.  As of December 31, 2008 and September 30,2009, $1,479,530 and $1,234,636, respectively, was outstanding under the Loanand Security Agreement. Amounts borrowed are evidenced with a promissory note,are repayable in equal monthly payments over 48 months, and are collateralizedby the purchased equipment.  The note bears interest of 12.1%.  TheLoan and Security Agreement contains certain provisions, including a materialadverse change clause (as defined in the Loan and Security Agreement) whichrestricts the Company’s ability to borrow additional money and also enables thefinance company to request full repayment of the loan if such a change hasoccurred.  As of September 30, 2009, the Company was in compliancewith these provisions.

 

The scheduled maturities of long-term debt outstandingat September 30, 2009 are as follows:

 

| 2009                  |   | 110,593   |    |
|-----------------------|--------|-----------|---------|
| 2010                  |   | 374,111   |    |
| 2011                  |   | 422,100   |    |
| 2012                  |   | 351,742   |    |
|                  |   | 1,258,546 |    |
| Less  current portion |   | (386,902  | )       |
|                  |   | $         | 871,644 |   |
|                       |        |           |         |  |

 

Interest expense on notes payable for the three monthsended September 30, 2008 and 2009 was $12,414 and $40,022,respectively.  Interest expense on notes payable for the nine months endedSeptember 30, 2008 and 2009 was $22,451 and $130,597, respectively.

 

**5.****                                     ****MarketableSecurities**

 

The following is a summary of available-for-salesecurities:

 
| ** **                            | ** ** | ** **              | ** ** | **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 September 30, 2009** | ** ** | **Amortized Cost** | ** ** | **Gains**                 | ** ** | **Losses** | ** ** | **Fair Value** | ** ** |
| Government-sponsored  enterprise debt       |       | $                       | 499,827    |                      | $          | 173        |       | $ | — |   | $ | 500,000 |   |
|                                        |       |                    |       |                      |       |       |       |   |   |
| Total                                       |       | $                       | 499,827    |                      | $          | 173        |       | $ | — |   | $ | 500,000 |   |

 

As of September 30, 2009, all available-for-salesecurities mature within one year. During the three and nine months ended September 30,2008, amortization of discounts and premiums related to marketable securitiesresulted in income of $51,466 and $266,461, respectively.  During thethree and nine months ended September 30, 2009, amortization of discountsand premiums related to marketable securities resulted in expense of $9,640 and$11,619, respectively.

 

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**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 September 30, 2009, none of theCompany’s existing agreements contain dilution protection provisions.

 

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

 

As of September 30, 2009, the Company had thefollowing 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 BioCorporation 2007 Omnibus Equity Compensation Plan (“2007 Plan”), which providedfor the issuance of up to 13,511,562 shares of common stock, subject toadjustment in certain circumstances. In connection with the adoption of the2007 Plan, the 2003 Plan merged with and into the 2007 Plan and no additionalgrants were to be made thereafter under the 2003 Plan.  Outstanding grantsunder the 2003 Plan continued in effect in accordance with their terms as ineffect before March 12, 2007 and the shares with respect to outstandinggrants under the 2003 Plan have been or will be issued or transferred under the2007 Plan.  The 2007 Plan 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.

 

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The following is a summary of stock option activityunder the Plan during the nine months ended September 30, 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                                 |       | 1,230,628          |       | 0.09                    |       |            |       |          |       |
| Exercised                               |       | (342,823           | )          | 0.15                    |       |            |       |          |       |
| Forfeited/Cancelled                     |       | (2,831,752         | )          | 0.51                    |       |            |       |          |       |
| Outstanding  at September 30, 2009 |       | 9,078,069          |       | $                       | 0.48       |            | 6.69       |          | $          | 369,074 |   |
|                                         |            |                    |            |                         |            |                 |            |               |            |  |  |

 

During the nine months ended September 30, 2009,the Company granted options to employees to purchase an aggregate of 1,105,628shares of common stock and options to directors to purchase an aggregate of125,000 shares of common stock.

 

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 September 30, 2009, there were7,499,380 shares of common stock available for grant under the 2007 Plan.

 

The per-share weighted average fair value of options granted during thenine months ended September 30, 2008 and 2009 was estimated at $0.41 and$0.07, respectively, on the date of grant using the Black-Scholesoption-pricing model.

 

The Company recognized $221,394 and $150,897 of stock-basedcompensation expense related to stock options for the three months ended September 30,2008 and 2009, respectively.  The Company recognized $648,035 and $533,472of stock-based compensation expense related to stock options for the ninemonths ended September 30, 2008 and 2009, respectively. As of September 30,2009, there was approximately $941,000 of unrecognized compensation expenserelated to unvested stock options granted to employees and directors, which isexpected to be recognized over a weighted average period of 1.6 years.

 

***(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.****                                     ****Researchand Development Collaboration**

 

*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 act primarily through the modulation of theTRPM5 channel and that enhance sweetness or savory sensation, as well ascompounds that block or desensitize bitter taste for use in 

 

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the food and 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.  Givaudan terminated the Agreement,effective as of May 1, 2009, and Givaudan reserved its rights under theAgreement with respect to certain collaboration compounds.  The upfrontpayment of $1,300,000 was being recognized as revenue on a straight-line basisover the initial term of the Givaudan Agreement.  As of May 1, 2009,the remaining unamortized portion of the upfront payment was approximately$557,000 and, as a result of the termination, was recognized as revenue upontermination of the Givaudan Agreement.   During the three months ended September 30,2008, the Company recognized approximately $93,000 of revenue attributable tothe amortization of the upfront fee and approximately $695,000 of revenue fromresearch funding.  During the threemonths ended September 30, 2009, the Company did not recognize any revenueattributable to the Givaudan Agreement. During the nine months ended September 30, 2008 and 2009, theCompany recognized approximately $279,000 and $650,000, respectively, ofrevenue attributable to the amortization of the upfront fee and approximately$1,965,000 and $1,065,000 of revenue from research funding, respectively.

 

*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 andother non-alcoholic beverages. The initial term of the Coca-Cola Agreement wasfor 12 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 and ninemonths ended September 30, 2008, the Company recognized approximately$228,000 and $711,000 of revenue from research funding.

 

**8.****                                     ****Restructuring**

 

During the nine months ended September 30, 2009,the Company announced two restructurings which reduced its workforce byapproximately 60% bringing the current number of employees to 12.  Inconnection with the restructurings, the Company incurred severance costs of$531,418 which are included in general and administrative expenses on theaccompanying statements of operations for the nine months ended September 30,2009. The Company had the following accrual related to severance which isincluded in accrued compensation on the accompanying balance sheet as of September 30,2009:

 
| ** **              | ** ** | **December 31,  2008** | ** ** | **2009  Expense** | ** ** | **2009  Payments** | ** ** | **September 30,  2009** | ** ** |
|-------------------------|------------|-----------------------------|------------|-------------------|------------|--------------------|------------|------------------------------|------------|
| Severance  and benefits |       | $                           | —     |              | $          | 531,418            |       | $                            | (436,927   | ) | $ | 94,491 |   |
|                    |       | $                           | —     |              | $          | 531,418            |       | $                            | (436,927   | ) | $ | 94,491 |   |

 

**9.****                                     ****Commitments**

 

***Leases***

 

Future minimum lease payments as of September 30,2009 are as follows:

 
| **Year Ending December 31,** | ** ** | **Amount** | ** ** |
|-----------------------------------|------------|------------|------------|
| 2009                              |       | $          | 207,000    |   |
| 2010                              |       | 834,000    |       |
| 2011                              |       | 840,000    |       |
| 2012                              |       | 846,000    |       |
| 2013                              |       | 852,000    |       |
| Thereafter                        |       | 2,897,000  |       |
|                              |       | $          | 6,476,000  |   |

 

In October 2006, the Company paid a $250,000deposit for its new facility which has been recorded in other assets on theaccompanying balance sheet.

 

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**ITEM 2.****                 ****MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**

 

**Cautionary Note 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:

 

·                  ourability to enter into and maintain food, ingredient and pharmaceutical andbiotechnology collaborations;

 

·                  ourneed for additional capital to fund the current level of our research anddevelopment programs;

 

·                  ourinability to further identify, develop and achieve commercial success for newproducts and technologies;

 

·                  ourability to protect our proprietary technologies, including our newly discoveredsweetener enhancers;

 

·                  thepossibility of delays in the research and development necessary to select drugdevelopment candidates and delays in clinical trials;

 

·                  challengesthat we may face relating to the introduction of compounds that we may discoveras food ingredients;

 

·                  patent-infringementclaims;

 

·                  therisk that clinical trials may not result in marketable products;

 

·                  therisk that we may be unable to successfully finance and secure regulatoryapproval of and market our drug candidates;

 

·                  thelevels and timing of payments under future collaborative agreements;

 

·                  uncertaintiesabout our ability to obtain new corporate collaborations and acquire newtechnologies on satisfactory terms, if at all;

 

·                  thedevelopment of competing diagnostic and therapeutic products;

 

·                  risksof new, changing and competitive technologies and regulations in the UnitedStates and internationally; and

 

·                  otherfactors discussed under the heading Item 1A “Risk Factors” in this QuarterlyReport.

 

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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 and beverage industries. Our food andbeverage program is focused on identifying novel flavor modifiers that improvethe taste of existing ingredients, enabling the development of better-tasting,less costly, and more healthful foods and beverages. We believe that our 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. Ourresearch in diabetes and obesity stems from the observation that tastesignaling in the gastrointestinal tract is involved in important hormonesecretion processes enabling us to leverage our research on lingual tastemodulation 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 September 30,2009. As of September 30, 2009, Redpoint had an accumulated deficit of$49.5 million and anticipates incurring additional losses for theforeseeable 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 yet developed anyproducts that are commercially available.

