DARA Biosciences Inc. Reports Operating Results (10-Q)

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Aug 14, 2009
DARA Biosciences Inc. (DARA, Financial) filed Quarterly Report for the period ended 2009-06-30.

DARA BIOSCIENCES INC. is a Raleigh North Carolina -based development-stage pharmaceutical company that acquires promising therapeutic molecules and medical technologies directly or through investment in established companies. DARA focuses its therapeutic development efforts on small molecules from late preclinical development through phase 2 clinical trials. DARA is developing a portfolio of therapeutic candidates for europathic pain metabolic diseases including type 2 diabetes and dermatological disorders. DARA has licensed promising drug development candidates from Kirin Pharmaceuticals of Japan Bayer Pharmaceuticals Corporation Massachusetts General Hospital and Nuada LLC. DARA Biosciences Inc. has a market cap of $14.7 million; its shares were traded at around $0.49 with and P/S ratio of 33.5.

Highlight of Business Operations:

We incurred approximately $149,000 and $278,000 in development costs associated with the development of KRN5500 during the three and six month periods ended June 30, 2009, and we have incurred costs of approximately $3,247,000 from inception to June 30, 2009. We estimate the market potential for chemotherapy-induced neuropathy to be roughly $1.6 billion in 2014.

Share-based compensation is accounted for using the fair value based method prescribed by SFAS No. 123R, Share-Based Payment (SFAS 123R). For stock and stock-based awards issued to employees, a compensation charge is recorded against earnings based on the fair value of the award. For transactions with non-employees in which services are performed in exchange for the Companys common stock or other equity instruments, the transactions are recorded on the basis of the fair value of the service received or the fair value of the equity instruments issued, whichever is more readily measurable at the date of issuance. Our Companys share-based compensation transactions for employees and non-employee directors resulted in compensation expense of $49,434 and $197,289 for the three month periods ended June 30, 2009 and 2008, respectively, and $180,683 and $500,426 for the six month periods ended June 30, 2009 and 2008, respectively. The Company recognized stock-based compensation expense for awards to non-employees totaling $8,436 and $23,089 for the three and six months ended June 30, 2009, respectively. The Company did not have any non-employee option expense for the three and six months ended June 30, 2008.

General and administrative expenses consist primarily of salaries and benefits, professional fees related to administrative, finance, human resource, legal and information technology functions and patent costs. In addition, general and administrative expenses include allocated facility, basic operational and support costs and insurance costs. General and administrative expenses decreased approximately $470,000, from approximately $1,045,000 for the three months ended June 30, 2008 to approximately $575,000 for the corresponding 2009 period, as a result of the implementation of a cost reduction plan to conserve our remaining cash balance.

Other (expense) income, net reflects non-operating activities associated with investments and dispositions on investments made in collaborations with other companies. Other (expense) income, net increased approximately $594,000 from income of approximately $109,000 for the six months ended June 30, 2008 to income of approximately $703,000 for the corresponding 2009 period. The increase is primarily due to the gain on investments of approximately $551,000 from the distribution of SurgiVision stock, as well as the gain on the Companys sale of its marketable securities of approximately $178,000, offset by disposition of equipment and interest expense.

From inception through June 30, 2009, we have financed our operations primarily from the net proceeds of (1) private placements of equity securities, through which we raised approximately $26,525,000 in net proceeds, including approximately $1,298,000 in net proceeds from the Companys private placement in June 2009 pursuant to the Purchase Agreement (see following discussion), (2) the sale of securities we acquired through investments made in other companies, through which we raised approximately $6,260,000, and (3) a $500,000 loan we received from SurgiVision, Inc.

During the six month period ended June 30, 2009, cash used in our operating activities was approximately $2,058,000. This decrease in cash from operations was primarily due to the operating loss offset in part by non-cash stock-based compensation of approximately $204,000 and depreciation and amortization of approximately $112,000. Prepaid expenses decreased by approximately $98,000 for the six month period ended June 30, 2009, primarily representing prepaid director and officer insurance coverage. Accounts payable decreased by approximately $258,000 and accrued liabilities increased by approximately $539,000 during the six month period ended June 30, 2009, primarily due to the $500,000 milestone payment accrual to Bayer for the cleared IND application for DB959.

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