Unassociated Document
December
22, 2010
VIA
EDGAR AND
OVERNIGHT
MAIL
United
States Securities
and
Exchange Commission
100 F
Street, NE
Mail Stop
4270
Washington,
D.C. 20549
Attention: Jim
Rosenberg
Senior
Assistant Chief Accountant
Re: Adeona
Pharmaceuticals, Inc.
Form
10-K for the year ended December 31, 2010
Form
10-Q for the interim period ended June 30, 2010
File No.
001-12584
Dear Mr.
Rosenberg:
Thank you
for your December 15, 2010 letter regarding Adeona Pharmaceuticals, Inc.
(“Adeona”). We hereby submit a letter responding to the
comments. For your convenience, we have set forth below the staff’s
numbered comments in their entirety followed by our responses
thereto.
United
States Securities and
Exchange
Commission
December
22, 2010
Page
2
Form
10-K for the Year Ended December 31. 2009
Intellectual
Property, page 8
1. Please
confirm that in future filings you will include:
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·
|
The
duration of each agreement and a discussion of the termination
provisions;
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|
·
|
The
date of expiration of the licenses under each
agreement;
|
|
·
|
The
amount of the annual maintenance fees you pay under the Thomas Jefferson
University and the 2005 University of California license
agreements;
|
|
·
|
The
aggregate milestone payments under the 2008 University of California
license agreement; and
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|
·
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The
royalty rates you have agreed to pay under each agreement on net sales of
products covered by licensed
patents.
|
Response:
We confirm that in future filings we will include disclosure regarding all of
the items listed above.
2.
|
Please
tell us the amount in dispute under the legal action for past consulting
services filed in 2009.
|
Response:
The dispute for past consulting services was settled in September
2010. In accordance with the Stipulation of Settlement, the Company
issued the individual $92,000 worth of shares of its common stock in full
settlement of all claims of the individual against the subsidiary.
Notes to the Consolidated
Financial Statements. page 43
Note 2. Acquisition of Hart
Lab, LLC. page 45
3.
|
Please
provide us draft disclosure for future filings showing the amounts
recognized at the acquisition date for each major class of assets acquired
and liabilities assumed in accordance with ASC 805-20-50-1c Business Combinations.
Identifiable Assets and Liabilities, and any Non-controlling Interest.
Depending on the nature of assets and liabilities acquired, please
ensure your draft disclosure complies with all requirements in ASC
805-20-50-1.
|
United
States Securities and
Exchange
Commission
December
22, 2010
Page
3
Response:Our
review of the accounting guidance has resulted in the following draft
disclosure:
Net
Assets Acquired:
Current
Assets:
|
|
|
|
Cash
|
|
$ |
5,625 |
|
Accounts
Receivable – net of allowance of $4,192
|
|
$ |
79,657 |
|
Equipment
– net of accumulated depreciation of $25,536
|
|
$ |
39,464 |
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Total
|
|
$ |
124,746 |
|
|
|
|
|
|
Current
Liabilities:
|
|
|
|
|
Accounts
payable
|
|
$ |
38,324 |
|
Accrued
liabilities
|
|
$ |
12,593 |
|
Capital
lease
|
|
$ |
31,917 |
|
Total
|
|
$ |
82,834 |
|
Total
Net Assets Acquired
|
|
$ |
41,912 |
|
All
assets acquired and liabilities assumed have a book value equivalent to fair
value. The Company did not record any fair value adjustment for
contingencies since there were none.
The
Company believes that all assets are recoverable and that no impairment or
write-down to net realizable value is required. As a result of this business
combination, there is no allocation for a non-controlling interest since the
Company acquired a 100% controlling interest in Hart Lab, LLC.
Directors. Executive
Officers, Promoters and Corporate Governance, page 62
4.
|
Please
provide draft disclosure for future filings which discusses the specific
experience, qualifications, attributes or skills that led to the
conclusion that each nominee should serve as a director for the
registrant.
|
Response: Set forth below is the draft disclosure that the
Company intends to include in its future
filings.
JAMES S. KUO, M.D., M.B.A. Dr.