 

Through September 30, 2009, our revenue has come solely fromcorporate collaborations, license agreements, and government grants. In orderto achieve profitability, we must continue to develop products and technologiesthat can be 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 act primarily through the modulation of theTRPM5 channel and that enhance sweetness or savory sensation, as well ascompounds that block or desensitize bitter taste for use in the food andbeverage industry.  Under the terms of the agreement, Redpoint andGivaudan were collaborating exclusively with each other to discover and developcompounds that act primarily through the modulation of the TRPm5 channel. Inconsideration of the Company’s agreement to conduct research and developcompounds and grant exclusive licenses and other rights to Givaudan, Redpointreceived an upfront payment of $1.3 million and Givaudan provided researchfunding to the Company over the term of the Agreement.  Givaudan terminatedthe Agreement, effective as of May 1, 2009, and Givaudan reserved itsrights under the Agreement with respect to certain collaboration compounds.Givaudan cited the fact that certain collaboration objectives had not beenachieved during the collaboration as its reasoning for terminating theAgreement. Through September 30, 2009, including the upfront fee, wereceived $6.9 million in research and development 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.

 

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Our continued research and development efforts have led us to certainadvances within our taste technology platform, including our recentannouncement concerning the identification of RP44, an all-natural sweetnessenhancer, we are also beginning to understand how our technology platform playsa role in treating metabolic disorders such as diabetes and obesity. However, since December 2007, we have not entered into any new fundedcorporate collaborations other than an expanded feasibility agreement withSchering Corporation, a subsidiary of Schering-Plough Corporation, in the areaof taste science research for pharmaceutical applications.  We arecurrently not pursuing our research program in this area. Redpoint was alsounable to renew its one year research agreement with Coca-Cola and ouragreement with Givaudan ended on May 1, 2009.  Furthermore, werecognize 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%.  In May 2009,we further reduced our work force and currently have 12 full time employees. Wemay need to make further reductions in our expenses. We are currently notpursuing our research program aimed at suppressing the bitterness of oralmedicines. In addition, in November 2008, the Company retained Burrill &Company to advise us on strategic alternatives.

 

InJune 2009, we announced that we had identified an all-natural sweetnessenhancer, RP44. Since first being identified, approximately 20 taste tests,each involving approximately 20 people, have been conducted by an independentresearch laboratory on our behalf.  Thesetests have demonstrated that RP44 enables the reduction of up to 25% of thecaloric sweetener content in product prototypes while still maintaining thetaste quality of the fully sweetened product. RP44 has demonstrated enhancement results with several common sweetenersincluding sucrose (sugar), fructose and high-fructose corn syrup.  RP44 has also shown enhancement results witha number of the commonly used high-potency artificial sweeteners.  In addition, taste tests have demonstratedthat using RP44, in combination with RebA (Rebaudioside A), a natural sweetenerderived from Stevia, enables the reduction of up to 50% of the caloric contentin product prototypes while still maintaining the taste quality of the fullysweetened product. This result suggests that RP44 could add flexibility toall-natural sweetener blends in reduced-calorie sweetener systems.  We have filed several patent applicationssince first discovering the sweetness enhancing effect of RP44.  We are actively seeking a commercial partnerand have recently begun to provide RP44 to major ingredient suppliers and foodand beverage companies which are in the process of evaluating our all naturalsweetness enhancer in their own taste systems. We continue to investigate the economics and manufacturing processnecessary to produce RP44 on a scale large enough to conduct safety studies andultimately for potential commercialization. Nonetheless, we cannot assure you that we will be able to enter into anyfuture corporate collaborations or future license agreements for RP44.  Redpoint intends to develop RP44 through theGRAS (Generally Recognized as Safe) determination/notification process. TheGRAS process involves extensive testing to ensure safety in use and usuallyrequires 12-18 months to complete.

 

Health and wellness trends continue to be major market drivers for thefood and beverage industry, creating consumer demand for natural solutions thatcan preserve the clean sweet taste of sugar while reducing calories. Allnatural RP44 is intended to be used in relatively small quantities in concertwith nutritive sweeteners. We believe RP44 acts by amplifying the sweetnessintensity thereby reducing the amount of nutritive sweetener required, whileretaining the desirable temporal characteristics and “clean sweet taste”associated with sugar.

 

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 from corporate collaborations,licensing agreements and government grants. Since our inception, we haveundertaken research projects for which we were the recipient of several SmallBusiness Innovative Research, or SBIR, Awards. The SBIR Awards were sponsoredby the National Institutes of Health. The last SBIR related research projectwas completed in 2004.

 

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To leverage our technology, in March 2007, we entered into theGivaudan Agreement where we were collaborating exclusively with each other todiscover and develop Enhancer Compounds and Bitter Blocker Compounds that actprimarily through the modulation of the TRPm5 channel.  The agreement withGivaudan was terminated by Givaudan 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 we had signed a feasibility agreementwith Schering Corporation, a subsidiary of Schering-Plough Corporation, in thearea of taste science research for pharmaceutical applications. However, as aresult of our restructurings, we are currently not pursuing our researchprogram in this area.

 

We may also partner with other major ingredient suppliers, or food andbeverage companies, to develop and commercialize taste enhancers that actthrough a variety of other newly discovered mechanisms of taste sensation inexchange for technology access fees, research funding, product developmentmilestones, and product royalties. We are also seeking collaborations withmajor pharmaceutical companies for the further development and optimization ofour compounds for therapeutic applications in diabetes and obesity.

 

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.

 

**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 and developmentcosts to operations as incurred.

 

**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 months ended September 30, 2009 comparedto three months ended September 30, 2008***

 

*Research and Grant Revenue*. For the three months ended September 30, 2009, we did not record anyrevenue. For the three months ended September 30, 2008, we recordedrevenue of $1.1 million, which included $0.8 million related to ourGivaudan Agreement.  Our agreement withGivaudan, for the development and commercialization of compounds that actprimarily through the modulation of the TRPM5 channel and that enhancesweetness or savory sensation as well as compounds that block or desensitizebitter taste for use in the food and beverage industry, began on March 27,2007 and was terminated by Givaudan, effective May 1, 2009. The remaining$0.3 million of revenue related to our Coca-Cola Agreement, which began onDecember 13, 2007 for the development of certain technology for use insoft drinks and other non-alcoholic beverages and which expired by its terms inDecember 2008. As of September 30, 2009, the Company does not haveany current sources of revenue.

 

*Research and Development Expenses*. Our research and development expenses were $1.2 million for the threemonths ended September 30, 2009 compared to $2.4 million for thethree months ended September 30, 2008.  The decrease in expenses wasprimarily attributable to reductions in workforce as a result of the corporaterestructurings the Company undertook in February and May of2009.  As a result of the restructurings, we are currently not pursuingour research program aimed at suppressing the bitterness of oral medicines. 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.  Ourinternal research and development costs are comprised of salaries and relatedbenefits, facilities and depreciation on laboratory equipment, compoundacquisition costs and research supplies.

 

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*General and Administrative Expenses*. Our general and administrative expenses were $1.2 million for the three months ended September 30,2009 compared to $1.4 million for the three months ended September 30,2008.  The decrease in expense was primarily attributable to reductions inworkforce as a result of the corporate restructurings the Company undertook in February andMay 2009.

 

*Interest Income*. Interest income was less than $0.1 million for the three months ended September 30,2009 compared to $0.1 million during the three months ended September 30,2008. The decrease was the result of decreasing cash and investment balances.

 

*Interest Expense*. Interest expense was $0.1 million for the three months ended September 30,2009 and a nominal amount in September 30, 2008. In September 2008,we entered into a Loan and Security Agreement in which we are authorized toborrow up to $2.0 million for the purchase of certain equipment, a portionof the proceeds which may be used for general corporate working capitalpurposes. As of September 30, 2009, we have an outstanding balance of$1.2 million pursuant to the Loan and Security Agreement.

 

***Nine months ended September 30, 2009 comparedto the nine months ended September 30, 2008***

 

*Research and Grant Revenue*. For the nine months ended September 30, 2009, we recorded revenue of$1.9 million, which included $1.7 million related to our GivaudanAgreement, which began on March 27, 2007 for the development andcommercialization of compounds that that act primarily through the modulationof the TRPM5 channel and enhance sweetness or savory sensation as well ascompounds that block or desensitize bitter taste for use in the food andbeverage industry.  The revenues from Givaudan include $0.7 millionattributable to the upfront fee which was originally being recognized asrevenue over the initial 3.5 year term of the agreement and$1.0 million of research funding.  Givaudan terminated the GivaudanAgreement, effective as of May 1, 2009.  As of May 1, 2009, theremaining unamortized portion of the upfront payment was approximately$0.6 million and was recognized as revenue upon termination. The remaining$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.  During the ninemonths ended September 30, 2008, we recorded revenue of $3.0 million,which included $2.2 million related to our Givaudan Agreement including$0.3 million attributable to the upfront fee which was being recognized asrevenue over the initial 3.5 year term of the agreement and$1.9 million of research funding.  The remaining $0.8 million ofrevenue was primarily related to our Coca-Cola Agreement, which began on December 13,2007, for the development of certain technology for use in soft drinks andother non-alcoholic beverages which expired by its terms in December 2008.

