Cortex Says Drug Due for Clinical Testing : Pharmaceuticals: The start-up company cuts its losses by 40% and says it expects to break even ‘over the next couple of years.’

IRVINE — Cortex Pharmaceuticals Inc., a start-up company developing a drug to reduce brain-cell damage in stroke and head-injury victims, said Wednesday that it expects clinical testing to begin by next year.

The drug “is basically on its way” to the U.S. Food and Drug Administration for approval, said Scott Hagen, chief financial officer. “It will be going to human testing.”

The small firm, which went public on the over-the-counter market in July, 1989, said Wednesday it lost $393,765, or 3 cents a share, for its third fiscal quarter, which ended March 31. That compared with a loss of $657,081, or 5 cents a share, in the same period last year.

The company has had no sales revenue since it was founded.

For the first nine months of its current fiscal year, Cortex reduced its loss by 40%.

As the company acquires more research and development funding from other pharmaceutical companies and human testing begins on the drug, Hagen said, it will suffer fewer losses.

“We do expect the losses to continue to decline,” he said. “We expect to break even over the next couple of years.”

Third-quarter revenue from interest and grants totaled $523,781, the company reported.

Third-quarter revenue for 1991 was $3,632.

Cortex received the first $500,000 installment of a $4.5-million grant to be funded over the next two years by Alkermes, a Cambridge, Mass., pharmaceutical developer, Hagen said.

For the nine months ended March 31, the company posted a loss of $1.94 million, or 13 cents a share, compared to a loss of $1.75 million for the same period in 1991.

Kenneth Pounds, a stock analyst for Nutmeg Securities Ltd. of Westport, Conn., said that he is generally conservative about start-up companies such as Cortex.

“I have a ‘hold’ on most biotech stocks right now,” Pounds said.

He said that although Cortex’s technology seems solid and its prospects appear good, the company’s perennial cash problem does not make it a good investment unless it can assure prospective stockholders that FDA approvals are imminent.

But assurances can be a two-edged sword. CytoCare Inc., for instance, was mired for years in legal troubles after disgruntled stockholders sued the company for what they alleged were misleading statements about federal approvals for a machine that would have pulverized gallstones.

The FDA eventually rejected CytoCare’s application for approval of a kidney stone machine to be used for gallstone removal, and the company’s stock plummeted.

The suit was recently thrown out by a federal judge who said the stockholders did not provide sufficient evidence of company wrongdoing.

Hagen said Cortex, founded by three UC Irvine neuroscientists, is also developing a drug to fight the effects of Alzheimer’s disease.

Pounds said that “given Cortex’s stage of development and the number of shares outstanding, the stock is trading at a pretty fair price.”

Cortex’s stock closed on the over-the-counter market Wednesday at $2.75 a share, down 12 cents.

“If someone wanted to have a speculative part of their portfolio,” Pounds said, “Cortex would be suitable, but this isn’t a stock to hang your hat on. I’m not disparaging the technology of the company--it has good technology.”