Kuo has been a director since February 2007. Effective February
6, 2010, Dr. Kuo was appointed as our Chairman of the Board, Chief Executive
Officer and President. Dr Kuo was the Chairman and Chief
Executive Officer of Cordex Pharma, Inc., a public biopharmaceutical company,
from September 2007 until February 1, 2010 and remained as a director until
March 13, 2010. From 2003 to 2006, he served as founder, Chairman and Chief
Executive Officer of BioMicro Systems, Inc. a private venture-backed,
microfluidics company. Prior to that time, Dr. Kuo was a founder,
President and Chief Executive Officer of Discovery Laboratories, Inc. where he
raised over $22 million in initial private funding and was instrumental in the
company going public. Dr. Kuo was also a founder and board member of Monarch
Labs, LLC, a private medical device company. Dr. Kuo is the former Managing
Director of Venture Analysis for Healthcare Ventures, LLC, which managed $378
million in venture funds. He has also been a senior licensing and business
development executive at Pfizer, Inc., where he was directly responsible for
cardiovascular licensing and development. After studying molecular biology and
receiving his B.A. at Haverford College, Dr. Kuo simultaneously received his
M.D. from the University of Pennsylvania School of Medicine and his M.B.A. from
the Wharton School of Business. From 2004 until October 2009 Dr. Kuo
also served as a director of Soligenix, Inc.
United
States Securities and
Exchange
Commission
December
22, 2010
Page
4
Dr.
Kuo brings to the Board significant executive leadership and operational
experience. Dr. Kuo’s prior business experience and board service,
along with his tenure at Adeona, gives him a broad and extensive understanding
of our operations and the proper role and function of the Board. His
prior service on the board of other public companies has provided him with a
strong corporate governance expertise. In addition, his medical background
allows him to bring to the Board extensive knowledge about our
industry. Due to his business background, he has a broad
understanding of the operational, financial and strategic issues facing public
companies.
STEVE H. KANZER, CPA,
JD. Mr. Kanzer is a co-founder and served as our President from our
inception in February 2001 until May 2006. Mr. Kanzer
previously served as our Chief Executive Officer from September 2004 until
November 2008, Chairman of the Board until February 6, 2010 and currently serves
as a director. Mr. Kanzer has also been a director and officer of
our subsidiaries, including Solovax, Inc., Effective Pharmaceuticals, Inc.,
Putney Drug Corp. Epitope Pharmaceuticals, Inc. and CD4 Biosciences, Inc. Since
December 2000, he has served as co-founder and Chairman of Accredited Ventures
Inc. and Accredited Equities Inc., a venture capital firm and investment bank,
respectively, which both specialize in the biotechnology industry. Prior to
founding Accredited Ventures and Accredited Equities in December 2000, Mr.
Kanzer served as Senior Managing Director-Head of Venture Capital at Paramount
Capital from 1991 until December 2000. While at Paramount Capital, Mr. Kanzer
was involved in the formation and financing of a number of biotechnology
companies and held various positions in these companies. Prior to joining
Paramount Capital in 1992, Mr. Kanzer was an attorney at the law firm of
Skadden, Arps, Slate, Meagher & Flom in New York where he specialized in
mergers and acquisitions. Mr. Kanzer received his J.D. from New York University
School of Law in 1988 and a B.B.A. in Accounting from Baruch College in 1985,
where he was a Baruch Scholar. Mr. Kanzer is active in university-based
pharmaceutical technology licensing and has served as Co-Chair of the New York
Chapter of the Licensing Executives Society.
Mr. Kanzer
has been associated with Adeona since inception and brings to the Board
extensive knowledge about our business operations and in particular our licenses
and products. Mr. Kanzer also brings to the Board
significant executive leadership and operational experience.
Mr. Kanzer’s legal background provides him with a broad
understanding of the legal issues facing Adeona, the financial markets and the
financing opportunities available to Adeona .
United
States Securities and
Exchange
Commission
December
22, 2010
Page
5
JEFFREY J. KRAWS. Mr. Kraws
has been a director since January 2006. Mr. Kraws is Chief
Executive Officer and co-founder of Crystal Research Associates. Well known and
respected on Wall Street, Mr. Kraws has received some of the most prestigious
awards in the industry. Among other awards, he was given a 5-Star Rating” in
2001 by Zacks and was ranked the number one analyst among all pharmaceutical
analysts for stock performance in 2001 by Starmine.com. Prior to founding
Crystal Research Associates, Mr. Kraws served as co-president of The Investor
Relations Group (IRG), a firm representing primarily under-followed,
small-capitalization companies. Previously, Mr. Kraws served as a managing
director of healthcare research for Ryan Beck & Co. and as director of
research/senior pharmaceutical analyst and managing director at Gruntal &
Co., LLC (prior to its merger with Ryan Beck & Company). Mr. Kraws served as
managing director of the healthcare research group and senior pharmaceutical
analyst at First Union Securities (formerly EVEREN Securities); as senior U.S.
pharmaceutical analyst for the Swedish-Swiss conglomerate Asea Brown Boveri; and
as managing director and president of the Brokerage/Investment Banking operation
of ABB Aros Securities, Inc. He also served as senior pharmaceutical analyst at
Nationsbanc Montgomery Securities, BT Alex Brown & Sons, and Buckingham
Research. Mr. Kraws also has industry experience, having been responsible for
competitive analysis within the treasury group at Bristol-Myers-Squibb Company.