 

*Research and Development Expenses*. Our research and development expenses were $4.6 million for the ninemonths ended September 30, 2009 compared to $6.5****million for the nine months endedSeptember 30, 2008.  The decrease in expenses was primarilyattributable to reductions in workforce as a result of the corporaterestructurings the Company undertook in February and May of 2009. As a result of the restructurings, we are currently not pursuing our researchprogram aimed at suppressing the bitterness of oral medicines. Our research anddevelopment expenses consist primarily of internal costs associated with ourtaste modulator and diabetes research programs as well as amounts paid to thirdparties to conduct research on our behalf.  Our internal research anddevelopment costs are comprised of salaries and related benefits, facilities,and depreciation of laboratory equipment, compound acquisition costs andresearch supplies.

 

*General and Administrative Expenses*. Our general and administrative expenses were $4.2 million for the nine months ended September 30, 2009compared to $4.6 million for the nine months ended September 30, 2008.During the nine months ended September 30, 2009, we recognized costsassociated with our restructuring of approximately **$**0.5** **million which was offset by reduced expendituresassociated with patent, and other professional fees.

 

*Interest Income*. Interest income was $0.1 million for the nine months ended September 30,2009 compared to $0.5 million during the nine months ended September 30,2008. The decrease was primarily the result of decreasing cash and investmentbalances.

 

*Interest Expense*. Interest expense was $0.2 for the nine months ended September 30, 2009 andwas less than $0.1 million for the nine months ended September 30,2008.

 

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**Liquidity and Capital Resources**

 

At September 30, 2009, we had cash, cash equivalents andmarketable securities of approximately $7.5 million and working capital ofapproximately $6.2 million. Since inception, we have used $36.5 millionof cash to fund our operating activities and $3.4 million for capitalexpenditures. Through September 30, 2009, we have funded substantially allof our operations and capital expenditures through private placements of equityand convertible debt securities totaling $45.8 million, cash received fromcorporate collaborations totaling $10.4 million, government grantstotaling $1.8 million, and capital equipment financing totaling$3.6 million.

 

In September 2008, we entered into a Loan and Security Agreementin which we are authorized to borrow up to $2.0 million for the purchaseof certain equipment, a portion of the proceeds of which may be used forgeneral corporate working capital purposes. As of September 30, 2009, wehave borrowed approximately $1.6 million pursuant to the Loan and SecurityAgreement, of which approximately $1.0 million was for equipmentpreviously purchased and approximately $0.6 million was for generalworking capital. As of September 30, 2009, we have an outstanding balanceof $1.2 million pursuant to the Loan and Security Agreement.

 

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.

 

Our continued research and development efforts have led us to certainadvances within our taste technology platform, including our recentannouncement concerning the identification of RP44, an all-natural sweetnessenhancer, and we are beginning to understand how our technology platform playsa role in treating metabolic disorders such as diabetes and obesity. However, since December 2007, we have not entered into any new fundedcorporate collaborations other than an expanded feasibility agreement withSchering Corporation, a subsidiary of Schering-Plough Corporation, in the areaof taste science research for pharmaceutical applications.  We arecurrently not pursuing our research program in this area. Redpoint was alsounable to renew its one year research agreement with The Coca-Cola Company andour agreement with Givaudan ended on May 1, 2009.  Givaudan cited thefact that certain collaboration objectives had not been achieved during thecollaboration as its reasoning for terminating the agreement. Furthermore, we recognize the current difficult financing environment that hassignificantly impacted the biotechnology sector and required the Company toseek ways to conserve cash. Consequently, in February 2009, we announced arestructuring which reduced our workforce by approximately 33%.  In May 2009,we further reduced our workforce and we currently have 12 full time employees.We may need to make further reductions in our expenses. We are currently notpursuing our research program aimed at suppressing the bitterness of oralmedicines. In addition, in November 2008, the Company retained Burrill &Company to advise us on strategic alternatives. We believe that our currentcapital resources should be sufficient to meet our operating requirementsthrough November 2010.

 

We expect that substantially all of our cash-inflows for theforeseeable future will come from future corporate collaborations and futurelicense agreements.  There can be noassurance that we will enter into any future corporate collaborations or futurelicense agreements.  We are subject to those risks associated with anybiotechnology company that has substantial expenditures for research anddevelopment. There can be no assurance that our research and developmentprojects will be successful, that products developed will obtain necessaryregulatory approval, or that any approved product will be commercially viable.In addition, we operate in an environment of rapid technological change and weare largely dependent on the services of our employees and consultants. Thestock market in general has recently experienced large price and volumefluctuations and the market price of our common stock has experiencedsignificant volatility.  For us to fund our operations and to commerciallydevelop our products, additional equity and/or debt financing will be required.There is no assurance that such financing will be available to us as needed andas a result, we may need to pursue other strategic alternatives.

 

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**Summary of Contractual Obligations**

 

The following table summarizes our obligations to makefuture payments under our current contractual obligations as of September 30,2009:

 
| ** **        | ** ** | **Payments Due by Period** | ** ** |
|-------------------|------------|----------------------------|------------|
| ** **        | ** ** | **Total**                  | ** ** | **2009** | ** ** | **2010-2011** | ** ** | **2012-2013** | ** ** | **Thereafter** | ** ** |
| Operating leases  |       | $                          | 6,476,000  |   | $ | 207,000 |   | $ | 1,674,000 |   | $ | 1,698,000 |   | $ | 2,897,000 |   |
| Long-term  debt   |       | 1,259,000                  |       | 111,000 |   | 796,000 |   | 352,000 |   | — |   |
| License  payments |       | 250,000                    |       | — |   | 50,000 |   | 50,000 |   | 150,000 |   |
|              |       | $                          | 7,985,000  |   | $ | 318,000 |   | $ | 2,520,000 |   | $ | 2,100,000 |   | $ | 3,047,000 |   |

 

**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 financialstatements, and reported amount of revenue and expenses during the reportingperiod. On an ongoing basis, we evaluate our judgments and estimates, includingthose related to revenue recognition, long-lived assets, accrued liabilities,share-based payments and income taxes. We base our judgment and estimates onhistorical experience and various other factors that we believe to bereasonable under the circumstances, the results of which form the basis formaking judgments about the carrying values of assets and liabilities. Actualresults may differ from these estimates under different assumptions orconditions.  A more detailed review of our critical accounting policies iscontained in our Annual Report on Form 10-K filed with the Securities andExchange Commission for the year ended December 31, 2008.  During thequarter ended September 30, 2009, there have been no material changes inour critical accounting policies.

 

**ITEM 3.****                                                    ****QUANTITATIVEAND QUALITATIVE DISCLOSURES 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.

 

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 September 30,2009.  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 a nominalamount for the three months ended September 30, 2009.

 

**ITEM4T.****                                            ****CONTROLSAND PROCEDURES**

 

Our management, with the participation of our chief executive officerand chief financial officer, evaluated the effectiveness of our disclosurecontrols and procedures (as defined in Rules 13a-15(e) and 15d-15(e) underthe Exchange Act) as of September 30, 2009. Based on this evaluation, ourchief executive officer and chief financial officer concluded that, as of September 30,2009, our disclosure controls and procedures were (1) effective in thatthey were designed to ensure that material information relating to us, includingour consolidated subsidiaries, is made known to our chief executive officer andchief financial officer by others within those entities, as appropriate, toallow 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 financial reporting (as definedin Rules 13a-15(f) and 15d-15(f) under the Exchange Act)occurred during the fiscal quarter ended September 30, 2009 that havematerially affected, or are reasonably likely to materially affect, our internalcontrol over financial reporting.

 

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**PART II. OTHER INFORMATION**

 

**ITEM 1.****                                                    ****LEGALPROCEEDINGS**

 

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.

 

**ITEM1A.****                                           ****RISKFACTORS**

 

*You should carefully consider the following risksand all of the other information set forth in this Quarterly Report beforedeciding to invest in shares of our common stock. The risks described below arenot the only ones facing us. Additional risks not presently known to us or thatwe currently 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 price of our common stock would likelydecline due to the occurrence of any of these risks, and you may lose all orpart of your investment.*

 

**Risks Related To Our Business and Our Industry**

 

***Redpoint is a development-stagecompany. We have incurred losses since inception and expect to incur additionalnet losses for at least the next several years.***

 

Since our inception we have incurred significant losses and negativecash flows from operations. As of September 30, 2009, we had anaccumulated deficit of $49.5 million,and anticipate incurring additional losses for the foreseeable future. Weexpect 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 generated significant revenues in anyparticular year since our inception. To date, substantially all of our revenuehas been derived from corporate collaborations, license agreements, andgovernment grants. In order to achieve profitability, we must develop productsand technologies that can be commercialized by us or through futurecollaborations. Our ability to generate revenues and become profitable willdepend 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.

 

***We will need substantialadditional funding to develop our products and for our future operations. If weare unable to obtain the funds necessary to do so, we may be required to delay,scale back or eliminate our product development or may be unable to continueour business.***

 

The development of our product candidates will requirea commitment of substantial funds to conduct the costly and time-consumingresearch, which may include pre-clinical and clinical testing, necessary toobtain regulatory approvals and bring our products to market. We believe thatour current capital resources should be sufficient to meet our operatingrequirements through November 2010. Our future requirements will depend onmany factors, including:

 

·                  theprogress of our research and development programs, including our ability todiscover and develop taste enhancers and aversive taste blockers;

 

·                  ourability, or our partners’ ability and willingness, to formulate these tasteenhancers and aversive taste blockers into food, beverage and pharmaceuticalproducts;

 

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·                  ourability to discover and develop new diabetes or obesity therapeutic compounds;

 

·                  thecost of prosecuting, defending and enforcing patent claims and otherintellectual property rights;

 

·                  theprogress, scope and results of our pre-clinical and clinical testing of anyfuture pharmaceutical products;

 

·                  thetime and cost involved in obtaining regulatory approvals;

 

·                  thecost of manufacturing our product candidates;

 

·                  competingtechnological and market developments; and

 

·                  ourability to establish and maintain collaborative and other arrangements withthird parties to assist in bringing our products to market and the cost of sucharrangements.

