CAPR

Business Context and Reporting Period

Company: Nile Therapeutics, Inc. (formerly SMI Products, Inc.)
Filing Type: Form 10-K (Annual Report)
Period Ended: December 31, 2009
Business Overview: Nile is a development-stage biopharmaceutical company focused on cardiovascular diseases. It holds rights to two primary product candidates: CD-NP, a chimeric natriuretic peptide in Phase II clinical trials for acute decompensated heart failure (ADHF), and CU-NP, a pre-clinical natriuretic peptide. The company discontinued its 2NTX-99 program in January 2009 to focus resources on its natriuretic peptide franchise.

Key Financial Metrics

Note: The company has no product revenue and has incurred an accumulated deficit of approximately $33.9 million since inception (August 2005).

Material Changes vs. Prior Period

• Expense Reduction: Total operating expenses decreased by approximately $5.5 million year-over-year. R&D expenses dropped significantly ($5.0 million decrease) due to the termination of the 2NTX-99 program, a reduction in clinical trial activity (one ongoing trial in 2009 vs. two in 2008), and a shift to outsourcing R&D functions rather than maintaining internal staff.
• Financing Activity: In July 2009, the company completed a private placement raising approximately $3.37 million in gross proceeds through the sale of common stock and warrants. This contrasts with no financing activity in 2008.
• Cash Position: Cash reserves declined from $5.5 million to $3.2 million, reflecting continued operating losses despite the new financing.
• Stock Price Volatility: The stock price ranged from a low of $0.25 to a high of $2.30 in 2009, compared to a range of $0.27 to $5.51 in 2008.

Guidance, Outlook, and Risks

Outlook and Guidance:

• CD-NP Clinical Trial: The company is conducting a Phase II study for CD-NP. Enrollment was suspended briefly due to larger-than-predicted blood pressure decreases but resumed with protocol amendments. As of March 1, 2010, 30 subjects had been dosed. Full results are expected in the second half of 2010.
• Capital Runway: Management estimates current resources are sufficient to fund operations through the end of the third quarter of 2010. Substantial additional capital will be required to complete the Phase II study analysis and initiate a subsequent Phase IIb trial.
• CU-NP Development: Pre-clinical studies for chronic administration formulations are ongoing, with in vivo pharmacological studies expected in 2010.

• Liquidity Risk: The company has a history of net losses and expects to continue incurring losses. It has no committed sources of financing and may be unable to raise additional capital on acceptable terms, potentially forcing a curtailment of operations.
• Clinical Risk: Success depends entirely on the results of the CD-NP Phase II trial. Failure to demonstrate safety or efficacy would likely result in the cessation of operations.
• Regulatory Risk: The FDA previously placed a clinical hold on the CD-NP program in March 2009, which was lifted in May 2009. Future regulatory hurdles could delay or prevent approval.
• Going Concern: The independent auditors have included an explanatory paragraph regarding the company's ability to continue as a going concern due to recurring losses and the need for additional financing.

Investor Verification Checklist

• Cash Burn Rate: Verify the accuracy of the "third quarter of 2010" runway estimate given the company's history of cost overruns and the potential need for additional cohorts in the Phase II trial.
• Phase II Trial Status: Confirm the current enrollment numbers and safety data for the CD-NP trial, specifically regarding the blood pressure issues that caused the initial suspension.
• Financing Plans: Assess the likelihood of securing the "substantial additional capital" required for a Phase IIb trial, considering the current market conditions for biotech IPOs and private placements.
• Related Party Transactions: Review the services agreement with Two River Consulting, LLC (owned by directors/officers) and the placement agent fees paid to Riverbank Capital Securities (controlled by directors) to ensure terms are arm's length.
• Intellectual Property: Confirm the status of the license agreements with the Mayo Foundation, specifically the milestone payment obligations (up to $31.9 million for CD-NP and $24.3 million for CU-NP) and patent expiration dates.