He holds an MBA from Cornell University and a B.S. degree from State University
of New York-Buffalo. During 2006 through February 2007, Mr. Kraws served as our
Vice President of Business Development, on a part-time basis.
Mr. Kraws
brings a strong business background to Adeona, having worked as a pharmaceutical
analyst for over 22 years. Mr. Kraws brings to the Board significant
strategic, business and financial experience related to the business and
financial issues facing pharmaceutical companies. Mr. Kraws has a broad
understanding of the operational, financial and strategic issues facing
pharmaceutical companies. Through his services as Adeona’s Vice President
of Business Development during 2006 and a part of 2007, he developed extensive
knowledge of Adeona’s business.
JEFF RILEY Mr. Riley has been
a director since March 16, 2010. Since November 2009, Mr. Riley has served as
the Managing Director of Black Crow Ventures, a life science-focused consulting
firm with a commercial and transactional focus. He sits on the advisory boards
of an Australia-based venture fund (Queensland Biocapital Fund) and Ruga
Corporation, a Stanford University spin-out drug discovery company focused on
endoplasmic reticulum stress targets. Mr. Riley has held senior corporate and
commercial development positions with biotech companies Amphora Discovery,
Ontogen Corporation, and AvMax. In these positions, he was responsible for
raising equity and negotiating alliances including in-licensing, out-licensing,
distribution agreements, technology acquisitions and research agreements with
large pharmaceutical companies and government agencies. Mr. Riley's
pharmaceutical experience includes commercial management and mergers and
acquisition roles for Pfizer and SmithKline Beecham. Additionally, Mr. Riley
served as CFO and VP Corporate Development for Nichols Institute Diagnostics, a
CLIA-certified molecular diagnostics and reference lab, later acquired by Quest
Diagnostics. Prior to attending university, Mr. Riley served in the U.S.
Army.
Mr.
Riley brings to the Board extensive knowledge of the pharmaceutical industry.
Having served in senior corporate positions in biotech and pharmaceutical
companies he has a vast knowledge of the industry. His business
experience provides him with a broad understanding of the operational, financial
and strategic issues facing public companies.
United
States Securities and
Exchange
Commission
December
22, 2010
Page
6
JEFF WOLF, ESQ. Mr. Wolf has
substantial experience in creating, financing, nurturing and growing new
ventures based upon breakthrough research and technology. Mr. Wolf is the
founding partner of Seed-One Ventures, LLC, a venture capital group focused on
seed-stage technology-based investments. Mr. Wolf has been a founder of Elusys
Therapeutics, Inc., an antibody-based therapeutic company, Tyrx Pharma, Inc., a
biopolymer-based company, Sensatex, Inc., a medical device company and
Generation Mobile, Inc. a telecommunications company. Prior to founding Seed-One
Ventures, Mr. Wolf served as the Managing Director of The Castle Group, Ltd., a
biomedical venture capital firm. At both organizations, Mr. Wolf was responsible
for supervising the formation and funding of new technology, biomedical, and
service oriented ventures. Mr. Wolf currently sits on the board of Elusys
Therapeutics and Netli, Inc. Mr. Wolf received his MBA from Stanford Business
School, his JD from New York University School of Law and his BA with honors in
Economics from the University of Chicago.
Mr.
Wolf also has extensive knowledge of the industry and in particular research and
development. His legal and business background provide him with a
broad understanding of the legal, operational, financial and strategic issues
facing Adeona. Having served as a board member on other public
company boards, Mr. Wolf has an extensive understanding of the operational,
financial and strategic issues facing public companies.
Certain Relationships and
Related, Transactions and Director Independence, page 68
5.
|
Please
provide draft disclosure for future filings that discusses your policies
and procedures for reviewing and approving the related party transactions
that you discloser as required by Item 404(b) of Regulation
S-K.
|
Response: The following draft disclosure will
be added to future filings: “Pursuant to its charter, the Company’s Audit
Committee, shall review on an on-going basis for potential conflicts of
interest, and approve if appropriate, all “Related Party Transactions” of the
Company as required by Section 120 of the NYSE Amex Company Guide. For purposes
of the Audit Committee Charter, “Related Party Transactions” shall mean those
transactions required to be disclosed pursuant to SEC Regulation S-K, Item
404.
Signatures, page
74
6.
|
Please
amend your filing to include the signature of your Principal Accounting
Officer or Controller or, alternatively please tell us if one of the
persons already signing the Form. 10-K was acting in that capacity and
confirm that you will identify that person as such in future
filings.
|
Response:
Dr. James Kuo is also the Principal Accounting Officer. We will
identify him as such in future filings.