 

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 besubstantially diluted. If additional funds are raised through the issuance ofpreferred stock or debt securities, these securities are likely to have rights,preferences and privileges senior to our common stock. Fluctuating interestrates could also increase 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 andcurrently have no products available for sale, license or use. Our productcandidates require additional research, development, testing, expert reviewsand/or regulatory approvals before marketing. We may be unable to develop,obtain regulatory approval or market any of our product candidates. If ourproduct candidates are delayed or fail, our financial condition will benegatively affected, and we may have to curtail or cease our operations.***

 

We are in the early stage of product development and we are dependenton new discoveries. We currently do not sell or license any products to thirdparties and do not expect to have any products commercially available forseveral years, if at all. You must evaluate us in light of the uncertaintiesand complexities affecting an early stage biotechnology company. Our productcandidates require additional research and development, pre-clinical testing,clinical testing (for our pharmaceutical products) and regulatory review and/orapprovals clearances before marketing. There are many reasons that our product candidatesmay fail or not advance to commercialization, including the possibility that:

 

·                  ourproduct candidates may be ineffective, unsafe or associated with unacceptableside effects;

 

·                  ourproduct candidates may fail to receive the necessary regulatory approvals orotherwise fail to meet applicable regulatory standards;

 

·                  expertsmay not agree that our food product candidates are generally recognized assafe;

 

·                  ourproduct candidates may be too expensive to develop, manufacture or market;

 

·                  otherparties may hold or acquire proprietary rights that could prevent us or ourpotential collaborators from developing or marketing our product candidates;

 

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·                  physicians,patients, third-party payers or the medical community in general may not acceptor use our contemplated pharmaceutical products;

 

·                  ourpotential collaborators may withdraw support for or otherwise impair thedevelopment and commercialization of our product candidates; or

 

·                  othersmay 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 establishand maintain collaborative and licensing arrangements, which could adverselyaffect our ability to develop and commercialize 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 we are able to maintain or establishlicensing or collaboration arrangements, these arrangements may not be onfavorable terms and may contain provisions that will restrict our ability todevelop, test and market our product candidates. Any failure to maintain orestablish licensing or collaboration arrangements on favorable terms couldadversely affect our business prospects, financial condition or ability todevelop and commercialize our product candidates.

 

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 candidates, 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 areunable to obtain and maintain the GRAS determination or regulatory approvalrequired before any taste enhancers or aversive taste blockers can beincorporated into products that are sold, we would be unable to commercializeour taste enhancers and aversive taste blockers and our business would beadversely affected.***

 

In the United States, the development, sale andincorporation of our taste enhancers and aversive taste blockers into productsare subject to regulation by the FDA, and in some instances, other governmentbodies. Obtaining and maintaining a GRAS determination or regulatory approvalis typically costly and can take many years.

 

Depending on the amount or intended use of aparticular taste enhancer or aversive taste blocker added to a product and thenumber of product categories in which the flavor or flavor enhancer will beincorporated, specific testing, safety assessment protocols, and regulatoryprocesses must be satisfied before we or our collaborators can commerciallymarket and sell products containing any taste enhancers and aversive tasteblockers that we may discover. A key element of our strategy is to develop flavorsand flavor enhancers that will be evaluated by the FEMA (Flavor and ExtractsManufacturers Association) GRAS Panel, which we expect will take 18 to24 months and which is less expensive than the alternative of filing afood additive petition with the FDA, which can take eight years or more. TheFEMA GRAS review process may take longer than 24 months and cost more thanwe currently anticipate if additional safety studies are requested by the FEMAGRAS Panel or are necessary to explain unexpected safety study findings. Thereis a risk that one or more of our product candidates may not qualify for a FEMAGRAS determination. This may occur for a variety of reasons, including thetaste enhancer’s or aversive taste blocker’s intended use, the amount of thetaste enhancer or aversive taste blocker intended to be added to packaged foodsand beverages, the number of product categories in which the taste enhancers oraversive taste blockers will be incorporated, whether the taste enhancerimparts sweetness, the safety profile of the taste enhancers or aversive tasteblockers and the FEMA GRAS Panel’s interpretation of the safety data. Even ifwe obtain a GRAS determination with respect to a taste enhancer or aversivetaste blocker, the FDA has the ability to challenge such determination, whichcould materially adversely affect our ability to market products on schedule orat all. In the event that a particular taste enhancer or aversive taste blockerdoes not qualify for a FEMA GRAS determination, we may be required to pursue alengthy FDA approval process to reach the U.S. market, or dedicate ourdevelopment efforts to alternative compounds, which would further delaycommercialization. In addition, laws, regulations or FDA practice governing theregulatory approval process, the availability of the GRAS determination processor the manufacture or labeling of such products, may change in a manner thatcould adversely affect our ability to commercialize products on schedule or atall.

 

Sales of our taste enhancers and aversive tasteblockers outside of the United States will be subject to foreign regulatoryrequirements. In most cases, whether or not a GRAS determination or FDAapproval has been obtained, approval of a product by the comparable regulatoryauthorities of foreign countries must still be obtained prior to manufacturingor marketing the product in those countries. A GRAS determination or FDAapproval in the United States or in any other jurisdiction does not ensureapproval in other jurisdictions because the requirements from jurisdiction tojurisdiction may vary widely. Obtaining foreign approvals could result insignificant delays, difficulties and costs for us and require additional safetystudies and additional expenses. If we fail to comply with these regulatoryrequirements or to obtain and maintain required approvals, our ability togenerate revenue will be diminished.

 

We and our collaborators may not be successful inovercoming these regulatory hurdles, which could result in product launchdelays, unanticipated expenses, termination of collaborations, and flavors andflavor enhancers not being approved for incorporation into consumer products.These consequences would have a material adverse effect on our businessfinancial condition and results of operations.

 

***Even if we or our collaboratorsreceive a GRAS determination or regulatory approval and incorporate our tasteenhancers or aversive taste blockers into products, those products may never becommercially successful.***

 

Even if we discover and develop taste enhancers andaversive taste blockers that obtain the necessary GRAS determination orregulatory approval, our success depends to a significant degree upon thecommercial success of packaged food and beverage products and pharmaceuticalproducts incorporating those taste enhancers or aversive taste blockers. Ifthese products fail to achieve or subsequently maintain market acceptance orcommercial 

 

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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 or attractnew product discovery and development collaborators. Many factors may affectthe market acceptance and commercial success of any potential productsincorporating taste enhancers or aversive taste blockers that we may discover,including:

 

·                  healthconcerns, whether actual or perceived, or unfavorable publicity regarding ourtaste enhancers and aversive taste blockers or those of our competitors;

 

·                  thetiming of market entry as compared to competitive products;

 

·                  therate of adoption of products by our collaborators and other companies in theflavor industry; and

 

·                  anyproduct labeling that may be required by the FDA or other United States orforeign regulatory agencies for products incorporating our taste enhancers andaversive taste blockers.

 

***We may experience delays inclinical trials and regulatory approval relating to our products that couldadversely affect our financial results and our commercial prospects for ourpharmaceutical product candidates.***

 

Any uses of our taste modulators that we develop asdrugs acting to modulate incretin secretion with potential utility astherapeutic agents for diabetes or obesity, will be subject to full FDA 505(b)(1) safetytesting and clinical trials demonstrating therapeutic efficacy as required todevelop an NDA. We will be required to conduct clinical trials to demonstratesafety and efficacy of our product candidates for each intended use. Forproduct candidates that advance to clinical testing, we cannot be certain thatwe or a collaborator will successfully complete the clinical trials, and willobtain the results necessary to receive regulatory approvals for the drug.These processes are lengthy, expensive and can have uncertain outcomes. Regulatory authorities may disagree with our interpretations of the clinicaltrial results.  There can be no assurance that clinical trials will bedeemed by regulatory authorities as demonstrating that our product candidatesare safe and effective to obtain approval for commercial distribution.

 

We do not know when clinical trials for our productswill commence or whether we will complete any of our clinical trials onschedule or at all.  We may not be able to identify and successfullycontract with an adequate number of clinical trial sites and clinicalinvestigators.  We may not be able to find a sufficient number of studysubjects or may experience delays in enrolling patients for our clinicaltrials.  Trial sites may not be able to meet the targets for recruitingstudy subjects, because of limited patient pools, or strict criteria forenrolling in the trial.

 

Additionally, the FDA, the IRB or we may suspend ourclinical trials at any time if there is reason to believe that we are exposingthe subjects participating in the trials to unacceptable health risks. The FDAor institutional review boards and/or institutional biosafety committees at themedical institutions and healthcare facilities where we seek to sponsorclinical trials may not permit a trial to proceed or may suspend any trialindefinitely if they find deficiencies in the conduct of the trials or patientsdevelop an unacceptable number or severity of adverse events.

 

Product development costs to us and our potentialcollaborators will increase if we have delays in testing or approvals or if weneed to perform more or larger clinical trials than planned. We expect tocontinue to rely on third party clinical investigators at medical institutionsand healthcare facilities to conduct our clinical trials, and, as a result, wemay face additional delaying factors outside our control. Significant delaysmay adversely affect our financial results and the commercial prospects for ourproduct candidates and delay our ability to become profitable.

 

***If our pharmaceutical productcandidates, including any product candidates we may develop under our earlystage diabetes program, do not successfully complete the clinical trialprocess, we will not be able to market them. Even successful clinical trialsmay not result in a marketable product and may not be entirely indicative of aproduct’s safety or efficacy.***

 

Many factors, known and unknown, can adversely affectclinical trials and the ability to evaluate a product’s efficacy. During thecourse of treatment, patients can die or suffer other adverse events forreasons that may or may not be related to the proposed product being tested.Even if unrelated to our product, certain events can 

 

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nevertheless adversely impact our clinical trials. Asa result, our ability to ultimately develop and market the products and obtainrevenues would suffer.

 

Even promising results in pre-clinical studies andinitial clinical trials do not ensure successful results in later clinicaltrials, which test broader human use of our products. Many companies in ourindustry have suffered significant setbacks in advanced clinical trials,despite promising results in earlier trials. Even successful clinical trials maynot result in a marketable product or be indicative of the efficacy or safetyof a product. Many factors or variables could affect the results of clinicaltrials and cause them to appear more promising than they may otherwise be.Product candidates that successfully complete clinical trials could ultimatelybe found to be unsafe or ineffective.

 

In addition, our ability to complete clinical trialsdepends on many factors, including obtaining adequate clinical supplies andhaving a sufficient rate of patient recruitment. For example, patientrecruitment is a function of many factors, including:

 

·                  thesize of the patient population;

 

·                  theproximity of patients to clinical sites;

 

·                  theeligibility criteria for the trial;

 

·                  theperceptions of investigators and patients regarding safety; and

 

·                  theavailability of other treatment options.

 

Even if patients are successfully recruited, we cannotbe sure that they will complete the treatment process. Delays in patientenrollment or treatment in clinical trials may result in increased costs,program delays or both.

 

With respect to markets in other countries, we or apartner will also be subject to regulatory requirements governing clinicaltrials in those countries. Even if we complete clinical trials, we may not beable to submit a marketing application. If we submit an application, theregulatory authorities may not review or approve it in a timely manner, if atall.

 

***Because we cannot predict whetheror when we will obtain regulatory approval to commercialize our pharmaceuticalproduct candidates, we cannot predict the timing of any future revenue fromthese product candidates.***

 

We cannot commercialize any of our pharmaceuticalproduct candidates to generate revenue until the appropriate regulatoryauthorities have reviewed and approved the applications for our productcandidates. We cannot assure you that the regulatory agencies will completetheir review processes in a timely manner or that we will obtain regulatoryapproval for any product candidate we or our potential collaborators develop.Satisfaction of regulatory requirements typically takes many years, isdependent upon the type, complexity and novelty of the product and requires theexpenditure of substantial resources. Regulatory approval processes outside theUnited States include all or many of the risks associated with the FDA approvalprocess and potentially others as well. In addition, we may experience delaysor rejections based upon additional government regulation from futurelegislation or administrative action or changes in FDA policy, or the policiesof other relevant governmental or nongovernmental entities during the period ofproduct development, pre-clinical and clinical trials and FDA regulatoryreview.

 

***We will rely on third parties tomanufacture taste enhancers, aversive taste blockers and pharmaceutical productcandidates. There can be no guarantee that we can obtain sufficient andacceptable quantities of our taste enhancers or aversive taste blockers orpharmaceutical product candidates on acceptable terms, which may delay orimpair our ability to develop, test and market such products.***

 

Our business strategy relies on third parties tomanufacture and produce our taste enhancers and aversive taste blockers andpharmaceutical product candidates in accordance with good manufacturingpractices established by the FDA, or similar regulations in other countries.Our taste enhancers and aversive taste blockers and pharmaceutical productcandidates may be in competition with other products for access to thesefacilities and may 

 

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be subject to delays in manufacture if third partiesgive other products greater priority than our product candidates. These thirdparties also may not deliver sufficient quantities of our taste enhancers andaversive taste blockers and pharmaceutical product candidates, manufacture ourtaste enhancers and aversive taste blockers and pharmaceutical productcandidates in accordance with specifications, or comply with applicablegovernment regulations. Additionally, if the manufactured products fail toperform as specified, our business and reputation could be severely impacted.

 

We expect to enter into manufacturing agreements forthe production of product materials. If any manufacturing agreement isterminated or any third party collaborator experiences a significant problemthat could result in a delay or interruption in the supply of product materialsto us, there are very few contract manufacturers who currently have thecapability to produce our taste enhancers and aversive taste blockers andpharmaceutical product candidates on acceptable terms, or on a timely andcost-effective basis. There can be no assurance that manufacturers on whom wewill depend will be able to successfully produce our taste enhancers andaversive taste blockers and pharmaceutical product candidates on acceptableterms, or on a timely or cost-effective basis. There can also be no assurancethat manufacturers will be able to manufacture our products in accordance withour product specifications, or will meet FDA or other requirements. We musthave sufficient and acceptable quantities of our product materials to conductour clinical trials and to market our product candidates, if and when such productshave been approved by the FDA for marketing. If we are unable to obtainsufficient and acceptable quantities of our product material, we may berequired to delay the clinical testing and marketing of our products.

 

***If we do not comply withapplicable regulatory requirements in the manufacture and distribution of ourproduct candidates, we may incur penalties that may inhibit our ability tocommercialize our products and adversely affect our revenue.***

 

Our failure or the failure of our potential collaboratorsor third party 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 andmaintain sales, marketing and distribution capabilities or enter intoagreements with third parties to perform those functions, we will not be ableto commercialize our product candidates.***

 

We currently have no sales, marketing or distributioncapabilities. Therefore, to commercialize our product candidates, if and whensuch products have been approved and are ready for marketing, we expect tocollaborate with third parties to perform these functions. We have noexperience in developing, training or managing a sales force and will incursubstantial additional expenses if we decide to market any of our futureproducts directly. Developing a marketing and sales force is also timeconsuming and could delay launch of our future products. In addition, we willcompete with many companies that currently have extensive and well-fundedmarketing and sales operations. Our marketing and sales efforts may be unableto compete successfully against these companies.

 

***Many potential competitors,including those who have greater resources and experience than we do, maydevelop products or technologies that make ours obsolete or noncompetitive.***

 

We believe our taste technology approach is applicableto a wide range of food, beverage and pharmaceutical products representing manyand diverse competitive companies and approaches. The life sciences and othertechnology industries are characterized by rapid technological change, and thearea of sensory or taste research is a rapidly evolving field. Our futuresuccess will depend on our ability to maintain a competitive position withrespect to technological advances. Technological developments by others mayresult in our taste enhancers or aversive taste blockers and technologiesbecoming obsolete.

 

We face substantial competition from companiespursuing the commercialization of products and services relevant to taste usingvarious methods for the discovery of taste enhancers and aversive tasteblockers. These competitors include leading flavor companies, such asInternational Flavors & Fragrances Inc., Givaudan SA, 

 

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Symrise and Firmenich. Senomyx is principally focusedin the area of taste enhancement for food products and uses a high throughputscreening technology and synthetic chemistry to discover novel flavorenhancers, which it licenses to end users in the food industry. Senomyx wasinitially 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. Nutrinova, aGerman ingredients company, is also developing a biotechnology approach tofinding novel taste enhancers in collaboration with the German BiotechnologyResearch and Information Network. We currently compete and will continue tocompete in the future with these companies in collaborating with and sellingflavor products and technologies to manufacturers of packaged food and beverageproducts.

 

We also face substantial competition with respect orour diabetes program. Type 2 diabetes is a disease characterized bypersistent hyperglycemia due to the body’s inability to produce enough orrespond to insulin, a hormone regulating the absorption of sugar. Mosttreatments, outside of insulin replacement, focus on correcting high bloodsugar by either stimulating the pancreas to produce more insulin, enhancingtissue sensitivity to insulin, or by inhibiting the production and release ofglucose from the liver. There are many drugs currently available for treatingdiabetes and metabolic disease, either alone or in combination with other drugs.There are several classes of anti-diabetic treatments, either orally availableor injectable, including insulin, GLP-1 receptor agonists, sulfonylureas,DPP-IV inhibitors, PPAR agonists, and biguanides. Many of these drugs exhibitnot only limited efficacy, but are also associated with less than desiredtolerability and significant mechanism-based side effects. Several new classesof anti-diabetic treatments have recently been developed, including incretinmimetics such as Exendin-4, a GLP-1 mimetic, which enhance glucose-dependentinsulin secretion by the pancreatic beta-cell and slows gastric emptying, andDPP-IV inhibitors which work by preventing the inactivation of endogenousGLP-1. Additionally, new mechanisms such as GPR119 receptor agonists arebeing developed as glucose-dependent insulin and GLP-1 secretagogues expectedto lower postprandial glucose and reduce weight gain.

 

If successful, our core diabetes program will facecompetition. The major competitors to TPRM5 modulators would likely include severalnew classes of anti-diabetic treatments, including the incretin mimetic Byetta®(marketed by Eli Lilly and Company and Amylin Pharmaceuticals), DPP-IVinhibitors (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 greatercapital resources, research and development resources and experience, manufacturingcapabilities, regulatory expertise, sales and marketing resources, establishedrelationships with consumer products companies and production facilities.

 

We may in the future face competition from lifesciences and other technology companies and other commercial enterprises. Theseentities engage as we do in biotechnology, biology or chemistry and could applythis technology to the discovery and development of taste enhancers andaversive taste blockers. We cannot guarantee that products developed as aresult of our competitors’ existing or future collaborations will not competewith our taste enhancers and aversive taste blockers.