United
States Securities and
Exchange
Commission
December
22, 2010
Page
7
Form 10-Q for the Interim
Period Ended June 30. 2010
Note 2. Basis of
Presentation
Revenue Recognition. page
7
|
7.
|
Please
tell us why it is appropriate to immediately recognize the entire $2.125
million upfront payment received from Meda AB of Sweden (Meda) in the
quarter ended June 30, 2010. Also, tell us what continuing involvement or
obligations you have to Meda in accordance with your Sublicense Agreement
and how your accounting for each of the deliverables in this agreement is
in accordance with ASC 605-10.
|
Response: We
believe it is appropriate to immediately recognize the entire $2,125 million
upfront payment received from Meda in the quarter ended June 30, 2010, since
there were no required milestones to be achieved in connection with our
agreement with Meda. Payment was received upon execution of the
agreement and is non-refundable, additionally, we have no future commitments or
obligations to perform under the terms of the agreement as it pertains to this
upfront payment..
In
accordance with 605-28, the Company does not have milestones as
defined. In addition, there are no future deliverables, and the
payment that was received is non-refundable.
Finally,
under SEC Staff Accounting Bulletin Topic 13A-1, we believe that we have
complied with the guidance, and that the realization and recognition of revenue
in June 2010 reflects both the form and substance of the
transaction.
There
are two future milestone payments that the Company will receive from
Meda. Revenue will only be recorded by the Company once the
milestones have been achieved and payment has been received. These
milestones and payments are:
|
·
|
The Company will receive a $5
million payment upon the acceptance of Meda’s New Drug Application (NDA)
by the FDA.
|
|
·
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The Company will receive a $10
million payment upon the approval of the Meda’s NDA by the
FDA.
|
The
Company has no continuing involvement or obligations to Meda.
These
future payments are similar in nature to the first payment, and the prior
discussion is applicable in the case of these potential future revenue
recognition events. The Company believes there are no deliverables as the
literature defines.
United
States Securities and
Exchange
Commission
December
22, 2010
Page
8
Revenue
Recognition
8.
|
Please
provide us draft disclosure for future filings of your revenue recognition
policy to specifically disclose your accounting policy for each
deliverable included in your license agreements, including up-front fees,
milestone payments and royalties.
|
Response: Currently,
our only license agreement that generates revenue is with Meda.
The
Company records revenue when all of the following have occurred: (1) persuasive
evidence of an arrangement exists, (2) the service is completed without further
obligation, (3) the sales price to the customer is fixed or determinable, and
(4) collectability is reasonably assuredThe Company recognizes milestone
payments or upfront payments that have no contingencies as revenue when payment
is received. The Company has two streams of revenue, license revenue
and laboratory revenue.
On
May 6, 2010, the Company entered into a Sublicense Agreement (the “Meda
Agreement”) with Meda AB of Sweden (“Meda”) for the development and
commercialization of Effirma (flupirtine) for fibromyalgia. As
consideration for the sublicense, the Company received an up-front payment of
$2.5 million upon execution of the Meda Agreement. This payment was recorded as
license revenue in June 2010. Pursuant to the Company’s license agreement with
McLean Hospital, the Company paid 15% of the $2.5 million payment ($375,000) to
McLean Hospital. The payment to McLean Hospital was netted against
the revenues received from Meda AB for financial statement
purposes. The Company is also entitled to additional milestone
payments of $5 million upon filing of a New Drug Application with the United
States Food and Drug Administration for flupirtine for fibromyalgia and $10
million upon marketing approval. The Meda Agreement also provides that the
Company is entitled to receive net royalties of 7% of net sales of flupirtine
approved for the treatment of fibromyalgia covered by issued patent claims in
the United States and Japan. The Meda Agreement provides that Meda AB
will assume all future development costs for the commercialization of flupirtine
for fibromyalgia. Pursuant to the terms of the Company’s agreement with McLean
Hospital, the Company is obligated to pay them half of the royalties the Company
receives. Future milestone payments will be recorded as revenue when
payment is received as there are no future deliverables, and it is
non-refundable.We will make similar disclosure for any future license
agreements.
We
acknowledge that the adequacy and accuracy of the disclosure in our filings is
our responsibility. We acknowledge that the staff comments or changes
to disclosure do not foreclose the Commission from taking any action with
respect to the filings. We acknowledge that the company may not
assert staff comments as a defense in any proceedings initiated by the
Commission or any person under the federal securities laws of the United
States.
United
States Securities and
Exchange
Commission
December
22, 2010
Page
9
If you
have any questions or need additional information, please contact the
undersigned at (212) 907-4657.
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Sincerely,
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|
|
|
/s/
Leslie
Marlow |
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Leslie
Marlow
|
LM:ckg
Enclosures
cc: Adeona
Pharmaceuticals, Inc.