 

Universities and public and private researchinstitutions are also potential competitors. While these organizations primarilyhave educational objectives, they may develop proprietary technologies relatedto the sense of taste or secure patent protection that we may need for thedevelopment of our technologies and products. We may attempt to license theseproprietary technologies, but these licenses may not be available to us onacceptable terms, if at all.

 

Our competitors, either alone or with theircollaborative partners, may succeed in developing technologies or discoveringtaste enhancers and aversive taste blockers that are more effective, safer,more affordable or more easily commercialized than ours, and our competitorsmay obtain intellectual property protection or commercialize products soonerthan we do. Developments by others may render our product candidates or ourtechnologies obsolete. In addition, our current product discovery anddevelopment collaborators are not prohibited from entering into research anddevelopment collaboration agreements with third parties in any product field.Our failure to compete effectively would have a significant adverse effect onour business, financial condition and results of operations.

 

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***If we are unable to attract andretain key personnel and advisors, it may adversely affect our ability toobtain financing, pursue collaborations or develop our product candidates.***

 

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

 

Our future success depends on our ability to attract,retain and motivate highly qualified management and scientific, development andcommercial personnel and advisors. To pursue our business strategy, we willneed to hire or otherwise engage qualified personnel and managers, includingpersonnel with expertise in discovery, development, clinical trials, governmentregulation, manufacturing, marketing and sales. Competition for qualifiedpersonnel is intense among companies, academic institutions and otherorganizations. If we are unable to attract and retain key personnel andadvisors, it may negatively affect our ability to successfully develop, testand commercialize our product candidates.

 

***We use hazardous and biologicalmaterials in our business. Any claims relating to improper handling, storage ordisposal of these materials could be time consuming and costly.***

 

Our products and processes will involve the controlledstorage, use and disposal of certain hazardous and biological materials andwaste products. We and our suppliers and other collaborators are subject tofederal, state and local regulations governing the use, manufacture, storage,handling and disposal of materials and waste products. Even if we and thesesuppliers and collaborators comply with the standards prescribed by law andregulation, the risk of accidental contamination or injury from hazardousmaterials cannot be completely eliminated. In the event of an accident, wecould be held liable for any damages that result, and any liability couldexceed the limits or fall outside the coverage of any insurance we may obtainand exceed our financial resources. We may not be able to maintain insurance onacceptable terms, or at all. We may incur significant costs to comply withcurrent or future environmental laws and regulations.

 

***We may be sued for productliability, which could adversely affect our business.***

 

Because our business strategy involves the developmentand sale by either us or our collaborators of commercial products incorporatingour taste enhancers or aversive taste blockers, we may be sued for productliability. We may be held liable if any product we develop and commercialize,or any product our collaborators commercialize that incorporates any of ourtaste enhancers or aversive taste blockers, causes injury or is found otherwiseunsuitable during product testing, manufacturing, marketing, sale or consumeruse. In addition, the safety studies we must perform and the FEMA GRASdetermination we must obtain prior to incorporating our taste enhancers andaversive taste blockers into a commercial product, and the regulatory approvalsrequired to commercialize our pharmaceutical products, will not protect us fromany such liability.

 

If we and our collaborators commence sale ofcommercial products we will need to obtain product liability insurance, andthis insurance may be prohibitively expensive, or may not fully cover ourpotential liabilities. Inability to obtain sufficient insurance coverage at anacceptable cost or otherwise to protect against potential product liabilityclaims could prevent or inhibit the commercialization of products developed byus or our product discovery and development collaborators. We may be obligatedto indemnify our product discovery and development collaborators for productliability or other losses they incur as a result of our taste enhancers andaversive taste blockers. Any indemnification we receive from such collaboratorsfor product liability that does not arise from our taste enhancers or aversivetaste blockers may not be sufficient to satisfy our liability to injuredparties. If we are sued for any injury caused by our taste enhancers oraversive taste blockers or products incorporating our taste enhancers oraversive taste blockers or any other products we develop, our liability couldexceed our total assets.

 

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**RisksRelated To Intellectual Property**

 

***If our product candidates are noteffectively protected by valid, issued patents or if we are not otherwise ableto protect our proprietary information and technologies, it could harm ourbusiness.***

 

The success of our operations will depend in part onour ability and that of our licensors to:

 

·                  obtainpatent protection for our taste screening technology and our taste enhancersand aversive taste blockers both in the United States and in other countrieswith substantial markets;

 

·                  obtainpatent protection for our diabetes and obesity therapeutic compounds;

 

·                  maintainpatents once obtained;

 

·                  maintaintrade secrets and operate without infringing upon the intellectual propertyrights of others; and

 

·                  obtainappropriate licenses upon reasonable terms to patents or proprietary rightsheld by others that are necessary or useful to us in commercializing ourtechnology, both in the United States and in other countries with substantialmarkets.

 

In the event we are not adequately able to protect ourintellectual property and proprietary information, our business will bematerially harmed.

 

***We may not have adequateprotection for our unpatented proprietary information, which could adverselyaffect our competitive position.***

 

In addition to patents, we will substantially rely ontrade secrets, know-how, continuing technological innovations and licensingopportunities to develop and maintain our competitive position. However, it isconceivable that others may independently develop substantially equivalentproprietary information and techniques or otherwise gain access to our tradesecrets or disclose our technology. To protect our trade secrets, we may enterinto confidentiality 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 theingredient, food and beverage market and the pharmaceutical market may declineif we do not adequately protect our proprietary technologies, including RP44.***

 

Because of the substantial length of time and expenseassociated with the development of new products, we, along with the rest of theingredient, food and beverage industry and pharmaceutical industry, placeconsiderable importance on obtaining and maintaining patent protection for newtechnologies, products and processes. Our success depends in part on ourability to obtain and maintain intellectual property that protects ourtechnologies, taste enhancers or aversive taste blockers and our pharmaceuticalproducts. Patent positions may be highly uncertain and may involve complexlegal and taste receptors, proteins, chemical synthesis techniques, compoundsand methods for using them to modulate taste for which we seek patentprotection. No consistent pattern regarding the allowability or scope of claimsin many of our pending patent applications has emerged to date. As a result, wecannot predict the breadth of claims that will ultimately be allowed in ourpatent applications, if any, including those we have in-licensed or the extentto which we may enforce these claims against our competitors. The degree offuture protection for our proprietary rights is therefore highly uncertain andwe cannot assure you that:

 

·                  we,or our licensors, were the first to file patent applications or to invent thesubject matter claimed in patent applications relating to the technologies uponwhich we rely;

 

·                  otherswill not independently develop similar or alternative technologies or duplicateany of our technologies;

 

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·                  othersdid not publicly disclose our claimed technology before we conceived thesubject matter included in any of our patent applications;

 

·                  anyof our patent applications will result in issued patents;

 

·                  anyof our patent applications will not result in interferences or disputes withthird parties regarding priority of invention;

 

·                  anypatents that may be issued to us, our collaborators or our licensors willprovide a basis for commercially viable products or will provide us with anycompetitive advantages or will not be challenged by third parties;

 

·                  wewill develop additional proprietary technologies that are patentable;

 

·                  thepatents of others will not have an adverse effect on our ability to dobusiness; or

 

·                  newproprietary technologies from third parties, including existing licensors, willbe available for licensing to us on reasonable commercial terms, if at all.

 

In addition, the legal standard for patents outsidethe United States vary greatly and in many countries intellectual property lawsare undergoing review and revision. The laws of some countries do not protectintellectual property rights to the same extent as domestic laws. It may benecessary or useful for us to participate in opposition proceedings todetermine the validity of our competitors’ patents or to defend the validity ofany of our or our licensor’s future patents, which could result in substantialcosts and would divert our efforts and attention from other aspects of ourbusiness.

 

Technologies licensed to us by others, or in-licensedtechnologies, are important to our business. In particular, we depend oncertain technologies relating to taste biology licensed from the Mount SinaiSchool of Medicine. In addition, we may in the future acquire rights toadditional technologies by licensing such rights from existing licensors orfrom third parties. Such in-licenses may be costly. Also, we do not alwayscontrol the patent prosecution, maintenance or enforcement of in-licensedtechnologies. Accordingly, we are unable to exercise the same degree of controlover this intellectual property as we do over our internally developed technologies.Moreover, some of our academic institution licensors, collaborators andscientific advisors have rights to publish data and information to which wehave rights. If we cannot maintain the confidentiality of our technologies andother confidential information in connection with our collaborations, ourability to protect our proprietary information or obtain patent protection inthe future may be impaired, which could have a significant adverse effect onour business, financial condition and results of operations.

 

***Many of the patent applicationswe and our licensors have filed have not yet been substantively examined andmay not result in patents being issued.***

 

Many of the patent applications filed by us and ourlicensors were filed recently with the United States Patent and TrademarkOffice and most have not been substantively examined and may not result inpatents being issued. It is difficult to predict whether any of our or ourlicensors’ applications will ultimately be found to be patentable or, if so, topredict the scope of any allowed claims. In addition, the disclosure in our orour licensors’ patent applications, particularly in respect of the utility ofour claimed inventions, may not be sufficient to meet the statutoryrequirements for patentability in all cases. As a result, it is difficult topredict whether any of our or our licensors’ applications will be allowed, or,if so, to predict the scope of any allowed claims or the enforceability of thepatents. Even if enforceable, others may be able to design around any patentsor develop similar technologies that are not within the scope of such patents.Our and our licensors’ patent applications may not issue as patents that willprovide us with any protection or competitive advantage.

 

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***Disputes concerning theinfringement or misappropriation of our proprietary rights or the proprietaryrights of others could be time consuming and extremely costly and could delayour research and development efforts.***

 

Our commercial success, if any, will be significantlyharmed if we infringe the patent rights of third parties or if we breach anylicense or other agreements that we have entered into with regard to ourtechnology or business.

 

We are aware of other companies and academicinstitutions that have been performing research in the areas of tastemodulation and taste enhancers and aversive taste blockers. In particular,other companies and academic institutions have announced that they haveconducted taste-receptor research and have published data on taste receptorsequence information and taste receptors or filed patent applications orobtained patent protection on taste modulation or taste receptors and theiruses. To the extent any of these companies or academic institutions currentlyhave, or obtain in the future, broad patent claims, such patents could blockour ability to use various aspects of our discovery and development process andmight prevent us from developing or commercializing newly discovered tasteenhancers and aversive taste blockers or otherwise conducting our business. Inaddition, it is possible that some of the taste enhancers or aversive taste blockersthat are discovered using our technology may not be patentable or may becovered by intellectual property of third parties.  Additionally, we maybe subject to disputes with our collaborative partners relating to the scope ofour research, our related agreements and the resulting rights or ownership ofany discoveries.

 

With respect to third-party patent rights in the areaof the TRPm5 receptor specifically, we are aware of pending U.S. and foreignpatent applications by competitors and others that have claims directed to theTRPm5 receptor and/or methods of using the TRPm5 receptor to identify noveltaste modulating compounds. Although these patent applications are currentlyundergoing examination by the U.S. Patent and Trademark Office, and it is possiblethat they will not be granted or will not be granted with the current claims,it is also possible that patents will be granted on these applications withclaims that are relevant to our current or future commercialization plans. Tothe 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 potentiallyadverse governmental, ex parte or inter-party proceeding with regard to ourpatent or trademark positions. However, the life sciences and other technologyindustries are characterized by extensive litigation regarding patents andother intellectual property rights. Many life sciences and other technologycompanies have employed intellectual property litigation as a way to gain acompetitive advantage. If we become involved in litigation, interferenceproceedings, oppositions, reexaminations, protests or other potentially adverseintellectual property proceedings as a result, for example, of allegedinfringement by us of the rights of others or as a result of priority ofinvention disputes with third parties, we might have to spend significantamounts of money, time and effort defending our position and we may not besuccessful. In addition, any claims relating to the infringement of third-partyproprietary rights or proprietary determinations, even if not meritorious,could result in costly litigation, lengthy governmental proceedings, diversionof management’s attention and resources, or require us to enter into royalty orlicense agreements that are not advantageous to us.

 

Should any person have filed patent applications orobtained patents in the United States that claim inventions also claimed by us,we may have to participate in an interference proceeding declared by U.S.Patent and Trademark Office to determine priority of invention and, thus, theright to a patent for these inventions in the United States. Such a proceedingcould result in substantial cost to us even if the outcome is favorable. Evenif successful on priority grounds, an interference action may result in loss ofclaims based on patentability grounds raised in the interference action.Litigation, interference proceedings or other proceedings could divertmanagement’s time and efforts. Even unsuccessful claims could result insignificant legal fees and other expenses, diversion of management’s time anddisruption in our business. Uncertainties resulting from initiation andcontinuation of any patent proceeding or related litigation could harm ourability to compete and could have a significant adverse effect on our business,financial condition and results of operations.

 

An adverse ruling arising out of any intellectualproperty dispute, including an adverse decision as to the priority of ourinventions, could undercut or invalidate our intellectual property position. Anadverse ruling could also subject us to significant liability for damages,including possible treble damages, prevent us from using 

 

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technologies or developing products, or require us tonegotiate licenses to disputed rights from third parties. Although patent andintellectual property disputes in the technology area are often settled throughlicensing or similar arrangements, costs associated with these arrangements maybe substantial and could include license fees and ongoing royalties.Furthermore, necessary licenses may not be available to us on satisfactoryterms, if at all. Failure to obtain a license in such a case could have asignificant adverse effect on our business, financial condition and results ofoperations.

 

**RisksRelated to Our Fluctuating Operating Results, Possible Acquisitions andManagement of Growth**

 

***We expect that our results ofoperations will fluctuate from period to period, and this fluctuation couldcause our stock price to decline, causing investor losses.***

 

Our operating results have fluctuated in the past andare likely to vary significantly in the future based upon a number of factors,many of which we have little or no control over. We operate in a highly dynamicindustry and future results could be subject to significant fluctuations. Thesefluctuations could cause us to fail to meet or exceed financial expectations ofsecurities analysts or investors, which could cause our stock price to declinerapidly and significantly. Revenue and expenses in future periods may begreater or less than revenue and expenses in the immediately preceding periodor in the comparable period of the prior year. Therefore, period-to-periodcomparisons of our operating results are not necessarily a good indication ofour future performance. Some of the factors that could cause our operatingresults to fluctuate include:

 

·                  ourability to discover and develop taste enhancers and aversive taste blockers;

 

·                  ourability to discover and develop new diabetes or obesity therapeutic compounds;

 

·                  ourability or the ability of our product discovery and development collaboratorsto incorporate our taste enhancers and aversive taste blockers into packagedfood and beverage products and pharmaceutical products;

 

·                  ourreceipt of milestone payments in any particular period;

 

·                  theability and willingness of collaborators to commercialize productsincorporating our taste enhancers and aversive taste blockers on expectedtimelines, or at all;

 

·                  ourability to enter into product discovery and development collaborations andtechnology collaborations, or to extend the terms of any existing collaborationagreements, and our payment obligations, expected revenue and other terms ofany other agreements of this type;

 

·                  ourability, or our collaborators’ ability, to successfully satisfy all pertinentregulatory requirements;

 

·                  thedemand for our future products and our collaborators’ products containing ourtaste enhancers or aversive taste blockers; and

 

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

 

***If we acquire products,technologies or other businesses, we will incur a variety of costs, may haveintegration difficulties and may experience numerous other risks that couldadversely affect our business.***

 

To remain competitive, we may decide to acquireadditional businesses, products and technologies. We currently have nocommitments or agreements with respect to, and are not actively seeking, anymaterial acquisitions. We have limited experience in identifying acquisitiontargets, successfully acquiring them and integrating them into our currentinfrastructure. We may not be able to successfully integrate any businesses,products, technologies or personnel that we might acquire in the future withouta significant expenditure of operating, financial and management resources, ifat all. In addition, future acquisitions could require significant capitalinfusions and could involve many risks, including, but not limited to, thefollowing:

 

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·                  wemay have to issue convertible debt or equity securities to complete anacquisition, which would dilute our stockholders and could adversely affect themarket price of our common stock;

 

·                  anacquisition may negatively impact our results of operations because it mayrequire us to incur large one-time charges to earnings, amortize or write downamounts related to goodwill and other intangible assets, or incur or assumesubstantial debt or liabilities, or it may cause adverse tax consequences,substantial depreciation or deferred compensation charges;

 

·                  wemay encounter difficulties in assimilating and integrating the business,technologies, products, personnel or operations of companies that we acquire;

 

·                  certainacquisitions may disrupt our relationship with existing collaborators who arecompetitive to the acquired business;

 

·                  acquisitionsmay require significant capital infusions and the acquired businesses, productsor technologies may not generate sufficient revenue to offset acquisitioncosts;

 

·                  anacquisition may disrupt our ongoing business, divert resources, increase ourexpenses and distract our management;

 

·                  acquisitionsmay involve the entry into a geographic or business market in which we havelittle or no prior experience; and

 

·                  keypersonnel of an acquired company may decide not to work for us.

 

Any of the foregoing risks could have a significantadverse effect on our business, financial condition and results of operations.

 

***To the extent we enter marketsoutside of the United States, our business will be subject to political,economic, legal and social risks in those markets, which could adversely affectour business.***

 

There are significant regulatory and legal barriers inmarkets outside the United States that we must overcome to the extent we enteror attempt to enter markets in countries other than the United States. We willbe subject to the burden of complying with a wide variety of national and locallaws, including multiple and possibly overlapping and conflicting laws. We alsomay experience difficulties adapting to new cultures, business customs andlegal systems. Any sales and operations outside the United States would besubject to political, economic and social uncertainties including, amongothers:

 

·                  changesand limits in import and export controls;

 

·                  increasesin custom duties and tariffs;

 

·                  changesin currency exchange rates;

 

·                  economicand political instability;

 

·                  changesin government regulations and laws;

 

·                  absencein some jurisdictions of effective laws to protect our intellectual propertyrights; and

 

·                  currencytransfer and other restrictions and regulations that may limit our ability tosell certain products or repatriate profits to the United States.

 

Any changes related to these and other factors couldadversely affect our business to the extent we enter markets outside the UnitedStates.

 

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***We may encounter difficultiesmanaging our growth, which could adversely affect our business.***

 

Our strategy includes entering into and working onsimultaneous taste enhancer and aversive taste blocker discovery anddevelopment programs across multiple markets that include both the food andbeverage industry and the pharmaceutical industry. We expect to continue togrow to meet our strategic objectives. If our growth continues, it willcontinue to place a strain on us, our management and our resources. Our abilityto effectively manage our operations, growth and various projects requires usto continue to improve our operational, financial and management controls,reporting systems and procedures and to attract and retain sufficient numbersof talented employees. We may not be able to successfully implement these taskson a larger scale and, accordingly, we may not achieve our research,development and commercialization goals. If we fail to improve our operational,financial and management information systems, or fail to effectively monitor ormanage our new and future employees or our growth, our business would suffersignificantly. In addition, no assurance can be made that we will be able tosecure adequate facilities to house our staff, conduct our research or achieveour business objectives.

 

***An economic downturn and adverseeconomic conditions may harm our business.***

 

The recent economic downturn and adverse conditions inthe national and global markets may negatively affect our operations in thefuture. Our revenues are contingent upon the expenditures of thepharmaceutical, biotech, and food and beverage industries, and as theseindustries continue to cut costs in response to the economic downturn, ourrevenues will be similarly decreased. Furthermore, while our revenues maydecrease, our costs may remain fixed, resulting in decreased earnings.

 

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

 

***The sale of a significant numberof our shares of common stock in the public market could depress the market priceof common stock.***

 

The sale of a significant number of shares of ourcommon stock in the public market could harm the market price of our commonstock. As additional shares of common stock have become available for resale inthe public market pursuant to the registration statement, the market supply ofshares of common stock has increased, which could decrease its market price.The number of shares that may be sold into the marketplace pursuant to theregistration statement is significant. We believe that such sales may severelydepress the market price of our common stock. In addition, some or all of theshares of common stock may be offered from time to time in the open marketpursuant to Rule 144 (or pursuant to an additional registration statement,if one is effective), and these sales may also have a depressive effect on themarket for the shares of common stock. In general, a person who is deemed to bean affiliate who has held shares for a period of six months may, upon filing ofa notification on Form 144 with the SEC, sell into the market common stockin an amount up to the greater of 1% of the outstanding shares or the averageweekly number of shares sold in the last four weeks before such sale. Suchsales may be repeated once each three months. A non-affiliate holdingrestricted shares may sell such shares without restrictions after they havebeen held six months, subject only to the current public informationrequirement. After an additional six months have lapsed, a non-affiliate maysell such shares without any restrictions.

 

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

 

The market price of our common stock, and the marketprices for securities of biotechnology companies in general, have been, and areexpected to be, highly volatile. The following factors, in addition to otherrisk factors 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:

 

·                  announcementsof technological innovations and discoveries by the Company or its competitors;

 

·                  developmentsconcerning any research and development, clinical trials, manufacturing, andmarketing collaborations;

 

·                  newproducts or services that the Company or its competitors offer;

 

·                  actualor anticipated variations in operating results;

 

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·                  theinitiation, conduct and/or outcome of intellectual property and/or litigationmatters;

 

·                  changesin financial estimates by securities analysts;

 

·                  conditionsor trends in bio-pharmaceutical or other healthcare industries;

 

·                  regulatorydevelopments in the United States and other countries;

 

·                  changesin the economic performance and/or market valuations of other biotechnology andflavor companies;

 

·                  theCompany’s announcement of significant acquisitions, strategic partnerships,joint ventures or capital commitments;

 

·                  additionsor departures of key personnel;

 

·                  globalunrest, terrorist activities, and economic and other external factors; and

 

·                  salesor other transactions involving common stock.

 

The stock market in general has recently experiencedrelatively large price and volume fluctuations. In particular, market prices ofsecurities of biotechnology companies have experienced fluctuations that oftenhave been unrelated or disproportionate to the operating results of thesecompanies. Continued market fluctuations could result in extreme volatility inthe price of our common stock, which could cause a decline in the value of ourcommon stock. Investors should also be aware that price volatility may be worseif the trading volume of our common stock is low.

 

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

 

We currently intend to retain any future earnings tofinance the growth and development of our business; therefore, we do not expectto pay any cash dividends in the foreseeable future. Any future dividends willdepend on our earnings, if any, and our financial requirements.

 

***Because Redpoint became a publiccompany as a result of the Reverse Merger and Reincorporation Merger and notthrough a traditional underwritten initial public offering of securities, theCompany may not attract the attention of major brokerage firms. Additionally,as a public company, we incur substantial expenses.***

 

As a result of the Reverse Merger and ReincorporationMerger, Redpoint became a publicly-traded company and, accordingly, will besubject to the information and reporting requirements of the United Statessecurities laws. The costs to public companies of preparing and filing annualand quarterly reports, proxy statements and other information with the SEC andfurnishing audited reports to stockholders have caused the Company’s expensesto be higher than they would be if it were a privately-held company. Inaddition, the Company incurred substantial expenses in connection with thepreparation of the registration statement and related documents with respect tothe registration of the common stock issued in the Private Placement and theReverse Merger. Security analysts of major brokerage firms may not providecoverage of the Company. No assurance can be given that brokerage firms willwant to conduct any secondary offerings on behalf of the Company in the future.

 

***We have discretion on how we useany proceeds we receive from the exercise of warrants and options.***

 

Our management has broad discretion on how to use andspend any proceeds we receive as a result of our security holders exercisingtheir warrants and options. Our stockholders may not agree with our decision onhow to 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 therewill be an active public market for shares of our common stock in the near termand stockholders may have to hold their shares of common stock for anindefinite period of time.***

 

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***Stockholders may be unable toresell a large number of their shares of common stock within a short time frameor at or above their purchase price.***

 

To have purchased shares of our common stock andwarrants to purchase common stock in the Private Placement, an investor musthave represented that it was acquiring such shares and warrants for investmentand not with a view to distribution or resale, that the investor understoodthat neither the common stock nor the warrants are readily transferable and, inany event, that it must bear the economic risk of an investment in the commonstock for an indefinite period of time.

 

***If we do not comply withregistration rights granted to certain holders of our restricted securities, wemay be required to pay damages to such holders.***

 

We filed a “resale” registration statement with theSEC covering all shares of common stock issued in connection with the PrivatePlacement, including shares of common stock into which any warrants areexercisable, within 60 days after the final closing of the PrivatePlacement. Such registration statement has been declared effective by the SEC.We will use our best efforts to have such “resale” registration statementmaintain its effectiveness until such time as all securities registered underthe registration statement have been sold or are otherwise able to be soldunder Rule 144 of the Securities Act without regard to volume limitations,whichever is earlier. We cannot assure you that we will be able to obtain ormaintain such effective registration statement.

 

***Our common stock may beconsidered “a penny stock” and may be difficult to sell.***

 

The SEC has adopted regulations that generally define “pennystock” to be an equity security that has a market or exercise price of lessthan $5 per share, subject to specific exemptions. The market price of ourcommon stock has been and may continue to be less than $5 per share andtherefore may be designated a “penny stock” under SEC rules. This designationrequires any broker or dealer selling our common stock to disclose certaininformation about the transaction, obtain a written agreement from the investorand determine that the investment in our common stock by the investor is areasonably suitable investment for such investor. These rules may restrictthe ability of brokers or dealers to sell our common stock and, as a result,may affect the ability of investors to sell their shares. In addition, unlessand until our common stock is listed for trading on the American Stock Exchangeor NASDAQ 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 ofour common stock could depress our stock price.***

 

The market price for our common stock could decline,perhaps significantly, as a result of issuances of a large number of shares ofour common stock in the public market or even the perception that suchissuances could occur. Under our Registration Rights Agreement, certain holdersof our outstanding shares of our common stock and other securities have demandand Form S-3 registration rights. Sales of a substantial number of theseshares of common stock, or the perception that holders of a large number ofshares intend to sell their shares, could depress the market price of ourcommon stock. The existence of such registration rights could also make it moredifficult for us to raise funds through future offerings of our equitysecurities.

 

***Our stockholders may experienceadditional dilution upon the exercise of warrants or options.***

 

As of the final closing of the Private Placement, weissued warrants to investors to acquire approximately 10.2 million sharesof common stock and warrants to the placement agents to acquire approximately3.6 million shares of common stock in the Private Placement. In addition,as of September 30, 2009, there were 16.6 million shares of commonstock underlying options that have been or may be granted pursuant to theRedpoint Bio Corporation 2007 Omnibus Equity Compensation Plan. If thesewarrants are exercised or converted, or if the options are exercised, you mayexperience dilution in the net tangible book value of our common stock.

 

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***Directors and officers of theCompany have a high concentration of our common stock ownership.***

 

Based on the aggregate number of shares of our commonstock that are outstanding as of September 30, 2009, our officers anddirectors beneficially own approximately 11.57% of our outstanding commonstock. Such a high level of ownership by such persons may have a significanteffect in delaying, deferring or preventing any potential change in control ofthe Company. Additionally, as a result of their high level of ownership, ourofficers and directors might be able to strongly influence the actions of theCompany’s board of directors, and the outcome of actions brought to ourstockholders for approval. Such a high level of ownership may adversely affectthe voting and other rights of our stockholders.

 

**ITEM 2.****                                                    ****UNREGISTEREDSALES OF EQUITY SECURITIES AND USE OF PROCEEDS**

 

None.

 

**ITEM 3.****                                                    ****DEFAULTSUPON SENIOR SECURITIES**

 

Not applicable.

 

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

 
| **Exhibit No.** | ** ** | ** **                                                                                                                                             |
|----------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------|
|                 |       |                                                                                                                                                   |
| 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 SecuritiesExchange Act of 1934, the Registrant has duly caused this report to be signedon its behalf by the undersigned, thereunto duly authorized.

 
|                   | REDPOINT BIO  CORPORATION                         |
|------------------------|---------------------------------------------------|
|                   |                                              |   |
| November 13, 2009 | By:                                               | /s/ F. Raymond Salemme |
|                   | F. Raymond Salemme                                |
|                   | President and Chief  Executive Officer            |
|                   | (Principal Executive  Officer)                    |
|                   |                                              |   |
| November 13, 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.** | ** ** | ** **                                                                                                                                             |
|----------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------|
|                 |       |                                                                                                                                                   |
| 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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